Italy’s decision to impose a one-off windfall tax on bank profits caused a significant drop in the country’s financial stocks, resulting in a combined market value loss of around €10 billion ($11 billion). Shares of Intesa Sanpaolo, Italy’s biggest bank, and Finecobank, an online brokerage firm, dropped 8% by the afternoon, while BPER Banca saw a 10% decline. Banco BPM, based in Verona, experienced a 9% decrease in its share price, and UniCredit sank 7%. As a result, Italy’s FTSE MIB declined by 2.6%, and the Stoxx Europe 600 index fell by 0.7%.
The impact of Italy’s decision was not limited to the country itself. Germany’s Commerzbank witnessed a 3.2% drop, and Deutsche Bank’s shares traded 2% lower. The Italian cabinet’s drastic measure sent ripples beyond Italy’s borders, affecting the European banking sector as a whole.
Italian Deputy Prime Minister Matteo Salvini revealed that the 40% levy on excess bank profits generated from higher interest rates will serve two purposes – reducing taxes and providing financial aid to holders of first mortgages. Salvini highlighted the substantial profits made by banks during the first half of 2023, which he attributed to the European Central Bank’s rate hikes. He emphasized the disparity between the increased cost of money burden on households and businesses and the comparatively smaller increase in what is given to current account holders.
The levy will be applicable to excess net interest income in both 2022 and 2023 resulting from higher interest rates. It will be imposed on net interest income that exceeds 3% year-on-year growth in 2022 from 2021 levels, as well as on net interest income that exceeds 6% year-on-year growth in 2023 compared to 2022. The implementation of this tax is estimated to bring in over €2 billion ($2.2 billion) for the Italian government.
Local media outlet ANSA reported that banks are required to pay the tax within six months after the end of the financial year. This move by the Italian government reflects its efforts to address the growing concern of increasing inequality and to generate additional revenue to mitigate the impact of the COVID-19 pandemic on the country’s economy.
In summary, Italy’s decision to approve a 40% levy on lenders’ excess profits for this year had significant consequences for the country’s financial stocks and the European banking sector as a whole. The levy aims to address income disparity and generate revenue for the government’s economic recovery efforts.