Italian banks recover lost ground as Rome limits windfall tax
Italian banks Wednesday bounced back from the previous day's losses after the government limited a windfall tax to 0.1 percent of assets.
The sector had shed around $10 billion Tuesday on an initial announcement of a plan by the far-right government of Giorgia Meloni to take 40 percent of "surplus profits" before the finance ministry stepped in to clarify and "preserve the stability of banking institutions" and calm a market storm.
Shares in major banks had plunged Tuesday after deputy Prime Minister Matteo Salvini told reporters the tax would be levied on profits the banks had netted in the wake of the European Central Bank's recent interest rate hikes.
Following the initial announcement, Intesa Sanpaolo lost 8.6 percent and Unicredit 5.9 percent of their share price while Monte dei Paschi di Siena, Bper Banca and Banco Bpm gave up 10.8, 10.9 and 9 percent respectively, as the sector shed $9.5 billion in market cap value according to an estimate by Radiocor financial news agency.
Wednesday saw the sector bounce back strongly on the Milan bourse, with Intesa Sanpaolo adding 2.3 percent, rival UniCredit 4.4 percent and Banco BPM 5.4 at the close.
Meloni's ministers had agreed the shock initial move at a cabinet meeting late Monday, vowing to invest the funds raised into helping households and businesses struggling with the cost of borrowing after ECB rate rises boosted banks' profits but hiked costs for borrowers.
Foreign Minister Antonio Tajani told Tuesday's Corriere della Sera newspaper the levy would "only last one year" while adding Rome's view was the ECB was "mistaken in raising interest rates, and this is the inevitable consequence".
Sector profits have been on the rise with Intesa Sanpaolo having seen its net profit jump 80 percent to 4.2 billion euros in the first half of the year, while UniCredit posted a half-yearly net profit of 4.4 billion euros.
Spain's left-wing government introduced a similar tax on banks scheduled for 2023 and 2024, drawing criticism from the ECB.
Prime Minister Meloni's government is out to raise funds for the draft budget for 2024, after a surprise 0.3 percent decline in gross domestic product (GDP) in the second quarter of 2023.
In unveiling the measure, Meloni said in a Facebook post that "we decided to intervene with the only instrument at the government's disposal -- fiscality."
The Italian employers' association Unimpresa for its part said banks were paying out an average 0.32 percent on 669 billion euros of deposits while charging 4.25 percent on 1.3 trillion of household lending.
With the subsequent strict limiting of the windfall tax the impact is due to cost banks around 2.5 billion euros, analysts with Jefferies calculate -- around half the initial total forecast.
