Italian bank tax flip

Dec 16, 2023

A general view of UniCredit Tower in Milan, Italy March 8, 2020. REUTERS/Flavio Lo Scalzo/File Photo Acquire Licensing Rights

LONDON, Aug 9 (Reuters Breakingviews) - The Italian government has raced to soothe bank investors spooked by its ill-thought-out bank windfall tax. News the government planned to impose a one-off levy on lenders’ growth in net interest income, the amount banks earn from lending minus what they pay depositors, sent shares of groups like Intesa Sanpaolo (ISP.MI) tanking on Tuesday, with Banca Monte dei Paschi di Siena (BMPS.MI) falling as much as 10%.

The government has now said that the levy will be capped at 0.1% of total assets. If so, and applied to banks’ Italian businesses, then the total haul would be just under 2 billion euros, according to UBS. That’s less than half some analysts’ estimates on Tuesday, and in line with the government’s own target. It’s a reassuring sign that the government led by Giorgia Meloni is responsive to market signals.

Still, bank shares have only partially recovered. The combined market capitalisation of just five medium-to-large banks -- Intesa, UniCredit (CRDI.MI), Bper Banca (EMII.MI), Banco BPM (BAMI.MI) and MPS - is down over 4 billion euros since the tax was first announced, double the likely take. That may be because investors fear more could come. More fundamentally, politicians’ willingness to monkey around with banks' profitability muddies the investment case for investors: banks make less money when rates fall and interest margins come down, but they become easy targets the moment rates rise. (By Neil Unmack)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Francesco Guerrera and Streisand Neto

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