ROME (AP) — Italian bank shares plummeted Tuesday after the cabinet approved a proposal to levy a 40% tax on some bank profits this year to help consumers and businesses deal with higher borrowing costs.
Transport Minister Matteo Salvini announced the tax at a press conference Monday night, saying it was a measure of “social justice” to make up for a series of rate hikes by the European Central Bank.
Those increases are designed to fight inflation and make it more expensive for people to get loans to buy houses and cars or for businesses to buy new equipment or build facilities.
UniCredit shares fell more than 7%, Intesa Sanpaolo fell more than 8%, Banco BPM fell more than 8.5%, and BPER and Banca MPS both plummeted more than 10% in early afternoon trading on the Milan Stock Exchange .
The Association of Italian Banks has not yet publicly commented on the tax, the approval of which apparently surprised the banks. Analysts said banks would certainly try to change the proposal or challenge it in court if passed by parliament, the next step in the process.
The five major Italian banks reported a combined net profit of about 10.5 billion euros ($11.5 billion) in the first half of the year, up 64% from the same period in 2022, according to credit rating agency DBRS Morningstar. It pointed to higher interest income, resilient fees and cost containment.
The 40% tax would be applied to banks’ profits from the difference between the interest they pay customers on deposits and the interest they earn on loans. Salvini said the tax revenue would amount to “a few billion” that would be used to fund tax breaks and help first-time buyers get a mortgage.
“It’s a levy on banks’ extra profits,” he said, adding that the measure was proposed by Finance Minister Giancarlo Giorgetti, who did not attend the press conference to announce it.
The proposal must now be passed into law and approved by the Italian parliament, where the right-wing government has a large majority.
“Banks are widely expected to oppose the measure during the parliamentary process, but there is a solid component within the ruling coalition supporting the move,” Wolfango Piccoli, co-president of Teneo consultancy, said in a statement. “If no significant changes are made before it is passed by parliament, the retroactive tax is likely to be challenged in court.”
The fall in Italian bank stocks weighed more broadly on major banks in European markets, with Germany’s Deutsche Bank, France’s BNP Paribas and Societe Generale, Britain’s HSBC and Spain’s Banco Santander all falling in early afternoon trading.
The ECB has hiked rates nine consecutive times in its campaign to quell high inflation caused by higher energy prices after Russia invaded Ukraine and supply chain backups as the global economy recovered from the coronavirus pandemic .
The bank tax was the latest item announced in a series of measures adopted by Italy’s cabinet at its latest meeting before a summer break, ranging from ending mandatory isolation for COVID-19 cases to a decision to limit the number of taxis that can increase driving.
The 20% increase in the number of taxi licenses that cities can issue is intended to better respond to an explosion in tourism that has led to long queues at taxi ranks this summer. Olympic Games in Milan-Cortina and in view of Rome’s attempt to host the Expo 2030.