Intesa Sanpaolo’s Messina Speaks in Davos Interview (Transcript)

Intesa Sanpaolo SpA Chief Executive Officer Carlo Messina spoke in an interview with Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse” at the World Economic Forum’s annual meeting in Davos, Switzerland.

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy. Mandatory credit Bloomberg Television)

FULL TRANSCRIPT:

Francine Lacqua (FL): Let’s go to our very special guest, he’s Carlo Messina, the CEO of Intesa Sanpaolo, Italy’s second largest bank. Carlo, great to have you on the programme. Thank you so much for joining us here. Talk to us a little bit about, I guess, your biggest concern. We talk a lot about QE, we talk a lot about expectations of QE from the ECB tomorrow. Is there a danger that the markets are getting it wrong?

Carlo Messina (CM): What is important is that there is no conditional risks. So the risk has to remain within the ECB. Otherwise, it will be something that will not have a significant impact and in my view it is also a demonstration that the Eurozone doesn’t exist. In the end you have a Eurozone that is growing between zero and one percent and all the other areas that are growing, are between two, three and five percent and the Eurozone would be something that is not completed if you are not an action that is with the risk within the unity of the ECB.

FL: How do you, though, rate the Swiss National Bank move last week? Is it a problem of timing? Is it a problem of communication from central banks? How do you see what happened and what impact does it have on you?

CM: They want to be in a position to stay before the action of the ECB and the quantitative easing because in the end, all the action of quantitative easing, the reality is to devaluate the euro. So, the devaluation of the euro is the only way in which you can increase a real economy through an increase in disposal of assets and the selling of products by companies. In the end, the reality is that they want to anticipate a devaluation coming from the quantitative easing. That’s my opinion.

Guy Johnson (GJ): I am quite intrigued by what you said at the beginning of the conversation about the fact that this is a demonstration of the Eurozone at its weakest. Your sense is that we will not get a sharing of the credit risk associated with QE. That we are going to see…

CM: That is my hope.

GJ: Your hope is that we won’t.

CM: Yes, that’s right, because in any case, this is not because in Italy we cannot allow the sharing of risk. Because the reserve, in the centre bank of Italy, gold reserve is 100 billion euro. It is one of the higher in the European field. It is a symbolic demonstration that you have to accept compromise. And compromise in real life, it is what creates a weak position so it is something that from a symbolic point of view, doesn’t work.

FL: In November, I want to talk a little bit about your bank. In November, you told us that you may be looking at increasing targets for your 4-year plan. Where are you at the moment? Are you still looking at increasing? Do you think there is a bigger chance of that happening?

CM: There is an absolute chance to increase the targets in private banking, asset management, and insurance business because really, we are well ahead of the business plan targets, we are growing at 9%, 10% in commissions, the higher in Europe, so we can increase our target by definition. What we have to wait is the impact on real economy in Italy deriving from the devaluation of the euro, on price, export 2015, and also, quantitative easing that could be really [inaudible] for growth in the country.

GJ: I am intrigued that you talk about the prime channel through which QE working being the foreign exchange markets.

CM: I am not a monetary expert. I am a work in practice.

GJ: Of course. But you talk about devaluation being the primary channel through which it works, is that a reflection of the banking channel and the transmission mechanism by which monetary policy works is still broken? We saw Mr. Renzi talking yesterday about there’s too many banks in Italy and not enough credit.

CM: Sorry, back in Italy, it is (even?) graded because last year we gave 2,028 billion euros of credit in just one year so it is the sum of the manoeuvre of the Governe Lette and Governe Renzi, and next year we will give 30 billion, 35 billion euros that is the manoeuvre of Governe Renzi so we are giving money to the Italian people and [inaudible] the level of demand of credit. Demand of credit will depend on demand of products from the companies and so if companies have no demand of credit, demand of products, they will come back…

GJ: And that’s where we come back to the current circle.

CM: And so we come back to the real economy because through the devaluation of the euro, you can have an increase in demand for your products and so you can have an increase in demand of credit. That is the way [inaudible] in real life. You can joke on monetary policies and other items but this is the reality that I see as this euro bank .

FL: Matteo Renzi yesterday talked about some reforms affecting the banking business. Now, it doesn’t automatically affect you at all, but we see I guess the beginning of possible consolidation. How does it impact your bank?

CM: So, there are two points. One is from a symbolic point of view that Renzi is delivering. So, this is very important because it is a symbol that he can move something that was not done in the past. So, for me, it is very positive. On the other side, on the consolidation, all of these banks can work on consolidations and so it is possible that there will also be an interest from international investors to the countries on this point. Intesa Sanpaulo, we are completely out from this…

FL: But positive, overall? Thumbs-up?

CM: Yes, this message is positive, yes.

GJ: We have seen brokerages go under, we have seen banks affected by the big move in the Swiss franc last week. When you saw that happen, first of all, what was your initial reaction in terms of what does it mean for my balance sheet? Have you been able to quantify any numbers at this stage?

CM: We didn’t expect the move so it was a surprise for us. But in any case, the majority of our exposure that was in our Hungarian and Croatian subsidiaries were hedged by our treasuries so we had no significant impact from this move. But it was unexpected.

FL: And does it mean that actually you are much more wary of bank communications? Of central bank communication?

CM: No, but I think at the end, if you pass this quantitative actions in the ECB at the end , there will be no measure timing for the decision in the central bank. Federal reserve will increase rates more or less in the future so quantitative easing, tomorrow we see at the end all the big decisions are there. What we lack, and it is typical of the Eurozone, we lack the politicians’ ability to move the side and so it is all in the end of Draghi that is the one player that is leading the game in the Eurozone.

FL: Carlo, you’ve made no secret of actually wanting to be bigger in the wealth management business. We’ve heard reports that you were interested in Coutts. Are you still interested in Coutts? Is it something that won’t happen? And, you know, what kind of targets do you have in mind?

CM: Yes, that’s right. The first point for us is to buy a brand. Because as Intesa Sanpaolo, if you want to go out from Italy, which we are really the leading player, because the private banking asset manager is at the level of the second or third player in Switzerland so we are really big. But if you want to go out, we need a brand. So Coutts is a fantastic brand, and so there’s an interest for a brand, but the Royal Bank of Scotland doesn’t want to sell the brand, they want to sell only the name.

FL: The name. That’s what you want.

GJ: But that’s what you want.

CM: Because we want the name. So there’s no possibility to make a deal if you don’t want to sell the brand that I want to buy. The brand does bring to the possibility of having other targets, because targets could be in the USA, in UK, in Switzerland, in Asia, but what’s important is to find a brand.

GJ: Could you just run me through what you think the top three names, the top three brands are out there in wealth management.

CM: The top three brands are not the target, because …

GJ: No, no, ok, but the ones that could be on the list.

CM: I am aiming at a market cap much higher than Credit Suisse, so 42 billion and 30 billion euros. But just to give the picture of the strength of Intesa Sanpaolo. But these are really the brands that are very famous.

GJ: But are there undervalued brands out there in wealth management?

CM: There are other brands, but I’m not telling you.

FL: What are you buying?

GJ: Yeah, yeah, I’m just trying to get …

CM: It would get into insider trading lists, so it is better not to say. [laughs]

FL: Carlo, thank you so much for joining us.

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