Optimism on the Italian wealth business

Italy’s ingrained savings culture coupled with consistently low rates have spurred retail investors to seek alternatives offering higher returns.

Meanwhile, Italian banks focused on ‘plain vanilla’ lending activities have seen how the low rate environment has squeezed their profitability – not to mention the impact of the non-performing loans crisis.

As interest rates are expected to remain low for a while, some banks have decided to diversify their revenue streams or change their business models to more profitable segments – such as fee-based wealth management services.

This is the case of Intesa Sanpaolo, whose CEO, Carlo Messina, reveals the Italian bank is “successfully” moving towards a wealth management company model. In the second quarter of this year, Intesa Sanpaolo’s commission rose 10% versus Q1, while in the last two and a half years net inflows reached €64bn.

“About 50% of pre-tax income is generated by our Wealth Management business, including revenues derived from the Banca dei Territori division,” Messina says.

“We are convinced that we have substantial upside in a very low interest rate environment and an Italian asset management market with plenty of growth potential, thanks to over €840bn in client investing activity,” he says.

Another bank that is seeking to seize opportunities in wealth management is FinecoBank, which is majority owned by Italy’s largest lender UniCredit. It is putting a focus on financial advisory services – the bank owns one of the largest advisory networks in Italy with over 2,600 personal financial advisers.

Fineco also points out in its Q2 financial results that interest in advisory services has been awakened in the first half of this year – marked by high volatility in financial markets and an uncertain international investment outlook. It expects this climate to persist.

ADVISORY IMPORTANCE

The full first half of the year again confirmed the importance of financial advisory services, and the associated planning, monitoring and controlling of risk, as investor awareness grew around “the importance of having detailed and diversified management of their portfolios”.

This, the bank states, is reflected in the shift of net sales towards sophisticated advisory guided products and services, which stood at €1.6bn.

“Advisory services are and continue to be the focus for the future, as an approach that is increasingly spreading and particularly appreciated among customers, especially those in the private banking segment,” Fineco says.

Alessandro Varaldo, CEO and managing director of Amundi SGR, said back in June Italian banks have made a “tremendous push” towards the advisory approach, in order to achieve a higher diversification of the investment portfolio for the final client.

RAPID AUM GROWTH

Italy’s funds industry saw its AUM increase to €1.86trn by the end of June, and net inflows through Q2 reached €27.5bn.

Most of the inflows (€21.7bn) came from banks, as the Italian banking sector is “investing significantly in their advisory divisions for funds,” Varaldo says.

Overall, the Italian fund industry has experienced strong growth of about €350bn in net sales since the start of 2013. According to Credit Suisse, the rapid growth in AUM is set to continue, supported by the investment fund market’s relative immaturity and low penetration within households’ financial asset mix – 30% of assets are estimated to be in investment and pension funds versus 40%-60% in other key European markets.

The low income on offer from Italian government bonds – 13% of wealth – and ongoing churn of bank customers out of bonds and deposits into fee generating income products should also help.

“We think the continued low rate environment, together with a still low penetration of fund products within household financial assets in Italy, and more recent tax disincentives for bank bonds – the tax rate has doubled to 26% in recent years – leaves scope for significant further growth,” Credit Suisse says.

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