Italian Banks Slump After Government Introduces Windfall Tax (4)

Italy’s right-wing government shocked markets with an unexpected tax on banks’ windfall profits, wiping out around $10 billion from the market value of the country’s lenders.

Deputy Prime Minister Matteo Salvini announced a 40% levy on the extra profits of lenders late Monday night, as part of a wide-ranging decree approved at a cabinet meeting. Analysts at Citi estimate it will wipe 12% from earnings.

The levy targets higher interest incomes following rate hikes by the European Central Bank, according to a government statement Tuesday. The decree could cost banks more than €3 billion ($3.3 billion) in taxes, according ...