Payback time for the financial sector that was bailed out by taxpayers, the new government thinks.
It’s payback time for Spain’s financial sector. At least that’s what the country’s new center-left coalition government appears to believe. After receiving the biggest financial bailout in the country’s history — over €60 billion in direct state aid, and as much as €371 if you include all the recapitalisations, the mass buyouts of impaired assets, the deferred tax credits and government guarantees — it’s time for the banks, which have been racking up profits of late to return the favor.
But the banks are not in a generous mood. The deputy governor of the Bank of Spain, Javier Alonso, warned that hiking taxes on bank profits could result in shrinking credit, higher fees and less interest on deposits, which is already about as low as it can get. If banks don’t pass on the additional costs to the consumer, it would mean “less profitability” for the sector, in an environment of ZIRP-induced wafer-thin margins, he said.
So far, the banks have been able to get around this problem of tight margins with a combination of ruthless cost cutting, closing over 40% of branches, and laying off roughly a third of their workforce over the last 10 years, and relentless fee gouging.
In a fit of brazen hubris, the CEO of Bankia, Ignaci Goirigolzarri, argued this week that there’s no moral case for raising taxes on banks. “It makes sense when there are negative externalities in a sector, but that does not happen in banking,” he said. Given the untold trillions of dollars of damage caused by the last global financial crisis, it’s an outlandish claim to make…