Spanish Banks Pending On Court Ruling About Legal Costs For Mortgages

Bad outlook for Spanish banks: they will have to pay the legal costs for mortgagesThe rules of the game in the Spanish mortgage market are going to change after the Supreme Court decision

Spain´s Supreme Court decided on Thursday that national banks would have to pay the Stamp Duty (Tax on Legal Documents) for creating mortgages and not the final client, which has been the case up until now, as being the interested party. This sentence contradicts the judgment of the Supreme Court in February 2018 when it established that it was the clients who had to pay the tax, and 

After the harsh punishment suffered by the banking sector in the stock market yesterday – banks lost 5.560 billion euros in stock market capitalisation in just one day, and the losses have continued today – the majority of analysts believe that the key now is whether the court decides that the decision comes into effect now or has retroactive effect.

In the first case, according to Morgan Stanley, the impact would be “practically non-existent”, given that the costs would end up being passed onto the final consumer through commissions and the final result would be the same as now. In the second case the impact on the banks’ results and capital would be very significant. Morgan Stanley calculates that the effect could reach 12 billion dollars. In both cases, the decision is going to change the rules of the game in the mortgage market with a negative impact on both the concession of mortgages and the interest rates at which they are issued, “something negative for the progress of the Spanish economy at a time of evident deceleration”, according to Link Securities.

Which Spanish banks will be most affected? For Morgan Stanley, those with most exposure to mortgages, Bankia and Unicaja, who have around 60% of their loans in mortgages. On the other hand, the investors will feel better protected in Santander, which is the bank least impacted in its Book Value, only 1.5% with an impact of only 16bp and a potential to the  objective price of 42%, and CaixaBank with an impact of only 0.2 euros per share and a potential to objective Price of 20%.

According to data from the Spanish Tax Authority, Spain paid 1.8 billion euros in Stamp Duty in 2016. In the four years between 2013 and 2016 the amount paid was 6.6 billion euros.

For their part, the banking associations AEB and CECA have published a communique in which they confirm that they will comply with the Supreme Court’s new criterion, and have asked the public authorities for greater judicial security and clear and predictable rules for the mortgage market.

In yesterday´s stock market session the banking sector heades the red numbers: Sabadell -6.7%, Bankinter -6.3%, Bankia -5.1%, CaixaBank -4.5%, BBVA -2.7% and Santander -2.1%.