Carlo Messina, CEO of Intesa Sanpaolo
Chief executive Carlo Messina presented Intesa Sanpaolo’s 2018 to 2021 business plan in February, positioning the bank as a fee-driven, efficient and low-risk wealth management company and a leading bank for corporate social responsibility.
What the market most wanted to hear about, however, was the plan for non-performing loans (NPLs).
The new plan is for the bank to cut its volume of net NPLs from €22.5 billion to €12.1 billion by 2021. This appears to be a change in approach by the bank, which had previously been focused on maximizing recoveries by dealing with NPL disposals in-house.
It is also a clear indication of the impact of the European Central Bank’s tougher line on NPLs that was introduced last year.
“This is a decision to be ready to accelerate the timing of recovery,” says Messina. “It is a clear answer to the pressure of the regulator. If you want to lead a game, it is better to move before they ask rather than after they ask.”
Intesa’s bad loan ratio stood at 13% at the end of September 2017.
Messina explains that as the bank has already reduced NPLs by €13 billion since September 2015 and increased the coverage ratio from 48.8% to 51.1% in the process, this is not an ambitious target.
“We are in a position to achieve this reduction in NPLs easily,” he tells Euromoney. IFRS 9 first-time adoption sees this coverage ratio rise to 57%.
It might be easy, but it will entail a carve-out of a state-of-the-art recovery platform, and an IT capex spend of €30 million. The bank is talking to Swedish credit servicing group Intrum about a possible partnership for the servicing of the carved-out NPLs.
“We are talking to Intrum, but we are also having conversations with others,” says Messina. “We will select the best player from an industrial point of view.”
What he is adamant about, however, is that the future partner will not be a private equity firm.
“We are not talking to PE funds,” he says. “If you want to recover the fullvalue of the loan, you need an industrial player, not a PE firm that will buy it at 10c on the euro when the value is 30c. We are not here to give money to PE funds. We are here to give money to our shareholders.”
The search for a servicing partner stems from the need for Intesa to deal with its unsecured NPLs.
“We are the best practitioner in making recovery in secured loans,” Messina states. “When you are the owner of the collateral, the recovery people from the bank are the best for the recovery of secured loans. We need a partner to accelerate unsecured recovery.”
The bank will now set up an internal unit dedicated to early delinquency management for retail portfolios.
The bank’s NPL ratio will be helped by the fact its balance sheet at Intesa grew by €23 billion in 2017, boosted by the controversial acquisition of the two former Venetian banks Banca Popolare di Vicenza and Veneto Banca.
The controversial deal, which enabled Intesa to acquire just the good assets of the banks and be paid handsomely for doing so, landed the Italian state with a bill of up to €17 billion.
'Respect the rule'
When pressed by Euromoney for his opinion on the Bank Recovery and Resolution Directive, Messina does not mince his words. “If you have a rule you have to respect the rule, but some rules are not so smart,” he sniffs. “If you are a country with the majority of retail bonds [in bank capital] and others have a majority of wholesale bonds, you have to pay the bill of the rule being not so smart.”
An NPL servicer is not the only partner that Messina is on the hunt for. The new business plan also focuses on the search for a minority investor in the asset management business, Eurizon Capital.
“This is a brainstorming evolution of a strategic idea,” Messina admits. “We are not in a position to make a deal at the moment.” Eurizon currently has €314 billion AuM, but the plan is to grow this to around €400 million by 2021.
“Asset management is a business of scale,” he continues. “We are number one in terms of cost, but we need to have best product in all sectors. We need to make alliances with global players. We are available to make a partnership both commercial and strategic, and the best way to do this would be to sell a minority stake.”
Messina makes it quite clear, however, that the most important part of this new four-year plan is to tackle NPLs and increase commissions. After what he describes as the “saga” of Generali last year, M&A is definitely off the table for now.
“The business plan we have announced needs a lot of managerial attention,” he says. “It is not possible to do this and M&A too.”
There will be a human cost: 9,000 “voluntary exits” by June 2020, 3,300 of which will take place by the end of this year.