April 30, 2013 4:58 pm

Funds hit at planned European transactions tax

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Europe’s largest institutional investors have rounded on a proposed regional financial transactions tax, warning that its size and scope could deter them from investing in fast-growing companies.

Chief investment officers for some of the region’s largest fund managers, including Germany’s Allianz Global Investors, Fidelity and APG Asset Management of the Netherlands have warned policymakers over plans by 11 eurozone countries to introduce a tax on cash and derivatives transactions.

“What is striking in the proposals are the reasons for the transactions tax do not match the consequences of it at all,” said Guus Warringa, chief legal counsel of APG Asset Management, which manages €329bn and administers more than 30 per cent of all collective pension schemes in the Netherlands.

“Why should we invest in a country where it will be more expensive to trade? It also does have an impact on long-term investors such as ourselves. Even if an IPO is exempted, we will still want an exit,” he added.

Neil Dwane, chief investment officer at Allianz Global Investors, which manages around €70bn in European equity investments, said the levy would raise the amount companies pay to raise money in the capital markets.

“We might look at some of the investments we own and sit there thinking, if they [European companies] are going to become at a global competitive pricing disadvantage . . . or access-to-capital disadvantage to their peers, one would have to question whether you want to own them rather than their global competition,” he said.

The proposals from the European Commission, backed by 11 eurozone countries, would impose a 0.1 per cent levy on stock and bond trades and 0.01 per cent levy on derivatives transactions involving one financial institution with its headquarters in the tax area, or trading on behalf of a client based in the tax area. It is due to come into effect on January 1.

The comments from investment managers come amid growing concerns in the financial services industry that the current proposals would hurt long-term investors and damage derivatives and government bond markets.

“I struggle to understand the logic behind this – this is going to make Europe less competitive globally and it will hurt economic growth in Europe,” said the European chief investment officer at one major asset manager.

Some industry bodies have warned the wide-ranging nature of the proposals could curtail the market for repurchase agreements, a key source of short-term funding for banks and governments.

Others have warned that corporations’ ability to hedge their risks could be hit by a tax on derivatives. Trading on Europe’s derivatives markets would fall 75 per cent, according to the Commission’s own estimates.

In private, the backing member states are divided over key details such as how the tax is collected, whether it would raise the monies intended and whether its effect on markets will be more profound than expected. Many market participants expect the positions will be watered down by negotiations.

“So far, the most likely scenario is a UK or French-type “stamp duty” on equities. This will most likely have a negligible effect on the group,” Gregor Pottmeyer, chief financial officer at Deutsche Börse, Europe’s largest derivatives exchange operator, told analysts yesterday.

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