The surprising declaration made by Rome on Monday, imposing a 40% windfall tax on the profits Italian banks have gained from increased interest rates, has resulted in a drastic drop in the share prices of the country’s banks. Photo by John Angelillo/UPI
Aug. 8 (UPI) — Investors have quickly sold off shares in Italian banks following the government’s approval of an unexpected 40% windfall tax on their unearned profits from the exponential rise in interest rates. The objective of this measure is to provide assistance to individuals facing escalating mortgage costs and to finance tax cuts.
Following the announcement, BPER Banca experienced a plummet of over 9%, while Intesa Sanpaolo and Finecobank saw a decrease of more than 8%. Shares of Banco BPM fell by 7%, and UniCredit witnessed a 6% decline. This move by the government came after a consistent stream of criticism towards lenders and the European Central Bank from the far-right, populist administration.
“The cost of money for families and businesses has been raised due to the ECB’s rate hike. However, consumers have not experienced a proportional rise in income in a diligent and prompt manner,” stated Deputy Prime Minister Matteo Salvini. He further mentioned that the proceeds from the tax would be utilized for “tax cuts” and “assistance to first-time mortgage holders who signed up in different periods.”
According to data provided by the European Union’s primary statistical agency, Italy possesses one of the highest rates of home ownership among its 27 member countries.
In 2022, total mortgage lending surpassed $464 billion, resulting in a considerable number of borrowers being impacted by nine consecutive interest rate hikes initiated by the ECB as part of their current tightening cycle aiming to control inflation, which has remained at 5.3% following October’s peak of 10.6%.
Salvini refrained from revealing the exact amount the windfall tax would generate but suggested that based on the banks’ profits in the first quarter, the figure could potentially amount to “several billions.”
Citi analysts estimated that the tax would be equivalent to 19% of the banks’ net profits for the year, reaching up to $2.2 billion.
The measure specifically targets the “excess” net interest income in 2022 and 2023 resulting from the higher interest rates. It applies to the growth of NII that exceeds 3% in 2022 compared to 2021 levels, and further increases to a year-on-year growth of 6% or more in 2023 compared to 2022.
Banks are given a six-month period from the end of the financial year to fulfill their tax obligations.
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