Golden Fibonacci

Jan. 14 (Bloomberg) — The Obama administration’s proposal to tax financial firms may annually cost JPMorgan Chase & Co. and Bank of America Corp. more than $1.5 billion each, hinder the industry’s recovery and stifle investor interest in bank stocks, analysts and investors said.

“This is not conducive to an investor-friendly environment,” said Peter Sorrentino, who helps manage $13.8 billion at Huntington Asset Advisors in Cincinnati. “Profit will be hampered by this tax. It keeps the industry hobbled and it never gets healthy or out from under the thumb of the government.”

Bank of America, the largest U.S. lender, would owe $1.53 billion a year, or 18 cents a share, while JPMorgan, the No. 2 U.S. bank, would owe $1.52 billion, or 38 cents a share, according to a report today by Wisco Research LLC analyst Sean Ryan. The tax would amount to 22 percent of Bank of America’s expected 2010 earnings per share and 12 percent of JPMorgan’s, Ryan wrote.

The two lenders, along with Citigroup Inc. and Goldman Sachs Group Inc., were among the biggest beneficiaries of the government’s Troubled Asset Relief Program. The fee would help defray costs to taxpayers of the $700 billion program. Citigroup would owe $1.37 billion, or 11 cents a share, while Goldman Sachs would owe $1.16 billion, or $2.01 a share, Ryan estimated.

‘Fundamentally Punitive’

“The reality is that most or all of this tax will be borne by customers,” said the report by Ryan, whose firm is based in Madison, Wisconsin. “We assume that the ‘fee’ is not tax- deductible. We don’t know this, but make the assumption since this is fundamentally a punitive endeavor.”

The administration said it will work with Congress to determine whether the fee will be tax-exempt.

Morgan Stanley, the sixth-biggest U.S. bank, may pay $982 million, Ryan said, while Wells Fargo & Co., the No. 4 bank, may have to pay $454 million. Minneapolis-based U.S. Bancorp may be charged $104 million.

The levy based on bank liabilities would be imposed starting June 30 on 50 of the largest financial institutions. The administration estimates it will raise $90 billion over a minimum of 10 years, according to an official who briefed reporters on the condition of anonymity. The fee would apply to firms with assets greater than $50 billion.

Every Dime

President Barack Obama said today that the tax aims to get back “every single dime” that taxpayers put into bailing out the financial companies. Those firms can afford to pay the fee because of Wall Street’s “massive profits and obscene bonuses,” he said.

“We’re already hearing a hue and cry from Wall Street suggesting that this proposed fee is not only unwelcome, but unfair, that by some twisted logic, it is more appropriate for the American people to bear the costs of the bailout, rather than the industry that benefited from it, even though these executives are out there giving themselves huge bonuses,” Obama said.

Covered institutions include bank holding companies, thrift holding companies, insured depositories, as well as insurance companies with such entities and broker-dealers. Pending and new regulation are among the biggest risks to investing in banks stocks this year, David Hendler, a banking analyst at CreditSights Inc., wrote in a research note today.

‘Cynical View’

“We remain concerned that this is more evidence of the cynical view of the banking industry which prevails in Washington,” Hendler wrote. “These myriad new rules, fees and legislative proposals represent a new, major risk factor for U.S. banks.”

General Electric Co., whose GE Capital unit sold debt under the FDIC’s Treasury Liquidity Guarantee Program and would probably fall under the proposal, would end up paying $824 million on an annualized basis, based on a note from Deutsche Bank AG analyst Nigel Coe to investors today. Coe projects a fee of $412 million in the second half of 2010, or about 4 cents a share, presuming his projection of covered liabilities declines to about $550 billion from $600 billion as the company shrinks its asset base.

GE Capital, which isn’t a bank and relies mostly on a wholesale funding model, may pay about $768 million, or 7 cents, in 2011, Coe said. The premium paid for TLGP debt issuance should be a ‘mitigating factor’ for Fairfield, Connecticut-based GE, Coe wrote.

“We will evaluate the proposal when we get the details,” GE Capital spokesman Russell Wilkerson said.

GM, Chrysler Exempt

General Motors Co. and Chrysler Group LLC would be exempt from the levy, as would Fannie Mae and Freddie Mac, the government-supported companies seized by regulators in 2008.

“It’s politics as usual,” said Michael Holland, who oversees more than $4 billion at Holland & Co. in New York. “Wall Street is not particularly popular at this point and anything that forces the banks to give back is something that Washington views as effective politics.”

Banks repaid $165 billion to the U.S. Treasury last year, allowing the Treasury to recoup about two-thirds of its investment. The fund also received $12.9 billion in fees, dividends and interest, giving the government an 8 percent return on its bank investments, a Jan. 11 Treasury report said.

‘Demonize Banks’

“It’s not a good use of the president’s time to demonize banks or investment banks or hedge funds or any financial institution,” said Bruce Foerster, president of South Beach Capital Markets in Miami and a former executive at Lehman Brothers Holdings Inc., the now-bankrupt securities firm. “Trying to exact this last piece of flesh from the banks is the act of a politician, not the act of the president of the United States.”

Industry groups including the U.S. Chamber of Commerce and the Financial Services Roundtable voiced concern over the proposal.

In a letter yesterday to Treasury Secretary Timothy Geithner and budget director Peter Orszag, the Chamber of Commerce said it is “strongly concerned with a potential bank tax and the adverse impacts it may have upon economic growth and job creation.”

A tax “may restrict the liquidity needed by small businesses to fuel job creation and economic growth,” R. Bruce Josten, the chamber’s top lobbyist, said in the letter. “Such unintended consequences may cost the government more than it hopes to raise with the imposition of such a levy.”

House Financial Services Committee Chairman Barney Frank said in an e-mailed statement he “strongly” supports the plan.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.