Financial Times 14/04/2011

Capital message hits home for chief.

Interview with Corrado Passera, Intesa Sanpaolo chief executive A demand for higher ratios has caused a change in approach,writes Patrick Jenkins Four of Italy's six big banks - including Intesa, the country's largest high-street lender have now announced a combined 10.5bn of capital raisings since the start of the year. Corrado Passera, Intesa's chief executive, refuses to be drawn on the motivations of regulators, but it is clear that it was their decision rather than his to raise capital now. "We changed our view on what regulators will consider the new normal [capital level]," Mr Passera said in an interview last week as he began a two-week roadshow of investors in the US and Europe. "The idea that this normal was around the corner was already in our minds. But the time framework to reach that new normal level, I think, changed." He is loath to specify when the pressure was applied by the likes of Mario Draghi, Bank of Italy governor, Giulio Tremonti, finance minister, and Andrea Enria, the Italian chairman of the European Banking Authority. But he admits it was only "in the last few weeks". "It was quite rapid. A couple of days after meetings I had with European and Italian regulators, I called the chairman and said I've changed my mind." He can scarcely explain it any other way. Look back at any reference to Mr Passera's stance on capital raising in the last three, six or 12 months and his position has been consistent - saying as recently as November that he would not have "any recourse to other capital measures". The 5bn cash call Intesa announced last week should raise the bank's ratio of core tier one capital to risk-weighted assets from 7.1 to 8.7 per cent and to about 10 per cent by the end of the year, as defined by the new Basel III international rule book on capital. Mr Passera says it had become "a message from a good part of the market" that they wanted higher capital ratios. Italian banks have seen their share prices stagnate, partly, say analysts, because of capital ratios that were out of kilter with European rivals, and partly because of sluggish Italian growth prospects. Mr Passera believes his three-year strategic plan addresses that concern, too. "Italy does not exist," says the 56-year-old chief executive. "The national statistical averages represent a country that does not exist. The nine regions that are the top regions, where we have more than 60 per cent of our business, if they were a country, then it would be at the very top of the European rankings." He highlights Italian infrastructure - in which "at least 100bn will have to be invested over the next five years" - as a big financing opportunity. In all, Intesa's plan comprises 150 different

projects, focused on a mix of growth plans and cost cuts. Chief among the cuts will be a net reduction of 3,000 staff - out of a total of 100,000 - and the closure or restructuring of 1,000 branches out of 6,000. Between growth and efficiency drives, even after the equity raising, Mr Passera is convinced Intesa can generate a return on tangible equity of about 15 per cent by 2015. "We believe the execution risk of this plan is relatively low," he said. "Now shareholders must decide."

Italian solution Corrado Passera admits his views are "maybe not politically correct. But I will tell you anyhow". He says: "Attracting, having, developing companies in your country has a value for the country." That is why he is trying to devise an "Italian solution" for a rescue of troubled dairy group Parmalat. With the proviso that any rescue must be "entrepreneurially and industrially sound", he says it makes patriotic sense to help save it. "It is [important] when a company is at the end of a long chain of companies that are relevant in terms of employment. Every country in Europe is doing the same, explicitly or implicitly. Saying we don't care is not the right thing."