Tax on bank profits: the Italian government corrects the situation by announcing a ceiling

The titles of the Italian banks, strongly heckled on Tuesday, resumed colors, Wednesday, August 9, on the Milan Stock Exchange, after the decision of the far-right government of Giorgia Meloni to put a ceiling on the tax on their “surplus profits”. “In order to preserve the stability of banking institutions”, the decree provides “a ceiling for the contribution, which may not exceed 0.1% of the total assets” of a bank, the Ministry of Economy announced on Tuesday evening, anxious to calm the stock market storm.

The surprise decision by Ms. Meloni’s coalition government to levy a 40% tax on banks’ “excess profits” generated by rising interest rates caused financial sector securities to plummet on the stock market on Tuesday. Italy’s top two banks, Intesa Sanpaolo and Unicredit, lost 8.6% and 5.9% respectively at the close. Monte dei Paschi di Siena lost 10.8%, BPER Banca 10.9% and Banco BPM 9%. Italian banks thus saw 9.5 billion euros in capitalization go up in smoke in a single session, according to calculations by the financial information agency Radiocor.

On Wednesday, the banking sector experienced a sharp rebound on the Milan Stock Exchange. Intesa Sanpaolo gained 2.3% at the close, its rival UniCredit 4.4% and Banco BPM gained 5.4%.

“Unfair margins”

Revenue from the taxation of “unfair bank margins” will be used to “fund support measures for households and businesses” which are going through “difficult times due to the high cost of money”, Ms Meloni argued on Wednesday. . “We have decided to introduce a 40% tax on the unfair difference in net interest income”, namely the difference between what “banks charge you to lend you money and what they concede when you deposit money,” the premier said in a video posted to Facebook. Given the gap between interest rates on loans and current accounts, “we decided to intervene with the only instrument available to the government, which is taxation,” she explained.

“We’ve been saying for months that the European Central Bank is wrong to raise interest rates,” and this tax “is the inevitable consequence,” Deputy Prime Minister Antonio Tajani said on Tuesday.

Italian banks have seen their income generated by interest soar in the wake of the rise in interest rates, without increasing the remuneration of their customers’ current accounts in the same proportions.

Limited revenue

Banks that have “already adjusted their rates” by narrowing the gap between borrowing rates and current account remuneration, “will not be significantly affected” by the tax, the economy ministry promised on Tuesday. evening.

According to the employers’ organization Unimpresa, Italian banks remunerate the 669 billion euros of bank deposits at an average of 0.32%, while the rates on 1.312 billion euros of loans to families and businesses reach 4.25 %.

After the ministry’s intervention, economists significantly lowered their estimates of tax revenue. Capping the contribution at 0.1% of assets “significantly reduces the impact of the tax,” Jefferies analysts commented Wednesday. The latter now estimate the total cost for the banks at 2.5 billion euros against 4.9 billion previously.

The tax on banks’ “excess profits”, which must be settled by June 2024, will concern the accounting years of 2022 or 2023. The 40% levy will be made either on the part of the net interest income of 2022 exceeding d at least 5% the amount for the 2021 financial year, i.e. on the profits of 2023 for which the threshold is set at 10%.

Banca Generali, 50.17% controlled by the number one insurance company in Italy, has already released its calculator. CFO Cristiano Borean put the impact at “just under €20 million” for the bank and “just under €10 million” for Generali Group, a fairly limited amount.