Italian banks bounce back after government limits windfall tax.
Italy Caps Windfall Tax on Banks, Boosting Financial Stocks
By Alvise Armellini and Valentina Za
Italy’s government has implemented a surprise windfall tax on profits generated by the country’s banks, but has now capped its impact, leading to a recovery in financial stocks. The tax, which targets profits made on higher interest rates, will not exceed 0.1% of the banks’ total assets, according to the economy ministry.
This unexpected announcement caught the market off guard, damaging confidence and raising concerns about similar measures across Europe. However, analysts at UBS estimate that the capped tax will have an aggregate impact of 1.9 billion euros ($2.1 billion), significantly lower than the initial projections of below 3 billion euros.
Italian banks, including Intesa Sanpaolo, Banco BPM, UniCredit, and FinecoBank, experienced a rebound in their share prices following the news. UBS predicts that Italian retail banks may face an “earnings erosion” ranging from 6% for UniCredit to 15-16% for Banco BPM.
Government Stands by the Measure
The conservative government, led by Prime Minister Giorgia Meloni, had previously considered a bank tax but appeared to have abandoned the idea. The decision to implement the windfall tax came as a surprise even to ministers attending a cabinet meeting. Despite initial market jitters, government officials defended the measure, accusing banks of profiting excessively from interest rate hikes.
Deputy Prime Minister and Infrastructure Minister Matteo Salvini stated, “Redistributing a small part of these profits is economically and socially justified.” The government plans to use the tax proceeds to assist mortgage holders, low-income individuals, and those with small pensions.
($1 = 0.9113 euros)
(Reporting by Alvise Armellini and Francesca Piscioneri, Writing by Valentina Za and Keith Weir; Editing by Alexander Smith and Mark Potter)
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