GIAN MARIA MOSSA AD BANCA GENERALI

In concrete terms, with great respect for the primary goal of protecting people and safety, we were close to them through continuous proactive communication and dedicated initiatives to intelligently manage liquidity in a moment of great volatility. I must say we entered this market crisis with relatively low risk, especially with very limited exposure to low-rated credit, so we suffered a bit less thanks to this defensive attitude and great diversification.

Our approach combines with many other ingredients of our style and tradition. Let me summarize our classic proposition. We are a young actor yet with a strong brand. The model is based on the centrality of the relationship between a professional banker and the client. We create a range of services around this relationship and the professionalism that Banca Generali can express. The central theme is financial wealth, but before managing it, we need a comprehensive picture of the person's overall assets in a family context. To understand the approach, we need to know priorities, objectives, risk propensity, and allocate the portfolio into different drawers. The long-term investment drawer is the most rewarding. I always give the example of the pension fund: those who joined for the tax deduction of 5,164 euros have forgotten that investment, while those who bought stocks for trading are glued to the monitor. So being able to compartmentalize and save is key. We are part of the Generali group, so the concept of protection comes before anything else. We must always be aware of the risks we want to manage and the returns linked to those risks.

We need to look at both the demand side and the supply side. Let's start with the supply side, the world of businesses. Companies need liquidity, and that's what we've tried to do, even if we often get lost in bureaucracy. Then they need future: the output gap due to safety norms must be covered, partly with non-repayable grants. The problem is that Italian companies are undercapitalized, structurally undercapitalized. We are perhaps the economy in Europe with the largest contribution of small and very small and medium enterprises, 65% of the economy, and the smallest weight of listed companies. So we need to work on the debt level of these companies, in some cases converting it into equity risk capital. This is an effort that some government agencies are trying to address. So I divide into three priorities: first liquidity, second the output gap with tax relief or non-repayable contributions, and third the financial structure with risk capital.

On the demand side, it's a bit more complicated. There are two aspects to consider. One is consumer confidence, which I believe has the greatest medium-term impact on consumption. Confidence is governed by coherent communication, systematicity, and seeing the future. This is perhaps the biggest problem we have right now in our country. Then, looking at consumption excluding primary needs, all more discretionary consumption or durable goods must be incentivized. With the current uncertainty and crisis of confidence and future prospects, the average consumer-saver will not decide to change the car or renovate the house. The incentives introduced by the government are very good. The real issue from an economic policy perspective is that there must be a right balance between short-term blanket solutions for social equilibrium and the political vision for tomorrow and the future. Today I see a lot of attention, though not necessarily positive results, on the short term, and we still lack the political vision for the day after, which must be centered on sustainable growth. The first element I would focus on is work. A country without work is not sustainable, especially youth work. We entered this crisis with about 30-40% youth unemployment; I wouldn't be surprised if we are now at 50%. So any measure, especially non-repayable grants, to incentivize the hiring of young people would certainly help both confidence and productivity. Let's remember that young people are the least exposed to COVID risk.

From a management perspective, we greatly increased liquidity in portfolios in March immediately. So our strategies defended better because we took a more defensive position, reducing risk in both equities and credit. This certainly paid off. We also focused on healthy diversification, so a component of gold in the portfolio worked very well. Structurally, we have a lower duration than the market and more diversified exposure to European government bonds. Together, these decisions have meant that our total assets of about 65 billion euros are down about 15% from the start of the year, which is certainly a lot, but compared to the market, it's a better result.

There are many good reasons and arguments to explain this market recovery. First, the general feeling is that if we look outside Italy for a moment, the interventions have been really significant. To use a metaphor, the sand to cover the hole exceeds the size of the hole itself. The real problem is how to cover it and how fast. The US intervened first and most significantly. So there are conditions to think that if you look at a simple equation of GDP growth before the crisis plus the interventions minus the damage from COVID, the sum is higher in the medium term than where we entered, with a complete remapping of the business world, with some sectors truly broken and others attracting all interest, like pharma, technology, and everything digital. So a first thesis I share is that the reaction has been really significant, and we have not yet seen some Asian countries, especially China, enter the field. The second element for cautious optimism is that never like today is there a common interest not to let countries, banks, or companies fail, because the enemy to defeat is external. This is not a financial crisis to point fingers at; the enemy is external. So this cohesion and shared vision of financing countries and companies puts an impressive cushion underneath. For example, one thing that struck me was when the Fed intervened on the high-yield ETF market, things never seen before, giving an idea of the gravity but also the far-sightedness of monetary policy. So that's the second reason. The third is the infinite amount of liquidity in the system. So these are the three reasons for a positive outlook. The element that makes me more cautious in the coming months is that a lot has been done, but the transmission mechanism to the real economy and the asymmetries being generated create new imbalances, including social tensions, and on the other hand, they don't necessarily have effectiveness. To use a simple expression, between saying and doing there is often a big difference, especially in some countries. So the doubt is whether we will be able to have that true political vision to give future to our country or to different countries in terms of sustainable growth.

I have to be honest, I subscribe to it more out of civic sense than to see if it's financially a right or wrong choice. Because I believe that in this moment, those who can should give a hand. So the initiative is commendable, because any initiative aimed at giving oxygen to the economy is welcome. It's clear that it must be very well monitored for the use of the resources collected, because we need to be very efficient and make very clear decisions. Then from a more entrepreneurial perspective, we have two fundamental assets. We must never forget that Italy is Italy thanks to the excellence of our entrepreneurial sector, which is not just big names but the backbone of small and very small businesses across Italy. That's the first pillar. The second pillar is private savings. If we include real estate, we exceed 10 trillion euros, an impressive figure, more than five times GDP. Now, how to make private savings dialogue with the real economy, i.e., businesses, is the challenge we all face. At the European level, the direction has been outlined, giving names to some investment solutions: securitizations, ELTIFs, alternative investment funds not reserved. It's clear that we still lack an ingredient to make these vehicles actually perceived by private savings as the solution to contribute to the real economy. Here we can and must do more.

If there is one thing that didn't work in the PIRs, it's the mechanism of fiscal incentives. When there is a promise of tax exemption on capital gains, in the common perception there is a positive return. But as we know, the history of investments is full of volatility, so a negative cycle manifests, and the tax advantage is seen as increasingly distant, thus disincentivizing the continuation of the plan. I believe this is a lesson: when putting money on the table to support private savings, we need to consider the counter-cyclical component. I gave the example of the pension fund: 5,164 euros are deductible regardless of the market, a net initial gain or immediate benefit. That shifts attention away from the markets. Imagine a system of tax deductibility of losses that gradually build up. This would force or push the saver to continue. The first year it goes badly, you have losses, you deduct them spread over the years on condition that you continue. You see that the state shares the volatility with you, which is a huge incentive to invest. Knowing that in case of recovery, you had a tax benefit; in case of no recovery, the bulk will be covered by the state. The market teaches, and we have done many backtests in the deepest crises, that the tail of people who lost money with a programmatic investment over 6 years is very very limited. So the expenditure from my point of view would not even be that significant.

I am really very satisfied and also impressed by the incredible work done by all the bank's collaborators, whether employees, who in a very short time managed not only to ensure business continuity, but we launched dedicated initiatives, we created a treasury-style fund to manage liquidity, to seize some market dysfunctions with spreads that widened a lot, we were even closer to our network of financial advisors, and we introduced in a few weeks surprisingly effective ways of acquiring contracts, digitally, which allows us to acquire contracts quickly without paper signature. Then a clientele not only young but also perhaps less inclined to digital needed other solutions, and we adopted them. So surprised, astonished, and amazed by the sense of duty, dedication, commitment of all the bank's collaborators, and the professionalism of the network. If we look at the numbers, in the first three months of the year we collected over 1.5 billion euros, and perhaps the quarter was one of the strongest, if not the strongest, in the bank's history, made of work and a very high percentage of our advisors. So if you look at the numbers, it seems almost that we escaped the crisis in terms of commercial numbers. Obviously, at the income statement level, in the second quarter we will also see the impact, but the first quarter went very well. When professionalism is very high and commercial activity is alive, someone in my position cannot worry. Then the further aspect that I note with great pleasure is that we moved on three directions, which are not trivial to make coexist. The first thought was and is rightly the protection of all stakeholders, the entire community around the bank. At the same time, we managed to stay on core business, stay close to clients proactively, and the third step is to stay close to our country. There is no order of importance; we managed to do all three. For example, we channeled 100 million euros to small and very small and medium enterprises through what I believe is the first securitization in Italy that used the Mediocredito Centrale guarantee at 90% and the participation of Generali as an investor, which put 10% in the junior tranche, taking on the tail risk. So we could offer our clients a 3% coupon on a protected product subject to country risk, and we financed businesses in these very difficult weeks. Then we also donated and did many other things, but I must say that the mix of these three elements – safety, protection of all stakeholders, proactivity and commercial animation, but above all closeness to our clients and civic sense and sense of duty, closeness to our country – makes me very proud to be Banca Generali.

I would say that in this sense, technology has helped us, because there are video conferencing systems that work very well. It's clear that there is a bit of distance, less contact. We Italians, I include myself, are people who live on relationships and presence. So when we move away and digital is in between, what we need to do is increase the sense of closeness, so be much more proactive. What we did was provide continuous information, create communication and information elements in our processes, very useful to synthesize the infinite amount of information generated by the system, which is perhaps the downside of this digitalization and globalization. I won't hide that in some cases physical presence was still requested because when dealing with needs very close and sensitive to the family and the patrimony, some clients rightly want the visual contact to understand. So in full respect of safety measures, in some cases I myself had the opportunity to interact with some entrepreneur clients, and I believe this is also the social value of our profession. So in extreme summary, we will come out stronger because we learned that we can be more efficient and effective thanks to what technology represents today. We will dedicate the activities for personal meetings to topics where true added value can be created, on topics that require a high level of personalization and where you have to exercise the three classic functions: being empathetic, rational, psychological, and the manager part, which is lucidly saying what could be done, and also the part I like most for our profession, which we call risk manager, which helps to understand what the tail risks are, the contraindications of doing and not doing, because often in not doing, we make more disasters than in doing.

Starting with the wealth tax, I believe it would be truly devastating today because it would undermine the confidence of savers, it would undermine the additional confidence of entrepreneurs who in some cases already feel a bit abandoned. So I would find it hard to find a rationale. Also because it's important that a wealth tax with all exemptions would simply be a small patch on a much larger hole, where we truly need a different political design. So for the timing, the impact on confidence, and also the amount that would not be that significant, I would be really surprised. What should be done instead, even making an unpopular choice, would be to penalize significant current account balances, but not by taking the money, but by putting bonus-malus. Let me give a simple example. I'm obviously not talking about legal entities that often have liquidity for business reasons, but a natural person who has a million euros in a current account. Then in my opinion, that million penalizes the client and the country. So the stamp duty, which already exists, could be made progressive based on current account balances, very simple, and say that it will start at the end of the year. At that point, clients who don't need liquidity on their accounts would invest; if they have short-term needs, they would invest in short-term solutions that give the same return. Meanwhile, it would finance our debt a bit. Those who follow a good professional could spread it across those drawers we talked about, giving a piece in the short term but also in the medium-long term, with an additional parachute in case of investment in the real economy. That's the package. I know there are many working groups to try to incentivize investments more efficiently. We'll see what happens in the coming weeks. Regarding Switzerland, we have done it in a very different way from the usual practice. Let me explain better. The number one goal of Switzerland is to keep the relationship and investment services in Italy as much as possible. So the project that is little talked about because it makes less noise than an acquisition is a partnership we made with Corner Bank. We are probably the first in Italy where we manage the client relationship in Italy, the client subscribes to investment services in Italy, so the core business remains Italian. After that, the client, if taken by panic, can diversify the deposit, i.e., where the money is physically kept. So for example, I buy a BTP or an Apple stock, I buy it in Italy, then I physically deposit it in Switzerland. The person who advised me on Apple is in Italy, it's an Italian bank, an Italian professional. The fee I pay to buy that Apple is in Italy and pays taxes in Italy. So this is the main purpose of the Swiss project. And I must say that unfortunately, now I put on the hat of the Italian citizen, interest is increasing to understand how to protect oneself in this sense. Valer is born in a somewhat different logic. We believe that in Switzerland there are conditions to develop a network similar to what we have in Italy, but Valer is a project that has a dimension, both in time and amounts, less relevant than the first one I described, and Valer is also an excellent asset management that allows for example to manage some international policies. So Valer is a bit more difficult to understand because it is not aimed at the Italian; Valer is aimed at the Swiss or the subscriber of Generali policies. The Italian who wants to reduce the presence of money on current accounts or Italian securities deposit can do so through us, keeping the bulk in Italy, the investment service and the relationship with the bank.

I agree. I believe that Italy has shown that it has always emerged from crises stronger. I have never seen such civic commitment and determination to contribute to having a better country in the future. In the short term, unfortunately, anxiety, sorrow, and suffering of small entrepreneurs who are truly under pressure prevail, but if you look up for a moment, I continue to see a future. I am in love with our country, and I believe that now more than ever there is a need for everyone's commitment to push in the same direction and to give a beautiful future to new generations.