Italian stocks dropped after a surprise new tax on bank profits sent the country’s lenders tumbling, erasing as much as €10 billion ($11 billion) from their combined market capitalization.
(Bloomberg) — Italian stocks dropped after a surprise new tax on bank profits sent the country’s lenders tumbling, erasing as much as €10 billion ($11 billion) from their combined market capitalization.
Italy’s FTSE MIB fell 2.6%, with UniCredit SpA plunging 7% while Intesa Sanpaolo SpA sank 8%. The Stoxx Europe 600 index declined 0.7% as of 12:48 p.m. in London. Novo Nordisk shares soared to an all-time high after reporting that Wegovy cut heart risk by 20% in a select trial.
Read More: Italy Surprises Markets With Tax on ‘Extra’ Profits of Banks
The Italian levy was slipped into a huge package of measures that ranged from taxi licenses to foreign investment. The tax could bring over €2 billion ($2.2 billion) into state coffers, according to Ansa newswire. Italy agreed on a “40% withdrawal from banks’ multi-billion euro extra profits” for 2023 which is set to finance tax cuts and support mortgages for first-time owners.
“The move by Italy is one of many signs that businesses are being held to account for all the considerations of their business activities and the impact that they have on communities,” said Stephanie Niven, a London-based portfolio manager at investment firm Ninety One.
“One of the issues with the banks has been that they’ve been returning more to shareholders, which doesn’t sit well broadly given the help they’ve had in the past,” Niven said. “Banks are sitting on more capital and the governments want to avoid that being distributed exclusively to shareholders.”
Citigroup Inc. analysts calculate that the tax is equivalent to about 19% of banks’ net income in 2023, approximately 3% of their 2023 tangible book value and around 0.5% on 2023 risk-weighted assets. Bloomberg Intelligence analysts said Italian lenders’ 2023 net income could be reduced by about 10%.
“Financials weigh more than 30% in the Italian stock market, making it vulnerable to the newly approved levy,” said Leonardo Pellandini, an equity strategist at Bank Julius Baer. “With this said, banks had a strong year so far given the net interest margins boost from higher rates so it is time for a healthy consolidation.”
The Italian tax plan is a fresh headwind for European stocks, which last week endured their first bout of volatility in quite a while, amid speculation of further interest rate hikes impacting economic growth. Weak trade data from China and a warning by Moody’s Investors Service about the state of US banks also weighed on sentiment on Tuesday.
Among other individual stock moves Tuesday, Glencore Plc fell after the commodities trading and mining giant reported a steep drop in profit. Abrdn Plc declined after first-half results showed clients pulled more money from the asset manager’s funds.
–With assistance from Chiara Remondini, Jan-Patrick Barnert, Michael Msika and Thyagaraju Adinarayan.
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