Italian stocks fell after a new surprise tax on bank profits caused the country’s banks to tumble, wiping out €9.3 billion ($10.2billion) of their combined market cap. The European index was held back by a surge in the stock market of drugmaker , Novo Nordisk.
Italy’s FTSE MIB dropped 2.1%. UniCredit SpA fell 5.9%, while Intesa sanpaolo SpA plunged 8.7%. Stoxx Europe 600 fell 0.2% at the London close. Novo Nordisk’s stock jumped following a study that showed its Wegovy treatment for obesity decreased the risk of stroke and heart attack. The company is closing in on LVMH, the largest European firm by market value.
The Italian tax was hidden in a large package of measures, which included everything from taxi licences to foreign investments. According to Ansa, the tax could generate over €2 billion for state coffers. Italy has agreed to a “40% deduction from the banks’ extra profits of multi-billion euros” by 2023. This will finance tax reductions and mortgages for new home owners.
The move by Italy was one of several signs that companies are being held accountable for their business activities, as well as the impact they have on the community. Stephanie Niven is a portfolio manager in London at the investment firm Ninety One.
Niven explained that “one of the problems with banks is that they have been returning more capital to shareholders. This doesn’t sit very well in general given the assistance they received in the past.” “Banks have more capital, and governments don’t want it to be distributed to shareholders exclusively.” Citigroup Inc. analysts estimate that the tax will be equivalent to 19% of bank’s net income in 2023, and approximately 3% tangible book value. Bloomberg Intelligence analysts predicted that the 2023 net income of Italian lenders would be reduced by around 10%.
Leonardo Pellandini is an equity strategist with Bank Julius Baer. He said that the Italian stock exchange was vulnerable to the new levy because financials accounted for more than 30% of the market. “Banks have had a good year, thanks to the higher interest rates that boosted their net margins. It’s time for a healthy consolidate.”
Charles-Henry Monchau said that the news “prompted a review of our position on the sector.”
“While the positive aspects of increased capital, better returns and distribution plans are still relevant, the uncertainty linked to taxes and potential repercussions for earnings introduces new variables to be carefully considered in evaluating the prospects of European banks,” said he.
The Italian tax plan has a new impact on European stocks. Last week, they experienced their first bouts of volatility for a long time, amid speculation about further interest rate hikes affecting economic growth. The weak trade data out of China and the warning from Moody’s Investors Service regarding the state US banks also weighed heavily on Tuesday.
Glencore Plc was among the individual stocks that fell on Tuesday after the commodities trading giant and mining company announced a sharp drop in profits. Abrdn Plc fell after first half results revealed that clients were withdrawing more money from the fund manager.