The Italian bank sinks in the stock market due to the new tax on its extraordinary profits

The announcement has come by surprise before the summer holidays. The Italian Government, led by Giorgia Meloni, will tax with a new temporary tax of 40% the extraordinary profits of the banks, that is to say, those that they have obtained due to the rise in interest rates and that have made loans more expensive and the mortgages. The new tax on this type of profit, which is mainly attributed to the movements of the European Central Bank (ECB) in its battle against inflation, will be used to “support mortgages” and “tax reductions”.

The measure has caused astonishment in the transalpine country, since the proposal was not on the agenda released before the Council of Ministers, which was held on Monday afternoon. In addition, the Minister of Economy, Giancarlo Giorgetti, had denied weeks ago that the Executive was working on something similar. The newspaper La Stampa points out that “neither the Association of Banks, nor the big bankers, nor important members of the government coalition knew anything about it.”

Rome expects to collect around 3 billion euros from the tax on windfall profits from banks. Although the final details of the decree have not yet been published, the Government has explained that the tax will be activated if the interest margin registered in 2022 “exceeds the value of the 2021 financial year by at least 5%.” That percentage rises to 10% if 2023 is compared with the previous year. In any case, the tax may not exceed 25% of the bank’s own funds at the closing of its accounts in 2022, and must be paid throughout 2024.

The Vice President of the Government and Minister of Transport and Infrastructure, Matteo Salvini, was in charge of communicating the plan and spoke of “a norm of social equality”. “This is a consistent measure that will feed tax cuts and support mortgages” because “we are not talking about a few handfuls of millions, but billions,” he said. The minister explained that “all the collection will be allocated to two items: aid for first home mortgages and tax reductions”, and indicated that “the rise in ECB rates has caused an increase in the cost of money for households and companies . There hasn’t been a rise as diligent, fast and significant for consumers.”

Although the deputy prime minister did not specify how the government intends to use these funds, it appears that the funds raised will try to help those with variable-rate mortgages who are struggling to meet their payments due to rising interest rates.

The initiative is similar to the one carried out in Spain by the Pedro Sánchez Government at the end of 2022 and which generated a clash with the European Central Bank, which spoke out against this type of tax, considering that they restrict credit or harm solvency. of the sector.

Although the small print of the project is not yet known, the announcement has caused the collapse of the main banking entities in the market at the beginning of the session on Tuesday. In the first hours of trading, nearly 10,000 million capitalization of the sector was burned. The figure triples what the Government is supposed to earn with the initiative, according to the first estimates.

widespread fall

By mid-morning, the worst performer was Banca Popolare dell’Emilia Romagna, which lost almost 9.5%, followed by Finecobank (-9%). The Bpm bank, Banca Monte Paschi di Siena and Intesa Sanpaolo registered falls of more than 8%, while Unicredit dropped 6.5% of its value. Overall, all the major stocks suffered. Banca Generali, Banca Mediolanum and Mediobanca registered falls of more than 2%.

Analysts estimate that banks’ net profit in 2023 could fall by around 10%. Initial calculations for 2023 alone project a potential impact of more than 2.8 billion, but imagining a retroactive application, also on the results of 2022) another 1.5 billion could be added to this figure. “We view this tax as materially negative for banks due to both the impact on capital and earnings, as well as the cost of capital of bank shares,” the Citigroup analysts wrote.

The government headed by the far-right Giorgia Meloni, in office since October, has been placing great emphasis on the issue of mortgages for some time. She has always criticized the ECB’s policy of raising interest rates, due to the consequences it has had on the mortgage payments of those who have variable-rate mortgages, which in Italy are many. That is why it is a hot topic in the transalpine country.

Until now, the Executive had hardly taken any measures in this matter. It had limited itself to closing an agreement with the Italian Banking Association to alleviate the burdens of mortgage payments that includes recommendations for banks such as extending the mortgage, moving to a fixed rate or requesting a temporary suspension of payments. These are all measures that already existed on paper and that the banks are not obliged to adopt, so the result has not been as expected.

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