Exclusive: U.S. consumer watchdog seeks record fine against Wells Fargo for abuses

WASHINGTON (Reuters) – The U.S. consumer watchdog is seeking a record fine against Wells Fargo Co for auto insurance and mortgage lending abuses that could exceed several hundred million dollars, according to three sources with knowledge of the plans.

FILE PHOTO: The sign outside the Wells Fargo Co. bank in downtown Denver April 13, 2016. REUTERS/Rick Wilking

The penalty would be the first issued by Mick Mulvaney, who U.S. President Donald Trump tapped in November to head the Consumer Financial Protection Bureau (CFPB). The fine would fulfill the president’s vow to hit the country’s third-largest lender hard.

Mulvaney is eyeing a penalty that would dwarf the $100 million the CFPB fined Wells Fargo in September 2016 to settle its phony accounts scandal, said two sources familiar with the talks. That 2016 fine had been the CFPB’s largest ever.

Settlement terms have not been finalized but Mulvaney is pushing for a figure as high as $1 billion, said two people with knowledge of the discussions.

The Office of the Comptroller of the Currency and Wells Fargo declined to comment. A spokesman for the CFPB did not respond to a request for comment.

Reporting By Patrick Rucker; Editing by Michelle Price and Meredith Mazzilli

Viacom asks CBS to raise its bid by $2.8 billion: sources

(Reuters) – Viacom Inc (VIAB.O) has asked CBS Corp (CBS.N) to sweeten its merger bid by about $2.8 billion, or almost a quarter more than CBS’s offer, three people familiar with the matter said, indicating the wide gap in the U.S. media companies’ price expectations.

The Viacom logo is displayed on the doors of a building in midtown Manhattan in New York, U.S., February 27, 2018. REUTERS/Lucas Jackson

National Amusements Inc, the Redstone family company that controls CBS and Viacom, has pushed them to negotiate a merger by forming independent board committees. Viacom’s request shows how the companies have yet to make progress in their talks.

In a letter to CBS last week, Viacom asked for 0.68 CBS shares for each Viacom class B share, the sources said. CBS had offered 0.55 of its shares for each Viacom class B share, sources have said.

CBS is now considering its next steps in the deal negotiations, said the sources, who asked not to be identified because Viacom’s request is confidential.

CBS and Viacom declined to comment.

Shares of CBS were trading around $52.67 on Monday morning, while Viacom shares were trading around $30.75.

At CBS’s proposed share exchange ratio of 0.55, Viacom would be valued at $11.9 billion, below its current market capitalization of $12.7 billion. Viacom’s counterproposal values the company at $14.7 billion.

Viacom shares have risen by about a third since early November on speculation of new efforts to merge CBS with Viacom, after the previous round of negotiations in 2016 ended unsuccessfully.

In its letter to CBS last week, Viacom also asked for its Chief Executive Robert Bakish to be president and chief operating officer of the combined company, a demand supported by National Amusements, according to the sources.

CBS has asked for its chief operating officer, Joseph Ianniello, to have that role instead, the sources said.

Both CBS and Viacom agree that CBS CEO Les Moonves should lead the combined company, according to the sources.

Viacom said on Monday it would report quarterly earnings on April 25, a departure from its standard practice of reporting earnings in the first week of May alongside CBS, which is scheduled to report its earnings on May 3.

Viacom decided to push forward its earnings announcement date because it believes it has strong numbers to unveil that will boost its negotiating leverage in the merger talks with CBS, two of the sources said.

The merger would combine CBS’ television network, local TV stations and Showtime cable network with Viacom’s cable networks, including MTV, Comedy Central and Nickelodeon, as well as its Paramount Pictures film studio.

The pressure on the media sector to consolidate has increased following ATT Inc’s (T.N) planned $85.4 billion acquisition of Time Warner Inc (TWX.N) and Walt Disney Co’s (DIS.N) recent deal to buy some Twenty-First Century Fox Inc’s (FOXA.O) assets for $52.4 billion.

Combined, CBS and Viacom would have more leverage to negotiate prices for their programming with U.S. cable and satellite companies, which face a decline in subscribers amid fierce competition from media streaming companies like Netflix Inc (NFLX.O).

CBS investors may be worried that the work to combine the two companies could slow CBS’ growth trajectory, said John Janedis, an analyst at Jefferies.

Reporting by Greg Roumeliotis and Jessica Toonkel in New York; Editing by Meredith Mazzilli and Rosalba O’Brien

Merck’s Keytruda helps lung cancer patients live longer in trial

(Reuters) – Merck Co’s (MRK.N) blockbuster drug Keytruda helped previously untreated lung cancer patients live longer in a late-stage trial, potentially cementing its position as the dominant player in the lucrative lung cancer market.

Merck’s cancer drug Keytruda. REUTERS/via Merck

Shares of the drugmaker were up 3.1 percent at $55.07.

Merck is already considered the frontrunner in the space and Keytruda is expected to earn peak sales of over $10 billion in 2023, according to Credit Suisse.

Keytruda is already approved in the U.S. to treat patients with non-small cell lung cancer (NSCLC) who have not received prior therapies and whose tumors show PD-L1 protein levels of 50 percent or greater.

If the company can show that the new data benefits patients whose PD-L1 expression is between 1 and 49 percent, it would expand Keytruda’s market and raise the competitive benchmark for rivals Bristol-Myers Squibb (BMY.N) and AstraZeneca Plc (AZN.L), BMO Capital Markets analyst Alex Arfaei said.

An independent data monitoring committee determined the trial, which tested Keytruda as a monotherapy to treat NSCLC, extended the lives of patients significantly compared to chemotherapy.

Additional data from Merck, as well as results from trials of competitors, could eventually determine which companies will snatch the largest slice of the pie for the lung cancer market.

“I think the market still believes that there could be other players in the lung cancer market, which would combat overall sales of Keytruda in this setting,” Guggenheim Securities analyst Tony Butler told Reuters.

“Because we don’t know the full data set we don’t know the survival benefit here.”

Based on a recommendation from the committee, the trial will continue to evaluate a secondary goal on whether the treatment can delay the disease from progressing.

“While it is still unclear whether Keytruda and (Bristol-Myers’) Opdivo are truly different in some way, it is crystal clear that Merck has done a much better job designing trials and developing their drug. This will solidify their lead,” said Brad Loncar, chief executive officer of Loncar Investments, which runs the Loncar Cancer Immunotherapy ETF.

Keytruda, which is approved to treat several other forms of cancer including skin and blood cancer, racked up $3.81 billion in revenue in 2017.

Lung cancer is the second most common cancer and is expected to kill over 154,000 people this year, the American Cancer Society says. NSCLC accounts for about 85 percent of all lung cancer cases, Merck said.

Shares of Bristol-Myers fell 2.3 percent to $59.43.

Reporting by Tamara Mathias in Bengaluru; Additional reporting by Michael Erman in New York; Editing by Sriraj Kalluvila, Bernard Orr

Wall Street higher as tech stocks gain, trade war worries ebb

(Reuters) – The Dow Jones Industrial Average and the SP rose more than 1 percent, while the Nasdaq added 2 percent on Monday as strength in technology shares and a softer stance by U.S. policymakers on China trade tariffs powered a rebound from last week’s selloff.

FILE PHOTO – Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 29, 2018. REUTERS/Brendan McDermid

Ten of the 11 major SP sectors were higher and 27 of the 30 Dow components were in the positive territory. Goldman Sachs (GS.N) was the biggest boost to the Dow, while gains in Apple shares (AAPL.O) led the SP 500.

The FANG group, comprising four closely watched internet stocks: Facebook Inc (FB.O), Amazon.com Inc (AMZN.O), Netflix Inc (NFLX.O) and Alphabet Inc’s Google (GOOGL.O), were up between 1.6 percent and 3.1 percent.

Earlier in the day, U.S. President Donald Trump’s economic adviser Larry Kudlow told CNBC the president may be open to forming an international coalition to grapple with Chinese trade issues.

“The president is amenable to that. He’s not necessarily out soliciting support yet, but he is amenable,” Kudlow said.

Investors will look for comments from Chinese President Xi Jinping, who is set to speak at the Boao Forum on Tuesday.

Global markets came under pressure last week as the United States and China threatened each other with tens of billions worth of tariffs.

The week also marks the start of earnings season with big U.S. banks such as JPMorgan Chase (JPM.N), Citigroup (C.N) and Wells Fargo (WFC.N) set to report first-quarter results on Friday.

Investors expect tax cuts to help corporate America show its biggest quarterly profit growth in seven years.

“Today the markets are looking positive as a probable healthy earnings helped by the recent tax benefits and a strong economy acts as a breath of fresh air,” said Andre Bakhos, Managing Director at New Vines Capital Llc In Bernardsville.

At 12:45 a.m. ET the Dow Jones industrial average .DJI was up 338.57 points, or 1.41 percent, at 24,271.33.

The SP 500 .SPX was up 39.24 points, or 1.51 percent, at 2,643.71 and the Nasdaq Composite .IXIC was up 139.35 points, or 2.02 percent, at 7,054.47. Among stocks, AveXis (AVXS.O) rose 81 percent after Swiss drugmaker Novartis (NOVN.S) offered to buy the gene therapy company for $8.7 billion.

Merck’s (MRK.N) shares rose 7.1 percent after the drugmaker’s blockbuster cancer drug, Keytruda, met the main study goal of helping previously untreated lung cancer patients live longer.

Shares of Leucadia National (LUK.N) jumped 13 percent after the company said it would sell most of its non-financial assets to focus on investment banking and capital market businesses.

General Motors (GM.N) was up 1.5 percent after Morgan Stanley raised it to “overweight”.

Advancing issues outnumbered decliners on the NYSE for a 2.27-to-1 ratio on the upside. On the Nasdaq, 2,009 issues rose and 829 fell for a 2.42-to-1 ratio favoring advancers.

The SP 500 index showed no new 52-week highs and three new lows, while the Nasdaq recorded 24 new highs and 29 new lows.

Reporting by Sweta Singh in Bengaluru, Additional reporting by Diptendu Lahiri; Editing by Arun Koyyur

CEO Zuckerberg says Facebook could have done more to prevent misuse

WASHINGTON (Reuters) – Facebook Inc Chief Executive Mark Zuckerberg told Congress on Monday that the social media network should have done more to prevent itself and its members’ data being misused and offered a broad apology to lawmakers.

His conciliatory tone precedes two days of Congressional hearings where Zuckerberg is set to answer questions about Facebook user data being improperly appropriated by a political consultancy and the role the network played in the U.S. 2016 election.

“We didn’t take a broad enough view of our responsibility, and that was a big mistake,” he said in remarks released by the U.S. House Energy and Commerce Committee on Monday. “It was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here.”

Zuckerberg, surrounded by tight security and wearing a dark suit and a purple tie rather than his trademark hoodie, was meeting with lawmakers on Capitol Hill on Monday ahead of his scheduled appearance before two Congressional committees on Tuesday and Wednesday.

Zuckerberg did not respond to questions as he entered and left a meeting with Senator Bill Nelson, the top Democrat on the Senate Commerce Committee. He is expected to meet Senator John Thune, the Commerce Committee’s Republican chairman, later in the day, among others.

Top of the agenda in the forthcoming hearings will be Facebook’s admission that the personal information of up to 87 million users, mostly in the United States, may have been improperly shared with political consultancy Cambridge Analytica.

But lawmakers are also expected to press him on a range of issues, including the 2016 election.

“It’s clear now that we didn’t do enough to prevent these tools from being used for harm…” his testimony continued. “That goes for fake news, foreign interference in elections, and hate speech, as well as developers and data privacy.”

Facebook, which has 2.1 billion monthly active users worldwide, said on Sunday it plans to begin on Monday telling users whose data may have been shared with Cambridge Analytica. The company’s data practices are under investigation by the U.S. Federal Trade Commission.

London-based Cambridge Analytica, which counts U.S. President Donald Trump’s 2016 campaign among its past clients, has disputed Facebook’s estimate of the number of affected users.

Zuckerberg also said that Facebook’s major investments in security “will significantly impact our profitability going forward.” Facebook shares were up 2 percent in midday trading.

Read the full testimony tmsnrt.rs/2IDTHwF


Facebook has about 15,000 people working on security and content review, rising to more than 20,000 by the end of 2018, Zuckerberg’s testimony said. “Protecting our community is more important than maximizing our profits,” he said.

As with other Silicon Valley companies, Facebook has been resistant to new laws governing its business, but on Friday it backed proposed legislation requiring social media sites to disclose the identities of buyers of online political campaign ads and introduced a new verification process for people buying “issue” ads, which do not endorse any candidate but have been used to exploit divisive subjects such as gun laws or police shootings.

The steps are designed to deter online information warfare and election meddling that U.S. authorities have accused Russia of pursuing, Zuckerberg said on Friday. Moscow has denied the allegations.

Zuckerberg’s testimony said the company was “too slow to spot and respond to Russian interference, and we’re working hard to get better.”

He vowed to make improvements, adding it would take time, but said he was “committed to getting it right.”

A Facebook official confirmed that the company had hired a team from the law firm WilmerHale and outside consultants to help prepare Zuckerberg for his testimony and how lawmakers may question him.

FILE PHOTO: Facebook CEO Mark Zuckerberg speaks on stage during the Facebook F8 conference in San Francisco, California, U.S., April 12, 2016. REUTERS/Stephen Lam/File Photo

Reporting by David Shepardson and Dustin Volz; Editing by Bill Rigby

Saudi Aramco looks to expand largest U.S. refinery

HOUSTON (Reuters) – Saudi Aramco IPO-ARMO.SE took the first steps toward expanding the largest U.S. refinery on Saturday, which is operated by its subsidiary Motiva Enterprises.

FILE PHOTO – Logo of Saudi Aramco is seen at the 20th Middle East Oil Gas Show and Conference (MOES 2017) in Manama, Bahrain, March 7, 2017. REUTERS/Hamad I Mohammed/File Photo

Aramco’s Chief Executive Amin Nasser signed agreements with Honeywell UOP, (HON.N) and Technip FMC (FTI.N) to study petrochemical production technology for use in a multi-billion-dollar chemical plant the company is considering building at the Port Arthur refinery.

“These agreements signal our plans for expansion into petrochemicals,” said Motiva’s Chief Executive Brian Coffman.

Coffman also said Motiva is evaluating boosting the 603,000 barrel-per-day (bpd) refinery’s capacity to 1 million or 1.5 million bpd, which would make it the largest in the world.

Saudi Arabia’s Crown Prince Mohammed bin Salman, who is finishing a two-week visit to the United States, Saudi Energy Minister Khalid al-Falih and U.S. Energy Secretary Rick Perry were present at the signing.

FILE PHOTO – Chief Executive Officer of ARAMCO, Amin Nasser speaks during an interview with REUTERS in Dhahran, Saudi Arabia, December 13, 2017. REUTERS/Hamad I Mohammed

The aromatics unit for which Honeywell UOP’s technology is being considered would convert benzene and paraxylene, byproducts of gasoline production, into 2 million tons annually of feedstocks for chemicals and plastics.

The Technip FMC technology would produce 2 million tons a year of ethylene, which is used to make plastics, Motiva said.

The final investment decision on the Port Arthur petrochemical plant is not expected until 2019, Motiva said in a statement.

Coffman did not provide a timeline for the possible expansion of the Port Arthur refinery’s crude oil processing capacity.

“That’s something we’re evaluating, we’re studying for in the future,” he said.

The 1.2-million bpd Reliance Industries (RELI.NS) refinery in Jamnagar, India, has the world’s largest crude oil processing capacity.

Aramco last year said it would invest $18 billion in Motiva to expand the refinery and move into petrochemical production.

Other U.S. companies, including Chevron Phillips Chemical Co – a joint venture of Chevron Corp (CVX.N) and Phillips 66 (PSX.N) – and Exxon Mobil Corp (XOM.N), have recently opened plants, like the one Motiva is considering, to process ethane into ethylene.

Chevron Phillips is considering building a second ethane cracker on the Gulf Coast of Texas.

The price tag for a large ethane cracker is typically over $6 billion, according to analysts. In addition to taking refining byproducts, ethane crackers provide hydrogen for refineries to use in making motor fuels.

Reporting by Erwin Seba; Editing by Sandra Maler

China’s state media urges U.S. industry to rally against Trump tariff threat

BEIJING (Reuters) – Chinese state media on Sunday called on industrial and commercial sectors in the United States to rally against President Donald Trump’s plans for an additional $100 billion in tariffs against Chinese goods.

Shipping containers and train wagons are seen at a port in Lianyungang, Jiangsu province, China April 6, 2018. REUTERS/Stringer

Trump threatened the extra tariffs after China last week imposed $3 billion of tariffs on U.S. fruits, nuts, wine and pork, just hours after the United States unveiled an initial $50 billion in tariffs on Chinese goods.

The tit-for-tat tariffs between the world’s two largest economies follows a U.S. finding that China was engaging in unfair trade practices in connection with intellectual property protections. China rejects the charge.

“We call on the international business community including the United States industrial and commercial circles to take prompt and effective measures and urge the U.S. government to correct its errors,” said state newspaper People’s Daily.

It also said that Chinese enterprises and industry will band together to support any government action against the tariffs.

China warned on Friday it was fully prepared to respond with a “fierce counter strike” of fresh trade measures if Trump imposes the additional $100 billion in tariffs.

China’s media, which is under strict control by authorities, has staunchly defended the country’s position, saying it is a victim of U.S. trade protectionism.

On Friday, China launched a World Trade Organization complaint against the United States, triggering a 60-day deadline for the two countries to settle the matter.

Reporting by Cate Cadell; Editing by Michael Perry

Deutsche Bank board to discuss CEO and make decision on Sunday

FRANKFURT (Reuters) – Deutsche Bank’s (DBKGn.DE) supervisory board intends to “take a decision” on Sunday after discussing John Cryan’s job at the helm of the bank, the German lender said late on Saturday.

Deutsche Bank building before the bank’s annual news conference in Frankfurt, Germany, February 2, 2018. REUTERS/Ralph Orlowski

In a brief statement, the bank confirmed earlier reports that Chairman Paul Achleitner had invited the supervisory board to an “update call”. Two people familiar with the matter told Reuters that a replacement for Cryan could be discussed at the meeting.

“Deutsche Bank’s Supervisory Board will have a discussion on the bank’s CEO position on Sunday evening,” the bank said. “It is planned to take a decision in this context on the same day.”

A representative for the bank was not immediately available to elaborate, but the two sources said earlier on Saturday that they could not rule out the possibility of a major announcement.

An external candidate to succeed Cryan was more likely than an internal candidate, one of the sources said.

Achleitner will act quickly to resolve the situation, said a third person who is a major investor in the bank, also speaking on condition of anonymity.

The Sunday discussion by the board follows two weeks of turmoil over the bank’s leadership.

Achleitner had initiated a search to replace Cryan, two people familiar with the matter told Reuters on March 27, following a flurry of negative headlines after the bank reported a third consecutive annual loss.

Deutsche Bank CEO John Cryan during the bank’s annual news conference in Frankfurt, Germany, February 2, 2018. REUTERS/Ralph Orlowski

Cryan, who has been in office less than three years, responded by writing a memo to staff in which he said he remained “absolutely committed” to the bank. But Achleitner stayed silent, to the chagrin of major investors seeking clarity.

In recent days, Achleitner has broken his silence and reached out to some major investors, according to two other people with knowledge of the matter.

Achleitner was criticized by two major investors this week over the bank’s performance and his handling of the search for a new chief executive.

The leadership debate underscores the continued fragility of the 148-year-old bank after speculation of a possible government bailout just over a year ago.


The debate also parallels concern about the path forward for Deutsche’s investment bank, whose swift expansion in the years leading up to the financial crisis is blamed for many of the bank’s current woes.

Revenue at the investment bank in 2017 was down 25 percent compared with 2015, a steeper fall than those suffered by its competitors. The division employed more than 41,000 staff at the end of 2017, up 4 percent from 2015, but key staff have left.

Cryan is conducting a global review of the investment bank, known internally as Project Colombo, a person with direct knowledge of the matter has said.

Cryan, the son of a jazz musician, is married into the wealthy Du Pont family of the United States. He was appointed to the helm of Deutsche in 2015 to overhaul the bank after years of rapid growth under investment bankers.

But his tumultuous tenure as CEO highlights many of the bank’s underlying issues.

Early on, Cryan quickly announced thousands of job cuts to trim costs but reversed the bank’s plans to sell its Postbank retail unit after tepid interest from buyers.

Meanwhile, the bank announced earlier this year that it would post its third consecutive annual loss for 2017.

The German government and some of the nation’s most senior politicians criticized Cryan for paying 2.3 billion euros ($2.82 billion) in staff bonuses despite those losses, four times higher than the previous year.

One board member, Kim Hammonds, told leadership at a recent meeting that the bank was “the most dysfunctional company” she had ever worked for, according to a person with direct knowledge of the matter.

Over the past weeks, a number of names have surfaced in the media as possible replacements for Cryan. But some analysts wonder whether anyone would be able to do a better job on turning the bank around.

“There has been actually a disciplined execution in a tough environment by this team,” said Peter Nerby, who analyses the bank for Moody’s. “I wonder if anyone really has a better way to get there. It’s not obvious to me what that way would be.”

($1 = 0.8143 euros)

Reporting by Tom Sims and Hans Seidenstuecker; additional reporting by Christoph Steitz and Oliver Hirt; editing by Jason Neely and Daniel Wallis

Fed’s Evans says he’s optimistic on inflation, wants rate hikes

CHICAGO (Reuters) – Chicago Federal Reserve Bank President Charles Evans, one of the Fed’s most dovish policymakers, said Saturday that he is optimistic inflation will reach the Fed’s 2 percent goal and that slow, gradual rate increases will be appropriate.

FILE PHOTO: Charles Evans, president of the Federal Reserve Bank of Chicago, poses for a photo in Palm Beach, Florida, U.S. January 17, 2018. REUTERS/Ann Saphir/File Photo

“Fiscal policy has been much more supportive of further growth and so the need for accommodative monetary policy is less than it was before,” Evans told reporters in comments after a talk at the University of Chicago Graduate China Forum.

The Fed next meets to set policy in June. If it remains on track for 2 percent, and inflation expectations rise, “continuing our slow, gradual increases will be appropriate to get us to the point where monetary policy isn’t really providing more lift to the economy.”

Evans comments on Saturday are notable because they suggest that one of the Fed’s most outspoken rate-hike skeptics backs further hikes even as worries about a potential trade war roil global equities markets.

China warned on Friday it was fully prepared to respond with a “fierce counter strike” of fresh measures if the United States follows through on President Donald Trump’s threat to slap tariffs on an additional $100 billion of Chinese goods.

Asked about the effect of the trade conflict on his rate-hike view, Evans suggested that while he is mindful of the potential impact and sees stable and predictable trade policy as supportive for business, it is too soon to see anything in the data.

“Even the fiscal policy effects are mostly in the future,” he said.

In December, Evans cast one of two votes against the Fed’s decision to raise rates, saying he wanted to give the economy more time to rev up and lift inflation and inflation expectations, which continued to linger below the Fed’s target even as unemployment dropped to levels not seen in 17 years.

Saying he would be surprised if inflation did not reach the Fed’s goal, given the “very strong” national economy and labor market, Evans suggested he would be on board with the three or four rate hikes for this year that most of his colleagues expect.

“I am optimistic that we are going get to 2 percent; it would be surprising if we didn’t, I just want to make sure we do,” he said. “In that environment, a gradual increase in our interest rate range objectives is appropriate.”

Reporting by Tom Polansek, writing by Ann Saphir, Editing by Franklin Paul

High stakes, high expectations as earnings season heats up

NEW YORK (Reuters) – The rockiest U.S. stock market in two years will meet a major test in the coming weeks as first-quarter earnings pour in, with expectations that tax cuts will help Corporate America show its biggest quarterly profit growth in seven years. Any disappointments could further upset the fragile market.

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 29, 2018. REUTERS/Brendan McDermid

Hopes among stock investors are running high for corporate earnings season, which kicks off in earnest on Thursday and Friday with reports from several large financial institutions including BlackRock (BLK.N) and JP Morgan (JPM.N).

Investors have counted on corporate profits to provide bedrock support as the market endured sharp swings in recent weeks over concerns about a trade war with China and tougher regulations for high-flying technology companies.

The SP 500 .SPX has recovered some after swooning more than 10 percent in February from its Jan. 26 record high, confirming a market correction for the first time in just over two years. The benchmark index remains more than 7 percent off its all-time peak.

“There is an awful lot of pressure for corporate profits in this first quarter and especially the guidance the companies are going to give to really get this market back on its upward track,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

Analysts expect SP 500 profits to rise 18.4 percent in the first quarter, according to Thomson Reuters I/B/E/S, the first full quarter since passage of President Donald Trump’s tax cuts, which slashed the corporate tax rate to 21 percent from 35 percent. That would be the biggest profit rise since the first quarter of 2011.

Credit Suisse analysts calculated that more than one third of that growth in the first quarter can be attributed to tax benefits.

(GRAPHIC: Big first quarter seen for Corporate America – reut.rs/2q8lxdE)

Given the tendency of companies to report results above Wall Street estimates, those numbers might be expected to come in even higher. For example, first-quarter profits should rise by 24 percent if results achieve the median out-performance of the past eight quarters, according to Thomson Reuters analyst David Aurelio.

“A downside risk is that everyone is hoping for the earnings to come through and that is really a main pillar for the bull case,” said Keith Lerner, chief market strategist with SunTrust Advisory Services in Atlanta. “And if earnings surprise to the downside then you have to say, what is the bull case hanging onto at this point?”

Expectations for first quarter profits have risen from an expectation of 12.2 percent growth on Jan. 1 to 18.4 percent now, an increase of 6.2 percentage points as analysts have factored in the new tax law.

That is unusual: In general, estimates decline by about 4 percentage points from the start of a quarter to the beginning of earnings season, according to Thomson Reuters data, which strategists say tends to help companies to post earnings “beats” when they ultimately report results.

“The expectation bar is a little bit higher this quarter because you didn’t see that cut ahead of time,” Lerner said.

The very early returns indicate first-quarter results show similar positive surprises to past quarters. Of 23 SP 500 companies reported so far, 74 percent have reported profits ahead of estimates, according to Thomson Reuters data.

Historically, 64 percent of companies beat estimates in a quarter. More recently, performance versus expectations has been better: over the past four quarters, 75 percent of companies beat earnings estimates.

Seven more SP 500 companies are expected to report next week including BlackRock, which is the world’s largest asset manager, and three big banks: JP Morgan, Citigroup (C.N) and Wells Fargo (WFC.N). More than 60 SP 500 reports are due the following week.

One cushion for investors is that stocks are generally trading at less expensive valuations following the market’s slide. The SP 500 recently traded at 16.3 times earnings estimates for the next 12 months, down from 18.6 times in January, according to Thomson Reuters Datastream.

SP 500 companies are expected to increase profits by 19.7 percent in 2018, which would be the biggest annual rise since 2010. In their quarterly reports, corporate executives will give forecasts or insight into prospects for the year. Some strategists said recent policy and market turbulence could lead companies to temper their views.

“Given the uncertainty that is in the market, especially regarding trade and potential tech regulation, we could see management teams be a little more cautious,” said Lindsey Bell, investment strategist at CFRA Research in New York.

Reporting by Lewis Krauskopf; Editing by David Gregorio