European banks are agonized by windfall taxes, as governments are forging plans to introduce new taxes for profit rise.
European banks have earned from increased interest rates which triggered governments to introduce a cap on it.
For quite some time, European banks have taken hit from slow growth and poor profit margins. Paradoxically, the market values of the biggest banks on the Continent have been only just a snippet of those of US key players, for instance JPMorgan Chase & Co.
One of the long-term issues that challenged the banks was the negative interest rates of the central banks. The banks made every effort to earn profit which was higher than their cost of capital. Unfortunately, subzero rates decreased banks’ loan margins and investors lost interest.
The increased interest rates gave banks hope, as they are recipients in this type of environment. Now, they could raise rates for lenders at a faster rate rather than increasing the payouts for clients.
German Commerzbank AG suffered a blow of 290 million Euros to its profit. That is equal to the 290 million dollars in the third quarter from its branch in Poland.
Spanish Banco Santander can mark a loss of over one billion Euros next year, say analysts. In 2021, the bank made a profit of 8.6 billion Euros in Spain and Poland where it also has business.
José Antonio Álvarez, Santander’s Chief Executive Officer, expressed his worries that the “sector was stigmatized”, because “taxes could not appease inflation”.
This year, Stoxx Europe 600 banks index has marked 13% drop through 31 August, which is in accordance with the extended market.
Marco Troiano, chief of financial institutions at Scope Ratings, advised investors to turn to utility companies which enable steady dividends.
Due to the rising inflation, the European Central Bank together with other monetary institutions is considering extending interest rates. This will put additional pressure on households and businesses while they struggle with higher prices.
