- Wednesday, October 16, 2024
Shares in Italian banks experienced a significant drop on Tuesday, causing a ripple effect across European peers, following the approval of a windfall tax on their profits limited to 2023.
At 0803 GMT, Intesa Sanpaolo and UniCredit witnessed a 6.8% and 5.2% decrease in share value, respectively. Smaller banks, Banco BPM, BPER Banca, and Banca Monte dei Paschi di Siena, were also not spared, with all experiencing a drop of over 6%. European banks as a whole traded lower, leading to the Stoxx Europe 600 Banks index declining by 1.5%.
Italy's cabinet gave the green light to a proposal that introduces a tax solely applicable to banks' profits in 2023, stated Deputy Prime Minister and Infrastructure Minister, Matteo Salvini, during a press conference on Monday. Salvini disclosed that the tax would equate to 40% of what he referred to as "extra profits" made by banks, generating "a few billion" euros in tax income.
The main goal of this move is to provide assistance with mortgage payments and tax cuts, explained the Italian deputy prime minister. Salvini emphasized that although the cost of borrowing has increased, account holders' earnings have not doubled in comparison.
The decision has come at a surprising time as Italian lenders have recently reported robust quarterly results. Following second-quarter earnings surpassing expectations, both Intesa and UniCredit raised their projections for 2023.
However, analysts at Citi have labeled this decision as unexpected and substantially negative for Italian banks. According to them, this tax could potentially reduce Italian banks' earnings by approximately 19% and result in a decrease in their book value of around 3%.
"In our view, the banks most likely to be impacted by this tax are the smaller players that rely heavily on net interest income and have exhibited stronger growth," stated the Citi analysts.
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