Take 5 and come back tomorrow (6/9/24) Markets Taxes TLGO BBVA SAB Regional financing

None of what follows is investment advice.

Market environment: Still about jobs – (Asia-Pacific markets rose modestly with European and US futures down) – Asia-Pacific markets rose modestly with investors focused on the US jobs report which is seen as key for US monetary policy. Futures for Europe and the US point lower.

Response to the crisis: The appeal of “dolce far niente” – (PM Sanchez prepares tax increases on funds, deposits and diesel fuel as well as the return to normal VAT rates (Expansion p18) – Despite the PM’s recent aggressive statements against the “rich”, the Government has a limited ability to raise taxes due to the lack of support for a budget. Thus, it may be left with the low-hanging fruit of undoing cuts in VAT aimed to support the consumer (a.k.a. reduce reported inflation) and raising taxes on diesel fuel/other environmental targets and increase taxation on funds/deposits, the latter being the only action that would fit into a “soak the rich” strategy. Unfortunately, the main “upside” regarding the current government is that it often does not do what it says it’s going to do. And mostly it is unable to do what it says it wants to do, even when it wants to do it.

Talgo: Normal services will resume at some point – (The Stock Exchange Commission (CNMV) puts an end to the bid for Talgo after the exceptional veto by the Government (Expansion p8)/The Government resumes conversations with Caixa and CAF in order to build a “Skoda” deal in Talgo (OK Diario) – Once the Government put an end to the bid on the basis of alleged national security/public order reasons (which, by the way, are secret), all the CNMV is doing is certifying reality. But this does provide Magyar Vagon with a clear ruling to appeal to the courts. Not that this should provide much comfort to investors, given the geological pace of Spanish judicial processes. An alternative bid featuring Caixa and an industrial partner could be a plus, but it is uncertain (most of the players involved would rather avoid a bid for minorities) and if it did take place is unlikely to be very generous (as the bidders would have had to be “dragged” into the deal).

BBVA/Sabadell: Your friends may no longer be your friends – (The ECB gives the green light to the bid by BBVA for Sabadell and passes the hot potato to the Stock Exchange Commission (CNMV) (Expansion p13) – The ECB giving the green light to the BBVA bid for Sabadell should not surprise as the deal has not raised significant concerns from the point of view of solvency. The main bone of contention is still the impact on competition in the sector, which falls under the purview of the ministry of Finance ministry/competition authorities which have already expressed reservations. The change at the head of the Bank of Spain comes too late to alter the situation, but given the alleged bad relations between the new Governor of the central bank and the Chairman of BBVA (as well as potential increased alignment of Bank of Spain with the Government’s view, given that the new Governor was part of the Government, literally, yesterday), any additional input from Bank of Spain is unlikely to be helpful.

Regional financing: Horses for courses – (The minister for the Economy opens the door for regions such as Andalusia to collect their own taxes (Expansion p20) – PM Sanchez seems to favour a “divide and conquer” approach to relations with regional governments, trying to get them to accept bilateral deals in order to get around any opposition. on the principle of regional solidarity/equality (all regions should have similar income, after interregional redistribution in order to offer the same level of public services across Spain). to the “singular financing system” for Catalonia. I’m not sure about the appeal of an offer to collect their own taxes (and presumably use only those to fund their public services) in regions such as Andalusia, which is a net recipient of transfers from richer regions under the current system. But the aim may be to have Andalusia (and Extremadura, Castilla-Leon etc.) reject it, so the Government can then claim that they were offered “the same deal”. I very much doubt that a similar proposal will be offered to Madrid (which is the largest contributor to financing of poorer regions).