Italy approves surprise windfall tax on banks, shares hit

By Giada Zampano

ROME (AA) - The Italian government late on Monday approved a one-off 40% tax on banking profits stemming from higher interest rates, saying it plans to use proceeds to help mortgage holders hit by record-high interest costs.

The move, which caught financial markets off guard, sent Italian banking shares plunging on Tuesday morning, with Italy’s largest bank Intesa Sanpaolo down up to 7%.

Deputy Prime Minister Matteo Salvini announced the decision at a press conference following a late Cabinet meeting, which approved the new measures ahead of the summer break. The new tax will now require parliamentary approval.

The 40% levy applies to banks’ extra “excess” profits derived from higher interest rates.

In the past year, banks have capitalized on increasingly higher interest rates, as the cost of loans rose against stable rates on deposits.

The government led by Premier Giorgia Meloni expects to collect about €3 billion ($3.29 billion) from the measure, but some analysts estimate even higher proceeds.

Analysts at Citi forecast that the one-off windfall will be equal to around 19% of banks’ net profits for the year, based on currently available data.

“We see this tax as substantially negative for banks given both the impact on capital and profit as well as for cost of equity of bank shares,” Citi said.

Analysts at Bank of America estimated the new tax could cost banks between 2%-9% of their earnings.

Italy’s right-wing government has openly criticized lenders for failing to help depositors face the higher cost of money. But it took action only after the latest round of record earnings reported by Italian banks in August.

"If (it is true that) the burden deriving from the cost of money has ... doubled for households and businesses, what current account holders receive has certainly not doubled," Salvini said, stressing the huge gap between the rates applied to loans and deposits.