European stocks rebound as Italy clarifies stance on windfall tax

Lenders such as UniCredit and Intesa Sanpaolo were among the biggest gainers

Italian Prime Minister Giorgia Meloni's government approved a surprise tax on bank profits on Monday. Reuters

European stocks have bounced, led by a jump in Italian banks, as investors evaluated a clarification from Italy about its new tax on lenders’ windfall profits.

The FTSE MIB Index was up 1.2 per cent after recording its biggest drop in over a month on Tuesday.

The bounce-back follows a statement from the Italian Finance Ministry that said the impact of the new tax could be limited for some banks and the levy would not exceed 0.1 per cent of a lender’s assets.

UniCredit and Intesa Sanpaolo were among the biggest gainers. The benchmark Stoxx 600 gained 0.9 per cent by 8.11am in London (11.10am UAE time) as investor focus turned to key US inflation data due later in the week after China posted a drop in consumer and producer prices.

Banks that have already increased the interest rates they offer to depositors “will not see a significant impact as a consequence of the rule approved yesterday”, the Finance Ministry said on Tuesday night.

The clarification came about 24 hours after the government shocked markets with the unexpected tax, announced in off-the-cuff remarks by Deputy Prime Minister Matteo Salvini at the end of a news conference on other measures approved by Italy’s cabinet.

The nation’s largest banks, Intesa Sanpaolo and UniCredit, have reported a surge in their net interest income, and analysts' estimates for the 2023 haul would mean that the tax would probably hit the cap of 0.1 per cent of assets.

The government did not specify the measure used to determine the cap. If it is based on global assets, that would leave the two banks each facing a levy of about $1 billion.

If it applies only to their Italian assets, the figure would be much lower, but would still amount to several hundred million euros.

The 40 per cent levy on the extra profits of lenders sent Italian bank stocks tumbling.

The tax is aimed at lenders’ higher interest incomes following rate increases by the European Central Bank.

The tax income will be used for a fund to help reduce financial pressure on families and companies, the government said.

The 40 per cent tax will be levied on the larger of two measures: The difference between net interest income in 2022 and 2021 in excess of a 5 per cent gain, or the difference in net interest income between 2023 and 2021 above a 10 per cent gain, according to the ministry.