By Angelo Amante and Valentina Za
ROME (Reuters) -Prime Minister Giorgia Meloni on Wednesday defended the decision to impose a surprise windfall tax on profits at Italy's banks after the government watered down the plan following a market rout.
The economy ministry clarified late on Tuesday that the 40% windfall tax, a one-off measure which targets gains from banks' higher interest rates, would not amount to more than 0.1% of their total assets.
While other European countries, such as Spain and Hungary, have introduced windfall taxes on banks, analysts said Italy's initial announcement late on Monday caught the market unawares, damaging confidence and raising fears of further measures across Europe.
Meloni, who took office last October, said it was vital for banks to behave as correctly as possible, given the difficult economic circumstances, with weak growth, high inflation and rising interest rates.
The government "has approved several measures, the most important of which is the taxation on banks' unjust margins," Meloni said in a Facebook (NASDAQ:META) video, her first public comment since the decision was announced.
Analysts at UBS said the cap announced by the economy ministry meant the tax would have an aggregate impact of 1.9 billion euros ($2.1 billion).
The initial impact of the measure before the cap had been seen at below 3 billion euros, according to sources in Rome and analysts' calculations.
Citi analysts had estimated on Tuesday that the windfall tax could bring as much as around 0.5% of total 2023 risk-weighted bank assets (RWAs) into Italian state coffers.
Shares in Italian lenders such as Intesa Sanpaolo (BIT:ISP), Banco BPM (LON:0RLA) and UniCredit (LON:0RLS) rebounded between 2.6% and 4.9%, while FinecoBank added some 6%.
UBS said the expected "earnings erosion" for Italian retail banks was likely to range between 6% for UniCredit to 15-16% for Banco BPM.
BANK EARNINGS PROMPT BACKLASH
Meloni's right-wing government had floated the idea of a bank tax, but seemed to have dropped the plan and the actual decision came as a surprise even to ministers gathered for a cabinet meeting on Monday night.
The move was announced at a late night press conference which Economy Minister Giancarlo Giorgetti and Meloni did not attend.
Despite the market jitters, government figures stood by the measure on Wednesday, accusing banks of pocketing too many of the gains from the current round of interest rate hikes.
"Some bankers are regretting (it) but we are talking about an industry that is making billions and billions in profits without lifting a finger," Deputy Prime Minister and Infrastructure Minister Matteo Salvini told RAI public radio.
"Redistributing a small part of these profits is economically and socially justified," he added, confirming government plans to use proceeds to help mortgage holders as well as those on low incomes and small pensions.
($1 = 0.9113 euros)