Italian Bank Shares Plunge After Populist Government Introduces Windfall Tax

Italy’s right-wing populist government surprised European markets on Monday night with a new tax on bank profits limited to fiscal year 2023. The country’s lenders plunged in Milan trading, wiping out billions of euros in market capitalization.

Italian Deputy Prime Minister Matteo Salvini told a press conference that the 40% tax on banks’ ‘extra profits’ derived from higher interest rates amounts to billions of euros that will help fund working families hit by the worst cost-of-living crisis in a generation, including support for mortgages for first-time owners and tax cuts.

Bloomberg reported that Italy’s cabinet approved the new tax: Government to apply 40% levy on highest amount between net interest income of 2022 and 2021 — when the difference exceeds 5%, or on difference in net interest income between 2023 and 2021 — with a floor of 10%. Levy to be paid in 2024.

As a result, Italian banks were the worst performers compared to European stocks. UniCredit SpA dropped 7%, and Intesa Sanpaolo SpA sank 8%.

Even though Italy’s cabinet approved a proposal to introduce a tax on banks’ profits, it’s still subjected to approval by parliament — and can still be challenged in the courts.

“The move comes shortly after Italian banks unveiled a bumper set of earnings with Intesa and Unicredit raising their full-year guidance for the second consecutive quarter on the back of the European Central Bank’s rapid policy tightening. Net interest income at UniCredit, for example, surged 42% in the first half,” Bloomberg said.

Commentary by Wall Street analysts overwhelmingly said the news is a strong headwind for the banking sector: Click Here to Read More.


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