2019 Financial Services Tax ConferenceJuly 18, 2019___________

tax.kpmg.us

Banking & Capital Markets

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The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

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Today’s Presenters

Name Title Firm/Company NameDavid Reavy Banking & Capital Markets National Sector Leader KPMG

Mark Price Banking & Capital Markets Tax Industry Leader KPMG

Bill McNairy Senior Vice President, Corporate Tax Executive Bank of America

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The industry landscape – and the path ahead

Banks’ are urgently investing to

improve customer experience and reduce costs.

Many banks are highly profitable,

and most are performing well.

We believe 10 “change drivers’’

define the transformational

journey.

Any success in real transformation hinges on banks having the right mix of people,

talent, and the capacity to accept

change.

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The state of the industry is strong, but risks exist

… “The banking industry reported another positive quarter. Growth in net income was mainly attributable to higher net interest income. “Net interest margins improved, asset quality indicators remained stable, and the number of ‘problem banks’ continued to decline.’’ But, “with a historically low interest-rate environment and strong competition to attract lending, some institutions have ‘reached for yield,’ which limited net interest margin expansion. “With the recent stabilization of interest rate hikes, some institutions may face new challenges in lending and funding. Therefore, banks must maintain prudent risk management in order to support lending through this economic cycle.”

— FDIC Chairman Jelena McWilliams (May 2019)

OCC’s Top Risks OCC’s Risks Being Monitored

Credit

Interest Rate

Operational

Compliance

Agricultural Debt

CECL Implementation

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Management teams at financial institutions are challenged by

Despite the industry’s improved performance …

Continuing pressure to reduce expenses

Maintaining or growing non-interest revenue

Expanding net interest margin (NIM) as rates rise

Preparing for credit cycle change

Optimizing their effective tax rate in the aftermath of tax reform

Evolving (and generally rising) customer experience expectations

Banks are transforming to meet these challenges and improve their financial performance. We discuss the primary drivers of change in this transformation effort in the next section.

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Top 10 Banking Drivers

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Top 10 drivers of change in banking

RegulationUncertainty surrounding a complex and inter-connected global issue

Evolving infrastructure(Tax Reform, LIBOR, CECL)

Economic shifts/geopoliticsUncertainty related to economical and geopolitical developments; demographic shifts; credit cycle changes, and rising interest rates

Business model re-freshM&A, divestures & other organizational changes to transform, achieve scale, and meet customer goals

Digital transformationDigital labor, artificial and cognitive intelligence, platform models, payments, talent, cloud, API/fintech ...and, more

CostImprove margins through unceasing focus on people, processes, and scale

Customer experienceOn-demand, customized products and service akin to Amazon

Data & analyticsAdroit management of data for product, service, and strategic-planning purposes

Disruptive technologiesDisruptive technologies, such as blockchain, are driving change in the industry

CyberConstant and growing threat to the business and its customers

People/talent/culture permeate all 10

Talent management: leading millennials, skill evolution (e.g., I.A. and D&A), and building the right culture.

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Top 10 Priories for Tax Departments

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10 priorities for bank tax departments

Developing the tax team to deliver resultsAchieving an effective resource model which considers the right mix of skills and appropriate leverage to service providers.

Harnessing data for more effective forecastingObtaining new data (with improved extraction methods) to accurately model the impact of tax law changes on thebusiness.

Driving efficiency with new technologyImproving new and current technology to reduce manual tasks and improve accuracy across tax processes.

Maintaining a strong governance modelIncreasing visibility and governance over tax processes through a combination of technology solutions, powerful analytics, and the right team.

Assessing tax implications for M&A transactionsM&A deals should consider new tax due diligence requirements and potential international tax restructuring opportunities.

Controlling tax risk managed outside the taxdepartmentEvolving tax requirements may create new tax-related risks that have historically been handled outside of corporate tax (e.g., information reporting, indirecttax).

Balancing priorities is critical

to achievingsuccess

Evaluating tax incentive opportunities Evaluating new Qualified Opportunity Zone investments and the impact of tax law changes on tax credit investments (e.g., LIHTC, NMTC, HTC) be key to improving returns.

Reimagining the tax departmentAligning tax department strategy with enterprise objectives Creating an effective strategy to align the tax department’s goals and objectives with the overall enterprise.

Driving business valueCorporate tax planning in a post-tax reform environment Reduced tax capacity as a result of the lower corporate rate may change the way tax planning is viewed in a post-tax reform environment.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

Communicating tax law developments to stakeholdersCommunicating continued impacts of tax law changes to internal and external stakeholders be critical as new guidance is released.

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Thank you

© 2019 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. NDPPS 834883

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.

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Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.