Proactive Investors - Banking shares in London have weakened following news that the Italian government has imposed a windfall tax on the Italian banking sector sparking nerves UK authorities could follow suit.
Campaigners at Positive Money welcomed the news.
We are “delighted to see that Italy has imposed a 40% windfall tax on the unearned profits banks are making from interest rates,” the financial campaigning group said.
In February, Fran Boait, executive director of the group estimated “If the [UK] government increased the existing surcharge on bank profits from 3% to 35%, in line with the energy profits levy, this would raise £67 billion over the next five years.”
Delighted to see that Italy has imposed a 40% windfall tax on the unearned profits banks are making from interest rates ????As @franboait told @guardian a 35% windfall tax on bank profits here in the UK would generate £67 billion over the next five years!https://t.co/pccui9nEzG
— Positive Money (@PositiveMoneyUK) August 8, 2023
The UK government has so far resisted demands for a windfall tax on the banking sector in the UK, despite similar moves in the energy profits, although it has called on banking bosses to do more to close the gap between borrowing and savings rates.
Victoria Scholar, head of investment at interactive investor, said: “Perhaps instead there should be greater efforts by the government to encourage banks to pass on the benefit of higher interest rates to savers through higher savings rates, more quickly and more aggressively, which would discourage spending, encourage saving and in turn help to bring down inflation.”
The Italian government is hitting the country’s banks with a new windfall tax, to help families through the cost of living squeeze.
Italy’s cabinet yesterday approved the 40% “windfall tax” on bank profits this year, with the proceeds earmarked to help mortgage holders and cut taxes.
Deputy prime minister Matteo Salvini told a news conference that the levy will hit the profits reaped from higher interest rates:
“One only has to look at the banks’ first-half 2023 profits, also the result of the European Central Bank’s rate hikes, to realise that we are not talking about a few millions, but we are talking one can assume of billions.”
Italy’s banks (like those in the UK) have benefited from rising interest rates over the last year.
Under the one-off levy, Italy will tax 40% of banks’ net interest margin.
CNBC quoted Citi analyst Azzurra Guelfi who said in a note: “We see this tax as substantially negative for banks given both the impact on capital and profit as well as for cost of equity of bank shares. The new simulated impact is also higher [than] the simulation we ran in April."
Shares in Italian banks plunged. BPER Banca shares plunged 9.7%, Banco BPM (LON:0RLA) shed 7.6%, Intesa Sanpaolo (BIT:ISP) was down 8.2%, UniCredit (LON:0RLS) dropped 6.7%, Banca Monte dei Paschi di Siena SpA declined 8.7% and Finecobank was down 7.4%.
In London, Lloyds Banking Group PLC (LON:LLOY) fell 1.4%, Barclays PLC (LON:BARC) dipped 1.9% and NatWest Group PLC (LON:NWG) eased 1.6%.