Italy bank shares fall on gov't's surprise windfall tax

MILAN — Italy's right-wing government has unveiled a surprise 40 per cent windfall tax on "surplus profits" generated by the rise in interest rates, sending shares in the country's banks plunging on Tuesday.

Prime Minister Giorgia Meloni's ministers agreed the move at a cabinet meeting late Monday, vowing to invest the funds raised into helping households and businesses struggling with the cost of borrowing.

Deputy Prime Minister Matteo Salvini told reporters the tax would be levied on banks' "surplus profits" generated by the European Central Bank's (ECB's) interest rate hikes.

The hikes by the ECB — the central bank for the 20 countries that use the euro, including Italy — has boosted banks' profits by "billions", he said, but increased costs for their customers.

The government was "using part of the banks' billion-dollar profits to help families and businesses affected by rising interest rates", Salvini added on X, formerly known as Twitter. 

Shares in Italian banks plunged on the news, which neither the sector nor analysts had expected. 

Around 1:00pm (1100 GMT), shares in the two biggest Italian banks, Intesa Sanpaolo and Unicredit, fell 8.6 per cent and seven per cent respectively. 

Shares in Monte dei Paschi di Siena fell by 10.2 per cent, Bper Banca by 10 per cent and Banco Bpm by 8 per cent.

One year 

Analysts at Banca Akros said the market was responding negatively to "this unexpected bad news", estimating that banks' earnings per share would fall by an average of 7 per cent. 

The new levy will focus on the 2022 or 2023 financial years, a governmental source told AFP.

Foreign Minister Antonio Tajani told the Corriere della Sera newspaper it would "only last one year".

"We have been saying for months that the ECB was mistaken in raising interest rates, and this is the inevitable consequence," he said.

"It is not a measure against them [the banks], but a measure to protect families" and those struggling to pay mortgages, he insisted.

Meloni is thus using the tax to raise funds for the draft budget for 2024, after a surprise 0.3 per cent decline in gross domestic product (GDP) in the second quarter of 2023.

The new levy could bring in more than 2 billion euros, according to initial estimates quoted in the Italian media.

Soaring profits

Italian banks, like their European counterparts, saw their net interest income soar in the wake of the rise in interest rates.

Intesa Sanpaolo saw its net profit jump 80 per cent to 4.2 billion euros in the first half, while UniCredit posted a half-yearly net profit of 4.4 billion euros.

Spain's left-wing government has also introduced a similar tax on banks scheduled for 2023 and 2024, drawing criticism from the ECB.

Salvini, whose far-right League Party is a junior coalition partner to Meloni's far-right Brothers of Italy, said the levy was "common sense".

The CISL trade union said it was a "fair" measure that should be extended to multinational companies in the energy, digital or even logistics sectors.

But Francesco Galietti, from the Policy Sonar consultancy, said it was a "hugely controversial tax", also describing it as a "typical populist move". 

Parliament now has two months to convert the Cabinet's decree into law, during which time it can be significantly changed.