Italy's banks seek savings product comeback after retail state bond boom
Italians snapped up domestic govt bonds in 2023
Banks seeking to switch savers out of direct govt bond holdings
Target fees on mutual funds, insurance policies after sell-off
Bank distribution can negatively affect funds' returns-study
By Valentina Za
MILAN, July 16 (Reuters) -As falling interest rates compress lending margins and dent bonds' appeal, Italian banks are seizing the moment to woo retail savers back to higher-fee investment products they deserted in favour of government debt when rates were peaking.
UniCredit's CRDI.MI CEO Andrea Orcel in June said growing fees could account for as much as 40% of revenues in coming years, from around one third currently, as a narrowing gap between lending and deposit rates eats into the bank's net interest income.
Both UniCredit and Intesa Sanpaolo ISP.MI posted a first-quarter rebound in fees, signalling savers have started moving out of state debt in anticipation of a well-flagged European Central Bank June rate cut and possible further easing.
"Government bonds had such an incredible revival. All banks are now trying to shift part of their assets under custody into assets under management," said Luca Penna, head of Southern and Eastern Europe financial services at Bain & Company.
Banks charge more to manage assets than to just hold them, as they do when customers purchase government bonds.
As euro zone rates reached two-decade highs in 2023, Italians bought 114 billion euros ($124 billion) of domestic government bonds, which at 270 billion euros represented 5% of households' total financial assets.
That proportion was 3% in 2022, a value that matches the current euro zone average, central bank data showed.
Households' holdings of asset management products, by contrast, fell by 45 billion euros last year.
The shift deprived lenders of fees earned on the sale of such products, which banks vow to recover to support profits.
Market leader Intesa has created a steering committee chaired by the CEO to boost fees and meet a forecast of a double-digit rise in asset management and consultancy income this year, from an 8.6% first-quarter increase.
It started monitoring the value of individual clients' government bond portfolios to pinpoint the best moment for them to sell, CEO Carlo Messina said earlier this year. The bank then reaches out to clients proposing a switch into other products.
In this respect, the 15 billion euros in deposits Intesa clients shifted into the 'BTP Valore' retail bond up until February provide "a unique opportunity", Messina said.
Italians' savings have been successfully funnelled before into government bonds repackaged as investment products. The Bank of Italy calculated households held almost twice as much state debt securities through mutual funds or insurance policies, than those they purchased directly.
Banks are now targeting such direct bond holdings as those earn least income, though Italians also have 1.8 trillion euros parked in deposits at 1%.
SAVINGS
The latest inflow data reported this month by Italian fund management firms bodes well for banks' net fees in the second quarter.
Thanks to recent wage accords and cooling inflation Italians should start seeing a gradual recovery in their savings rate towards pre-pandemic levels from a record low in 2023, Bank of America's co-head of European bank research Antonio Reale said.
That boost to net savings could reach between 100 billion euros and 130 billion euros this year, with the bulk of it likely to end up in mutual funds, Reale calculated.
However, what is good for bank profits is not always best for customers.
While Italians rely much more on bank distributed investment funds than other European savers, a 2020 Bank of Italy research paper found that bank-affiliated mutual funds underperformed independent ones, in part because of distorted investment choices.
"To ordinary Italians it's not immediately clear that the financial advice received from their local bank manager carries a significant cost for lenders, and that their customers are paying for it," said Andrea Resti, a finance professor at Milan's Bocconi University.
"Unfortunately, the amount of expert knowledge that is necessary to make an informed decision on a financial investment is really quite significant," Resti said.
Italy scored fourth to last in an adult financial literacy ranking of 39 countries, better only than Paraguay, Cambodia and Yemen, based on the 2023 OECD/INFE international survey.
($1 = 0.9184 euros)
Reporting by Valentina Za
Editing by Tommy Reggiori Wilkes and Tomasz Janowski
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