Italy risks minimal revenue from an unexpected tax on banks after giving lenders the option to put money aside instead of paying the levy, three sources close to the matter said.
Without provisions in the law on capital levels and distribution policies, it would be difficult for banks to justify making shareholders pay the tax when they can instead increase their capital and keep the cash on their balance sheets, two of the sources said.
The government last week revised the 40% tax on banks’ net interest margin (NIM), which it introduced in a shock move in August. Lenders now have the option to increase their reserves by an amount equal to 2.5 times the tax.
Economy Minister Giancarlo Giorgetti said on September 27 that the end result of the process would be “a great banking policy measure” that makes Italian banks the strongest in Europe.
The law requires banks that waive the tax to set aside money under ad-hoc reserves in their accounts.
This has no consequences for dividends, which are normally paid out of profits.
However, European banks have also used their excess capital to buy back and retire their own shares, boosting dividends and earnings per share from what remains.
If banks are forced to increase their capital through ad hoc reserves, they could use larger buybacks over time to compensate shareholders, one of the sources said.
Banks could in theory eventually pay out an amount equal to the entire tax-related reserves they have booked, but this seems unlikely as an overly aggressive payout policy could attract the regulator’s thumbs up, another source said.
The European Central Bank approves buybacks.
With the tax not due until June next year, Italy’s main banks have months before their boards are called upon to make an official decision on the issue.
So far, only the chairmen of Monte dei Paschi di Siena (MPS) and UniCredit have commented on the law.
MPS CEO Luigi Lovaglio said last week that the option to increase reserves “made sense”, adding that the choice would rest with the board of directors.
UniCredit CEO Andrea Orcel, speaking before the latest changes were introduced, said the tax’s impact was “not meaningful” and that there were still plans to pay out more than €6.5 billion in dividends and share buybacks for 2023.
While cooperative banks were expected from the start not to pay the tax because they normally set aside a large portion of their profits as reserves, analysts have predicted that big banks would pay the tax.
The Finance Ministry has never provided an official estimate of the expected tax revenue, although Prime Minister Giorgia Meloni has indicated she was expecting a revenue of “just under” 3 billion euros ($3 billion) from the levy.
However, Giorgetti has said that no spending measure financed through the bank levy was currently planned, suggesting that low revenues would have no impact on Italy’s creaking public finances.
The tax must be finally approved by the Italian parliament this week.
($1 = 0.9542 euros) (Editing by Bernadette Baum)