On Tuesday, European banks dropped by 2.65%, affected by Italy’s new tax on the sector and Moody’s decision to downgrade several US banks’ debt ratings, as market data indicates.
Yesterday, Giorgia Meloni’s Italian government approved a 40% tax on banks’ extraordinary profits. This tax is specific to the years 2022 and 2023 and will not exceed 25% of the banks’ net worth. The government will use all proceeds to “support the purchase of mortgages and tax cuts.”
Italian banks led the decline in European banks. The European Stoxx 600 index banks dropped by 2.65%, with Banca Popolare de Emilia Romagna experiencing the steepest decline at 10.94%.
On Tuesday, none of the 40 banks in the index saw a rise. FinecoBank followed closely with a 9.91% drop, BPM at 9.09%, Intesa Sanpaolo at 8.67%, and Unicredit at 5.94%.
Other institutions like Bank Of Ireland Group saw a decline of 4.7%, Bank Polska Kasa Opieki 4.09%, Bawag 3.73%, and Commerzbank 3.34%.
In Spain, banks recorded the most significant losses on the national stock market, the IBEX 35. Banco Santander dropped by 2.71%, Unicaja by 2.45%, and Banco Sabadell by 2.16%. BBVA ranked fifth with a decline of 1.92%, Bankinter sixth at 1.87%, while Caixabank saw a decrease of 1.48%.
Furthermore, the banking sector felt the impact of Moody’s decision to downgrade the debt ratings of several US entities.
Italian government approves 40% tax on banks’ extraordinary profits Under Giorgia Meloni’s leadership, the Italian government approved a 40% tax on banks’ extraordinary profits for 2022 and 2023, capped at 25% of net worth. They will allocate all proceeds to “support the purchase of mortgages and tax cuts.”
Matteo Salvini, the vice-president and minister for transport and infrastructure, commented on Monday, “This is a logical step that will contribute to tax reductions and mortgage support. We’re discussing billions, not just a few millions.”
The Executive of Giorgia Meloni unexpectedly included this new tax in the latest decree approved before the summer holidays. The draft released to the Italian media days before the approval didn’t mention it.
According to the regulation, the tax applies if the net interest margin in 2022 exceeds the 2021 financial year value by at least 3%. The percentage increases to 6% if comparing 2023 with the previous year.
The extraordinary tax set for 2023 is at a rate of 40%, but it cannot exceed 25% of the net assets’ value at the end of the preceding financial year on 1 January 2023.
Additionally, banks cannot deduct it for income tax and regional business tax.