UK Bank Shares Gain Ground After Bank Levy News

22nd Jun 2010 15:22

By Patricia Kowsmann Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. bank shares gained ground Tuesday after the government's widely expected levy on the sector proved to be lower than expected, although industry groups warned it could still make U.K. banks less competitive than their foreign rivals. Earlier Tuesday, the U.K.'s Chancellor of the Exchequer George Osborne said the government will impose a levy on bank balance sheets from January next year. Germany and France have said they will also introduce such levies to offset the cost of potential future financial crises. Those affected in the U.K. include local banks and building societies, and the U.K. operations of foreign banks. Smaller banks with liabilities below a certain level won't be liable for the levy. The government said it is proposing a 0.07% tax on bank balance sheets, which comprises assets and liabilities. For next year, the rate would start lower, at 0.04%. Further details will be disclosed later this year, the government said in its emergency budget announcement. It also said it will continue to consider a tax on banks' profit and remuneration. Like other countries, the U.K. faces a massive debt burden following measures it took to boost the economy during the financial crisis. It is now trying to find new sources of revenue. The new bank tax, which will generate GBP2 billion a year, targets riskier portions of bank balance sheets, and therefore excludes Tier 1 capital and insured retail deposits from the calculation. Analysts said the levy was lower than feared and isn't likely to dent any bank's capital position. At 1346 GMT, Lloyds Banking Group PLC (LYG) shares were up 2 pence, or 3.3%, at 59 pence. Royal Bank of Scotland Group PLC's (RBS) stock was also up 1 pence, or 0.2%, at 47 pence. Both banks, which are partly owned by the government, are undergoing a massive deleveraging, which will reduce their dependence on wholesale funding over time. Barclays PLC (BCS) recovered some earlier losses, and at 1346 GMT its shares was down 5 pence, or 1.6%, at GBP3.12. The British Bankers' Association warned that the tax could make the U.K. banking sector less competitive. "Bank levies need to be coordinated internationally: they must not prevent the industry in the U.K. from being able to compete," the association said in a statement. "It is essential that the international banks do not find themselves taxed multiple times for the same thing," it added. The Association for Financial Markets in Europe, which has 197 members comprising leading European banks, as well as key regional banks, brokers and law firms, echoed that fear. "A unilateral U.K. bank levy could adversely affect an important sector of the U.K. economy and threaten the U.K.'s future as the world's leading financial centre," the association's acting chief executive, Mark Austen, said. "We will be watching carefully to see whether the actions of France and Germany are consistent with those of the U.K.," he added. People familiar with some of the U.K. banks' thinking said that while banks in general have accepted some form of pay-back to governments, there is a concern over more taxes that could be imposed in the future--including on remuneration and profit--which would create an even more unlevel playing field among banks based in different countries. -By Patricia Kowsmann, Dow Jones Newswires; +44(0) 207-842-9295, [email protected] (END) Dow Jones Newswires June 22, 2010 10:22 ET (14:22 GMT)