Carlo Messina has given the latest Distinguished Speaker Seminar at the School.
In conversation with Rupert Younger and Alan Morrison, Messina discussed the European banking sector, the future of fintech, and Intesa’s own newly launched impact fund.
Perhaps unsurprisingly for someone from Italy, home to some of the most venerable banks in the world, Intesa Sanpaolo CEO Carlo Messina holds what might seem to be some decidedly old-fashioned beliefs about the value of reputation, trust, relationships, and tangible assets.
Taking stock 10 years after the financial crisis
Messina believed that the European banking sector was better capitalised today than it was 10 years ago, just before the financial crisis. But he warned that withstanding a similar shock (should it occur) did not depend on capital alone. ‘You cannot have a bank collapse because it does not have enough capital,’ he warned. ‘A bank collapses … when you enter into a crisis of liquidity and a problematic situation regards leverage.’
He said it was important to keep an eye on the quality of a number of asset classes, including non-performing loans. These he felt were less troubling in Italy where there was significant collateral, ‘but it is one of the problems underlying the banking sector so a solution under management’. But he was also wary of repossessed assets and the ‘so-called level 2 and level 3 assets, the derivatives that are mainly in the hands of French and German banks.’
The sector needs to be ‘in the mood’ to analyse itself, he said, with more transparency also from the regulator.
Coming to terms with the shadow banking sector
Morrison suggested that one of the problems 10 years ago was that we had an incomplete understanding of the ‘shadow banking’ sector – the non-bank financial companies that provide similar services.
Messina pointed out that shadow banking was associated with the level 2 and level 3 assets, including derivatives and bonds, that he had talked about in the traditional banking sector. In Real Estate, for example, ‘you can touch the asset underlying the loan’, but if you are working with ‘a combination of pieces of paper that may represent asset classes, evaluated to a market price, this can really be a problem.’
Increased transparency is needed, he said, particularly in terms of valuations and how those valuations are arrived at. ‘There are a lot of potential risks that the regulator tells us are under absolute control – but we need greater transparency to be sure.’
Fintech – opportunities and threats
Fintech will be of immense strategic importance for the future, Messina thought, particularly in the mass market where there is plenty of room for innovation. However, it is likely to have less of an impact on banks working with affluent private clients, who like to have a relationship with their wealth manager and look them in the eyes. ‘It is not all working on a mobile platform or the internet’.
The way to transform fintech into an opportunity rather than a threat, he said, is to make agreements with the big fintech players to reinforce investments in the area of instant payments. Intesa Sanpaolo is also investing in Venture Capital in order to finance start-ups in the fintech space.
It will be important for policymakers to ensure that what Morrison called the ‘regulatory apparatus’ is ready for non-traditional organisations. Regulation is still focused on the traditional banking sector, Messina said, and does not take into account ‘something that in my mind could be really dangerous such as cryptocurrencies.’
This does not mean that he opposes innovation, however. The Intesa group created an innovation centre three years ago, that now holds more than 100 people. This is important, Messina said, not just because they are doing new things with analytics, but because it is contributing to the culture of the organisation. However, he was clear that innovation does not depend only on internal activities: you have to ‘get energy from outside’, which is why he values Intesa’s relationships with universities.
Political environment in Europe
When asked about the rise of nationalism in Europe, Messina was pragmatic. ‘As a bank we are interested in the impact of politics on the real economy rather than politics per se.’
He saw the rise of nationalism as a response to a number of problems, some caused by government-level mistakes in dealing with issues such as security and immigration. And he preferred to think in terms of trying to find solutions to the problems underlying the rise of nationalism, rather than raging against nationalism itself.
‘It is not negative by definition. It is negative if it is impractical and reduces the value of the community. We have to go to fundamentals and ask, “What are the actions you can take in order to solve the problems?”’
Even so, he rated the likelihood of Italy’s dropping out of the Euro at 0%, and the chance of its dropping out of the European Union at 0% also.
Intesa Sanpaolo fund for impact
‘We think that a company with a significant return to shareholders has a duty to contribute to the community and other sectors,’ said Messina, describing the €250 million impact fund launched by Intesa. This focuses on students and researchers who have difficulties accessing finance, and start-ups, particularly women-led.
This is in addition to more traditional support for the arts, and giving money to provide meals and shelter for homeless people. ‘We are not only a bank, we are an institution,’ he said, ‘and we think that an institution with a lot of profitability and a lot of possibility absolutely should do this ... We want to be the best of Italy for the community and our investors.’