WHEN: CNBC EXCLUSIVE, today, Thursday, 22nd May
WHERE: CNBC's Squawk Box in EMEA
Following is the unofficial transcript of a CNBC exclusive interview with Carlo Messina, CEO, Intesa Sanpaolo. Following is a link to the interview on CNBC.com http://www.cnbc.com/id/101693506.
All references must be sourced to CNBC.
CNBC's Carolin Roth (CR): Mr. Messina thank you for taking the time to speak to us today. You are two months into your new four year plan. How is it working so far, what are investors saying?
Carlo Messina (CM): Investors are saying we are delivering the plan because we announced Q1 results just a few days ago and we are increasing revenues and controlling costs and reducing provisions as we stated in our business plan, so they are very happy with the results.
CR: Let's talk about the Italian business, because what we see in your first quarter report is that there is a very encouraging trend in terms of Italian lending. Do you think this is start of the recovery in terms of bad loans or do you think we could still see a volatile environment.
CM: We are seeing a clear signal of recovery in non-performing loans and this is due to the attitude of families of returning to consumption, what is happening is a movement in the internal demand and this is the reason for the improvement in these type of loans also in our bank.
CR: What's behind this recovery, is it more stability in Italian politics?
CM: There is a technical reason due to the reduction of the spread between BTP – Bund because you know we have 800 billion euro of Italians invested in government bonds which is something like 50% of the GDP and we are seeing a recovery in the reduction of the spread between Italian and German bonds from 500 to 200 basis points, now Italian people are feeling richer, because they have all their savings invested in government bonds, so they are coming back to consumption and there is clear evidence in the increase of industrial orders in the past months.
CR: You've doubled your loan loss provisions in the first quarter, this is definitely an exercise ahead of the Asset Quality Review (AQR) and the stress tests here in Europe later on this year. This kitchen sinking exercise, was that it or is there more to come?
CM: I think all the effort we made last year is enough to manage the AQR, we must not forget we have a capital base with a buffer through the AQR of 12 billion Euro, so we have a common equity of 12.6 per cent, so looking at the AQR I think what we needed to do has been done, so we are OK with the AQR.
CR: So you are confident?
CM: Yes absolutely, we are and we want to exit from this exercise as a clear winner amongst our European peers.
CR: The ECB clearly wants to make the AQR and the stress tests a lot more credible, this is the third time we're doing this in Europe. Do you think this time around it will restore confidence in the European banking sector?
CM: My understanding is that this is the right time because the exercise is very tough, they paid a lot of attention in the analysis of all the different items of the balance, considering performing, non-performing and level 3 assets, and at the end the result will be restoring confidence and the level playing field between the European peers. I'm really confident about this exercise.
CR: You talked about capital before, and an interesting note from Citi out the other day saying Intesa really behaves like a Nordic bank not so much like an Italian bank, because your capital ratio is quite high 12.6 per cent, do you think that the market appreciates this?
CM: The market is appreciating the common equity of the bank by definition, because they can be sure to have ordinary dividends and probably also the pay back of a portion of the excess of capital that we have now. And also considering what is happening on the market with the increase of capital of Deutsche Bank and other peers that have more or less the same situation between 9-10 per cent, they consider us a very safe bank considering the capital position. So they are considering us a Nordic bank based in Italy.
CR: Italian paper Italian equities have been the stand out performers this year along with Portugal for example, much of this though, is predicated on the expectation that the ECB will ramp up its easing as early as June, do you think when that comes it is too little, too late?
CM: My understanding on this point is that the real move will be to devaluate the Euro, so the real target is to devaluate the Euro, because only through this devaluation you can have an increase in real economy in Europe and the attitude will not only be to reduce the interest rate but also to go through a quantitative easing exercise. It's the only lever if you want to move the Euro in a devaluation mood.
CR: Despite from those expectations of more easing from the ECB though, we've seen a rise in Italian yields now back at around 3.3 per cent, do you feel as though investors have been too complacent about that?
CM: My view is that investors were too reliant on the Italian GDP figures, first it was +0.2 per cent for 2014 now it is -0.1 per cent, at the end its only statistical evidence and in our expectations the growth will be +0.5 per cent and what is very important is the family recovery to consumption. When investors will understand this point they will come to see the reduction of risk in the Italian situation. So I'm not worried at all on this point.
CR: So you feel that the recovery in the Italian economy that is awaited towards the second half of the year.
CM: Yes that's right.
CR: Also want to talk about Ukraine, that has affected the sentiment on the European and global markets in the last couple of months. In January you said you are selling your Ukrainian unit but that sale has not been finalized, why is that?
CM: Because the owner of the company that will acquire our Ukrainian bank has some problems with justice, so the Ukrainian Central Bank is evaluating the implications of this situation and we are waiting for the Ukrainian authorities to make the disposal. But my understanding is that the procedure could be completed within this year, so I am really confident even on that.
CR: So you are saying it has not been held up by the tensions between Russia and Ukraine, it has nothing to do with that?
CM: That's right.
CR: What is the biggest risk that you are seeing out there, when you talk to clients and investors what is something that right now is underappreciated by the market?
CM: In general my view is that they are waiting for the ECB actions. So the real turning point will be Draghi's conference at the beginning of June and after that we will be in a position to understand the clear expectations of investors' toward the real economy.
CR: He's an Italian like you, do you have confidence, can he deliver?
CM: He can announce a quantitative easing program, and it's what I'm hoping to see, otherwise we'll only have a significant impact on financial economy and not on real economy. So you can have an impact on interest rates but not on the lending potential and internal demand for companies within Europe. And especially in Italy because you know in case of the devaluation of the Euro Italy is one of the best placed countries.
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