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Italian Bank Profit Tax Sparks €10 Billion Market Value Slide, FTSE MIB Dips 2.6%



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Italian stocks took a hit as an unexpected new tax on bank profits rattled the nation’s financial institutions, resulting in a considerable decline in the collective market value by up to €10 billion ($11 billion).

The FTSE MIB index in Italy experienced a 2.6% drop, driven by substantial falls in UniCredit SpA, which plummeted 7%, and Intesa Sanpaolo SpA, which sank 8%.

In the broader context of European markets, the Stoxx Europe 600 index also suffered a 0.7% dip as of 12:48 p.m. in London. On a contrasting note, Novo Nordisk’s shares surged to an all-time high following reports that Wegovy had managed to reduce heart risk by 20% in a specific trial.

This Italian tax imposition was discreetly integrated into an extensive range of measures encompassing areas from taxi licensing to foreign investment. The tax is projected to generate over €2 billion ($2.2 billion) in government revenue, according to Ansa newswire.

Italy has sanctioned a “40% appropriation of banks’ multi-billion euro surplus profits” for the year 2023, earmarked for funding tax reductions and facilitating mortgages for first-time homeowners.

Stephanie Niven, a portfolio manager at London-based investment firm Ninety One, said, “Italy’s action is among the numerous indicators of a heightened scrutiny of businesses for the broader consequences of their operations and their societal impact.”

She further commented, “One challenge with banks has been their prioritization of shareholder returns, which is met with reservations considering the assistance they’ve received in the past. Governments are keen on preventing an exclusive distribution of excess capital to shareholders.”

Analysts at Citigroup Inc. calculated that the tax equates to roughly 19% of banks’ net income in 2023, about 3% of their tangible book value for the same year, and approximately 0.5% of their risk-weighted assets in 2023. Bloomberg Intelligence experts projected that the 2023 net income of Italian lenders could face a reduction of about 10%.

“Financials represent over 30% of the Italian stock market, rendering it exposed to the freshly approved levy,” noted Leonardo Pellandini, an equity strategist at Bank Julius Baer. He added, “While banks have enjoyed a strong year due to elevated net interest margins from increased rates, a period of healthy consolidation appears warranted.”

The Italian tax policy contributes a new element of adversity for European stocks. The previous week saw the first surge of volatility in European markets in quite some time, fueled by speculation about forthcoming interest rate hikes impacting economic growth.

Lingering concerns over China’s weak trade data and a cautionary note from Moody’s Investors Service regarding the state of U.S. banks also cast a shadow on investor sentiment on Tuesday.

Among other noteworthy stock movements on Tuesday, Glencore Plc reported a substantial profit decline, causing a dip in its share value. Abrdn Plc also experienced a decline in the wake of first-half results that highlighted significant client withdrawals from the asset manager’s funds.

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Nigerian Exchange Limited

Bearish Sentiment Persists: Investors Lose N112 Billion on NGX



Nigerian Exchange Limited - Investors King

A somber week for Nigerian investors continued as sustained bearish trading on the Nigerian Exchange Limited (NGX) on Thursday resulted in a loss of N112 billion.

This marked the fourth consecutive day of declines following a N242 billion hit on Monday and a N126 billion loss on Tuesday. Wednesday provided no respite due to a public holiday.

The primary catalyst behind this downturn was the market’s reaction to the Senate’s confirmation of Yemi Cardoso as the governor of the Central Bank of Nigeria, which added to the prevailing downbeat sentiment.

By the close of trading on Thursday, the NGX All-Share Index had dipped by 0.31% to settle at 66,448.63 points, while market capitalization stood at N36.367 trillion.

The bearish trend also led to subdued market activity with total deals decreasing by 2.74% to 6,826 trades. Trading volume and value depreciated by 24.78% and 24.67%, respectively, with 273.80 million units exchanged for N3.41 billion.

Among the top value losers were Vitafoam (-9.92%), FTNCocoa (-9.88%), Oando (-9.84%), John Holt (-9.39%), and United Capital (-7.20%).

In contrast, the insurance sector emerged as the biggest winner, posting a 0.83% increase, while the banking and consumer goods sectors recorded losses of 1.01% and 0.68%, respectively.

Accesscorp led in trading volume on Thursday, with 45.87 million units valued at N710.63 million, followed by Zenith Bank with 21.12 million units worth N657.22 million. Unity Bank, United Bank for Africa, and Transcorp also featured among the top five traded stocks.

The persistent bearish sentiment highlights the need for investors to closely monitor the evolving market dynamics and economic policies, as uncertainty continues to cloud the Nigerian financial landscape.

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Drastic Decline in FGN Bond Listings Raises Concerns Over Government Borrowing



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Data from the Nigerian Exchange Limited (NGX) has shown that the value of listed Federal Government of Nigeria (FGN) Bonds on the exchange experienced a decline of 99.9% in the eight months ending on August 31, 2023.

Plummeting from N1.6 trillion recorded during the corresponding period in 2022 to a mere N148.2 billion.

The stark contrast in FGN Bond listings between the two years has raised eyebrows and prompted experts to delve into the implications of this significant shift.

Analysis of NGX data revealed that the bonds listed this year primarily consisted of the FGN Savings Bond and Sukuk, whereas the previous year featured a combination of both Federal Government Bonds and Savings Bonds.

Among the listings, the FGN Sukuk stood out with the highest recorded value of N130 billion for the period under review.

Analysts have identified several factors contributing to the stark decline in FGN Bond listings.

David Adonri, an analyst and Vice Executive Chairman at HighCap Securities Limited, commented on this development, and said, “The reduction of FGN Bond listing could be an indication that the government borrowed less in the domestic market, and its implication is that it could affect liquidity in the secondary market.”

He continued, “The decline could also be that the FGN Bonds were not listed on the Exchange during the period under review as only the Savings Bonds were captured as well as Sukuk.”

Adonri highlighted concerns about the country’s debt profile, both domestically and internationally, saying, “Both externally and internally, the immediate past government had taken more debt. This is increasing the risk of sovereign default and economic nightmares.” He also noted the adverse effects on the real sector, explaining that “the borrowing has now reached the alarming point of crowding out the productive real sector.”

Tajudeen Olayinka, an Investment Banker and Stockbroker, echoed similar sentiments, saying, “If there was an increase in debt listings in the market, it brings about increased liquidity and trading activities in the market, but the drop in the eight-month period could be largely as a result of higher yields in other competing instruments.”

Olayinka also speculated that “the drop in the FGN Bond listing could also be that there was less borrowing by the government in the primary market so not much to offer for listing in the secondary market.”

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Stock Market

NGX Chairman Urges Federal Government to Boost Listings Attractiveness



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The Chairman of NGX GROUP, Dr. Umaru Kwairanga, has made a fervent appeal to the Federal Government of Nigeria, urging them to spearhead legislative adjustments and reforms aimed at enhancing the appeal of listings on the Nigerian Exchange Limited (NGX).

This call comes against the backdrop of a recent wave of delistings from the NGX, which has raised concerns about the competitiveness of the Nigerian capital market.

Dr. Kwairanga made this significant statement during the prestigious Closing Bell ceremony held at NASDAQ in New York.

The event was jointly organized by the United States Chamber of Commerce, Nigerian Exchange Group Plc (NGX GROUP), and the Nigerian Investment Promotion Council (NIPC).

The ceremony was a highlight of the NGX Roadshow, generously supported by Stanbic IBTC, CardinalStone Partners, and Chapel Hill Denham.

During his address, Dr. Kwairanga also extended an invitation to the U.S. business community to explore greater partnership opportunities with Nigeria.

He emphasized that these partnerships could be pivotal in ushering in a new era of prosperity for both nations.

Highlighting the urgency of the situation, Dr. Kwairanga underlined the need for comprehensive reforms within the Nigerian capital market.

He stated, “The capital market is in need of reforms that can unlock increased prosperity for the Nigerian economy.”

These reforms, he suggested, should encompass a wide range of areas, including the pension sector and amendments to government free zones, to facilitate easier access to the capital market through listings.

One of the most notable developments Dr. Kwairanga pointed out was the recent removal of fuel subsidies and the liberalization of the foreign exchange market in Nigeria. He credited these moves for boosting confidence in the capital market, leading to remarkable results.

According to him, “The Nigerian Exchange Limited’s All-Share Index has surged by 29.04% since President Bola Tinubu’s inauguration.”

This call for reform and enhanced attractiveness of listings on the NGX echoes the concerns of market stakeholders who have seen several companies opt for delisting in recent times.

Dr. Kwairanga’s plea for government action is seen as a positive step towards revitalizing the Nigerian capital market and ensuring that it remains a competitive destination for investors.

As Nigeria continues to position itself as a key player in the global economic landscape, the appeal for legislative adjustments and reforms, as articulated by Dr. Kwairanga, could be a pivotal moment in shaping the future of the nation’s capital market.

Investors and stakeholders alike will be keenly watching for any developments in response to this call to action.

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