Proposed Dutch Tax Increases for Banks Will Lead to Higher Risk Premiums; Impact on Earnings Minimal

The lower house of the Dutch parliament approved proposals for higher bank taxes and measures to eliminate the difference between withholding taxes on dividends and share buybacks. We estimate that the increase in Dutch bank taxes implies a 2% hit to our 2023 earnings estimates for ABN Amro and ING INGA. The tax treatment of withholding taxes differs according to investors’ residency and tax status and should not directly influence our valuation for ABN Amro and ING. However, we are concerned that continued European regulatory and government intervention will lead to higher risk premiums and lower valuations for banks. We recently had the opportunity to speak to several U.S. institutional investors and the risk of increased government/regulatory intervention in European banks was a topic that came up in all our discussions. The Dutch proposals follow windfall taxes on Italian and Spanish banks and the pandemic-related dividend distribution ban.

It is important to note that these are not proposals from the outgoing Dutch government, but mainly from a group of opposition political parties. The Netherlands will hold a general election in November, although forming a government is expected to take months. We would be cautious to view this as a change of direction in government policy. Current polling suggests that the group of political parties behind the proposals will not receive enough support to form a government after the November election. The proposals still need to be ratified by the upper chamber of parliament. Until greater clarity emerges, we maintain our fair value estimates for ING and ABN Amro at EUR 19/share and EUR 21/share, respectively.

The Dutch government still owns 50% of ABN Amro and Dutch pension funds are some of the largest investors in Dutch banks. The decline in the market value of Dutch banks’ securities will destroy far more value for the average, rather than the small, contribution that higher bank taxes will make to the national treasury.