AMSTERDAM: A “crisis tax” proposed by the Obama administration would cut substantially into bank earnings across Europe and could sidetrack the sector’s recovery, analysts and industry officials said on Friday.
While there is little clarity over the practical effect of the levy, many questioned its fairness given that the European banks it would affect did not get bailouts in the United States and lack many of the guarantees their US competitors received.
Under the proposal made on Thursday, financial institutions with balance sheets above $50 billion would be assessed a fee equal to 0.15 percent of certain assets. About 15 international firms fall under that umbrella.
Europe’s three biggest economies were quick to distance themselves from the proposal. German Chancellor Angela Merkel said she favored a financial transaction tax, Britain said the problems in the United States were uniquely its own, and France said a tax on bonuses was the most efficient response for it.
Deutsche Bank was named as likely to be one of the European banks most affected, given its US exposure. “The tax will fully hit annual profits,” Merck Finck analyst Konrad Becker said, adding he calculated Germany’s largest bank had to brace for a tax of more than $550 million.
Morgan Stanley estimated the fee could eat up 4 percent of Deutsche Bank’s 2012 earnings per share, 3 percent for British bank Barclays, and 2-3 percent for Swiss banks Credit Suisse and UBS.
President Barack Obama’s stated aim was to ensure the US taxpayer does not make a loss on the $700 billion Troubled Asset Relief Program (TARP) with a “Financial Crisis Responsibility Fee” that would be in place for at least 10 years.
While the long-term fallout could be acute, investors reacted calmly with major European banks stocks down 1.0-1.3 percent in a flat broader market at 1330 GMT.