Regulation: Court ruling offers Spanish banks brief respite


Dominic O’Neill
Published on:

The recent decision to keep a mortgage-tax burden on clients rather than banks hasn’t improved the longer-term regulatory environment for Spanish lenders – or their own image.

Pablo Iglesias, secretary-general of Podemos

Spain’s Supreme Court ruling on Tuesday that customers, not banks, should continue to pay taxes for taking out a mortgage is only a short-term respite in the general assault on Spanish banks and their image.

Protesters outside the court called for the banks to pay, with Pablo Iglesias – leader of the powerful left-wing party Podemos – criticizing the decision, saying on Twitter: “The banks have won and citizens have lost.”

A previous ruling by the court determining that the banks should cover the tax – paid by the borrower on mortgage loans and ranges from 0.5% to 1.5%, depending on the region – took the market by surprise on October 18.

Customers have had to pay the tax – similar to stamp duty in the UK, and known locally as AJD: Actos Juridicos Documentados – for more than a quarter of a century.


Pronouncements at a news conference on Tuesday by centre-left prime minister Pedro Sánchez, who enjoys only the thinnest of majorities, seem to confirm bankers’ fears that the government will try to change the law anyway, to shift the burden onto banks.

The latest ruling therefore looks like it might not absolve the banks of an obligation that could cost them about 5% of future earnings, according to Berenberg.

If the change would be retroactive, as called for by the influential Podemos, it could cost Spanish banks as much as €17 billion, according to DBRS. This would be a Spanish version of the UK’s long-running payment protection insurance claims, which have dragged down the profits of British banks for a decade.

Sánchez’s comments eroded much of the gains that domestic-focused Spanish banks, such as Banco Sabadell and Liberbank, managed on Tuesday.

This new battle over the mortgage tax shows the banks in Spain have a long way to go to rebuild their public image 

The court’s decision was tight, with only 15 magistrates in favour of the banks versus 13 for the customers, and the previous ruling only served to arouse popular suspicions that the lenders should have been paying it all along.

Bankers inevitably hinted that the court is unfairly sympathetic with the widespread anger against the banks – even though the worst practices before and during the eurozone crisis happened at the regional savings banks, not the private-sector firms that are more dominant now, they say.

Politicians, on the contrary, argue the court is biased to the banks.

Spain’s banks have already suffered from a 2013 Supreme Court decision invalidating rate floors on the country’s widespread tracker mortgages, if the floor had not been made sufficiently clear.

However, the European Court of Justice took a harder line in 2016, by overturning the Spanish Supreme Court’s cap on the banks’ liability.


The latest legal question hinged on whether the mortgage lien is just for the benefit of and therefore payable by the bank – or whether it is simply part and parcel of the mortgage, and therefore for the benefit of the borrower.

This week’s about-turn might at least make the Spanish Supreme Court look capricious, with some bankers suggesting the latest more-favourable decision happened merely because of the rapid sell-off in banks’ shares after the October 18 ruling, partly out of fears it would be retroactive.

That ruling reversed an earlier ruling in February by the Supreme Court’s civil section. Some domestic-focused banks fell as much as 15% between the two rulings, according to UBS.

Even compared with the rest of Europe, Spanish banks have suffered particularly hard reputational hits since the crisis, with banks and the government having to compensate retail customers for hundreds of millions of euros: whether for dressing up hybrid debt as high-yielding deposits, or for getting consumers to take shares in banks already on the brink, most recently at Banco Popular.

This new battle over the mortgage tax shows the banks in Spain have a long way to go to rebuild their public image, and the ease of their operating environment.