An excellent quarter for European banks raises the prospect of unexpected taxes

Europe’s biggest banks posted huge profits amid rising interest rates in the third quarter, raising the prospect that governments will target lenders with surprise taxes.

Deutsche Bank reported on Wednesday one of its own strongest quarterly performance ever since before the financial crisis and on track for its best annual profit since 2009, while Barclays, Santander, UniCredit, Standard Chartered, HSBC and UBS beat analysts’ estimates.

Higher interest rates, which normally boost banks’ profits, were the main driver, while strong performance in fixed income trading also helped lenders with big investment banks such as Deutsche and Barclays.

Banks make big profits from the difference between the interest they charge on loans that rise in line with central bank interest rates and what they pay customers for deposits that lag behind rate rises.

UniCredit chief executive Andrea Orchel acknowledged that the central bank’s policy was one of the factors behind his group’s strong results, saying they were “the result of good commercial dynamics, a favorable interest rate environment, continued cost discipline, a low cost of risk and, most importantly, commitment and work of our employees.’

Profits are an attractive target for cash-strapped governments. In July, Spain became the first Western European country to propose a bank profits tax, following in the footsteps of Hungary, which had already introduced it. The plans of Spain put him on a potential collision course with the European Central Bank.

The UK’s new chancellor, Jeremy Hunt, is also gearing up for it maintain a bank charge in a series of tax hikes aimed at reversing the disastrous effects of the short-lived tax cuts in the budget announced by his predecessor.

On Tuesday, opposition MPs in the UK called on the government to introduce a tax on banks after HSBC’s good quarterly results. “The public will find it hard to live with banks making huge profits while their mortgage bills spiral out of control,” said Sarah Olney, spokeswoman for the Lib Dem Treasury.

“The chancellor should certainly look into taxing bank windfall profits, especially when the alternative is painful cuts to our public services,” she said.

HSBC chief executive Noel Quinn opposed the proposed tax. “At the moment, the UK already has a tax burden on the financial services sector that is higher than on corporations as a whole in the UK,” he said on Tuesday. “I’d like to hope there won’t be a windfall tax, but that’s up to the chancellor.”

Bank of England interest rates rose to 2.25 percent from 0.1 percent last year, and banking analysts expect the ECB to raise interest rates from 0.75 percent to 2.5 percent next year.

Barclays reported pre-tax profits of £1.97bn in the three months to the end of September, up 6 per cent on a year earlier and beating analysts’ expectations of £1.81bn.

Deutsche Bank’s pre-tax profit more than doubled to 1.6 billion euros in the third quarter, the highest since 2006 and beating analysts’ average expectations of 1.3 billion euros. All four of the bank’s divisions posted higher profits, and its investment bank increased market share in fixed income trading.

Santander, the eurozone’s biggest lender, reported an 11 percent year-on-year rise in third-quarter net profit to 2.42 billion euros, beating expectations but showing a slowdown in growth from the previous three months.

The Spanish bank increased provisions for potential loan losses by 24 percent to 2.76 billion euros as inflation and higher interest rates strain more businesses and consumers. But while default rates rose in the US and Brazil, they fell in the UK, Spain and Mexico.

Milan-based UniCredit said it expected net profit to top 4.8 billion euros this year, higher than previous forecasts, on the back of rising interest rates and better-than-expected third-quarter profit. Italy’s second-biggest bank reported a record profit of 1.71 billion euros in the three months ended September, topping analysts’ forecasts of 1 billion euros, thanks to smaller-than-expected loan losses.

StanChart earnings in the third quarter came in higher than expected due to rising interest rates, with Singapore’s contribution to the bank’s profits surpassing that of Hong Kong, which has struggled to recover from tight pandemic restrictions. The bank reported pretax profit of $1.4 billion in the third quarter, up 40 percent from a year earlier and beating analysts’ estimates of $1.1 billion.

StanChart’s outperformance came after rival lender HSBC posted strong third-quarter profits on Tuesday, despite recent domestic market turmoil with sharp swings in UK government bonds.