Welcome
to
Morningstar.
Last
week,
the
Italian
government
surprised
just
about
everyone
by
announcing
a
tax
on
excess
bank
profits.
The
markets
responded
very
quickly,
with
a
rain
of
selling
on
financial
stocks
listed
on
the
Milan
Stock
Exchange.
The
Meloni
government
has
stated
that
the
recent
increase
in
the
cost
of
money
for
households
and
businesses
has
not
been
reflected
in
a
fair
increase
in
the
yield
on
their
deposits.
Therefore,
the
new
tax
will
serve
to
cut
taxes
and
offer
financial
support
to
mortgage
holders.
Today
I
join
Morningstar
equity
analyst
Johann
Scholtz
who
specializes
in
banking
to
understand
the
risks
to
investors
and
bank
customers.
Sara
Silano:
Johann,
in
a
recent
note
you
stated
that
“the
negative
impact
of
the
Italian
tax
on
bank
profits
is
manageable,
but
the
negative
impact
on
sentiment
is
far
greater”.
What
are
the
main
risks
for
investors?
Johann
Scholtz:
Thanks
Sara.
We
estimate
that
the
surprise
tax
on
extra
profits
should
reduce
the
consensus
estimate
of
Intesa
Sanpaolo
(ISP)’s
2023
earnings
by
about
10%
and
Unicredit
(UCG)
by
6%.
The
tax
is
limited
to
banks’
Italian
operations,
so
the
impact
should
be
less
for
Unicredit,
which
generates
more
earnings
outside
Italy
than
Intesa.
As
I
said,
however,
the
biggest
impact
is
on
the
risk
premium,
i.e.
what
investors
will
ask
banks
in
the
future
to
offset
the
risk
of
government
intervention.
It’s
not
the
first
time
we’ve
seen
this
in
Europe.
Spain
has
implemented
a
similar
tax.
And
then
we
had
the
dividend
ban
during
the
pandemic.
I
think
investors
don’t
like
uncertainty,
and
the
fact
that
this
announcement
came
completely
out
of
the
blue,
I
think
it
spooked
investors
and
introduced
volatility
into
stock
prices.
Silano:
In
the
transition
to
a
higher
interest
rate
environment,
most
banks
have
seen
their
loan
books
revalued
at
higher
yields.
This
was
accompanied,
however,
by
a
slight
increase
in
current
account
rates.
Do
you
think
banks
will
be
forced
to
increase
the
interest
they
pay
in
the
future?
If
yes,
what
will
be
the
impact
on
account
holders?
Scholtz:
I
think
it
is
essential
to
distinguish
between
a
current
account
and
a
deposit
account.
In
many
jurisdictions
around
the
world,
checking
accounts
pay
little
or
no
interest.
Checking
accounts
are
not
meant
to
be
vehicles
for
savings,
but
are
primarily
used
for
transactions.
I
realize
that
the
situation
in
Italy
is
slightly
different
because
large
banks
often
do
not
aggressively
market
deposit
accounts
as
a
product
for
their
customers.
And
I
think
what
Italian
banks
should
start
doing
is
telling
customers
that
there
are
alternatives
to
keeping
their
money
in
a
checking
account.
I
know
some
of
the
smaller
Italian
banks
offer
savings
products,
paying
up
to
3%
interest.
So,
I
think
what
we’re
probably
going
to
see
over
time
is
that
interest
rates
like
anything
else
are
a
question
of
supply
and
demand
and
competition.
And
as
competition
in
the
market
increases,
you
should
actually
see
higher
interest
rates.
But
I
also
think
there
is
a
potential
risk
for
banks
that
there
could
be
further
regulatory
intervention
to
force
them
to
pass
on
more
of
the
higher
interest
rates
to
savers.
Silano:
In
times
of
high
inflation,
liquidity
is
a
bad
asset
allocation
decision.
Would
investors
be
better
off
looking
for
alternatives?
Scholtz:
I’ll
start
by
saying
that
each
individual’s
circumstances
are
unique
and
that
investors
should
talk
to
their
financial
adviser
before
making
any
material
changes.
But
yeah,
generally
speaking,
in
a
high
inflation
environment,
cash
is
a
bad
investment.
Even
if
you
get
that
3%
interest
we
were
talking
about
earlier,
in
an
environment
where
inflation
travels
at
6%
–
and
at
the
beginning
of
the
year
it
had
reached
10-11%
–
in
real
terms,
you
are
losing
money.
Traditionally,
stocks
have
been
one
of
the
best
hedges
against
inflation
over
time.
And
if
you
look
at
our
Morningstar
Developed
Markets
Wide
Moat
Focus
Index,
you
see
it’s
up
12%
year-to-date.
It
has
also
delivered
11%
annualized
growth
over
the
past
decade,
substantially
outperforming
inflation
over
the
same
time
period.
For
the
more
risk
averse
investors,
there
are
other
products
available,
but
again
it
is
best
to
speak
to
your
adviser.
Silano:
Thank
you
Johann
for
being
here
today.
For
Morningstar,
I’m
Sara
Silano.
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