Investors In Barclays PLC, HSBC Holdings plc, Lloyds Banking Group PLC And Royal Bank of Scotland Group plc Should Fear A Hung Parliament

With the exception of Nicola Sturgeon, nobody is relishing the prospect of a hung Parliament.

Investors will be particularly wary, especially if they hold shares in Barclays (LSE: BARC), HSBC Holdings (LSE: HSBA), Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) or Royal Bank of Scotland Group (LSE: RBS)

Hard Labour

The banks have grown used to being whipping boys since the financial crisis (often deservedly so).

They are also accustomed to being treated as ATMs by any politician with a spending commitment they want to pretend is properly funded.

Last year, shadow chancellor Ed Balls pledged to revive the windfall tax on bank bonuses if Labour wins power, originally imposed by Alistair Darling in 2009.

But Labour isn’t the only party the big banks have to fear.

Tory Trouble

In last month’s Budget, Chancellor George Osborne announced a £5.3bn tax grab on the banks, by raising the bank levy for the eighth time in four years. This tax is now four times higher than originally proposed in 2010.

Taken with measures announced in last December’s Autumn Statement, the banks will pay an extra £9.3bn in taxes.

Remember, Mr Osborne is supposed to be a business-friendly Conservative chancellor.

Horse Whipped

Now imagine what politicians will threaten if we get a hung Parliament, and months of unseemly horse trading.

While the Tory-Lib Dem coalition was sewn up in just a few days, negotiations could be far more stretched at this time.

Picture a patchwork government of Labour, the Scottish Nationalists and Plaid Cymru. And maybe even the Greens. Then consider the spending pledges a weakened Mr Miliband would make to keep everybody happy.

How would he pay for them? Hmm…

The Scottish Nationalists have nothing to lose by attacking the London-based banking sector, and plenty to gain both financially and politically.

The longer it all goes on, the worse it will be for the banks. HSBC is already threatening to decamp. It may be making idle threats for now, but a hung Parliament could give it the incentive to get off its backside.

The bankers are nervously keeping their heads down. Witness the refusal of major banking figures to back any Conservative policy during this election campaign.

Taxing Times

The campaign has already seen Labour threats to introduce higher taxes for the banks and a market share test for the biggest lenders. The Lib Dems want banks to pay a higher rate of corporation tax than other sectors.

I can hardly guess what punitive wheezes politicians will conjure to fund all the giveaways needed to keep the next coalition together.

A hung Parliament could leave investors in the big banks feeling drawn and quartered.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.