News and Analysis

Italy banks stocks regain ground as cap set on windfall tax

Early trading witnessed a rise in Italian banking stocks, recovering some of the lost ground following the government’s recent announcement of a cap on windfall taxes for the nation’s financial institutions.

Shares of Intesa Sanpaolo (BIT:ISP), Banco BPM (BIT:BAMI), and UniCredit (BIT:CRDI) surged between 1.7% and 2.5% as of 0730 GMT, while Finecobank led the way with an impressive 4% increase.

Italy’s Ministry of Economy clarified that its windfall tax, set at 40% and targeting profits generated by banks from higher interest rates, will not exceed 0.1% of their total assets.

This cap was introduced in response to a market sell-off involving Italian banks. Intesa Sanpaolo, a leading domestic bank, saw an 8.6% decline on Tuesday, while mid-sized rival BPER suffered a 10.9% loss.

Citi analysts estimated on Tuesday that the windfall tax could contribute up to approximately 0.5% of the total risk-weighted assets (RWAs) of banks for 2023, benefiting the Italian state.

The generated funds are anticipated to fall below 3 billion euros ($3.29 billion), as indicated by sources in Rome and calculations from analysts.

While several European nations, including Spain and Hungary, have already introduced windfall taxes on financial institutions, analysts noted that Italy’s unexpected move caught the market off guard, leading to a dent in confidence.

Italy’s conservative government, led by Prime Minister Giorgia Meloni, initially discussed the possibility of implementing a bank tax, but appeared to have set aside the idea. The final decision came as a surprise, even to ministers gathered for a cabinet meeting on Monday night.

Despite the fluctuations in the market, government officials stood firm on the chosen course of action throughout Wednesday.

“Some members of the banking sector may have reservations, but we are addressing an industry that is generating substantial profits effortlessly,” Deputy Prime Minister and Infrastructure Minister Matteo Salvini stated in an interview with RAI public radio.

“Redistributing a portion of these profits holds both economic and social merit,” he emphasized, reaffirming the government’s intention to allocate the generated funds to support mortgage holders, individuals with low incomes, and those with modest pension earnings.

Source: Reuters.com

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