Italian Banking Shares Plummet After Approval of Windfall Tax
Italian banking shares experienced a significant decline on Tuesday morning following the approval of a 40% windfall tax on lenders’ “excess” profits in 2023 by Italy’s cabinet.
By around 9:45 a.m. in Rome, BPER Banca shares had dropped by 8%, Intesa Sanpaolo was down 7%, and Banco BPM, UniCredit, and Finecobank all saw declines of over 6%.
The impact of this decision was also felt beyond Italy, with Germany’s Commerzbank down approximately 3% and Deutsche Bank trading 2% lower.
Italian Deputy Prime Minister Matteo Salvini announced during a press conference on Monday that the tax, amounting to several billion euros, would be used to reduce taxes and provide financial support to mortgage holders. It targets banks’ extra profits derived from higher interest rates.
According to Salvini, “If the cost of money burden for households and businesses has increased and doubled, it has not equally doubled what is given to current account holders.”
“Substantially Negative for Banks”
Analysts at Citi estimated that the one-off tax would equal around 19% of banks’ net profits for the year based on available data. They considered the tax to have a significantly negative impact on banks, affecting both capital and profit, as well as the cost of equity of bank shares.
The tax will be applied to “excess” net interest income in 2022 and 2023 resulting from higher interest rates. It will be levied on NII exceeding 3% year-on-year growth in 2022 compared to 2021 levels, and exceeding 6% year-on-year growth in 2023 compared to 2022. Banks are required to pay the tax within six months after the end of the financial year.
Citi expressed concerns that Italian banks may increase their cost of deposits to reduce the extra profit, particularly considering the recent round of results where every bank raised their 2023 guidance for NII (net interest income). The introduction of this tax could also lead to a slowdown in growth in the second half of the year.
It remains unclear whether the tax will only apply to domestic NII, which could have a greater impact on UCI (UniCredit) compared to its peers due to its international franchise.
