EU state’s bombshell windfall tax dumps bank shares

The unexpectedly high tax on windfall earnings imposed by an EU state drives down bank stock prices. This year, Italy has put a 40% tax on lenders’ “excess” income, which was a surprise.

When the Italian government said that banks would have to pay a one-time tax on windfall gains, the value of the country’s financial stocks dropped on Tuesday by about €10 billion ($11 billion).

By the afternoon, shares of Italy’s biggest bank, Intesa Sanpaolo, and Finecobank, which focuses on online trading, dropped by 8%. BPER Banca’s shares were down 10%. Banco BPM’s stock fell by 9%, and UniCredit’s fell by 7%. The FTSE MIB index in Italy went down by 2.6%, while the Stoxx Europe 600 index went down by 0.7%.

When the Italian government took a big step, it sent shockwaves worldwide. In Germany, Commerzbank dropped around 3.2%, and Deutsche Bank traded 2% lower.

Earlier, Italian Vice Prime Minister Matteo Salvini told the media that the government would use the 40% tax on extra bank profits caused by higher interest rates to lower taxes and help people with first mortgages.

“All you have to do is look at the banks’ profits in the first half of 2023, which are up because of the European Central Bank’s rate hikes,” he said. “You’ll see that we’re not talking about a few million, but rather billions.”

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“Even though the cost of money for households and businesses has gone up and doubled, the amount given to current account holders has not also gone up by the same amount.”

The fee will be applied to “excess” net interest income in 2022 and 2023, which will be caused by higher interest rates. It will be used to net interest income that grows by more than 3% from 2021 to 2022 and more than 6% from 2022 to 2023.

Local news source ANSA says the tax could bring in more than €2 billion ($2.2 billion) for the government.

The tax has to be paid by banks within six months of the end of the financial year.


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