Jim’s Mailbox

Posted at 8:58 AM (CST) by & filed under Jim's Mailbox.

Jim,

Take a look at the following.

Kind regards,
CIGA Pedro

Dear Pedro,

.02 to .05 tax (confiscation) of Spanish deposits. That is a face saving considered in Spain at the behest of the IMF?

That is an insignificant token move.

Jim

Sector News
Spanish Banks: A new tax on deposits?

• A new tax on deposits? The Finance Minister said yesterday in the Senate that the Government will impose a tax on bank deposits. According to press sources citing the Finance Minister, the levy would reach a maximum of 0.3% of time deposits. This tax would be approved by a Royal Decree.
• The conflict with the regional governments. The Government announced late in 2012 that it was considering imposing a zero tax rate on bank deposits with the aim of preventing some regional governments (Extremadura, Andalusia, the Canary Islands, Asturias and Catalonia) from unilaterally taxing regional bank deposits (at 0.2-0.5% over regional deposits), as was recently approved by the Constitutional Court. However, the Central Government is obliged to compensate the regional governments for the lost revenues if it cancels a regional tax, and thus it would become a deficit for the Central Government. On the other hand, regional governments cannot impose a regional tax if it is already effective at the national level. In this context, it seems that the Government has now decided to impose such a tax at the national level with the double objective of: 1) raising funds to compensate those regions which had already approved the tax, and thus avoid new fiscal deficit generation; and 2) trying to gain political points from having imposed a tax on the banking sector in a context in which the sector has been recapitalized with taxpayer funds.
• Who pays the bill? According to the Bank of Spain, time deposits in Spain amount to around EUR700bn, and thus a 0.3% levy would imply EUR2.0bn proceeds to be collected by the government. According to press sources, the regional governments that imposed the levy in 2012 are seeking a compensation of around EUR0.2bn, and thus the 0.3% levy would raise excess funds for the Government. In this context, and based on the EUR0.2bn compensation to the regional governments, we think the levy should be set at a maximum of 0.03% nationwide. The press also mentions that the Finance Minister would be thinking of collecting the levy directly from the banks and leave them to decide whether they pass through the levy onto the clients or not.
• A small negative for the sector. In our view, the measure could be a way to compensate regional governments but, at the same time, avoid fragmenting the domestic market. If this levy is finally approved, and if it is directly imposed on the banks instead of deposit holders, we think it will offset part of the gains from the end of the deposit war. Following the pricing cap on time deposits put in place by the Bank of Spain in 2013, we are already expecting the banks to lower the cost of time deposits by up to 100bp, and thus the levy would marginally reduce the boost to margins. Qualitatively, we think the timing of the announcement such a measure is not right, at a moment when the Spanish Government has opposed the deposit levy imposed in Cyprus, and it is concerned with a potential run on deposits. For the time being, we are not changing our estimates for the banks until the new measure is officially approved and details are made public.