Government, flat tax in "slow motion": coverage issue remains

Meloni Effect, Banks Burned 9 Billion: Who Loses the Most

with the introduction of Tax on additional profits approved by the government With the omnibus decree, the shares of the banks collapsed in a matter of hours Billions of Euros burned. The decision of the Council of Ministers on Monday 7 August comes in response to an increase in interest rates, which in the previous period ensured record profits for banks as the cost of loans rose.

Italy strikes a chord Surprising blow to its banksBy setting a one-time 40% tax on profits earned from higher interest rates, after scolding lenders for failing to reward deposits. However, this decision set off a chain reaction involving the whole of Europe. Countries such as Spain and Hungary have already imposed extraordinary taxes on this sector and other countries may now follow suit. However, in the meantime Significant damage has been recorded financially. And this could have an unpleasant effect on Italian financial stability.

But let’s take a closer look at what is happening and what its possible consequences may be.

The Meloni government had floated the idea of ​​taxing bank surplus profits earlier in the year, but then never returned to the issue, leading many to believe that it had abandoned the idea. However, since then, the banks’ excellent first half results have brought the matter back into focus and prompted the executive to act on the eve of Parliament’s summer recess (which resumes work in September). Is. Like companies working in the gas and energy sector Banks have taken advantage of the economic crisis Which has spread all over the country in recent times. With official interest rates well above benchmark, banks made record profits as borrowing costs rose.

All of Italy’s major lenders reported better-than-expected results for the first six months of 2023 and improved their profit prospects on the back of higher interest rates. However, unlike other European countries, Italian banks have never charged deposits when official rates fell below zero. Also, since rates have gone up, lenders have cut the cost of current accounts but refused to lend money on deposits, claiming it was money for daily use and not investment.

will impose state tax only in 2023 For the additional profits of the banks, who will have to pay the dues by June 30, 2024. The tax imposed with the omnibus decree applies to the net interest margin (NIM), a measure of income derived from the difference between lending and deposits. Rates. There 40 percent profit margin tax This will be specifically applicable to NIM earned in 2022 or 2023, whichever is higher.

It works like this: The tax will apply on the “excess” net interest income. As a result, higher interest rates in both 2022 and 2023, and a 3% year-over-year increase in 2022 over 2021 levels and a 6% year-over-year increase from 2023 to 2022 will be applied to the NII. Banks are required to pay the tax within six months of the end of the year.

Bank stocks fall: How much loss?

immediately after the announcement of the tax on excess profits on Tuesday 8 August Shares of European banks fellThe banking sector posted its biggest one-day fall since March when Credit Suisse fell.

Italian banks led the losses, ie they are the ones who have suffered the most, The country’s two biggest lenders, Intesa Sanpaolo and Unicredit, fell 8.2% and 7.2% respectively. BPER Banka lost 10.5% and Fincobank 8.8%. Significant losses also for MPS (-10.83%), Banco BPM (-9.09%), Mediolanum (-5.96%). On the other hand, Banca Generali (-3.14%), Mediobanca (-2.48%) and Banca Sistema (-1.55%) are more cautious, with less poste (-1.4%). However, in terms of market capitalization, about 1/3 of the banks lost about 9 billion (8.96 billion euros to be exact).

what are the consequences?

Citi analysts calculate that excess profits will be taxed This could lead to a loss of up to 12 percent of the profits of Italian banks. In 2023. Bank of America estimated the revenue for the government at between €2 and €3 billion. These estimates are in line with estimates confirmed by Palazzo Chigi’s internal sources, according to which the Treasury expects to collect less than 3 billion euros from the measure. This would be similar to the €2.8 billion raised from a tax imposed on energy companies. Analysts at Jefferies and Equita predict that the government may instead raise more than 4.5 billion euros after tax, higher than the 2-3 billion euros suggested by the Italian authorities. Analysts say Intesa and Unicredit will be the biggest contributors, but the capital impact will be more on smaller banks.

However, the stock crash on Tuesday 8 August generated a ripple effect that spreads beyond borders, For example, German bank Commerzbank declined by around 3.2% and Deutsche Bank by 2%. It also had consequences for other banks, including France’s BNP Paribas and Crédit Agricole.

Italy’s Deputy Prime Minister Matteo Salvini told a press conference on Monday that a 40% tax on excess profits from high interest rates by banks, amounting to several billion euros, would be imposed. Used to deduct taxes and provide financial assistance to mortgage holders, “It is enough to look at the profits of banks in the first half of 2023, which is also the result of the European Central Bank’s rate hike, to understand that we are not talking about a few millions, but we are talking about billions. can imagine,” he said. He further added, “If (it is true that) the cost of money burdening households and businesses has increased and doubled, the amount given to account holders has not doubled.” But representatives of Italian banks said their profits would be taxed. “largely negative” for the sector.

“Italian banks expect interest income to be 50 to 80% higher this year than in 2021,” a Milan analyst heard from the Financial Times but wished to remain anonymous said. With this in mind, a 40% levy would have a devastating effect (on capital) small bank“, he explained to himself.

Who Loses Money When the Stock Market Falls?

And stock market crash A stock market crash refers to a large, often unexpected drop in stock prices. Sudden decline in stock prices can be influenced by economic conditions, catastrophic events or speculative elements passing through the market.

The decision to take from the rich (banks) and give to the poor (bank account holders and mortgage-bound households) may sound good, but the market slide could last a day or so. , to generate huge loss, Just imagine what happened with the stock market crash of 1929 or the October stock market crash of 1987, or even more recently the stock market crash of 2020 after the COVID-19 emergency.

Whether an investor has to lose money during a stock market crash depends on his investment. Not all stocks will go down during a crash. Most investors are likely to lose some money if the stock market falls, but those losses will not be realized until investors withdraw cash. However, in any case, the performance of a country’s stock market is the key factor that may or may not lead to investment. As a result, he fell prompts investors to withdraw,

Accidents can have a massive, wide economic impact. Businesses may fail or close Completely if the country is unable to guarantee a certain economic stability. Some investors may lose their entire net worth in the blink of an eye, while others may be able to save some or all of their savings by selling shares before their prices fall further. Definitely, Stock market crash could lead to mass layoffs and economic strife,





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