Italian bank shares slide after government surprises with windfall tax

Italian banking shares took a beating connected Tuesday greeting aft Italy's furniture approved a 40% windfall taxation connected lenders' "excess" profits successful 2023.

As of astir 9:45 a.m. successful Rome, BPER Banca shares had plunged 8% and Intesa Sanpaolo was down 7%, while Banco BPM, UniCredit and Finecobank all dropped much than 6%.

The effects were seen beyond Italy, with Germany's Commerzbank down astir 3% and Deutsche Bank trading 2% lower.

Italian Deputy Prime Matteo Salvini told a property league connected Monday that the 40% levy connected banks' other profits derived from higher involvement rates, amounting to respective cardinal euros, volition beryllium utilized to chopped taxes and connection fiscal enactment to owe holders.

"One lone has to look astatine the banks' first-half 2023 profits, besides the effect of the European Central Bank's complaint hikes, to realise that we are not talking astir a fewer millions, but we are talking 1 tin presume of billions," Salvini said, according to a Reuters translation.

"If [it is existent that] the outgo of wealth load for households and businesses has accrued and doubled, it has not arsenic doubled what is fixed to existent relationship holders."

The one-off taxation volition beryllium adjacent to astir 19% of banks' nett profits for the year, analysts astatine Citi estimated based connected presently disposable data.

"We spot this taxation arsenic substantially antagonistic for banks fixed some the interaction connected superior and nett arsenic good arsenic for outgo of equity of slope shares. The caller simulated interaction is besides higher [than] the simulation we ran successful April," Citi Equity Research Analyst Azzurra Guelfi said successful a enactment Tuesday.

The taxation volition use to "excess" nett involvement income successful some 2022 and 2023 resulting from higher involvement rates, and volition beryllium applied connected NII exceeding 3% year-on-year maturation successful 2022 from 2021 levels, and exceeding 6% year-on-year maturation successful 2023 versus 2022. Banks are required to wage the taxation wrong six months aft the extremity of the fiscal year.

"The instauration of this taxation (which was discussed, past near pending) could pb to Italian banks expanding their outgo of deposits successful bid to trim the other profit, and this comes aft a circular of results erstwhile each slope increases 2023 guidance for NII and assuming a slowdown of maturation successful 2H (due to raising deposit beta, adjacent if anticipation beneath erstwhile guidance)," Citi said.

"It is not wide whether the taxation volition use to home NII lone (we basal our simulation connected this), and this could person larger interaction for UCI vs. peers (given planetary franchise)."