STORY: Italian bank stocks plummet after gov't approves windfall tax
DATELINE: Aug. 10, 2023
LENGTH: 00:00:28
LOCATION: Rome
CATEGORY: ECONOMY
 
SHOTLIST:
1. various of banks in Rome
 
STORYLINE:
 
Italian banking stocks took a beating on Tuesday, after the government passed a measure that will tax the surplus profits of the country's financial institutions at 40 percent this year.
 
Matteo Salvini, Italy's Deputy Prime Minister and Minister of Infrastructure and Transportation, said that the funds raised by the windfall tax would be used to help poor families and small businesses hurt by the increase in interest rates over the last year. The new decree was passed by the Council of Ministers late on Monday.
 
The country's main banks felt the impact of the new policy immediately.
 
The main blue-chip index on the Italian Stock Exchange in Milan finished Tuesday's trading session down 2.1 percent, in what was a mildly negative session across Europe. Paris's CAC-40 index was down 0.69 percent for the day, while the DAX index in Frankfurt fell 1.1 percent.
 
Banking stocks were the main issue pushing the Milan bourse lower. The nine biggest losers on the blue-chip index on Tuesday were all financial institutions. These were led by BPER Banca, which sank 10.9 percent, and Banca Monte dei Paschi di Siena (MPS), which lost 10.8 percent of its value.
 
Banca Intesa Sanpaolo and Unicredit, Italy's two largest banks based on the value of assets under control, fell by 8.7 percent and 5.9 percent respectively.
 
Despite Tuesday's declines, all of the day's biggest losers were still in positive territory for the year-to-date period.
 
Financial institutions have been among the beneficiaries of consecutive interest rate hikes from the European Central Bank (ECB), which is trying to curb the inflation rate in the eurozone. Inflation has surged in the eurozone since the start of the conflict between Russia and Ukraine, which reduced global energy supplies and disrupted trade networks.
 
Inflation in the eurozone has come down from a peak of 10.6 percent in October 2022 to 5.3 percent in July this year. In its latest economic note from late July, the ECB acknowledged the decline in the inflation rate, but said it still remained too far above its 2 percent target. "Inflation continues to decline but is still expected to remain too high for too long," the ECB said, explaining its decision to raise its key interest rates by a further 25 basis points.
 
Banks and other financial institutions have seen profits increase as a result of the higher interest rates, which allow them to charge more for loans and collect more on investments. However, the trend has taken a toll on consumer and business sentiment, and the buying power of families.
 
The new Italian policy seeks to soften that blow by charging a 40 percent levy on what it calls "extraordinary profits" -- a level it defines as profits more than 5 percent above levels of profit recorded a year earlier.
 
The one-time tax will be paid next year, and will be separate from other tax payments by the institutions concerned. The revenue produced by the tax will be used for a special fund for mortgages on first homes, and for other measures "aimed at reducing the tax burden of households and businesses." The decree also includes incentives designed to encourage investments.
 
Xinhua News Agency correspondents reporting from Rome.
(XHTV)