Banche, la parola ai banchieri – Intervista a Giuseppe Castagna (Banco BPM)

First of all, thank you for the interview. I am very pleased to exchange a few words, also because it is a particular moment for the international banking system. For once, Italian banks are not at the center of attention, because the business model created over the years – very commercial, traditional banks with deep roots in the territory and widespread deposit collection – allowed us to look at this period of great turbulence across the Atlantic and also in Switzerland from a distance, clearly with negative effects on stock market listings but not on anything else. Over these years, we have worked a lot, I would say, as Italian banks, alas also leaving behind some banks that are no longer there. Partly European regulation, partly the need to eliminate the remnants of the 2008 and 2011 crises, pushed all banks to rationalize, clean up their balance sheets, and above all reinvest heavily in the customer. This has been somewhat our secret too: we were a union of many strong regional or even provincial banks in some cases, which pooled their customer relationships and knowledge of clients and territories, while creating technical support and expertise in both finance and business, which allowed us to compete with large banks. So, greater knowledge and greater trust, due to decades and generations of relationships with clients, combined with a great ability to offer clients all the services they need. It seemed that banks had to be ethereal until a few years ago, that there was no more room for territoriality like the one you represent. Is there still a strong desire to be physically close to the territory, and does this need come strongly from the territory even today?

I would say yes. We resumed a tour of the territory a couple of months ago. Consider that our banks in the territories had very strong identities: Banca Popolare di Milano, Banca Popolare di Verona, Banca Popolare di Lodi, Popolare Novara, Credito Bergamasco, Popolare San Prospero e San Gimignano, Banco di Chiavari della Riviera Ligure, Cassa di Risparmio di Lucca Pisa Livorno – just to name the main ones. They had many differences, also in terms of relationship with technology and system integration, but they all forged an extraordinary relationship with clients in the territory, which has always remained very strong. This is somewhat typical of Italian banking: having great resilience and deep roots in the territory, with expertise, digitalization, and the ability to serve clients even at a distance, while maintaining a very strong bond of trust. We see this demand still exists. Our evenings with clients in the territories, especially in the provinces – in Milan there is more routine, so less desire to meet in person – whereas especially after the pandemic and a few years of remote relationships, there is a great desire to meet. The business world then represents this country. There is a dualism, a relationship that creates a pair almost like a Formula One engine between the savings of this country, the banks, and Italian businesses, which also hold the vast majority of savings masses in their current accounts. How can one properly guide the business world in Italy? And you made a very strong choice a few months ago: you created a structure that is close to businesses in the territory. This is another very strong element of your business development.

We already had an important presence in the corporate world for large companies, while for smaller companies we managed relationships with SMEs and private individuals through our traditional branches. We decided it was appropriate to separate these activities and create business centers – we created over 100 of them in our territories – to provide specific expertise much closer to what we already gave to large companies, also to SMEs. As we know, Italy is a country of SMEs. SMEs have grown in recent years despite an economic situation that seemed very complicated for various reasons, and they need increasingly professional support from banks. Financing has become – perhaps we will talk about it in the months to come; it may not be so anymore because there is some tightening – but it was no longer the discriminating factor in choosing a bank. It was the whole set of services, from savings to insurance to hedging, that have been essential for facing all the macroeconomic disruptions of recent years. Beyond the pandemic, I believe the management of the pandemic and the lockdown completely changed and upended all global equilibriums in the production chain and in the relationship between credit institutions and businesses. It was an upheaval and then led rates to fall further. Today we have the opposite trend with an impressive speed. How does this system rebalance, and how much will it suffer in finding a point of strong balance and resilience?

Today we talk a lot about the circular economy. A bank is a perfect circular economy: there is no action that is not followed by a reaction within the results the bank achieves. If you push too much on lending, you risk problems in credit management and credit cost. If deposits, as happened in the United States, are too concentrated in the hands of only a few large clients, you have a problem with deposit outflows that creates imbalances. If you are not careful about the maturity mismatch between deposits and loans, you also create a problem, which we have seen to be crucial in California. So, it is a microsystem that, because it has relationships with both private individuals and companies and generates an engine for the country's economy, must absolutely be regulated – not only by the external regulator, which naturally tends to ensure the system works well, but also with prudence, attention, the search for always new solutions, and the desire to change that must exist within each bank, precisely to overcome the changes that the macroeconomic situation presents to us each time in a different way. How important is the value of competence in the relationship with businesses and ordinary retail clients today for those who are in contact with them?

It is fundamental. This explains the desire to choose the bank that perhaps did not exist before. In the past, one didn't even say 'which bank am I going to?' – you went to the bank without specifying which one. Different banking models existed, but today the client is much more attentive, also because many banks are no longer there, and clients have suffered inconveniences or even losses due to investments made in some banks. Above all, today there is attention to what the bank can provide, which, I repeat, is no longer just financing but everything around it: balance sheet management, the ability to correctly finance investments, the ability to suggest how to make a business plan, how much capital is needed, how to raise capital sources. These are all tasks that, even with SMEs, have become everyday in dialogue with the client. Earlier, you mentioned a possible credit tightening. The issue is linked to inflation, the violent rise in rates, and the fact that there were many loans with very low rates that some companies might have difficulty paying. But has this phase been somewhat overcome?

I was very afraid in recent months, especially for those with fixed income. Obviously, companies – to tell the truth, most companies in this period of high inflation have managed to pass on a large part of the inflation to final sale prices. Sometimes we have seen price increases that have influenced inflation itself, even exceeding the increase in raw material costs. So, there has been less tension on prices. Clearly, for those on a fixed income, the simultaneous increase in mortgage rates, energy bills, and gas has been the perfect storm. It has created many problems. Fortunately, in previous years there was a lot of savings, so both families and companies had enough savings to meet cash needs. Today, why do I fear a credit crunch? Because, first of all, the regulator's attention on banks' balance sheets has not stopped, so more and more capital is required for lending. Let's say the level of security is important – we know that in ten years the capital that banks have available has doubled. We know that the banking system no longer has a mountain of bad debts, so it might not need all that capital. The combination of capital requirements and the risk that banks now clearly consider greater – due to the rise in rates and a potential economic slowdown, especially compared to the previous two years – could lead to less willingness on the part of banks to grant credit. This could affect clients who in recent years have had very easy access to credit, both because of abundant liquidity and government measures, leading them not to sufficiently consider the bank as an important supplier of money. What I recommend to our clients is: choose your banks carefully, present your projects, start early in presenting your ideas, because easy financing will become increasingly complicated. But when there is an important project, as you rightly said, it is a project worth structuring financially; there is always the need and the possibility to do it. Credit will always be there, and that is the reason why banks exist. I say the value of a commercial bank is to collect savings and employ them in the territory. That is our mission, and we are very proud to do it. Sometimes I am a bit polemical about the fact that under the name 'bank' we see very different entities. For me, bank means collecting and lending, and not everyone does that, but it is important to continue doing it. It is important to seek dialogue, to present yourself in good time at the bank and discuss your projects, not to arrive when you have already taken on commitments and maybe are not sure you can cover the financial needs. You have many clients in this country and are certainly a privileged observer with a lot of data at your disposal. What is your idea of the real situation of the country? Is it a country that is reacting, a country that is suffering, a country that can still grow, given that all the references from international institutes that make forecasts are systematically contradicted positively by the reality of the numbers?

Let's say we have been very resilient – not just as banks, but as businesses in this, I think surprising even the markets. Italian companies have an incredible ability to react, a flexibility in managing their market. They have increased exports, continue to have orders, and have even had problems fulfilling them due to raw material supply issues. So we absolutely do not see a moment of downturn. It is obvious that after two years of growth from 8% to 4%, there had to be a rebound to pre-pandemic growth levels. But we see that even this year – I was reading just this morning that we have gone from recession to zero point something, 0.1% – and that is what we actually see. It is clear, repeating, in a context where there are still macroeconomic tensions, where geopolitics still worries us, and let's not forget we still have an ongoing war, all this has generated much attention. But Italy has reacted much better than other countries, also because its banking system is stronger. You mentioned geopolitics; what idea have you formed about what is happening, what might still happen, not just regarding the war but also this strong shift of powers around China, this de-dollarization as some call it? What bothers me a bit is observing how Europe is not moving in a unified way yet, how there are still many voices that, depending on the interlocutor, have a somewhat different attitude. It is absolutely essential that Europe be more cohesive, both internally – on the new disputes emerging about the debt-to-GDP ratio and the financial stability law – as well as in relations with international interlocutors; they must be managed in a unified manner. Otherwise, as often happens in business relationships, when you have multiple interlocutors, you expose yourself and show weaknesses. How does one solve the problem of the war, in your opinion? I know it's a million-dollar question. Very complicated.

One always hopes that no one wants to go to the point of no return, that there are also, fortunately, economic interests that can make good sense prevail. Certainly, the longer the situation goes on, the more worrying it becomes. Let's hypothesize that we are here in ten years. Will there be a banking landscape like today's, or what do you expect as development in this sector to close?

I think the past has taught us that it is better to make plans somewhat shorter term. So, always look forward with great curiosity and great attention to change, with a great desire to look at what is needed to make the bank progress, but avoid making medium-term plans that are too ambitious, because reality continually disproves us, also – unfortunately – in the problems we have gone through. So, what I have always tried to do in bringing together the various banks that now form our group is to take the best from each of the models we have, innovate, digitalize, but maintain a very strong bond with the territory. The most important thing a bank does is sell and buy trust. Trust is built through the relationship between people, so it is always fundamental to have an important presence in the territory. Clearly, this presence must be increasingly qualitative and less merely transactional for operations that can be done easily at a distance. Let's say a good old-fashioned handshake is worth any other type of contract – a handshake with a lot of expertise behind it. Thank you, thank you for accompanying us in this review. One last point: why should we trust Italian banks? Because politics often demonizes the banking system, taking advantage of certain moments to make noise. From your point of view, I find that the perception has improved, although unfortunately, when we see some statistics, banks always remain in the last places in the trust of Italians. But when you talk about trust in your branch manager or your own judgment, the attitude changes. I think many, in these difficult years, have seen what it means to be a bank, to be a bank that stands by clients. We tried to do our utmost during the pandemic, just as we did many things to manage essential needs. Money is an essential good. We were always open, always close to the client. We granted hundreds of thousands of loans that only a few months earlier we would never have imagined being able to grant remotely, without seeing clients and often without even having colleagues in the bank. The relationship, I think, has greatly improved; trust has improved. It is up to us to continue to earn this trust in the future as well. Thank you again. Thank you.