Massimo Mocio says the pull-back of international players from Italy has provided Banca IMI with a stronger domestic base from which to compete.

As the Financial Stability Board unveiled its latest list of global systemically important banks in November 2015, Intesa Sanpaolo was absent from the list that includes many of Europe’s national champion banks. That places its markets and investment banking arm, Banca IMI, outside the top tier of global players subject to greater regulatory scrutiny. But Massimo Mocio, head of global markets at Banca IMI, is certainly not complacent about the impact of regulation.

In particular, one of his major concerns is the growing illiquidity visible in bond markets as dealers shrink inventories due to the pressure from the capital requirements directive (CRD IV). This obliges banks to hold more capital against their trading positions. CRD IV is also bringing in the liquidity coverage ratio and net stable funding ratio that put pressure on banks to hold larger stocks of liquid assets, or reduce their holdings of less liquid assets.

“Regulation is shifting the balance of risks from the sell side to the buy side. The huge transformational risk of turning short-term into long-term liquidity that was in the past [carried by] the banking sector has now moved to shadow banking, which is the large asset managers. When they move, they do not find intermediaries to take their assets,” says Mr Mocio.

He adds that Banca IMI is well prepared for more volatile financial markets with potentially larger moves in asset prices. The growing risk is of a run on investment funds that have daily redemptions but illiquid asset holdings, rather than the run on bank funding that occurred in 2008. But this is only part of the challenge. To combat the lack of intermediaries in the market, fund managers are increasingly looking to build buy side-to-buy side trading opportunities. That could ultimately begin to disintermediate the investment banks.

Ready for MiFID

In Europe, the Markets in Financial Instruments Directive (MiFID II) that should enter force in January 2017 brings with it bond trading transparency requirements that could accelerate this process. MiFID II will promote the use of multilateral trading facilities to meet those transparency requirements, as well as placing additional regulatory rules on systematic internalisers – dealers engaged in large over-the-counter flows. Mr Mocio believes, however, that Banca IMI has a natural advantage stemming from a combination of its own strategic choices, and the decisions taken by Italy’s financial markets regulator Consob.

The first incarnation of MiFID, which entered force in 2007, applied transparency rules only to equity markets. But the Italian regulator chose to extend this to fixed income as well. That was the same year that leading Italian investment bank Caboto merged with Banca IMI to form today’s dominant financial market player in Italy. Consequently, for Caboto veteran Mr Mocio, MiFID II and its bond market transparency does not present the same kind of novelty as it does for many European investment banks.

Banca IMI’s key strategic decision was the creation of MarketHub, an electronic execution system that enables the bank to offer clients direct market access to exchanges as well as liquidity on multilateral trading facilities, over-the-counter markets and retail distribution platforms such as private banking networks or online trading sites. Mr Mocio was gratified by the views of market participants at a forum organised by Banca IMI in October 2015. Robert Barnes, chief executive of equities exchange Turquoise, suggested that technology connecting multiple trading venues offered a promising way to improve fixed-income liquidity and help investors achieve best execution.

“We really believe MarketHub is the future, and we have invested a lot in this platform since 2008. Italy has a large retail financial market business, and the idea is to leverage on this to bring in more business from institutional clients,” says Mr Mocio.

Focused competition

While electronic brokerage is clearly an important element of the business model, Mr Mocio expects Banca IMI to compete more broadly. He does not share the pessimistic analysis presented by many management consultancies in recent years that investment banks outside the top tier will struggle to compete with the largest players, especially as principal dealers.

“We have the capital, the experience and the skills to perform very well in both agency and principal models. We are not afraid to deploy capital where we see an opportunity with the right clients, our corporate and financial institution clients in Italy and abroad that want to buy and sell Italian assets. We have the possibility to tailor-make deals, and this will remain the case,” says Mr Mocio.

The 800 staff of Banca IMI are closely integrated with the corporate and investment banking division of Intesa Sanpaolo, acting as a product factory and global relationship manager for all the group’s corporate and financial institution clients with annual turnover greater than €350m. The investment bank’s focus is naturally on Italy and the eurozone, which still account for the majority of profits. However, Mr Mocio emphasises that international expansion is part of the strategy. Banca IMI already has operations in London, New York and Hong Kong, with the latter presence mainly focused on corporate clients.

“The financial crisis was a good opportunity for us in one sense, because some global banks pulled back from Italy, allowing us to increase market share that we can then leverage internationally. In certain products, we have a market share of up to 25% in Italy, while international clients at the moment represent about 20% of our total global markets revenues,” says Mr Mocio.

He aims to continue growing the international component of that mix by promoting Banca IMI’s credentials as the “master of Italian risk” across bonds, derivatives and equities. The London office has been growing its sales team, and Mr Mocio does not exclude establishing a trading desk presence there in the future. In Hong Kong, the bank already serves Italian corporate clients active in Asia, and is building a financial institutions group from the ground up to offer the Italian market expertise among Asian clients.

US strength

The most developed of the international offices is New York, where Banca IMI not only sells eurozone securities into US clients, but already has a well established trading desk covering US corporate bonds and also Latin American markets. Mr Mocio says that Banca IMI enjoys a natural advantage in retail-sized trades between the EU and US. Emerging markets also tend to suit these smaller trade sizes.

“The larger banks may not be interested in trading bonds in smaller sizes, but we do this, and we can make a good spread. On the larger trades, there is much more competition to bring in the best institutional investor clients and it is much harder to make the spread,” he says.

While European trade bodies have expressed concern that European players cannot compete with US investment banks that enjoy such a large and relatively strong home market, Mr Mocio’s view is rather more positive.

“For me, the US market is really a level playing field and American clients are normally very fair about how they distribute their business. We are a large commercial bank, we have enough capital to deploy committed credit lines and risk-taking capabilities to our clients in the US so that they can give us good business on derivatives and structured finance products,” he says.

The US capital markets division, IMI Securities, almost doubled its profits year on year in the first half of 2015. After a record first half, Banca IMI as a whole generated net profits of €473m in the first three quarters of 2015, which represented a rise of more than 15% compared with the first three quarters of 2014. Mr Mocio’s global markets division remains by far the largest revenue generator, contributing €861m out of €1.15bn. 


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