Abolition Of Italian Tax Credit May Hit Equity Financing Business

The news on Friday that the Minister of Finance in Italy had confirmed the abolition of the tax credit on dividends paid by Italian companies has dealt another blow to a securities financing business that used to be built on dividend arbitage. Sources indicate that the abolition, which is expected to be implemented from January 2004, will damage equity financing businesses that have earned handsome returns from Italian dividend arbitrage in recent years. “The Italian dividend trade has been the biggest equity financing trade over the last couple years,” says one market participant. “This has major implications for a number of dealers whose main business was dividend arbitage.”