Italy’s unexpected levy on banks’ windfall profits is throwing some of Europe’s most generous investor payout policies into question.
(Bloomberg) — Italy’s unexpected levy on banks’ windfall profits is throwing some of Europe’s most generous investor payout policies into question.
“The remarkable remuneration plans outlined by Italian banks are likely to be revised if the tax will become effective,” said Vincenzo Longo, a market strategist at IG. “According to preliminary estimates the levy could cost banks more than €2 billion ($2.2 billion), forcing them to reduce the pool of money for buybacks and dividends.”
Last month, UniCredit SpA increased its guidance on 2023 shareholder remunerations for the second consecutive quarter, saying it will end-up distributing €22 billion under its 2021-2024 business plan period. Intesa Sanpaolo SpA has said it will disburse more than 22 billion euros to shareholders through 2025.
Banks across the region have benefited from rising interest rates on the back of the European Central Bank’s inflation-fighting campaign. Italian Deputy Prime Minister Matteo Salvini announced a 40% levy on the extra profits of lenders for 2023 late Monday, spurring a slump of some $10 billion from the banks’ market value.
Read More: Italian Banks Slump After Government Introduces Windfall Tax
“Those banks with a pending top-up to shareholder remuneration” will likely see their shares hit hardest, analysts at Mediobanca SpA led by Andrea Filtri, wrote in a report. If the formula prevails as it is, “the impact would be huge for Italian banks,” the analysts wrote. “It is difficult to see it being approved as it is.”
At the same time, robust balance sheets could allow lenders to cope with it without affecting payouts. UniCredit should be able to withstand both the levy and the announced share buyback, even in a worst-case scenario, the Mediobanca analysts wrote.
“Italian banks’ balance sheets are so strong that this unexpected tax introduced by the government is, in our opinion, not largely affecting the future plan for capital distribution,” Fabio Caldato, a partner at Olympia Wealth Management, said. “Regarding the share prices, any — unlikely — prolonged pullback is a buy opportunity.”
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