Italy's Bank Tax Tango

Italy imposes a windfall tax on bank profits... [The Daily Peel... ]() August 15, 2023 | Peel #522 In this issue of the Peel: - China's economic difficulties, especially in its real estate and manufacturing sectors, are having global implications. American companies deeply invested in China, like DuPont and Caterpillar, are getting nervous. - US Steel shares spiked after a bidding war started for its acquisition. Nvidia is up on AI and AI-chip growth. AMC shares plummeted due to plans to convert preferred shares to common equity, and Hawaiian Electric's stock dropped amidst allegations related to the Maui fires. - Italy imposes a windfall tax on bank profits, leading to market unease and speculations about other governments potentially following suit. Market Snapshot Happy Tuesday, apes. So, steel is the new AI, and AMC apes are still even more banana-deprived than us. Both phrases I never once thought I would say, but hey, 2023 has been weird. Aside from those above (and below), equity markets had a solidly mid day. US majors got a boost for the most part, with the Nasdaq’s 1.07% gain leading the way and the Russell 2k posting the only loss among the Big 4. That usually means large caps outperformed, which they did, with Nvidia (also below) carrying the team. Treasury yields moved higher on the day as well, with the 2-year yield flirting with 5% hard. USD followed suit with another boring gain on the day. Let’s get into it. Financial Modeling Skills Get You Paid [image](=) Attention all financial wizards and career climbers, are you ready to take your modeling skills to the next level? If you're looking for an undervalued investment in your career, look no further than [WSO's Elite Modeling Package!](=) With 6 courses designed to turn you into an absolute Excel master, this is the package that keeps on giving. From building a 3-statement model to tackling complex LBO modeling and M&A transactions, this package has got you covered. You'll also build a solid foundation in trading comparables and precedent transactions analysis and DCF modeling, all using the versatile and relatable example of Nike, Inc. And as if that wasn't enough, the first 3 Peel readers to sign up for the Elite Modeling Program in the next 24 hours will also get access to our Foundations Program! That's right, a two-for-one deal that'll have you feeling like a baller in no time. So don't miss out on this opportunity to boost your career and invest in [WSO's Elite Modeling Package]() now! #ModelOn #FinancialGains #CareerGoals Macro Monkey Says Silver Punches Gold Most of the time, when economic rivals want to deal a blow to their frenemies, they’ll do so on purpose. Not China. China chose to go a different route, likely not on purpose, but that’s what we’re seeing now. As we discussed recently, China’s economy is having less fun than Robert Oppenheimer did on August 6-9 in 1945. Fortunately, this time, no actual bombs are being dropped, just the financial ones (potentially). Despite going through a rough pack / pre-break-up in their relationship, as seen in the below chart, the US and China are still all too romantically and economically intertwined. [image] [Source]() The old-school companies that probably still pay your grandpa through a pension, such as names like DuPont, Dow, Caterpillar, and other companies going deep into China, have started to see material slumps in activity from the nation. As the world’s 2nd largest economy and silver medalist in terms of size in most consumer markets, that can’t be good for the rest of us. Like most things in macro, you’d be better off navigating your way through the woods like Lewis and Clark than trying to find the ultimate source of the issues. From what we can tell now, the issues in China’s downbad and ridiculously indebted real estate market, along with major subsequent slowdowns in construction and manufacturing, have started bleeding into the rest of the domestic—and now global—economy. "... starting to get nervous that the boom they’ve been waiting and suffering for won’t actually come." Like standing outside the bar on a cold, rainy night, the management of these big, boomer American companies are starting to get nervous that the boom they’ve been waiting and suffering for won’t actually come. Not to give anyone PTSD, but going back to the good ol’ days, locked inside with your mom and dog during the pandemic, the China re-opening had long been priced to give the US and other international companies a boost in secular growth. Safe to say that’s not looking too likely anymore. But this once again reiterates the economic interdependence theory, a line of thinking that posits war between economically-linked countries has a lower probability than otherwise. Many call that theory garbage, but we should find out in the coming year (or hopefully, we won’t, I guess). When the US sneezes, the world develops pneumonia. Apparently, now, when China puts its elbow in front of its nose, the world catches a cold. What's Ripe US Steel (X) ↑ 36.80% ↑ - Oh, you thought AI was the new hot thing? Well, let me introduce you to an even more magical new technology that actually matters in the economy right now: steel. - The only difference is that with steel, it actually works. Maybe yesterday’s massive spike from US Steel will get a new, 19th-century-style bubble going again, or maybe it’s just Cleveland Cliffs excited for the potential takeover of a rival. - Rival iron ore and steel producer Cleveland Cliffs yesterday made a $7.3bn offer to buy out US Steel. That was quickly flexed on by industrial PE firm Esmark’s bid for $7.8bn, launching an apparent bidding war for the 122-year-old firm. - Shareholders like the larger amount of money (can’t imagine why), while Street analysts seem to like the Cleveland Cliffs deal, seeing the latter as the more natural acquirer. Maybe they should ask ChatGPT. Nvidia (NVDA) ↑ 7.09% ↑ - Going back to dusty ol’ AI and that bubble, Nvidia is back on crack and surging again. - It’s for perhaps the most obvious reason of all time. After shares had already tripled this year on the back of the AI and AI-chip wave, shares again surged after Morgan Stanley said the firm stands to gain…from the AI and AI-chip wave. - Mind-blowing stuff from MS, huh? While it may seem absurd to say after this existing run-up, the very fact that analysts are saying this at $425/sh as opposed to $150/sh confirms their belief that now is still a good time to get in. Yes, even at $1.1tn. What's Rotten AMC Entertainment (AMC) ↓ 35.55% ↓ - Bananas the world over must’ve been on fire yesterday because all the apes just got burned. Not you guys, obviously, we’re the genius apes, but our monkey-minded brethren powering AMC have taken a fat L. - Yesterday, shares in AMC sh*t the bed while the firm’s preferred shares (which literally have the $APE ticker) surged 16.3%. Late on Friday, a judge approved AMC’s plan to convert the preferreds into common equity under the $AMC ticker. - That means heavy dilution for current shareholders as well as a nice arbitrage opportunity for holders of the preferred shares (for now). - AMC also plans to undergo a 10-for-1 reverse stock split, where the share price goes up, and the number of outstanding shares falls, which I’m sure will cause something wildly irrational anyway. Hawaiian Electric (HE) ↓ 33.77% ↓ - It’s not December, but we may be ready to give out the Platinum Banana award for “Scumbags of the Year” to Hawaiian Electric. - All allegations are just that as of now: allegations; nothing at all is proven. However, when the market dumps 1/3rd of the market cap of your company on those allegations, maybe we should pay attention. - As observed by Wells Fargo analysts, blame for the horrific fires that recently devastated the Hawaiian island of Maui is “already being pointed towards Hawaiian Electric, as we feared, including for not instituting public safety power shutoffs.” - Scumbags (allegedly). Before the court of public opinion makes a ruling, it’s important not to jump to conclusions. But the market is already 1/3rd of the way there. Thought Banana Italy Hates Money? Or maybe they just hate banks. With this new tax, I guess that says the government loves money, right? "Rome ... gave market watchers and bank execs a heads up that the Italian government will now impose a 40% windfall tax ..." A week ago today, news out of Rome (sick af that that’s still the capital) gave market watchers and bank execs a heads up that the Italian government will now impose a 40% windfall tax on bank profits. A lot has gone down pretty quickly. Let’s do our classic summarize-and-speculate. - Last Tuesday, Italy announced a 40% windfall tax on bank profits - Markets freaked out, investors threw up, and the government backtracked - Less than 24 hrs later, higher standards for the application of the tax are announced - These higher standards are then followed with a cap on proceeds from the new tax - Projections for gov’t revenue from the tax fall from $3.3bn to $2.1bn, per UBS estimates That’s a lot to go down in a single week, driven by a one-time windfall tax that Italian PM Giorgia Meloni said will not exceed 0.1% of each bank’s assets. Alright, we’re all wondering the same thing, so let’s figure out wtf a windfall tax even means. Basically, governments impose these industry-specific forms of taxation when said industry experiences a surge in profits that were largely 1) unexpected and 2) a result of external circumstances and not a specific company’s action. See, nice and simple, right? Although it may sound way too bougie to be a tax, kind of like a gentrified downtown apartment building that calls itself “Miller and York” or something ridiculous like that, it’s all too simple. "In this case, those excess profits are from a similar ongoing dynamic ..." In this case, those excess profits are from a similar ongoing dynamic in the US and globally. Higher rates without compensatory higher fees paid on deposits are like charging these banks for a small and giving them an extra large. Naturally, the gov’t wants in on the gains. The big question: Will other governments follow suit with windfall taxes on banks or other companies? How will markets globally and domestically react if so? Banana Brain Teaser Yesterday — The stoic rabbit lives under the sea. Lamented bears took honey from a bee. Let me now ask you: Can you find, in this little rhyming riddle, sea creatures three? - Crab (stoiC RABbit) - Seal (the SEA Lamented) - Eel (bEE. Let) Today — The following are disguised versions of the names of famous entertainers. For example, given “chop subsidy,” the answer would be “Hugh Grant” (hew grant).The hint gives each entertainer’s gender and profession. Can you get all five of them? - opposite of the strong terminus - make tea negative response the red planet - the little finger without the ending - denim computer security breach male - valley nearby Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “Bottoms in the investment world don’t end with four-year lows; they end with 10- or 15-year lows.” — Jim Rogers How would you rate today’s Peel? [All the bananas]( [Decent]() [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](=). [ADVERTISE](=) // [WSO ALPHA]( // [COURSES]( // [LEGAL]( Don't want The Daily Peel? [Unsubscribe here](. Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States