The collapse of Spanish housing left the banking system with as much as 51 billion euros of deferred tax assets(DTAs), mostly from 2011, that can be used against future profits for as long as 18 years.
Because the DTAs depend on future and unknowable profits, the DTAs cannot be fully counted as core capital. To get around Basel capital rules, El Diario reports Spain Guarantees 30 Billion in DTAs.
Multimillion dollar losses banks have generated billions in tax credits in just two years. The official estimate is that the sector hoards 51 billion in such tax advantages.
The government now guarantees 60 percent of the DTAs, some 30 billion euros over the next fifteen years. To make full use of the DTAs banks will have to generate 100 billion euros in profits. If sufficient results are not achieved, the state will have to come to the rescue with public debt, charged to the taxpayer.
Why 100 billion? Because corporate tax takes 30% of the profits of the company. Sources of Finance estimate that at least multiply by 3.3 the DTA to get the benefits that would be necessary to consume these benefits. And then, as always, a lot of fine print.
According to finance minister Luis De Guindos, it is “practically virtually impossible” for taxpayers to be at risk.
The “Practically Virtually Impossible”
The article contains an analysis of various banks including Bankia, CaixaCatalunya Bank, and Santander.
The fine print is critical because some of the banks have no hope of using the DTAs. Rather, they will auction them off in a raffle.
I suspect we will not have to wait until 2029 for the “practically virtually impossible” to happen. Will the eurozone even hold together that long?
Mike “Mish” Shedlock