Spain to temporarily tax banks and energy companies as inflation bites

Spain’s Prime Minister Pedro Sanchez delivers a speech during the state of the nation debate at parliament in Madrid, Spain, July 12, 2022. REUTERS/Susana Vera

MADRID, July 12 (Reuters) – Spain will introduce temporary taxes on power companies and banks expected to bring in 7 billion euros ($7.02 billion) in 2023-24 to help Spaniards to cope with soaring inflation, the government announced on Tuesday, triggering a massive sell-off. in some banking stocks.

Sabadell (SABE.MC), which fell 13% after the news, cut losses and closed 7.4% lower, while Caixabank fell 8.6% and Bankinter (BKT.MC) by 5%.

Prime Minister Pedro Sanchez told Parliament in a State of the Nation address that the annual revenues in 2023 and 2024 from a tax on extraordinary profits from electric utilities made this year and next year are expected to reach 2 billion euros, while the surprise tax on financial institutions would bring in 1.5 billion euros per year.

Sanchez said the government would impose the tax on “big banks because they were already starting to benefit from the (expected) interest rate hikes.”

The spokesman for the Spanish banking association AEB, Jose Luis Martinez, said that “the possible increase in interest rates by the European Central Bank has not necessarily ensured an improvement in the profitability of banks, nor does it has resulted in extraordinary profits, but has instead responded to rising inflation and may lead to lower economic activity.”

The government would not provide any details on the planned rates or how the levies would work, stating that they would only apply to companies with a turnover of at least 1 billion euros.

Martinez added that the sector had not been consulted or informed, despite maintaining an ongoing dialogue with the government.

Analysts said banks were already under pressure due to recession fears and the possibility that any rate hikes might not be as big as expected.

“The impact on Spanish banks was immediate because this measure was not planned and it was a cold shower,” said Nuria Alvarez, analyst at Renta 4, a Madrid-based brokerage firm.

The tax would put additional pressure on lenders’ ability to generate profits at a time when their provisions are also likely to rise, she said, adding that banks with largely domestic operations were hit harder than those with more diversified activities such as BBVA (BBVA.MC) or Santander (SAN.MC), which closed around 3.7%.

Shares of utilities Iberdrola (IBE.MC), Endesa and Naturgy (NTGY.MC) fell 0.2%, 0.6% and 0.7% respectively. The government had already said that it was going to tax the electricity companies.

Sanchez said inflation, caused in large measure by Russia’s invasion of Ukraine, was Spain’s biggest challenge, likening it to “a serious disease of our economy that is making everyone poorer. , especially the most vulnerable groups”.

Sanchez also announced 100 euros per month of additional scholarships for students over 16 who are already scholarship holders, and free multi-trip tickets for commuter and medium-distance trains between September and the end of December.

($1 = 0.9971 euros)

Reporting by Belen Carreno; additional reporting by Emma Pinedo; edited by Andrei Khalip, David Evans and Aurora Ellis

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