Banco Santander (Brasil) SA (NYSE:BSBR) basing balance sheets on Basel III
According to research by the Spanish investment bank, N+1, deferred tax-assets make up 83% of Bankia’s tangible book-value. While Banco Sabadell’s corresponding figure is 64%, Banco Santander (Brasil) SA (NYSE:BSBR) and Banco Popular each have around 40% of their respective book-value in deferred tax assets. With BBVA and Caixabank, this figure is 20-25%. Bankers as well as officials in Madrid have stated that the proposal was being reviewed but suggested that the government was largely supportive of the positions that the banks were in. One Spanish official confirmed that the two parties were currently in negotiations and added that it was too soon to provide any additional details and that no final decision had been reached.
Morgan Stanley analysts have estimated that Banco Santander (Brasil) SA (NYSE:BSBR) fully-loaded capital-ratio under Basel III will rise by €6bn-€6.5B if these proposed changes were actually implemented. Morgan Stanley added that in this event the market would probably be less concerned about the requirement for a capital raise.
Spanish banks have been pressing Madrid to permit them to re-classify billions of euros in deferred-tax assets in a complete change. This would make their balance sheets seem to have much more muscle under the newly announced Basel III rules.
Spanish lenders have accumulated around €50bn in DTAs. These will occur when banks make losses or provisions that cannot be offset against any future tax-bills once it returns to profitability. They want that the government convert at least few of these into tax-credits, which can then be counted towards the capital-base under Basel III.
What is a deferred tax asset?
An asset that shows up on any company’s balance sheet that might be used to reduce the income tax expense of any subsequent periods is called a deferred tax asset. These assets may arise due to some net-loss carryovers. These are recorded assets only if it is likely that it will be used in the future fiscal periods. It has to be determined that there is in excess of 50 percent probability that the company will actually have a positive accounting-income in the next financial period before the deferred-tax asset can be applied.