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 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 U.S. competitors received.
Under the proposal made 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 U.S. 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 U.S. 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.
While market (share) price action suggests some doubt over its successful introduction, we are concerned it could weigh on not just the recovery of the banks sector (and particularly investment banks) but also of the economy, Nomura analysts said.
The Japanese brokerage estimated the fee could cost large European commercial banks up to 11 percent of normalized earnings and up to 20 percent for investment banks.
INVESTMENT BANKS TARGETED
In total, Morgan Stanley forecast an EPS hit of 3-6 percent for its U.S. and European bank coverage group from 2010-12.
Evolution Securities put the impact in dollar terms, forecasting a cost of about $1.7 billion just for the four biggest European payers.
Industry sources said there was disgruntlement at British lenders, which like most non-U.S. institutions did not benefit from TARP but will still have to pay up. Others, however, said banks were simply being made to pay for systemic support, something most have acknowledged they need to do.
British bank HSBC said it was studying the proposals but a raft of other major European banks would not comment, including BNP Paribas, the French bank most exposed to the United States, and Spanish banks BBVA and Santander.
There were doubts about how effective Obama's new tax would be if other countries do not take part, particularly since TARP losses are seen as largely a U.S. problem.
I do not think there is necessarily a logical premise to support the assumption that you will get a readacross to the UK or Europe, said analyst Ian Gordan at Exane BNP Paribas.
Germany's finance ministry said Friday it was a priority to find an international solution on bank taxes, while French economy minister Christine Lagarde said bonus taxes were more effective than the American solution.
The British Treasury said the United States had problems which were uniquely its own and required a different plan.
The U.S. government expects to lose more than $100 billion from its intervention to deal with troubled assets. It is right they take steps to recoup the cost of their interventions, taking account of their own domestic financial and political situation, A British Treasury spokesman said.
(Additional reporting by Reuters reporters across Europe; Editing by Dan Lalor)