ROME – August 7, 2023: (L-R) Carlo Nordio, Minister of Justice, Adolfo Urso, Minister of Enterprise and Made in Italy, Matteo Salvini, Deputy Prime Minister and Minister of Transport, Francesco Lollobrigida, Minister of Agriculture and Orazio Schillaci, Minister of Health hold an interview at Palazzo Chigi at the end of the Council of MinistersNo 47.
Simona Granati – Corbis/Corbis by means of Getty Images
Italian banking shares took a pounding on Tuesday early morning after Italy’s cabinet authorized a 40% windfall tax on loan providers’ “excess” earnings in 2023.
As of 2: 32 p.m. in Rome, BPER Banca shares were 10% lower and Banco BPM shares dropped 9%, while Intesa Sanpaolo and Finecobank were both down more than 8% and UniCredit fell more than 6%.
The impacts were seen beyond Italy, with Germany’s Commerzbank down around 3.2% and Deutsche Bank trading 2% lower.
Italian Deputy Prime Matteo Salvini informed an interview on Monday that the 40% levy on banks’ additional earnings stemmed from greater rates of interest, totaling up to a number of billion euros, will be utilized to cut taxes and provide financial backing to home loan holders.
“One only has to look at the banks’ first-half 2023 profits, also the result of the European Central Bank’s rate hikes, to realise that we are not talking about a few millions, but we are talking one can assume of billions,” Salvini stated, according to a Reuters translation.
“If [it is true that] the expense of cash concern for families and organizations has actually increased and doubled, it has not similarly doubled what is offered to bank account holders.”
‘Substantially unfavorable for banks’
The one-off tax will amount to around 19% of banks’ net earnings for the year, experts at Citi approximated based upon presently offered information.
“We see this tax as significantly unfavorable for banks provided both the effect on capital and earnings along with for expense of equity of bank shares. The brand-new simulated effect is likewise greater [than] the simulation we ran in April,” Citi Equity Research Analyst Azzurra Guelfi stated in a note Tuesday.
The tax will use to “excess” net interest earnings in both 2022 and 2023 arising from greater rates of interest, and will be used on NII going beyond 3% year-on-year development in 2022 from 2021 levels, and going beyond 6% year-on-year development in 2023 versus2022 Banks are needed to pay the tax within 6 months after completion of the fiscal year.
“The introduction of this tax (which was discussed, then left pending) could lead to Italian banks increasing their cost of deposits in order to reduce the extra profit, and this comes after a round of results when every bank increases 2023 guidance for NII and assuming a slowdown of growth in 2H (due to raising deposit beta, even if expectation below previous guidance),” Citi stated.
“It is not clear whether the tax will apply to domestic NII only (we base our simulation on this), and this could have larger impact for UCI vs. peers (given international franchise).”
