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Italy's rightwing coalition sent shockwaves through the financial markets as it announced an unforeseen 40% tax on bank profits derived from higher interest rates. The move disclosed late on Monday, comes in the midst of surging lender profits following rate hikes, combined with growing political pressure on the Giorgia Meloni government due to the impact of inflation and elevated rates on households.
Shares of major Italian banks, including Intesa Sanpaolo and UniCredit, experienced declines of 8.6% and 5.9% respectively by Tuesday's close. State-owned Monte dei Paschi di Siena saw a substantial dip of 10.8%, while Banco BPM and other banking giants also registered notable losses.
Analysts from Jefferies and Equita project that the government could potentially accumulate over €4.5 billion from the tax, a higher estimate compared to the €2 billion to €3 billion put forth by Italian officials. Although Intesa and UniCredit are likely to contribute the most, the capital impact will be more significant on smaller banks.
The proposed tax, vehemently opposed by many, is predicted to be adjusted before receiving parliamentary approval. The abrupt announcement caused dismay among political analysts due to its lack of coherent handling and communication. Experts expect that the 40% levy on net interest income from the difference between lending and deposit rates will be subject to further refinement.
The new tax will be levied on banks that experienced net interest income growth in 2021 compared to figures from 2022 or 2023. Italian banks' profits in the first half of 2023 surged by 64%, making the tax's impact more pronounced on smaller banks.
Despite internal conflicts within the government coalition over the tax, Deputy Prime Minister Matteo Salvini stated that the measure is "common sense." Finance Minister Giancarlo Giorgetti's absence from the announcement sparked further criticism of the government's handling of the situation.
Italy's recent economic data revealed a slowdown in its recovery during the second quarter, underscoring the challenges the country faces. The move to impose a tax on bank profits arrives in the context of broader economic shifts and rising interest rates, causing significant concern within the financial and political spheres alike.
[Financial Times]
