6 Credit Switzerland 7 Deutsche Bank and UBS 5

Foreign banks in the United States are cautious of Sioux after the announcement that some 15 of them will have to pay the tax liability for the financial crisis"by Barack Obama. They now refuse to comment on a measure whose details will be disclosed only with the 2011 budget, early February. Banking analysts but already embarked in calculations to assess the share of the contribution of foreign financial institutions. The tax base will rely on commitments from the banks in the United States, off deposits, which will be levied 0.15 per cent from June 2010. "It is a kind of tax Tobin on the contribution to the risk of banks, to reduce their debt." This can encourage investment banks to substitute financing for market by deposits. "This is not absurd to the point of view of the systemic risk management", is an expert in the sector.

According to calculations by the British Evolution Securities, the tax could represent a highly variable cost according to the institutions. Thus, Royal Bank of Scotland could pay 383 million pounds, Barclays Capital 594 million pounds and Credit Switzerland 573 million Swiss francs (respectively 621, 964 and 550 million dollars). According to this study, Dexia would be most affected, because the tax could represent up to 12 of its profits in 2011, followed by Barclays (9.6), Credit Switzerland (7), Deutsche Bank and UBS (5). On the other hand, the impact would be limited on BNP Paribas and HSBC (3) and marginal to BBVA and Santander. Everything will depend on the manner in which will be accounted for derivative products, which can represent a significant share of the assets banks in the United States, note experts from Evolution Securities. Barclays, for example, would have 366 billion pounds of products, a total of 566 billion pounds of assets.

Goldman Sachs analysts are more conservative in their estimates. According to them, the tax could have an impact of 4 to 6 on the profits of European investment banking in 2011. So far, they do incorporate yet the cost of the tax in their estimates, considering that it may be still widely modified. They believe that the recovery of the TARP will be perhaps less than the 117 billion provided by the Treasury. Similarly, they believe that foreign banks will have the flexibility to allocate their commitments from a geographical point of view and that the banks will be able to pass this cost in their tariffs.

Avoidance strategies

To escape the tax or reduce their exposure, the banks may be tempted to reduce their assets (only banks of more than 50 billion dollars of assets are involved) or to create special vehicles to get out some commitments of their balance sheets. Or rely on an appeal, currently under study by the banking lobby that seeks to establish the unconstitutionality of the tax. However, observers believe it will be difficult to avoid this new (tax deductible) contribution because it is politically necessary to the Obama administration. More than ever, the President may wish to show its firmness to banks after the rout of Democrats in Senate elections in Massachusetts.