Italy shocks banks with 40% windfall tax for 2023 By Reuters

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<span>© Reuters. FILE PHOTO: Intesa Sanpaolo bank logo and decreasing stock graph are seen in this illustration taken March 12, 2023. REUTERS/Dado Ruvic/Illustration</span><br />
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<p>By Angelo Amante, Giuseppe Fonte and Valentina Za</p>
<p>ROME (Reuters) -Italy dealt a surprise blow to its banks and sent shockwaves across the sector in Europe by setting a one-off 40% tax on profits reaped from higher interest rates, after reprimanding lenders for failing to reward deposits. </p>
<p>Sharply higher official interest rates have yielded record profits for banks, as the cost of loans soared while lenders held off paying more on deposits.</p>
<p>Countries such as Spain and Hungary have already imposed windfall taxes on the sector and others may now follow suit.</p>
<p>Italian Prime Minister Giorgia Meloni’s government had floated the idea earlier in the year, but appeared to have cooled on the plan.</p>
<p>A senior banking executive told Reuters that lenders had been ready for “the chopping block, but then the axe didn’t come down”.</p>
<p>Since then, however, bumper first-half results from banks brought the issue back into focus and prompted the government to act on the eve of the summer political shutdown.</p>
<p>One government source said the move came as a surprise even to some ministers at Monday night’s cabinet meeting. A second source made clear the government intended “to punish banks’ unfair behaviour”.</p>
<p>Lenders in Italy have passed on to depositors on average 12% of the rise in rates, versus 22% in the euro area, Jefferies calculated.</p>
<p>“One has only to look at banks’ first-half profits … to realise that we are not talking about a few millions, but … of billions,” Deputy Prime Minister Matteo Salvini told a news conference in Rome late on Monday.</p>
<p>“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,” Salvini said.</p>
<p>Italy’s banking share index had plunged 7.7% by 1212 GMT on Tuesday, with sector leader Intesa Sanpaolo (OTC:) down 8.4% and rival UniCredit down 7%. Italian banks dragged the European index down 3.3%, with a Moody’s (NYSE:) downgrade of some U.S. banks also weighing.</p>
<p>Italian banks are up 50% over the past year, outperforming a 20% European sector rise.</p>
<p>The government wants to use the proceeds to help those struggling with the cost of living, such as mortgage holders.</p>
<p>WINDFALL FOR THE TREASURY </p>
<p>Based on a preliminary draft of the measure, Citi analysts calculated the tax could wipe nearly a fifth off Italian banks’ 2023 net income. Bank of America (NYSE:) estimated proceeds of between 2-3 billion euros for the government. </p>
<p>Sources said the Treasury expected to collect less than 3 billion euros ($3.3 billion) from the measure.</p>
<p>That would be similar to the 2.8 billion euros raised by this year’s windfall tax on energy companies.</p>
<p>Italy will apply the tax only in 2023, with banks paying the sums by June 30, 2024. The measure applies to the net interest margin (NIM), a measure of income deriving from the gap between lending and deposit rates.</p>
<p>Italy will tax 40% of the NIM earned in 2022 or 2023 – depending on which sum is bigger – targeting the yearly increase above thresholds set at no less than 5% for 2022 and 10% for 2023. Under the early draft, the thresholds were 3% and 6%.</p>
<p>Intesa at the end of last month said it expected to pocket more than 13.5 billion euros this year from its NIM alone.</p>
<p>All main Italian lenders reported much stronger than expected results for the first six months and upgraded their profit outlook thanks to higher rates.</p>
<p>Unlike peers in some other European countries, Italian banks never charged for deposits when official rates fell below zero.</p>
<p>Since rates rose, they have cut current account costs but have refused to reward cash held there saying that money is for day-by-day use and not an investment.</p>
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<br /><a href="https://www.investing.com/news/economy/italy-hits-banks-with-40-windfall-taxfor-2023-3147620">Source link </a></p><p>The post <a href="https://forextraderhub.com/italy-shocks-banks-with-40-windfall-tax-for-2023-by-reuters.html">Italy shocks banks with 40% windfall tax for 2023 By Reuters</a> first appeared on <a href="https://forextraderhub.com">Forex Trader Hub</a>.</p>