Closing post
Time to wrap up:
Italy has announced a one-off 40% windfall tax on local banks that have been accused of reaping billions in extra profit from rising interest rates.
The Italian government, which approved the surprise tax in a cabinet meeting on Monday night, said it planned to use the proceeds to support mortgage holders and cut taxes, at a time when rising rates have put extra pressure on households.
The decision, which analysts said could force banks to collectively give as much as €4.9bn (£4.2bn) to the state, sent bank shares plunging…
China’s imports and exports fell much faster than expected in July as weaker demand threatens recovery prospects in the world’s second-largest economy.
Imports dropped 12.4% in July year-on-year, while exports fell by 14.5%.
Here’s the rest of the main news today:
Italy's FTSE MIB closes down 2% as banks slide
Italy’s main stock index, the FTSE MIB, has closed for the night down over 2%.
The FTSE MIB shed 605 points, or 2.1%, to end the day at 27,942 points, as Rome’s new bank windfall tax rattles the markets.
Shares in Unicredit ended the day down 5.9%, while Italy’s largest bank, Intesa SanPaulo, has lost 8.5%.
In London, the FTSE 100 has closed 27 points or 0.36% lower, as the fall in China’s trade last month also hit stocks such as mining companies.
Michael Hewson of CMC Markets explains:
Despite the weakness in basic resources, the FTSE100 has managed to hold up rather well, unlike markets in Europe which have fallen sharply, with the banking sector there also under pressure after the Italian government whacked an unexpected 40% windfall tax on bank profits for this year, which it is estimated could raise an extra €2bn of revenue.
This move has precipitated similar weakness in German, Spanish and French banks over concerns that the move by Italy could be adopted Europe wide, with UniCredit, Deutsche Bank, Intesa, Santander, and Paribas all sharply lower.
And here’s Positive Money’s Simon Youel on the impact of a UK bank windfall tax:
Based on the profits we've seen so far, a 40% windfall tax in the UK could be expected to raise at least £20bn this year from the big four banks alone
— Simon Youel (@youellog) August 8, 2023
That would be the equivalent of more than £700 per UK household - I know which I'd rather have! https://t.co/gFMKSdlsmH
Italy's tax is a tax on net interest margins, so based on the net interest income reported by UK banks so far, a 40% tax would raise £24bn this year from the big four banks alone
— Simon Youel (@youellog) August 8, 2023
Labour MP Beth Winter has argued that the UK government should consider bringing in a windfall tax on bank profits here…
Italy joins Spain in approving a windfall tax on bank profits after interest rates rise.
— Beth Winter MP (@BethWinterMP) August 8, 2023
The UK Govt should consider the same instead of its bank tax cut.
Rather than bank profiteering, tax banks to fund cost-of-living support, including public sector pay rises. pic.twitter.com/b4EqQmL0HT
BBG: Meloni shows financiers who’s boss, with a windfall profits tax.
Italian Prime Minister Giorgia Meloni has abruptly disturbed bankers’ summer holidays, writes Bloomberg’s Rachel Sanderson:
In a move that spooked markets, her hard-right government blindsided banks with a windfall tax in a decree passed at a late night cabinet meeting on Monday. The law provides for “40% withdrawal from banks’ multibillion-euro extra profits,” which resulted largely from European Central Bank interest rate increases.
Bloomberg Intelligence estimates Italian lenders’ 2023 net income could be cut by 10% as a result.
By mid-morning on Tuesday, the nine biggest losers on the nation’s benchmark stock index were banks.
More here….
Italy's right-wing premier takes on banks and shows her appetite for bare-knuckle politics, writes @Sanderson_Rach https://t.co/4jODkjmQ6F via @opinion
— Bloomberg (@business) August 8, 2023
The Financial Times’s Lex column has criticised Italy’s windfall tax raid on its banks.
They argue that European bank stocks are cheap because these institutions are the playthings of politicians, saying:
Windfall taxes are a blunt policy tool. They may fill government coffers in the short term. But they also hit investor confidence and future business prospects. That is doubly true when levies are big and haphazard.
A surprise windfall tax on Italian banks is a prime example. A draft official text primes them for pain. The populist government led by Giorgia Meloni is seeking to nab 40 per cent of the extra profits lenders are raking in from high interest rates.
The move appears to be a legislative afterthought to appease voters who believe Italy has stinted on support for lower income voters.
Italy bank tax: Giorgia Meloni’s blunt instrument evokes discord https://t.co/0OkNdZ0Fly
— The Lex Column (@FTLex) August 8, 2023
Lex argues that governments that mount tax raids on a whim can expect to forfeit receipts, through “higher risk premia on their financings.”
A counter argument, I guess, is that taxpayers had to pay when banking losses were nationalised after the financial crisis, so a windfall tax on profits from higher interest rates (brought in to cool inflation) is only fair….
Wall Street falls after China trade slowdown
Stocks have opened lower in New York, as traders react to this morning’s slide in Chinese trade.
The Dow Jones industrial average is down 446 points, or 1.25%, at 35,026 points, with the broader S&P 500 down 1%.
Financial stocks are among the fallers, after Moody’s cut the credit ratings of several small to mid-sized U.S. banks on Monday.
Drivers hit with largest increase in petrol prices for a year
UK drivers have been hit with the largest jump in petrol prices in over a year.
Figures published by the Department for Energy Security and Net Zero show UK forecourts charged an average of 146.2p per litre for petrol and 148.2p per litre for diesel on Monday.
Analysis by the PA news agency found this represents the largest weekly increase in petrol prices since June last year, at 2.1p per litre.
There was a largely uninterrupted fall in average petrol prices from late October 2022 until late June, but pump prices have now risen for three consecutive weeks.
This follows a rise in crude prices, from around $72 per barrel in late June to $85 per barrel at the end of July.
AA pump price spokesman Luke Bosdet said:
“The summer of cheaper petrol and diesel has fizzled out as oil producers cut production to force up the cost of oil and therefore increase road fuel prices.
“Drivers have complained about some very rapid rises at the pump - sometimes 2p or 3p a litre in one go.”
“This won’t help the cost-of-living crisis or inflation but, hopefully, more pump price transparency will pressure retailers to be more responsive when costs come back down again.”
Steve Gooding, director of the RAC Foundation, said:
“High street retailers might be discounting their prices to lure us back to their shops, but there is no such luck at our service stations as fuel prices rocket just as many families are filling up for their summer holiday getaways.
“We can only hope that fuel companies are still feeling the eyes of ministers and the CMA on them as they calculate how much they really need to charge to cover their costs.”
Updated
Novo Nordisk’s obesity drug cuts risk of strokes and heart attacks, study shows
Novo Nordisk has said a large late-stage study showed its obesity drug Wegovy had a clear medical benefit – reducing the risk of stroke – in addition to weight loss.
It’s a big boost to the Danish drugmaker, which hopes to move beyond Wegovy’s image as a lifestyle drug.
The company said a weekly injection reduced the risk of a major cardiovascular event like a stroke by 20% in overweight or obese people with a history of heart disease, which was better than expected. The study called SELECT involved 17,600 patients aged 45 years or older with no prior history of diabetes and started nearly five years ago, to find out if the weekly injection has medical benefits.
The news sent Novo shares soaring by 15.5% to record highs. The drugmaker is in Europe’s second-most valuable listed company after the luxury goods maker LVMH.
Barclays analyst Emily Field said:
“If they play baseball in Denmark, Wegovy just hit a home run. This was the best readout we could have hoped to see after the trial was not stopped early last year…
The press release reads like this is a very clear and conclusive result regarding CVOT [cardiovascular outcome trial] benefit.”
Novo expects to file for regulatory approval of a label indication expansion for the weekly injection in the US and the EU later this year.
Martin Holst Lange, executive vice president for development at Novo, said the landmark trial has demonstrated how the drug “has the potential to change how obesity is regarded and treated.”
The injection makes patients feel full for longer and leads to an average weight loss of around 15% when combined with changes to diet and exercise.
Cinema chain AMC reports 'explosive' start from Barbie and Oppenheimer
US cinema chain AMC has reported that hit movies Barbie and Oppenheimer have helped it get off to an “explosive start” this summer.
In its latest financial results, Adam Aron, chairman and CEO of AMC, told shareholders that the 2023 domestic industry box office is 20% ahead of last year, adding:
The third quarter of 2023 is off to an explosive start with Barbie, Oppenheimer, Mission Impossible - Dead Reckoning Part One, and Sound Of Freedom, among others, combining to cause July to become the highest monthly revenue in AMC’s storied 103-year history.
Both Barbie and Oppenheimer opened on the same weekend in July, leading to the phenmonemn of watching both films on the same day – in a double bill described as “a nightmarish combo” by our writer Stuart Heritage:
AMC also reported that it returned to profit in the second quarter of this year. It made a net income of $8.6m, up from a net loss of $121.6m in Q2 2022.
Sales at the vegan burger maker Beyond Meat have slumped by almost a third as consumers opt for cheaper animal protein amid the cost of living crisis.
The US company, whose plant-based products include burgers that appear to bleed and imitations of sausages and meatballs, has cut its annual revenue forecast in the latest sign that the vegan food bubble is bursting.
Beyond Meat, which has co-developed McDonald’s McPlant vegan burger, said sales fell 30.5% to $102.1m (£80m) in the quarter to 1 July, missing analysts’ expectations. Its net loss shrank to $53.5m from $97.1m a year earlier.
Reuters also has more details of how the windfall tax will be implemented:
Italy will apply the tax only in 2023, with banks paying the sums by June 30, 2024.
The measure applies to the net interest margin (NIM), a measure of income deriving from the gap between lending and deposit rates.
Italy will tax 40% of the NIM earned in 2022 or 2023 - depending on which sum is bigger - targeting the yearly increase above thresholds set at no less than 5% for 2022 and 10% for 2023. Under the early draft, the thresholds were 3% and 6%.
ITALY GOVT SETS AT 5% AND 10% THRESHOLDS ON NET INTEREST MARGIN FOR WINDFALL TAX ON BANK PROFITS - STATEMENT
— DTC Times (@DTCTimes) August 8, 2023
Back in Italy, one government source has told Reuters the move to approve a bank windfall tax came as a surprise even to some ministers at Monday night’s cabinet meeting.
A second source made clear the government intended “to punish banks’ unfair behaviour”.
US trade deficit shrinks
We have more trade data, this time from the US….. where the trade deficit has shrunk by over 4%.
America’s goods and services deficit was $65.5bn in June, official data shows, down $2.8bn from the $68.3bn recorded in May.
Imports fell by 1%, to $313bn, including a $2.3bn decrease in shipments of heavy-duty capital goods into the US
Exports were 0.1% down at $247.5bn, partly due to a £500m drop in the value of crude oil shipments.
The report also shows:
The deficit with China decreased $2.1 billion to $22.8 billion in June. Exports decreased $0.2 billion to $10.7 billion and imports decreased $2.3 billion to $33.5 billion.
The deficit with Canada decreased $1.7 billion to $3.3 billion in June. Exports decreased $0.6 billion to $28.7 billion and imports decreased $2.2 billion to $32.0 billion.
The balance with the United Kingdom shifted from a surplus of $1.2 billion in May to a deficit of $0.8 billion in June. Exports decreased $1.4 billion to $4.8 billion and imports increased $0.5 billion to $5.6 billion.
Analysts at investment bank Jefferies point out there is uncertainty over exactly how Italy’s windfall tax will work, and how much it will raise.
They told clients today:
The press is reporting that the government is seeking to raise €2bn-€3bn, while our estimates from the cumulated impact for 2022 and 2023 for the 10 Italian banks under our coverage, based on the calculations mentioned above, point to €4.9bn of which €1.5bn from the 2022 leg and €3.3bn for the 2023 leg, which could imply that the government will tone down the final version of the law that has still to go through the parliament approval.
As of now we haven’t seen an official version of the law which adds further uncertainty over the potential impacts of this decision.
Back in the UK, the Competition Appeal Tribunal has upheld a ruling against a pharmaceutical company which inflated the price of its thyroid tablets, but cut the fine imposed on its former private equity owners.
The Competition Appeal Tribunal has unanimously upheld the Competition and Markets Authority’s ruling in 2021 that pharmaceutical company Advanz had charged “excessive and unfair prices” for liothyronine tablets, which are used to treat thyroid hormone deficiency.
Advanz, the sole supplier of the tablets, increased prices by over 1,000% from £20 to £248 per pack between 2009 and 2017, which the CMA ruled was a breach of competition law.
In 2021, the CMA imposed a fine of almost £41m on Advanz, and ruled that its former private equity owners – Hg Capital and Cinven – should pay penalties of £8.6m and £51.9m respectively.
Those latter penalties have been cut by the Tribunal, though, with Hg now fined £6.2m and Cinven: £37.1m.
Michael Grenfell, executive director for enforcement at the CMA, says:
We are delighted that the Competition Appeal Tribunal has unanimously upheld the CMA’s infringement findings. Today’s landmark judgment reinforces the need for companies to think carefully about how they set prices and paves the way for the NHS to seek compensation.
The CMA will continue to crack down on companies which abuse their market power in ways that harm people and the wider economy.
Updated
There’s some good economic news for the German government today – Taiwan Semiconductor Manufacturing Co (TSMC) has decided to build its first European factory in Germany.
TSMC, the world’s largest contract chipmaker, will build a new a fabrication plant, or “fab,” in Dresden. It will be its third outside its traditional manufacturing bases Taiwan and China.
German economy minister Robert Habeck has welcomed the decision, saying:
“With this TSMC investment, another global player in the semiconductor sector is coming to Germany. This shows that Germany is an attractive and competitive location.”
LATEST: TSMC approves 1st European fab in Dresden, Germany. The chip giant's board says it'll put up US$3.8 billion for the project.
— TaiwanPlus (@taiwanplusnews) August 8, 2023
The plan has been welcomed by Germany's Economic Minister Robert Habeck.
FTSE 100 in red as Abrdn slides
Britain’s FTSE 100 share index is in the red this morning, down 41 points or 0.5% at 7512 points.
Asset manager Abrdn is the top faller, down 10%, after reporting a rise in net outflows.
Assets under management dropped by around 1% in the first half of the year, to £496bn from £500bn at the end of the 2002 financial year, “reflecting the impact of net outflows”.
It reported a pre-tax loss of £169m, up from a £326m loss a year ago, due to a fall in market value of its listed stakes.
Stephen Bird, chief executive officer, says it has been another turbulent investing year.
Bird told shareholders:
If 2022 was one of the hardest investing years in living memory, 2023 is shaping up to be equally challenging. Geopolitical risk is back. Inflation is back. Credit risk is back.
Here’s Jeffrey Kleintop, chief global investment strategist at Charles Schwab & Co, on the Italian bank windfall profit tax:
Italy’s government shocked markets today with an unexpected tax on bank windfall profits stemming from the ECB's rate hikes.
— Jeffrey Kleintop (@JeffreyKleintop) August 8, 2023
Italy isn't alone.
- Spain first outlined plans for a temporary tax on bank revenues last year.
- UK opposition politicians are raising the idea of more… pic.twitter.com/363gIJbDfY
Some backbench Labour MPs have indeed argued that banks should
Former Shadow Home Secretary Diane Abbott told NationalWorld last month:
“The banks are clearly profiteering. This is contributing to the squeeze on the economy. Of course, there should be a tax on windfall profits, with the funds used to ease the cost of living crisis.”
Updated
UK mortgage rates are flat this morning.
Moneyfacts reports that
The average 2-year fixed residential mortgage rate today is 6.84%, unchanged from Monday
The average 5-year fixed residential mortgage rate today is 6.35%, also unchanged from the previous working day.
Three more residential mortgage products have come onto the market today, lifting the total available to 5,106.
Elsewhere in finance… savings giant NS&I (National Savings and Investments) is beefing up the odds on a win through holding Premium Bonds.
The odds will improve to 21,000 to one, from 22,000 to one previously - their best level since the April 2008 prize draw.
NS&I estimates that there will be 5,785,904 prizes up for grabs from September - an increase of more than 269,000 when compared with August 2023.
The estimated number of £1 million prizes in September will remain the same, at two.
There will be about 90 £100,000 prizes, up from an estimated 77 in August.
And there will be an estimated 181 £50,000 prizes in September, up from 154 in August.
While there will be more big money prizes on offer, the estimated number of £25 prizes will reduce, to 1,027,604 in September, down from 1,700,728 in August.
The prize fund rate will increase from from 4.00% to 4.65% from the September draw, marking its highest level since March 1999.
The change in odds will see an estimated extra £66 million added to the prize fund next month, with a potential prize pot of more than £470 million.
Premium Bonds: new odds and interest rate and changed prize structure from Sept draw mean someone with max £50,000 holding can expect 1x£50 plus 1x£100 prize each month and five £25 prizes per year = 3.72% tax free = 4.65% (basic) or 6.2% (higher). 1.16m people have the max.
— Paul Lewis (@paullewismoney) August 8, 2023
CEO of JP Morgan's Chase UK unexpectedly leaving
The CEO of JP Morgan’s online-only retail bank, Chase UK, has unexpectedly resigned.
Sanjiv Somani’s departure comes as a surprise, having just weeks ago told the Guardian in a yet-to-be-published sit-down interview:
“I am here as long as the customers need me, and the bank needs me. Every day is still as exciting for me, and as energising as it was when I started this journey four and a half years ago, in September 2018.
So for me every day I wake up with a spring in my step and come here that day. I’m not doing that, I will not be doing this job.”
It is understood that Somani was not fired, but the reasons for his exit are not being disclosed.
Sanoke Viswanathan, who is head of CEO of JP Morgan’s international consumer banking (ICB) arm and helped recruit his former McKinsey colleague to the bank in 2016 before they built Chase UK together, will be taking over Somani’s responsibility with immediate effect.
He said in an internal memo:
“We will continue on this journey together, but we will need to do so without Sanjiv Somani, who is leaving the firm and will pursue opportunities outside of JPMorgan Chase.
I want to thank Sanjiv for leading ICB in the UK, and for his considerable contribution to building and launching the business that we have today. I will immediately reassume the day-to-day leadership of our UK business to ensure seamless continuity in the execution of our plans.”
Chase UK, which employs 1,700 people in the UK, has grown to 1.6 million customers since its launch in 2021, and holds around £15bn in deposits. It continues to be a loss making venture for JP Morgan, but the lender has started to build out a team in Berlin ahead of an expected expansion on the European continent.
Viswanathan insisted in the memo that there would be no change in Chase’s plans, saying:
“There should be no direct impact on your own projects, and you should continue to work with the talented leadership team that we have in place, as you always have done.”
JP Morgan declined to comment. Somani was contacted via LinkedIn for comment.
Updated
Sky: Gordon Brothers weighs rescue bid for ailing retailer Wilko
Sky News are reporting that a specialist investor in struggling retailers is exploring a bid to rescue Wilko, the budget retailer on the brink of collapse.
They say that Gordon Brothers, which has backed British high street names including Laura Ashley, is in talks with Wilko’s advisers about structuring a potential deal.
Sources said that an offer could involve Gordon Brothers providing funding to the general merchandise retailer to implement a restructuring that would involve significant numbers of store closures and job losses.
More here.
Exclusive: Gordon Brothers, the specialist retail investor which owns Laura Ashley, is considering a bid to rescue Wilko, the ailing family-owned general merchandise chain which is teetering on the brink of administration with up to 12,000 jobs at risk. https://t.co/snM9X5oAIm
— Mark Kleinman (@MarkKleinmanSky) August 8, 2023
Wilco, which has about 400 stores, said last Thursday it had filed a notice of intention to appoint administrators at the high court on Thursday with advisory firm PricewaterhouseCoopers (PwC) lined up.
PwC has been working with Wilko in recent months to try to find a buyer in an attempt to secure additional cash needed by the end of this month to keep trading.
Here’s our news story on the Italian bank windfall tax:
The imposition of a windfall tax on Italian banks will be a welcome development for campaigners from Positive Money who have been calling on the British government for a similar levy on UK bank profits, Victoria Scholar, head of investment at interactive investor, tells us:
However at the moment, a windfall tax on UK banks still feels quite unlikely, she argues.
Banks in Italy, the UK and beyond have enjoyed a major tailwind from rising interest rates driven by the shift towards monetary tightening imposed by central banks to combat inflation. While bank earnings have ballooned, many mortgage holders, particularly those on variable rates, have struggled on the back of rising borrowing rates at a time when the cost-of-living is already taking its toll and real wage growth is in negative territory.
One downside of a windfall tax, is that, if it is used to fund tax cuts like in Italy, it could potentially work against the Bank of England, which is trying to reduce borrowing and spending in attempt to cool inflation. It may also discourage investment in the financial sector.
Perhaps instead there should be greater efforts by the government to encourage banks to pass on the benefit of higher interest rates to savers through higher savings rates, more quickly and more aggressively, which would discourage spending, encourage saving and in turn help to bring down inflation.
Delighted to see that Italy has imposed a 40% windfall tax on the unearned profits banks are making from interest rates 👏
— Positive Money (@PositiveMoneyUK) August 8, 2023
As @franboait told @guardian a 35% windfall tax on bank profits here in the UK would generate £67 billion over the next five years!https://t.co/pccui9nEzG
The one-off Italian bank windfall tax will be equal to around 19% of banks’ net profits for the year, analysts at Citi estimated based on currently available data.
That’s via CNBC, who add:
“We see this tax as substantially negative for banks given both the impact on capital and profit as well as for cost of equity of bank shares. The new simulated impact is also higher [than] the simulation we ran in April,” Citi Equity Research Analyst Azzurra Guelfi said in a note Tuesday.
Italian bank shares slide after government surprises with windfall tax https://t.co/YZRxIGIVf2
— CNBC (@CNBC) August 8, 2023
Steve Clayton, head of equity funds at Hargreaves Lansdown, says:
Italy announced an unexpected new levy on the banking sector last night, with premier Giorgia Meloni’s government announcing that “extra profits” made by banks on the back of higher interest rates would be subjected to a 40% additional tax charge.
The move comes in the wake of Italian banks increasing their profit guidance for the full year after surging first half profits.
The Financial Times points out that Italian PM Giorgia Meloni’s government has been critical of banks for failing to raise deposit rates to help small savers, even as it raises lending rates in tandem with European Central Bank rate rises.
They add:
The tax was approved in a cabinet meeting late Monday night, and announced by Matteo Salvini, deputy prime minister, in a press conference, but it will still require parliamentary approval, analysts said.
Breaking news: Italy’s rightwing coalition has surprised markets with the announcement of a 40% 'windfall' tax on banks https://t.co/ylBQrO2aPN pic.twitter.com/eo2aHXXDOP
— Financial Times (@FinancialTimes) August 8, 2023
Updated
Italian foreign minister Antonio Tajani, who is also a deputy premier, pointed the finger at the European Central Bank for raising interest rates – allowing commercial banks to swell their profits.
Tajani told newspaper Corriere della Sera:
“We have been saying for months the ECB was wrong to raise rates and this is an inevitable consequence.”
Bloomberg reports that Italian stocks dropped after a surprise new tax on bank profits sent the country’s lenders tumbling, erasing as much as €9.5 billion ($10.4 billion) from their combined market capitalization.
European stocks fall after Italy surprised investors with a new tax on bank profits, sending lenders’ shares plunging https://t.co/cMFdcUKHSi
— Bloomberg (@business) August 8, 2023
The cost of insuring Italian bank debt against default using a credit default swap has risen this morning (but remains at low levels):
🇪🇺🇮🇹[RTRS] - #INTESA #SANPAOLO 5-YEAR CDS RISE TO 102 BPS, HIGHEST SINCE JULY 11 FROM 98 BPS AT LAST CLOSE - S&P GLOBAL MARKET INTELLIGENCE pic.twitter.com/IFgtL9ybh9
— Financial Networking Group (@FngFinancial) August 8, 2023
Italian #banks were the worst performers among European stocks, leading declines on the #Stoxx 600 Index , with shares in UniCredit SpA and Intesa Sanpaolo SpA down.
— Financial Networking Group (@FngFinancial) August 8, 2023
The #FTSE MIB was down -1.56%, leading declines in Europe. pic.twitter.com/jrnfZtn7XQ
How the windfall tax will work
Under the one-off levy, Italy will tax 40% of banks’ net interest margin, a measure of income banks derive from the gap between lending and deposit rates, Reuters explains.
The net interest margin (NIM) is a key measure of profitability and growth. It measures the difference between what the bank charges borrowers and what it pays out to savers.
Banks increased their NIMs as central banks lifted interest rates as inflation began to climb, by raising borrowing costs more quickly than they boosted their savings rates.
Italy’s banking index is down 7.5% after Italy’s cabinet approved the one-off 40% windfall tax on banks.
One Milan-based trader has told Reuters that the Italian banking windfall tax…
…has caught some by surprise, and the market is wandering around looking for what the actual impact will be on individual stocks.”
They added:
“The good thing is that it is a one-off measure.”
It’s a dramatic time in the banking sector, with Italy unveiling a windfall tax and Moody’s cutting the credit ratings of several small to mid-sized U.S. banks last night.
Victoria Scholar, head of investment at interactive investor, tells us:
Banks are under pressure across Europe after Moody’s cut its credit ratings on 10 small to mid-sized US banks and warned it may do the same for some of the larger lenders such as BNY Mellon and State Street which have been placed on possible downgrade review.
Italian banks such as Intesa Sanpaolo, BPER Banca and Unicredit are falling particularly sharply after the government approved a 40% windfall tax on banks for 2023.
Banks have enjoyed a major tailwind from rising interest rates with the government looking to redistribute those earnings towards those who are struggling with expensive mortgage payments.
The Euro Stoxx banks index is on track for its worst session since March.
Updated
With bank shares sliding, Italy’s FTSE MIB share index has dropped by 1.5% in early trading.
Britishvolt buyer hasn't made final payment, administrators say
The rescue deal for UK battery firm Britishvolt has been cast into doubt, after the Australian company taking over the company missed the deadline to pay for it.
Filings from administrators EY show that the final instalment of a total payment of £8.57m, which was due on 5 April, has not yet been paid. ITV News reported last weekend
EY said that the buyer, Recharge Industries, had therefore defaulted on its agreement to buy the business.
The EY report said:
“The final instalment remains unpaid and overdue. As a result, the buyer is in default of the business sale agreement.”
However, Recharge Industries are challenging this, the BBC report, saying:
“We dispute we are in default.”
Britishvolt had planned to build a massive £4bn car battery factory in the north-east of England, but went into administration in January after running out of money.
In February, Recharge Industries won the bidding battle for Britishvolt, reviving hopes that the “gigafactory” would be built, to help Britain’s move towards producing electric vehicles.
🇮🇹 Italian banks fall after the opening bell in Europe as the government approves a 40% windfall tax on the sector#UniCredit #Intesa #FinecoBank $MIB $UCG $ISP $FBKhttps://t.co/f66XumkFEf
— Baha News (@baha24news) August 8, 2023
Shares in Italian banks are sliding, after the country’s cabinet agreed to impose a 40% windfall profit tax for this year.
Intesa Sanpaolo’s shares have tumbled almost 8%, while Unicredit are down over 6%.
JUST IN: UniCredit shares drop after Italy approved a surprise tax on the “extra profits” of banks this year https://t.co/A0KiOG1tn6 pic.twitter.com/UQWssHCXFR
— Bloomberg Markets (@markets) August 8, 2023
Updated
Italy approves 40% windfall tax on banks, to be limited to 2023
— Joumanna Nasr Bercetche 🇱🇧 (@CNBCJou) August 8, 2023
Context: Italian banks have been enjoying a huge rally this year due to good profitability, robust CET1 ratios, generous distribution strategies. Unicredit alone is +70% YTDhttps://t.co/i4WncdTrNg
Italy approves 40% windfall tax on banks, to be limited to 2023 https://t.co/zlTraX0k4k pic.twitter.com/EHrJ6iVUsB
— いつも悩んでる人 （硬式） (@kackiee) August 8, 2023
Italy approves 40% windfall tax on banks
The Italian government is hitting the country’s banks with a new windfall tax, to help families through the cost of living squeeze.
Italy’s cabinet yesterday approved a 40% “windfall tax” on bank profits this year, with the proceeds earmarked to help mortgage holders and cut taxes.
Deputy prime minister Matteo Salvini told a news conference that the levy will hit the profits reaped from higher interest rates:
“One only has to look at the banks’ first-half 2023 profits, also the result of the European Central Bank’s rate hikes, to realise that we are not talking about a few millions, but we are talking one can assume of billions.”
Italy’s banks (like those in the UK) have benefited from rising interest rates over the last year.
Update: Under the one-off levy, Italy will tax 40% of banks’ net interest margin, a measure of income banks derive from the gap between lending and deposit rates, Reuters reports.
Last month, Intesa Sanpaolo, Italy’s biggest bank, lifted its profit outlook for the current year after beating forecasts with a €2.27bn net profit for April-June.
Campaigners in the UK have also been pushing for a windfall tax too.
Fran Boait, executive director of campaign group Positive Money, wrote back in February:
Just like oil and gas companies, banks are cashing in on the cost of living crisis, and should be subject to the same taxes on their unearned windfalls.
The former Bank of England deputy governor Sir Charlie Bean has supported the plan, suggesting that it could raise tens of billions of pounds. If the government increased the existing surcharge on bank profits from 3% to 35%, in line with the energy profits levy, this would raise £67bn over the next five years.
A bank windfall tax must avoid the loopholes the energy levy contained, which BP and Shell have exploited in recent months. The oil giants have been allowed to avoid paying the tax in full by chucking loads of money into fossil fuel exploration.
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The 12.4% drop in China’s imports last month is partly due to some commodity prices having dropped compared to last year.
Oil, for example, is rather cheaper than in summer 2022.
Xu Tianchen, senior economist at the Economist Intelligence Unit, explains:
“For example, China is importing more oil but at lower prices, as a result the volume of crude oil accelerated in July, but the import value slowed.
Similar logic holds for grains and soybeans.”
China’s economy is being pulled down by weaker global demand and a domestic slowdown, says Jim Reid, strategist at Deutsche Bank.
Here’s his take on today’s trade data from China:
Early morning data from China showed that exports dropped for the third consecutive month, sliding -14.5% y/y in July (v/s -13.2% expected; -12.4% in June) and recording its biggest drop since July 2020, highlighting that the world’s second biggest economy is being dragged lower by weakness in global demand and a domestic slowdown.
At the same time, imports contracted -12.4% y/y in July (-5.6% expected) compared to a -6.8% drop in the previous month.
Stocks in China are lower today as investors digest the slowdown in trade last month.
The Chinese CSI 300 index is down 0.3%, while Hong Kong’s Hang Seng index has dropped by 2%.
The FT points out that the Hang Seng China Enterprises index was down 1.8% following Tuesday’s trade data release.
Louis Tse, managing director of Hong Kong-based broker Wealthy Securities, said:
“There’s a lot of selling happening today on the back of this export data.”
Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis, says today’s Chinese trade data is a shock to the markets:
#China's July #trade data has shocked markets: plummeting exports (much worse than in June), even more than imports (YoY) both with double-digit negative growth. Recent #RMB appreciation from stimulus announcements wiped out with this worrisome data (1/2)
— Alicia GarciaHerrero 艾西亞 (@Aligarciaherrer) August 8, 2023
Exports fell much more to the US (and the EU to a lesser extent). Hard to tell if derisking or waning demand. The fact that exports to Russia also fell 8% may point to the latter (2/2)
— Alicia GarciaHerrero 艾西亞 (@Aligarciaherrer) August 8, 2023
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Reuters: China's July imports from Russia fall for first time since Feb 2021
Today’s customs data also shows that China’s imports from Russia dropped in July, Reuters reports.
This is the first monthly decline since February 2021 when imports of oil and other goods began steadily rising after the outbreak of conflict in Ukraine, Chinese customs data showed.
China’s imports from Russia shrank 8% to $9.2bn last month from a year earlier, in contrast to 15.7% growth in June, according to Reuters calculations based on data from the General Administration of Customs. China has been buying discounted Russian oil, coal, and certain metals.
Exports to Russia expanded 52% in July to $10.28bn, much slower than the 90.9% growth registered in June.
While China’s exports to Russia held up relatively well compared with subdued demand elsewhere, they were a small portion of overall exports, at only 3% in January-July.
The value of bilateral trade between the two dropped to $19.49bn in July from June’s $20.83bn, which was the highest since the Ukraine war began.
More here: China’s July imports from Russia fall for first time since Feb 2021
China's trade slumps, threatening hopes of recovery
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
A tumble in China’s trade last month has reignited concerns that the world’s second-largest economy is stumbling.
China’s imports and exports fell much faster than expected in July, new trade data today shows, indicating weak economic activity and subdued domestic demand
Imports dropped 12.4% in July year-on-year, customs data showed on Tuesday, much worse than the 5% fall which economists expected.
Exports also fell faster than expected, contracting by 14.5%, after June’s 12.4% fall.
Inbound shipments saw their biggest decline since January, when COVID infections shut shops and factories, Reuters reports.
This slowdown in trade will put more pressure on Beijing to provide fresh stimulus to prop up demand, as the initial economic bounce following the relaxation of pandemic restrictions in late 2022 fades.
It could also be a sign that global economy demand is slowing, meaning less demand for Chinese exports.
Zhang Zhiwei, chief economist at Pinpoint Asset Management Ltd, said the deepened slump in imports “is a reflection of weak domestic demand,” adding:
“The overall consumption and investment growth probably both stayed quite weak in China.”
Julian Evans-Pritchard, head of China Economics at Capital Economics, explained:
“Most measures of export orders point to a much greater decline in foreign demand than has so far been reflected in the customs data.
“And the near-term outlook for consumer spending in developed economies remains challenging, with many still at risk of recessions later this year, albeit mild ones.”
It could also indicate that inflationary pressures will continue to ease in the coming months.
BIG plunge in trade
— Joumanna Nasr Bercetche 🇱🇧 (@CNBCJou) August 8, 2023
China said Tuesday that exports fell by 14.5% in July from a year ago, while imports dropped by 12.4% in U.S. dollar terms https://t.co/yq8ayERKG2
Also coming up today
Britain’s retail sector stumbled in July too, new figures show, forcing retailers to slash their prices to drum up business after dismal summer weather and ever-higher interest rates combined to depress consumer spending in July.
The monthly health check of high street and online spending patterns from the British Retail Consortium and the consultancy KPMG reported a steep annual drop in the volume of sales and an increasing number of retailers offering promotional offers to woo consumers reluctant to part with their cash.
The agenda
7.45am BST: French trade data for June
11am BST: US NFIB Small Business Optimism Index
1.30pm BST: US balance of trade for June
1.30pm BST: Canada’s balance of trade for June
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