Italy waters down bank windfall tax

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Italy is further diluting its windfall tax on banks with a new clause giving lenders an alternative to paying the levy, a concession to critics of the measure that include the European Central Bank.

Prime minister Giorgia Meloni, who said she took full responsibility for the widely criticised tax that sent bank shares tumbling last month, had recently ruled out scrapping the measure but said she was open to making changes.

The amendment allows Italian banks to use gains from an increase in their net interest margins to bolster underlying reserves, rather than pay out a one-off tax, according to a draft text seen by the Financial Times.

Prior to the changes, the levy had been expected to raise around €3bn. The provisions are expected to be approved by parliament this week.

The offer of an escape clause to lenders comes less than two weeks after the ECB urged Rome to reassess the windfall tax, which it warned risked making Italy’s banking sector more vulnerable to a downturn.

The tax also created tensions within Meloni’s three-party coalition, with Forza Italia, the junior coalition partner previously led by the late former prime minister Silvio Berlusconi, particularly unhappy.

Marina Berlusconi, daughter of the former premier, publicly criticised the tax at a recent gathering of the influential business lobby, Confindustria.

“I don’t like the word ‘extra profits’ — I find it misleading and demagogic,” said Berlusconi, whose family holding company, Fininvest, has a 30 per cent stake in Italian asset manager Mediolanum, which would have been hit by the levy.

“Who determines when a profit is extra and when it is normal,” she said. “If it is ‘extra’, to what extent is it?

Deputy prime minister Matteo Salvini upset international markets in August with a casual late-night announcement that Rome was planning to impose a 40 per cent windfall tax on profits derived from a surge in banks’ net interest margins as the ECB entered an interest rate tightening cycle.

The move followed repeated complaints by Meloni’s government about banks passing on the higher cost of money by increasing lending rates while refusing to raise deposit rates for savers, leading to higher net interest margins and profits.

Bank stocks tumbled nearly 10 per cent the morning after the announcement, although they recovered some of their lost ground the following day when the finance ministry clarified that the tax would be capped at 0.1 per cent of the banks total assets.

The latest amendments state that lenders will be able to opt out of the tax if they allocate 2.5 times the amount that would have been owed under the tax to strengthening their core tier one capital reserves. The amendment also caps the tax at 0.26 per cent of banks’ risk weighted assets instead of 0.1 per cent of total assets. 

Foreign minister Antonio Tajani, who is now leading Forza Italia, praised the changes, saying the improved measure would ‘protect savers and calm international markets.