Big European banks tumble on proposed transaction tax
Germany and France spook nervous market
Published 18/08/2011 | 05:00
Fall in value of Barclays' shares on news of proposal
Euro Debt crisis
EUROPEAN bank and financial sector shares tumbled yesterday after French and German proposals for a financial transactions tax spooked investors.
Shares across Europe fell led by German stock exchange operator Deutsche Boerse and UK bank Barclays on fears a tax will hurt shareholder dividends and make European banks less competitive.
The proposed tax has been mooted since the start of the financial crisis but was ruled out at a meeting of eurozone heads of government on July 21.
It was put back on the agenda this week by French President Nicolas Sarkozy and German Chancellor Angela Merkel at a meeting in Paris, though they have yet to bring forward any detailed proposal. Shares fell even though the plan would have to be backed by all eurozone or EU countries to come into force.
Shares in Deutsche Boerse dropped 5pc to €41.10 in Frankfurt. The German exchange is buying the iconic New York Stock Exchange and its entire business is based on increasing financial transactions.
Barclays, Britain's second-biggest bank by assets, slid 4.2pc in London. The Bloomberg Banks and Financial Services Index declined 1.1pc.
The plan is a blow to the financial sector -- which had broadly rowed in behind political pressure to accept a 22pc writedown on loans to Greece as its commitment to the second Greek bailout.
Yesterday Europe's Associations for Financial Markets said a bank levy would hurt economic growth.
"The financial services industry should not be seen as an additional source of tax revenue but as an essential part of a stable and sustainable economy," said the group, which represents firms including German giant Deutsche Bank and BNP Paribas of France.
Financial analysts have been quick to condemn the tax plan and there is opposition from our government, Austria's and Luxembourg's.
A tax would be "negative for the banks and exchanges as trading volumes could go down a lot", said Lex van Dam, a London-based fund manager at Hampstead Capital.
A tax on financial transactions appeals to politicians because it could generate revenue without hurting individual taxpayers or the economy, and would also serve to reduce market speculation, said Olaf Kayser, a banking analyst with Landesbank Baden-Wuerttemberg in Mainz, Germany.
"The financial transaction tax hits exchange operators like Deutsche Boerse harder than banks, but the lower trading volumes don't leave banks unscathed," said Mr Kayser.
"Financial market players are likely to fight the tax, but the question is whether they'll be successful."
The tax plan is "a significant disappointment", Andrew Lim, a banking analyst at Espirito Santo Investment Bank, said in a research note.