The head of Treasury is calling bank CEOs an hour before the budget to give them the bad news

Federal Treasurer Scott Morrison. Picture: /AFP/Getty Images / File

The chief executives of Australia’s major banks are expecting phone calls from John Fraser, the head of federal Treasury, around 6.30pm AEST this evening for a briefing on a new tax that’s coming for financial institutions.

Sources at two of Australia’s major banks confirmed the CEOs were expecting a briefing shortly before the treasurer, Scott Morrison, gets to his feet in the federal parliament to deliver his budget speech.

What’s broadly expected is a levy on interbank lending, potentially raising more than a billion dollars a year, and $6 billion over four years.

For the banks to defend their current profit levels they would need to find ways of recouping the costs and a critical question is whether this would be carried by shareholders or customers. The major banks have been steadily increasing interest rates on certain types of mortgages, particularly those to investors.

In a note to clients today, Goldman Sachs analysts said looking at the major banks as a whole and without knowing the exact detail, they estimated that based on current speculation the levy could require a lift of 14 basis points across all mortgages.

They wrote (emphasis added): “We take no view on the potential of the levy being introduced this evening. We note that the suggested A$6b which the levy will raise over four years, on a per annum basis, equates to c.5% of FY17E major bank cash earnings. To offset this in its entirety, the major banks would require a c.7bps lift in NIMs, which in isolation, [would] require a c.14bps reprice of the entire mortgage book.”

Bank shares were smashed on the ASX today, with the Commonwealth Bank, Australia’s largest financial institution, seeing its share price fall almost 4%. It delivered a trading update to the market this morning which likely exacerbated its fall, although the other majors were down between 1.5% and 2.7%. The overall ASX200 was down just 0.5%.

Business Insider reported this morning that a Coalition strategist expected the banks would be “furious” at the content of this evening’s budget.

A report in The Australian Financial Review today said the tax could take the form of a levy on balance sheet liabilities, similar to an existing arrangement in the UK which is currently in the process of being phased out. The UK scheme exempts certain types of liabilities such as Tier 1 capital and insured retail deposits in calculating the tax.

Such a scheme has the flexibility to be engineered so as to capture only financial institutions of a certain size, which would enable precision targeting of the big four – CBA, ANZ, NAB, and Westpac, letting the smaller institutions escape the levy and helping to boost competition in the sector.

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