TARP Tax Could Have 5% Negative Impact On Earnings, Fees Could Be Passed On to Borrowers
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Up: 15 | Down: 10 | New: 13
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Bank analysts are weighing in on Barrack Obama's new TARP tax which was announced yesterday. The tax seeks to recoup the $117 billion projected shortfall from the bailout funds given to financial firms. About 50 U.S. and international banks are expected to be hit with the tax on their liabilities, with the top 10 largest firms paying about 60% of the tax. The proposed tax still has to be approved by Congress.
Analysts at Goldman Sachs said the proposed tax will be about a 5% drag on large banks' normalized earnings over the next ten years. The firm said estimated cost of TARP has come down and may change further, which could lower the tax.
Goldman said banks would likely continue shrinking their borrowings if the tax is imposed. Goldman also thinks some of the tax would likely be passed on to borrowers and would represent a 2% increase in the cost of credit across most loan types. They also said since insured deposits are excluded, there could be increased competition among the banks for deposits.
The firm said while the tax is not positive, the earnings impact is only moderate and the industry can adapt. They said the bigger threat is "death by a thousand cuts" if regulators continue to propose a series of small measures that add up to a big bill.
A Goldman Sachs credit analyst said that over the long-term it could be positive for credit, saying "if banks are able to pass on the fees, and/or reduce wholesale funding, spreads would benefit from the lower-risk profile of the sector." They said this positive impact would not be uniform across all players.
Related Stocks:
Bank of America (NYSE: BAC)
Goldman Sachs (NYSE: GS)
J.P. Morgan Chase (NYSE: JPM)
Morgan Stanley (NYSE: MS)
Wells Fargo (NYSE: WFC)
Citigroup (NYSE: C)
Analysts at Goldman Sachs said the proposed tax will be about a 5% drag on large banks' normalized earnings over the next ten years. The firm said estimated cost of TARP has come down and may change further, which could lower the tax.
Goldman said banks would likely continue shrinking their borrowings if the tax is imposed. Goldman also thinks some of the tax would likely be passed on to borrowers and would represent a 2% increase in the cost of credit across most loan types. They also said since insured deposits are excluded, there could be increased competition among the banks for deposits.
The firm said while the tax is not positive, the earnings impact is only moderate and the industry can adapt. They said the bigger threat is "death by a thousand cuts" if regulators continue to propose a series of small measures that add up to a big bill.
A Goldman Sachs credit analyst said that over the long-term it could be positive for credit, saying "if banks are able to pass on the fees, and/or reduce wholesale funding, spreads would benefit from the lower-risk profile of the sector." They said this positive impact would not be uniform across all players.
Related Stocks:
Bank of America (NYSE: BAC)
Goldman Sachs (NYSE: GS)
J.P. Morgan Chase (NYSE: JPM)
Morgan Stanley (NYSE: MS)
Wells Fargo (NYSE: WFC)
Citigroup (NYSE: C)
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