Deutsche Bank maintains long-term positive view on UK banks

(Sharecast News) - Deutsche Bank said on Monday that its potential long-term positive view on banks remains after the sector took a hit on Friday as the Institute for Public Policy Research suggested a potential windfall tax. "We expect the threat of taxes will continue to weigh on UK bank shares into the Autumn budget," said DB.

"Typically the news is worse than the reality and shares tend to recover quickly as policies are clarified and our long term positive view on UK banks remains."

It said the suggestion of an 'excess reserve' levy on Friday could have up to 20% earnings impact, which is a substantial overhang. This is the harshest of scenarios but this type of levy is highly problematic and unlikely in Deutsche's view.

"A levy could raise up to £5bn per year," it said. "We estimate this has a 10% earnings impact on the UK banks, with NatWest most affected."

However, there are many complications, Deutsche Bank said.

"Firstly, quantifying the reserve base at bank level is impossible. Secondly, tying a tax to liquidity would encourage banks to repay liquidity facilities and could quickly contract monetary supply.

"Thirdly, a large part of the banking system is building societies which operate with very low margins and would be disproportionately impacted.

"Lastly, the risk that it interferes with monetary transmission is high."