The founder and CEO of digital bank Illimity talks to Silvia Pavoni about why focus is important and the potential among small and medium-sized companies, clients he claims traditional banks have underestimated.

Corrado Passera

Corrado Passera

The former CEO of Italy’s Intesa Sanpaolo and a former minister of economic development, Corrado Passera, founded Illimity in 2018 to focus on small and medium-sized enterprises (SMEs), a segment, he says, that tends to be underestimated by traditional banks. In an interview with The Banker, he talks about the changes in Italian banking, how politics should prioritise fiscal incentives to support growth, and the need for a closer Europe.

Q: Does Italy need yet another bank?

A: In banking, everything is changing, [be it] new players entering from other sectors, banking rules, monetary policy – all are drastically changing the sustainability of banks based on traditional models.

The universal bank model is on the ropes. Very few, perhaps no one, can afford to be everything to everyone. We are a fully digital bank and have decided to focus entirely on small and medium-sized companies that either have a specific growth project, where we can help with growth financing; or have had problems that can be solved, where we provide restructuring finance; or where things didn’t work out but the company still has some value, where we work on corporate distressed credit. We only have these three activities.

We work with clients to put together a long-term strategy, with a detailed due diligence, stress testing even low-probability scenarios. These are types of clients that traditional banks tend to underestimate for a variety of reasons.

On the liabilities side, we have created what I think is one of the most innovative direct banks. We have a platform where we sell our products and products of others. I had the idea for this type of bank two years ago. We raised €600m, bought a small bank to accelerate our growth, and received the authorisation to operate in 2018. We broke even at the end of 2019 and now have 500 people on staff.

I expect that among the next ‘winners’ there’ll be new, specialist banks. But this is not the only way to create a new market. The other way is consolidation and Italy has made huge steps forward in the past 20 years.

Q: The economic crisis will hit many of your SME clients. Which are most at risk?

A: Generally, being small doesn't pay off. We often finance companies to buy their competitors and they then begin to focus more strongly on international markets. The only possible generalisation I can make about SMEs is that we should support consolidation.

To support companies, across any sector, across supply chains, rather than public subsidies, there should be incentives to promote virtuous behaviour. If I could, now I’d introduce very strong fiscal incentives, which would reduce tax rates down to near 0% for businesses that invest in innovation, that hire new staff, that increase capital, that consolidate. Rather than providing funds to all, we should support structural growth. Italy has a good industrial planning law, which should be better financed. When I was in government [2011-2013] I introduced a start-up law to reduce taxation on capital gains for investors. We could create fiscal incentives for companies to merge.

The government issued legislative decrees to provide Covid-19 emergency funds. The next decree should be about incentives and focus on the needs of the various sectors: what tourism needs is very different from what big public works need.

And then we should look at public investment: infrastructure, research and innovation, [and] education. This is a European challenge too. We need thousands of billions in Europe, and to work these need to be decided at an EU level and financed at EU level.

Q: Is this where Europe is heading, a federal solution?

A: This is the road that will be paved by the Eurobonds [bonds issued by the EU Commission on behalf of all EU countries to respond to Covid-19]. The important thing is not to mix things up, solidarity with self-interest, as tends to happen in newspapers and in politics. One thing is to say `let’s help countries that have been hit by the crisis’ – that’s fine. But let’s not confuse this with the interest of all European citizens to reignite growth, through a single market in energy, in finance, in transport. It is in everyone’s interest; it is not solidarity towards someone in particular. And it should be clear that no one should ask for the mutualisation of past public debt. It is a matter of financing new investments and new assets, the Eurobonds, that look to the future rather than the past. If we don’t wake up, the European project risks losing speed and, just like a bicycle, it will end up falling on its side. 

This Q&A has been edited for brevity and clarity.

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