Bloomberg News

Sarkozy Transaction Tax May Drive Investors From French Stocks

February 02, 2012

Jan. 31 (Bloomberg) -- The French stock market, Europe’s second-biggest by value, may fall out of favor with investors after President Nicolas Sarkozy unveiled plans to unilaterally impose a 0.1 percent tax on financial transactions.

“Even if the tax isn’t high, market participants who have a choice of stocks trading in Paris or elsewhere will go elsewhere,” said Yves Maillot, the Paris-based head of investments at Robeco Gestions SA, which oversees $6.8 billion. “That’s what we can fear.”

Sarkozy, 57, who faces elections in a two-round vote in April and May, wants to make good on a pledge he made to impose such a tax when France last year held the presidency of both the G-8 and G-20 group of countries. He said Jan. 29 that France will impose the levy starting in August in spite of opposition from banks. The tax will apply to share purchases, including high frequency trading, and credit default swap transactions.

A France-only levy is opposed by the country’s financial community and its feasibility has been questioned by the Bank of France. Governor Christian Noyer said on Jan. 16 that implementing such a tax would require resolving “numerous problems,” including making it applicable across Europe.

“The concern is other countries won’t follow and Paris will lose competitiveness,” said Matthieu Giuliani, a fund manager at Palatine Asset Management in Paris, which oversees $4 billion. “For the domestic market, it is one more handicap.”

‘Wobbly Boxer’

Companies trading on the French stock market have a total capitalization of $1.52 trillion, second only to the U.K. in Europe, according to data compiled by Bloomberg. About 42 percent of the CAC 40 Index’s market capitalization is held by non-residents, according to the Banque de France. The benchmark index sank 17 percent in 2011, tracking losses across Europe, as the region’s debt crisis spread from Greece to Italy and Spain.

Sarkozy expects the tax to annually raise 1 billion euros ($1.31 billion) for the government’s coffers and reduce its budget deficit. The relatively small size of the tax receipts suggests the impact of the levy may be limited, some analysts said, adding though that French financial stocks may be among those that may be hit.

Financial stocks were among last year’s worst performers, with Societe Generale SA and Credit Agricole SA each tumbling more than 54 percent.

“Given the fragility French banks still have following last year’s credit crisis, imposing the tax now may be the equivalent of jabbing a boxer who is still wobbly after just getting knocked down,” said Michael A. Gayed, chief investment strategist at Pension Partners LLC in New York.

Common System

BNP Paribas SA, Societe Generale and Credit Agricole, the country’s three largest banks, each fell more than 6 percent yesterday on speculation trading revenue may be hurt.

“French bank stocks are already being attacked,” said Yves Marcais, a trader at Global Equities in Paris. “It’s clear that it’ll have a direct impact on them. What you’ll get is a decrease in transactions. Banks have trading activity and that will suffer.”

The French financial industry has spoken out against imposing a transaction tax unilaterally in France.

“A tax that’s limited to France would weigh on growth, lead to a loss of competitiveness, and create a heavy handicap for the financing of the French economy,” the French Banking Federation said in a statement Jan. 9.

Germany is considering a plan for a European stamp duty on shares as an alternative to a transaction tax, in an effort to win over the U.K. to adopting a European Union-wide levy.

Less Control

“It would be good if everyone could apply it,” said Pierre Mouton, a fund manager who helps oversee $7.5 billion at Notz Stucki & Cie. in Geneva. “If there is a common system, it’s more efficient.”

The U.K., home to Europe’s biggest financial center, has in place a stamp duty. It opposes the transaction tax, with Prime Minister David Cameron saying Jan. 26 that a Europe-wide transaction tax would be “madness,” and would cost 500,000 jobs.

Investors buying U.K. shares pay a tax of 0.5 percent on the price. The stamp duty is also levied on options to buy shares and rights arising from shares. Stamp duty on shares raised 3 billion pounds ($4.7 billion) in the year to April 2010, according to the government.

Meanwhile, Sarkozy’s opponent in the presidential elections, Socialist Party candidate Francois Hollande, too, has pledged to impose a tax on financial transactions, if he’s elected. Palatine Asset Management’s Giuliani said that he expects gains from France’s transaction tax to be less than estimated as the industry finds ways to avoid it.

“Done by only France, it will lead to more offshore activity and less control,” he said. “We know very well that the financial industry is very sophisticated and political leaders are running to catch up to this sophistication. This initiative isn’t moving in the right direction -- except electorally.”

--With assistance from Helene Fouquet and Mark Deen in Paris. Editors: Vidya Root, Srinivasan Sivabalan

To contact the reporter on this story: Adria Cimino in Paris at

To contact the editor responsible for this story: Andrew Rummer at

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