Handelsblatt Exclusive

The Optimist from Rome

Carlo Messina Reuters (2)
Mr. Messina moved up the ranks at Intesa Sanpaolo to become chief executive in 2013.
  • Why it matters

    Why it matters

    The European Central Bank is taking a close look at the liquidity of some Italian banks, leading many to fear the country’s finances are in a poor shape.

  • Facts

    Facts

    • Carlo Messina has led Italian bank Intesa Sanpaolo since 2013.
    • The bank, headquartered in a modern building in Turin, was created in 2006 from the merger of Sanpaolo IMI and Banca Intesa.
    • Italy recently set up a much praised ‘bad bank’ system designed to bailout financial institutions without taxpayer support.
  • Audio

    Audio

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Carlo Messina, born and raised in Rome, had been at the helm of Italian bank Intesa Sanpaolo since 2013. Headquartered in Turin, the bank was created in 2006 after the merger of Sanpaolo IMI and Banca Intesa. It has more than 11 million customers, most in Italy, but most of its shareholders are in the United States.

Last year, Mr. Messina raised earnings and dividends at Intesa Sanpaolo. The bank posted net profit of €2.7 billion, or $3.0 billion, the most for a single year since 2007.

 

Handelsblatt: Italy’s banks are kicking a mountain of €200 billion in bad debt down the road, and the European Central Bank is now taking a careful look at some lenders. Should we be concerned?

Carlo Messina: There are two problems that have hurt the value of Italian banks: the future of Monte dei Paschi di Siena and troubled loans. I believe that portrayals of the Tuscan bank’s difficulties were exaggerated. And the market also views the problem with bad loans incorrectly. It pays too much attention to the gross value instead of the net value, and it doesn’t make allowances for the strong collateral with which these loans are guaranteed.

Italy has just decided to create a ‘bad bank’ to get the situation with nonperforming loans under control. Is this an adequate solution?

Personally, I don’t think a bad bank is all that important. I believe it would be more important to enable banks to gain faster access to collateral. The government should work on that. If we could reduce this period of seven to eight years to two to three years, we would have a functioning market for non-performing loans, with realistic prices, and we would have no need for a bad bank.

Are you worried about a new bank crisis in Italy or Europe?

Not at all. The only possible cause of a new crisis would be a liquidity bottleneck. But in times like these, when there is sufficient liquidity, I see no real threat of a crisis. When you look at the capital ratios and total debt of Italian banks, we are in better shape than banks in other European countries. Our bank, for example, does very well, with a core capital ratio of 13 percent a debt ratio of 6.8 percent

Don’t you find the news disconcerting that the European Central Bank is now analyzing the current liquidity situation of some Italian banks?

I think the ECB does an outstanding job, including in its supervision of the banking system. And there is nothing wrong with assessing liquidity. On the other hand, Italian banks, compared to banks in other countries, tend to hold higher deposits, thanks to the high savings rate among Italians.

The ECB will probably lower its interest rates even further into negative territory on Thursday. Doesn’t this create new risks and new turmoil for banks?

In my opinion, the ECB will decide on even more negative interest rates. The main objective here is the exchange rate. A weaker euro against the yen and the dollar would stimulate growth through cheaper exports. There is probably a limit for negative interest rates. Still, I believe that the ECB could go even lower.

 

Negative interest rates are certainly unsustainable in the long term. But I believe that the monetary policy is more harmful to insurance companies and pension funds than to banks.

That would weigh even more heavily on the banks’ margins.

Of course, such low base rates are bad for the interest margin, but there are also benefits for banks like us. We refinanced in 2011 and 2012 with substantial risk surcharges. Our financing costs are significantly lower today. And the low interest-rate environment can help attract capital for our rapidly growing investment management business.

It sounds as if you were a fan of the policies of ECB President Mario Draghi.

Negative interest rates are certainly unsustainable in the long term. But I believe that the monetary policy is more harmful to insurance companies and pension funds than to banks. If you want to earn decent returns as an insurer today, you need to switch to riskier investments, like private equipment and hedge funds. In other words, such low interest rates cannot be sustained forever. Otherwise, there is the threat of systemic risks, not just in banking but also in the insurance sector.

Many regulators still consider the European banking market to be overcrowded. Do you anticipate any large mergers?

When you think about international mergers, you have to create real values for shareholders. In my view, the benefit of such mergers is unclear.

What about mergers in Italy?

That’s a little different. Here you can create value for the owners, such as through the integration of Italian cooperative banks.

You have ruled out mergers in Italy for your bank. Are you satisfied with your current position?

Yes. I cannot discern how we could create value through a merger. We are in a unique position, because even though we are a bank focused on Italy, we also rank among the most valuable European banks. Internationally, we intend to grow primarily in investment management. We recently expanded our private banking business in London. And we will also strengthen our presence in Switzerland.

You were just on a marketing tour in London and New York. Have investors regained confidence in Europe and Italy?

Investors have scaled back their expectations for growth at the global level in recent months. But at least they are not predicting a recession for Europe, and the mood is even a little more positive for Italy.

But isn’t Europe a dangerous place at the moment? The consequences of the financial crisis are still palpable, the debt crisis is far from over, and then there is the refugee crisis. Are you afraid that the European Union is breaking apart?

No, I don’t think so, and most investors don’t see it that way, either. But we need to do every thing possible to keep borders open in Europe. Closing borders would be dangerous – not just in terms of the economy, but also psychologically.

Would a departure from the Schengen Agreement on border-free travel be a turning point for the European Union?

Yes, it would be a mistake on the part of politicians in Europe. In this phase, we don’t need less but more integration. A joint economy minister could be a good symbol of the will to strengthen the European Union. Relations between Italy and Germany are a key factor for Europe’s success.

Mario Draghi has always warned that the ECB is only buying time for political reforms with its monetary policy. Are politicians giving away this time?

Mario Draghi and the ECB Council have very clearly assumed the leadership role in Europe. The politicians are doing their job and are working in the right direction, but the ECB moves at a much faster pace than politicians.

What about Prime Minister Matteo Renzi’s reforms in Italy?

He is doing the right thing, including for Italy’s reputation. The government’s guiding star is compliance with E.U. rules. But there are of course weaknesses, such as the public debt. This debt cannot be viewed only in relation to economic output, however, but also to wealth and savings deposits in Italy, which amount to an unbelievable €9 trillion.

 

Michael Maisch is the deputy chief of Handelsblatt’s finance desk in Frankfurt am Main. To contact:  maisch@handelsblatt.com

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