Aug. 9 (UPI) — Italian bank stock prices rebounded on Wednesday after the government limited a new one-time 40% tax on bank profits, which triggered a selloff on the previous day.
The stocks took a steep fall after the government announced a 40% windfall tax on excess profits resulting from higher interest rates in 2023. However, the government later announced that the tax on bank assets would be capped.
“The measure aims to safeguard the stability of banking institutions and has set a maximum ceiling of 0.1% of total assets for the contribution,” according to the statement.
Italy’s BPER Banca saw a decline of over 9% in its bank shares, while Intesa Sanpaolo and Finecobank were down by more than 8%. Banco BPM fell by 7% and Unicredit initially lost 6% before recovering on Wednesday.
The proposed tax measure targets excess net interest income profits resulting from higher interest rates.
Gianmarco Rania, the Head of Equity at Banor Capital, explained that the impact on bank stock prices occurred when banks realized that the windfall profit tax would collect significantly more than expected, up to $5.48 billion (€5 billion) instead of $3.29 billion (€3 billion).
“With these changes, now we are talking about numbers that are less significant and more manageable. This means around a 10-12% impact on earnings for small and mid-sized banks in 2023, and something that is not really meaningful for larger banks, at around 3-5%,” Rania told CNBC.
An analysis by Citi of the original government windfall bank profits tax revealed that up to 0.5% of total bank assets could be affected by the proposed tax.
The government imposed the tax because rising interest rates were boosting bank profits but also increasing the cost of living for people.
The one-time bank tax is expected to be used to reduce taxes for consumers in Italy and provide some relief for mortgages.
The implementation of the bank profits tax still requires approval from the parliament.
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