From Obama to Europe with love | FT Alphaville

From Obama to Europe with love

It’s been nearly 24 hours since US president Barack Obama unleashed details of his bank levy on Wall Street. That means we are starting to get some estimates from analysts on the cost of the tax, which would begin on June 30, 2010, and is based on a percentage of banks’ liabilities less insured deposits.

The FCRT, aimed at recouping bailout monies from US banks, applies to financial companies with more than $50bn in assets, but intriguingly, also affects foreign banks with significant US subsidiaries.

Here are some rough numbers from Evolution Securities:

So that’s the levy resulting in a cost of £383m for RBS, based on 2009 figures, for example. Barclays Capital, meanwhile, would be hit by £594m, while Credit Suisse would get a €573m figure.

As FT Alphaville noted yesterday, these aren’t hefty numbers by any means, and Europe’s banks are certainly less-affected than their US counterparts since all of American banks’ liabilities are subject to the fee, while just a portion of European banks’ ones are (i.e. US-based liabilities only).

And it looks like the impact for European banks could well turn out to be lower, as they do things like (gasp) reduce their operations in the US or (horror) turn to off-balance sheet vehicles to decrease their liabilities.

The analysts at Goldman Sachs, for instance, are predicting FCRT will impact normalised 2011 profits for Europe’s investment banks by just four to six per cent (see below table). In fact. they haven’t even bothered incorporating that cost into their “estimates, due to the many mitigants which are likely to absorb some of the hit.”

Those changes being:

We can think of a number of mitigants with scope to reduce the impact, specifically:

(1) TARP losses may fall. The estimated cost of TARP has reduced to US$117 bn and may change further. The tax is meant to recoup TARP expenses so presumably if the total falls, the tax would fall as well.

(2) Asset/product repricing. Some – or all – of the tax would likely be passed on to end users of bank services.

(3) Balance sheet management. European investment banks operating in the US should have a comparatively high level of flexibility in changing geographical locations for select businesses.

Related links:
Bankers’ fury at levy on US subsidiaries
– FT
US Treasury aims to recoup all bail-out costs
– FT
The bank tax is just an increase in cost of funds – Felix Salmon