November 7, 2018 / 10:08 AM / 12 days ago

UPDATE 4-Spain to change law to force banks to pay mortgage stamp duty

* Premier says new law to take effect on Friday

* Broad consensus that consumers should not pay

* Most banks say not decided if they will pass on costs

* Bank of Spain says loan tax no longer a risk to banks (Adds context, background)

By Jesús Aguado

MADRID, Nov 7 (Reuters) - Spain’s government moved to counter a court ruling that would have forced customers to pay mortgage stamp duty by pledging on Wednesday to swiftly pass a law obliging banks to pay the tax.

The law would come into effect on Friday, Socialist Prime Minister Pedro Sanchez said, reflecting a broad consensus among his coalition partners, opposition parties and consumer organisations that customers should not pay.

Banks previously said they had not decided if any extra costs from the tax would be passed on to clients. But some in the sector said expenses could be recouped over the life of a mortgage.

The Supreme Court had said on Tuesday that customers and not banks had to pay the tax, reversing a ruling in mid-October in which the court had upset what had been the status quo by declaring that lenders were legally responsible.

The prime minister said on Wednesday a Royal Decree would be approved “so that Spaniards will never pay this tax again”.

Tuesday’s surprise ruling prompted anti-austerity party Podemos, the main partner of the minority PSOE government, and consumer organisations to call for public demonstrations.

Right-leaning opposition groups Citizens and the People’s Party, who between them hold 166 of 350 parliamentary seats, agreed customers should not pay the tax.

Podemos leader Pablo Iglesias tweeted later on Wednesday that the government’s proposal was “good but it’s not enough”. He called for legislation “to give families their money back”, suggesting banks should compensate for past payments.

Banks’ shares had tumbled in October when the idea that banks might have to repay customers first emerged.

Asked about potential appeals before European courts, Sanchez said customers were within their right to do so.

Most banks said when announcing third quarter results that they had not decided whether to pass on stamp duty costs to customers, if the ruling to make them responsible was upheld.

But small lender Bankinter said any potential cost could be shared with a customer over the life of a mortgage.

Jordi Argemi, finance director of housebuilder Neinor Homes, said banks would not be able to take on the cost in such a competitive market, “so it will end up falling on the customer anyway, either as a tax (or) a hardening of conditions.”

NOT BACKDATED

Spanish bank shares temporarily came off earlier highs following the prime minister’s comments, but resumed gains after it became clear that the government’s new law would not be applied retroactively, in the manner Podemos suggested.

Sparing banks from potentially having to pay back billions of euros to borrowers who for years paid the tax themselves could have cost them more than 15 billion euros ($17.2 billion) collectively, analysts and ratings agencies estimated.

The Bank of Spain’s regulation and financial stability director Jesus Saurina said on Wednesday the issue of who paid stamp duty was no longer a risk for the Spanish banking sector.

At 1524 GMT, shares in Banco Sabadell and BBVA were both up around 1.7 percent, while Bankia retreated from earlier gains to be unchanged on the day. Caixabank rose 3.7 percent, while Banco Santander, and Bankinter climbed more than 2 percent.

Smaller lender Liberbank, which has a high exposure to Spain and a balance sheet mostly relying on mortgage lending, rose 4.8 percent. Fellow smaller bank Unicaja rose 1 percent before falling back to show a slight loss on the day.

“The Supreme Court’s decision to maintain the ruling has removed a tail risk and restored the much-needed legal security for the banks to continue operating in the long-duration business of mortgage loans,” the broker Alantra said in a note, but it said litigation risks were “here to stay”. (Additional reporting by Isla Binnie, Belen Carreno and Paul Day Editing by Elaine Hardcastle and Edmund Blair)

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