Italy's Banking Sector in a Political Crossfire: Implications for Investors in September 2025

Italy’s banking sector is caught in a volatile political crossfire as the government grapples with fiscal constraints, coalition unity, and the need to balance economic growth with regulatory stability. With the 2026 budget looming and the EU’s 3% deficit threshold in focus, Prime Minister Giorgia Meloni’s administration is considering extending the suspension of deferred tax assets (DTAs) for banks—a move projected to raise €1–1.5 billion [1]. This policy, coupled with ongoing tensions within the ruling coalition, has created a high-stakes environment for key players like Monte dei Paschi di Siena (MPS) and Mediobanca, whose strategic trajectories and financial resilience will shape investor sentiment in the coming months.

Political Tensions and Fiscal Priorities

The government’s push for bank levies reflects a broader fiscal strategy to fund middle-class tax cuts while avoiding a repeat of the 2023 windfall tax debacle, which triggered a sell-off in banking shares [1]. Deputy PM Antonio Tajani and League leader Matteo Salvini have vocally opposed forced levies, advocating instead for “voluntary contributions” from banks [6]. This ideological divide mirrors the sector’s dual role: as a source of public revenue and a critical enabler of economic growth through lending. Economy Minister Giancarlo Giorgetti has further complicated the narrative by urging banks to improve lending terms for businesses, despite their recent record profits [5].

The DTA suspension, if implemented, would effectively increase short-term tax burdens on banks. For MPS, which reported a 15% Q2 2025 profit increase and a 19.6% core capital ratio [2], the impact may be manageable. However, Mediobanca’s 15.6% CET1 ratio and ongoing governance challenges—exemplified by its rejected Banca Generali acquisition—suggest greater vulnerability [3]. The bank’s shareholders, with 10% rejecting the deal and 32% abstaining, highlight the fragility of consensus in a sector already strained by regulatory scrutiny [4].

Energy Policy and Lending Risk

Italy’s energy transition adds another layer of complexity. The phaseout of the Single National Price (PUN) and the shift to zonal electricity pricing will create regional cost disparities, potentially altering credit risk profiles for energy-dependent industries [6]. This policy, coupled with the Ministry of Economy’s push for favorable lending terms, could force banks to recalibrate their risk appetites. For MPS and Mediobanca, this means navigating a dual challenge: supporting corporate clients in a fragmented energy market while absorbing potential losses from underperforming sectors like agriculture and services, which are particularly sensitive to carbon tax shocks [2].

Strategic Resilience and Investor Implications

MPS’s aggressive bid for Mediobanca—valued at €16.9 billion—has become a litmus test for the sector’s resilience. Despite securing a 19.4% stake and raising €500 million in Tier 2 bonds [6], the deal faces regulatory hurdles, including ECB conditional approval and European Commission investigations into potential state aid violations [3]. Analysts remain divided: while some argue the merger could create a “new leading competitive force” [1], others warn of integration risks given Mediobanca’s strong ROTE (14%) and distinct institutional culture [3].

For investors, the key variables are political stability and regulatory outcomes. If the DTA suspension is enacted, MPS’s robust capital position may cushion its balance sheet, whereas Mediobanca’s reliance on strategic acquisitions (e.g., Banca Generali) could amplify volatility. The stock market reflects this uncertainty: MPS has an average 12-month price target of €8.59, while Mediobanca’s €19.50 target implies a -6.20% downside from its recent close [5].

Tactical Positioning

Given the political and regulatory fog, investors should adopt a hedged approach. Short-term volatility in MPS shares may present entry points for those betting on its capital resilience and potential consolidation gains. For Mediobanca, the focus should be on its ability to execute its wealth management strategy independently, particularly if the MPS bid collapses. Energy policy shifts also warrant attention: banks with diversified loan portfolios and proactive climate risk management (e.g., Mediobanca’s 15.6% CET1 ratio) may outperform peers in a fragmented market.

In the long term, the sector’s trajectory hinges on the government’s ability to unify its coalition. A failure to resolve tensions could lead to alternative consolidation paths, such as UniCredit-Banco BPM mergers [1], but these would likely come at the cost of regulatory overreach and reduced shareholder value. For now, the crossfire continues—and investors must navigate it with caution.

Source:
[1] Italy Said to Weigh New €1.5 Billion Bank Tax to Help Budget [https://www.bloomberg.com/news/articles/2025-08-27/italy-weighs-new-bank-tax-move-to-bolster-budget-reports-say]
[2] Earnings call transcript: Monte dei Paschi reports strong Q2 2025 with profit growth [https://www.investing.com/news/transcripts/earnings-call-transcript-monte-dei-paschi-reports-strong-q2-2025-with-profit-growth-93CH-4172033]
[3] Monte Paschi's Mediobanca Takeover: Strategic Value [https://www.ainvest.com/news/monte-paschi-mediobanca-takeover-strategic-risks-investment-implications-2508/]
[4] Mediobanca shareholders reject Banca Generali deal [https://insnerds.com/news/mediobanca-shareholders-reject-banca-generali-deal]
[5] Mediobanca Banca di Credito Finanziario SpA stock forecast [https://www.tipranks.com/stocks/it:mb/forecast]
[6] Italy FinMin urges banks to do more on lending, IT investment [https://www.reuters.com/business/finance/italy-finmin-calls-banks-lend-more-favourable-terms-firms-2025-07-11/]