Europe should move toward political integration to end the debt crisis by taking more aggressive action and accelerating a timetable, Intesa Sanpaolo SpA Chief Executive Officer Enrico Tommaso Cucchiani said.
“We have to move toward fiscal integration, financial integration and I think the final solution is political integration,” Cucchiani, the head of Italy’s second-biggest bank, said in a Bloomberg Television interview in London. “Unfortunately, politicians are a little bit more reluctant and have a slower time framework. The overall direction is clear, and Mario Draghi gave a clear indication.”
Almost three years after the sovereign-debt crisis emerged, Spain and Italy are shouldering borrowing costs at euro-era highs, the common currency is near a two-year low and Germany’s top credit rating was called into question by Moody’s Investors Service. Spanish and Italian bond markets rallied yesterday after European Central Bank President Draghi signalled the ECB is prepared to intervene to reduce soaring yields.
“Draghi underlined the political capital that is behind the euro and behind the euro zone and the commitment to protect it and to move forward,” said Cucchiani, 62. The CEO said he supports a proposed banking union as a step to greater integration.
“The concerns about the Eurozone and Italy are exaggerated,” Cucchiani said. “We should not forget that we have a government that in seven months has done major, major progress on several fronts.” he said.
Prime Minister Mario Monti, who’s facing Italy’s third recession in a decade, passed in December a 20-billion euro ($24.5 billion) austerity plan to shield the economy from the debt crisis. Italy is moving in the right direction according to Cucchiani, who considers Monti a “leading figure” in Europe.
Italy’s economy will shrink 2.4 percent this year, twice the pace predicted by the government, employers’ lobby group Confindustria said on June 28.
Intesa was among 13 banks that had their credit ratings cut by Moody’s Investors Service last week following the reduction on Italy’s debt rating on July 13. The bank was cut two steps to Baa2. It was the second time in two months that Moody’s reduced the banks ratings. “Italian banks are directly correlated to the fortunes of Italian sovereign debt,” the CEO said.
Intesa Sanpaolo is one of the European banks with the highest level of liquidity, according to Cucchiani. The Milan-based bank is “well above” the latest Basel 3 requirements, with the short-term liquidity indicator and long-term liquidity indicator above 100. Its core Tier 1 ratio currently is 10.7 percent, compared with 10.5 percent in March, he said.
Intesa, the only Italian lender among the top five that hasn’t needed additional capital to comply with European Banking Authority requirements, is eliminating jobs and reducing costs to strengthen finances as part of a five-year business plan. The bank borrowed 36 billion euros during the European Central Bank’s long-term refinancing operations and invested part of the funds in government bonds.
“I don’t think that right now there is a need for another LTRO,” Cucchiani said. Intesa used 39 percent of funds borrowed from the European Central bank’s long-term refinancing operation to buy government bonds, in the first quarter. The lender increased its Italian bond holdings to 76.9 billion euros at the end of March from 59.7 billion euros three months earlier.
Intesa’s first-quarter profit rose 22 percent to 804 million euros on gains related to buying back its own debt and higher interest income. The bank is scheduled to release second-quarter earnings Aug. 3.