The big four banks, the ANZ, Westpac, the NAB and the Commonwealth Bank told the ASX yesterday (https://www.westpac.com.au/about-westpac/media/media-releases/2017/22-may/) that the gross impact of the federal government’s levy could be around $1.380 billion a year on gross basis for both banks.
On an after tax basis, the cost of the levy to the big four will be $985 million. Total tax deduction will be around $425 million (meaning that our banks are being subsidised by the taxpayers).
Westpac was the first bank to release an estimate of the levy’s impact. Westpac told the ASX yesterday morning that the gross cost would be $370 million and the after tax impact would be a net $260 million a year.
The Commonwealth said late yesterday afternoon its cost was estimated at “approximately $315 million per annum, $220 million after tax. This is based on the Group’s current financial position and subject to any further amendments made through the parliamentary process.”
The NAB said last night its gross cost would be around $350 million and $245 million after tax. The after tax cost for the trio will be around $725 million a year.
And then the ANZ said its estimated tax was a gross $345 million and $240 million after tax. "The tax is expected to be paid on a quarterly basis, with the first payment to be made be for the September quarter 2017. We expect that this will be deductible for tax purposes in Australia,” the ANZ said in its statement.
Macquarie has yet to make a statement similar to those from the NAB, Westpac or the CBA.
But there’s an upside for the five banks involved in paying the levy – they will get a benefit from being exempted from yesterday’s wide ranging ratings revamp of Australian financial groups announced by Standard & Poor’s. The agency downgraded the ratings of 23 Australian banks and other lenders because of concerns over the hot housing market.
But S&P didn’t move the ratings of the ANZ Banking Group, Commonwealth Bank of Australia, Westpac and the NAB National on the assumption that the government would step in to provide support if needed. It also didn’t not lower the ratings for Macquarie Group and its banking subsidiary.
“This reflects our view that government support for these banking groups is unlikely to be extended to their hybrid and subordinated debt instruments,” the rating agency said.
But it did downgrade ratings on CBA, ANZ, Westpac and NAB subordinate and hybrid debt instruments by one notch.
The S&P decision means that over time the cost of funds advantage the big five enjoy over the rest of the market will rise, meaning that the claimed competitive backing for the levy from the Federal government has been exposed as a crock of rubbish and won’t happen.
If anything the S&P decision entrenches the position of the big five banks even more strongly. It also waters down the banks’ arguments against the levy.
In its statement, the CBA said the “(t)he liability base on which the levy is calculated will exclude approximately $240 billion of deposits which are covered by the Financial Claims Scheme, as at 31 March 2017.”
The news didn’t hurt Westpac shares which rose 0.7% to $31.09 after the statement was released earlier in the day. The CBA’s shares rose 1.3% to $81.09 before its statement was released after trading. And the NAB’s shares rose 2 cents to $30.40 at the close. Its statement was issued well after trading had ended for the day. The ANZ shares eased 0.3% to $28.39.
In the CBA statement chairman Catherine Livingstone told shareholders slamming the levy as “poorly designed policy” and said the bank wanted to hear shareholders’ views.
"Your CEO Ian Narev and I would like to hear your views and respond to any questions you may have on the new tax. We therefore intend to hold an interactive telephone “town hall" discussion for shareholders in the lead-up to our annual general meeting in November," Ms Livingstone wrote in a note to the bank’s 800,000 shareholders.
Westpac said it in its letter to shareholders letter that this was its best estimate so far and it was still considering how it would deal with the levy. It said the after-tax cost was equal to 8c a share in dividends, or 4.3% of its last full-year dividend of $1.88. In her letter to shareholders (https://www.commbank.com.au/guidance/newsroom/cba-estimated-impact-of-bank-levy-201705.html) CBA chair, Catherine Livingstone didn’t give any estimate on the impact on dividends.
Westpac’s chairman Lindsay Maxsted said in a letter to the bank’s more than 600,000 shareholders.
"The exact cost will depend on the final form of the new legislation passed and the composition of Westpac’s liabilities. No company can simply ‘absorb’ a new tax, so consideration is being given to how we will manage this significant impost on the bank.
"We plan to consult with stakeholders, including shareholders, on the Levy. To dimension the impact of the Levy for our shareholders, the $260 million after tax cost is equivalent to around 8 cents per share (using the above estimates).
“Based on Westpac’s 2016 full year dividends of 188 cents per share, this represents 4.3% of dividends paid,” Mr Maxsted said in the letter.
“This new tax is bad public policy—an inefficient tax—that targets just five companies who are already among the largest taxpayers in Australia (Westpac is Australia’s second largest taxpayer)," Mr Maxsted wrote.
“Disappointingly, the tax does not apply to foreign banks, giving them a competitive advantage and favouring foreign shareholders over Australian ones.
“No company can simply ‘absorb’ a new tax—the impact of higher costs ultimately flows through to customers, shareholders, suppliers, staff, or some combination of all four."
In his letter, NAB chair, Ken Henry (http://news.nab.com.au/open-letter-to-nab-shareholders-on-major-bank-tax/):
"We are concerned the tax has been developed without sufficient consultation or consideration of the impact on bank customers, shareholders, suppliers and employees – or indeed the broader economy.
The $260 million figure mentioned in the letter is the tax deduction Westpac estimates it will get on the levy. Spread across the five banks the 30% corporate rate indicates around $1.86 billion will be a tax write off for the quintet.
For the Federal government the net income from the levy over the four years of the budget’s forward estimates won’t be $6.2 billion, but around $4.4 billion.
