Carlo Messina, the long-reigning CEO of Intesa Sanpaolo, exudes an almost preternatural calm. While other European banks scramble to navigate the choppy waters of rising interest rates, Messina, with the air of a seasoned captain steering a mighty vessel, projects an unwavering confidence in Intesa's ability to weather any storm.

His composure, evident in the recent Q1 2024 earnings call, stems from a strategic foresight that seems to have eluded most analysts. Hidden within the transcript, obscured by the bank's record-breaking net income and generous shareholder rewards, lies a potent catalyst that could propel Intesa Sanpaolo into a league of its own: the anticipated decline of Euribor.

While most focus on the potential erosion of Intesa's net interest income as rates fall, Messina sees a far more compelling opportunity – a massive influx of assets under management (AUM). The key lies in the bank's substantial holdings of customer financial assets, particularly those categorized as assets under administration (AUA). These assets, typically held in government bonds and other low-yielding instruments, currently offer modest returns. But as Euribor retreats, they transform into potential goldmines, ripe for conversion into higher-margin AUM products.

Messina has already identified a staggering €100 billion within the bank's AUA that are poised to become capital gain positive as Euribor dips. This figure, however, excludes the potentially even larger pool of assets held in BTP Valori, a retail-focused Italian government bond that has attracted significant inflows during the high-interest rate environment.

Here's where Messina's strategic brilliance shines through. He doesn't view the BTP Valori competition as a threat but rather as a strategic reservoir, waiting to be tapped. As these bonds turn capital gain positive, Intesa Sanpaolo's vast network of 60,000 relationship managers, armed with personalized client data, will be ready to pounce, guiding clients towards higher-yielding AUM products.

"This strategy, already bearing fruit, is reflected in the bank's impressive gross inflows, which have surged by 20-30% year-on-year, reaching €30-35 billion per quarter. These inflows, while not all immediately translating into AUM, are driving commission growth even in the current high-interest rate climate. Imagine the potential when the floodgates of capital gain positive AUA and BTP Valori truly open."

But there's more. Intesa Sanpaolo possesses a unique weapon in its arsenal – its fully owned product factories. This gives the bank unparalleled agility in tailoring products to specific client needs, further enhancing its ability to capitalize on the shifting tides of the interest rate environment.

Projected AUM Growth from AUA Conversion

The following chart is a hypothetical representation of Intesa Sanpaolo's potential AUM growth, based on a 50% conversion rate of the identified €100 billion in AUA.

Now, let's put some numbers to this potential AUM tsunami. If even half of the €100 billion in identified AUA converts into AUM, assuming a conservative average management fee of 1%, Intesa Sanpaolo stands to gain an additional €500 million in annual revenue. And this is just the tip of the iceberg, excluding any potential upside from BTP Valori conversions and other expiring term deposits and certificates.

While Messina remains characteristically conservative in his official guidance, opting to wait for concrete evidence of Euribor's decline before revising his outlook, the potential for a significant AUM-driven revenue surge is undeniable. This potential, coupled with Intesa's rock-solid capital base and Nordic-level asset quality, paints a picture of a bank not only resilient but also poised for exceptional future growth.

Intesa Sanpaolo is more than just a bank; it's a shrewd wealth management powerhouse. While others remain fixated on the immediate impact of interest rate fluctuations, Messina sees the bigger picture, preparing to ride the wave of Euribor's decline towards an AUM-fueled future. This is a story that deserves far more attention than it's currently receiving.

"Fun Fact: Intesa Sanpaolo is the largest private employer in Italy, with a workforce larger than the population of many European cities."