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Italy bank shares fall on govt’s surprise windfall tax

MILAN (AFP) – 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) interest rate hikes.

The hikes by the ECB – the central bank for the 20 countries that use the euro, including Italy – have 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.

Economy Minister Giancarlo Giorgetti had said in June that a tax on banks was not on the agenda. He did not attend Monday’s press conference where the measure was announced.

The European Central Bank is pictured in Frankfurt, Germany. PHOTO: AP

The share price of leading Italian banks Intesa Sanpaolo and Unicredit finished the day down 8.6 per cent and 5.9 per cent respectively.

Monte dei Paschi di Siena was down 10.8 per cent at Milan closing, Bper Banca down 10.9 per cent and Banco Bpm down nine per cent.

Fallout spread to French and German banks, with Credit Agricole down 2.8 per cent at closing in Paris and Commerzbank losing 3.81 per cent in Frankfurt.

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 seven 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 between EUR2 billion and EUR5 billion, according to analysts’ estimates.

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 EUR4.2 billion in the first half, while UniCredit posted a half-yearly net profit of EUR4.4 billion.

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.

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