By Chris Dorrell
Shares in European banks fell after the Italian government announced a surprise windfall tax on banks who have seen bumper profits thanks to higher interest rates.
Late last night Giorgia Meloni’s populist government agreed to impose a one-off 40 per cent tax on extra-profits, defining extra-profits as when net interest income has grown beyond three per cent for 2022 and beyond six per cent for 2023.
The move, which follows similar policies from governments in Hungary and Spain, sent shares in Italy’s largest banks tumbling.
Shares in Intesa Sanpaolo and UniCredit, the nation’s two largest lenders, were down 8.3 per cent and 6.5 per cent respectively while state-owned Banca Monte dei Paschi di Siena was trading over nine per cent lower.
Analysts at Jefferies said the tax came “out of the blue as the finance minister himself publicly poured water on this idea in the recent past.”
However, the government felt emboldened to act after seeing the half year results of many of Italy’s big banks, who saw rising interest rates bolster profits while failing to pass through rate rises to savers.
Speaking at a press conference in Rome, deputy prime minister Matteo Salvini said: “One has only to look at banks’ first-half profits…to realise that we are not talking about a few millions, but of billions.
“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.”
The proceeds, estimated to be nearly €5bn, will go towards supporting mortgage holders and cutting taxes, the government said.
Shares in banks across Europe fell as investors fretted that Italy’s windfall tax might be a sign of things to come. In France, BNP Paribas fell 3.5 per cent while Societe Generale share price fell 2.8 per cent.
Elsewhere Deutsche Bank’s share price fell 3.6 per cent while Santander shares traded 3.1 per cent lower.
Although the UK is not expected to follow in Meloni’s footsteps, the sector has come under significant pressure in recent months for not passing on higher rates to savers. The Financial Conduct Authority outlined a series of measures to boost pass through in future.
Filippo Alloatti, head of financials at investment manager Federated Hermes commented: “Although measures like windfall taxes are easy to introduce, they can be challenging to retract due to political reasons.
“If these measures become long-lasting, they might impact the sector’s plans for share repurchases and dividend distribution. Over the medium term, the sector’s cost of equity could rise,” Alloatti said.
