A N N U A L R E P O R T

Transcription

1 ANNUAL REPORT 2008

2 ANNUAL REPORT 2008

3 Banco Popolare Società Cooperativa Registered and Head offices: Piazza Nogara, Verona Share capital as at 31 December 2008: euro 2,305,734, fully paid Tax code, VAT no. and enrollment no. in the Verona Enterprise Registry: Member of the Interbank Fund for Deposit Protection and of the National Guarantee Fund Parent company of the Banking Group Banco Popolare Registered in the Banking Groups Registry 2

4 CORPORATE BOARDS, MANAGEMENT AND AUDITING COMPANY AS AT 31 DECEMBER 2008 Supervisory Board Chairman Carlo Fratta Pasini Deputy Vice Chairman Dino Piero Giarda Vice Chairman Maurizio Comoli (*) Directors Marco Boroli (*) Giuliano Buffelli (*) Guido Duccio Castellotti Costantino Coccoli (*) Pietro Manzonetto (*) Maurizio Marino (*) Mario Minoja (*) Gian Luca Rana (*) Claudio Rangoni Machiavelli (*) Fabio Ravanelli (*) Alfonso Sonato (*) Angelo Squintani (*) (*) Independent directors under art. 6 of the Corporate Governance Code adopted by Banco Popolare Management Board Chairman Chief Executive Officer with Vice-Chairman functions Directors Vittorio Coda Pier Francesco Saviotti (I) Franco Baronio Alfredo Cariello Luigi Corsi (II) Domenico De Angelis Maurizio Di Maio Enrico Fagioli Marzocchi (III) Maurizio Faroni Massimo Alfonso Minolfi Roberto Romanin Jacur (II) (II) (IV) Andrea Sironi (I) Mr. Pier Francesco Saviotti was appointed on 7 th December, to replace the resigning CEO, Mr. Fabio Innocenzi (II) Independent directors under art. 6 of the Corporate Governance code adopted by Banco Popolare (III) Mr. Enrico Fagioli Marzocchi resigned as of 1 st February 2009 (IV) Mr. Andrea Sironi was appointed on 14 th October, to replace the resigning director, Ms.Emma Marcegaglia Board of Advisors Standing Alternate Marco Cicogna Luciano Codini Giuseppe Bussi Aldo Bulgarelli Attilio Garbelli General Manager Massimo Alfonso Minolfi (**) (**) Appointed single General Manager as of 1 st February 2009, after changing the previous organizational structure that envisaged a Corporate General Manager and a Retail General Manager, namely, Messrs. Massimo Alfonso Minolfi and Franco Baronio Manager in charge of preparing corporate financial reports Gianpietro Val Auditing firm Reconta Ernst & Young S.p.A. 3

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6 TABLE OF CONTENTS Notice to convene... 7 REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR FY 2008 Group Structure Group Geographical Network Group financial highlights and ratios Report on Group operations Economic backdrop Noteworthy events for the year Banking activities Retail Corporate Finance Results Credit intermediation Financial assets Equity investments Shareholders equity and solvency ratios Consolidated income statement Rating and stock performance Risk management Planning, auditing and service activities Human resources Internal audit Compliance Technological and administrative services Technological projects and investments Communications Performance of the main Companies of the Group Mutuality and public interest initiatives Disclosure pursuant to Bank of Italy/Consob/Isvap document n. 2 of 6 th February Operational outlook Statement of the Chief Executive Officer and of the Manger in charge of preparing financial reports Independent Auditors Report Consolidated financial statements Consolidated Balance sheet Consolidated Income statement Statement of Changes in consolidated Shareholders equity Consolidated statement of cash flows Notes to the consolidated accounts Chapter A Accounting policies Chapter B Notes to the consolidated Balance sheet Chapter C Notes to the consolidated Income statement Chapter D Segment reporting Chapter E Risks and associated hedging policies Chapter F Consolidated shareholder s equity Chapter G Business combinations Chapter H Transactions with related parties Chapter I Share-based payments Attachments

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8 Soc. Coop. - Sede sociale in Verona, Piazza Nogara, 2 - Capitale sociale Euro ,00 i.v. Codice fiscale, Partiva I.V.A. e numero di iscrizione al Registro Imprese di Verona Iscritto all Albo delle Banche al n Aderente al Fondo Interbancario di Tutela dei Depositi e al Fondo Nazionale di Garanzia Capogruppo del Gruppo Bancario Banco Popolare - Iscritto all Albo dei Gruppi Bancari SPECIAL AND GENERAL SHAREHOLDERS MEETING NOTICE TO CONVENE Pursuant to art. 22 of the Articles of Association, the Special and General Shareholders meeting shall be convened on first call on Friday, 24 th April 2009, at 9 o clock, at the company s head offices (Piazza Nogara n. 2) to discuss the following SPECIAL MEETING AGENDA 1) a) Proposal to change articles 1, 3, 4, 4 bis, 6, 10, 11, 13, 15, 17, 20, 21, 22, 23, 25, 26, 28, 29 [29.1, 29.2, 29.3, 29.7, 29.8], 30, 31, 32 [32.3, 32.5, 32.6], 33 [33.1, 33.2], 34, 35 [35.1, 35.2], 36 [36.1, 36.2, 36.4], 37 [37.1, 37.2], 38.1, 39 [39.1, 39.2, 39.8, 39.9, 39.10, 39.11, 39.12, 39.13], 40 [40.1, 40.5], 41 [41.1, , , 41.3, 41.4, 41.5], 42 of Banco Popolare s Articles of Association; addition of new articles: 35.3, and 40.7, with a new numbering for the following two articles and a text amendment in art. 40.9; deletion of articles 29.6 and 39.7, 56, 57, 58; abolishment of the Nomination and Remuneration Committee Regulation attached to the Articles of Incorporation b) associated and consequent resolutions; delegation of powers GENERAL ANNUAL MEETING 1) Report of the Management Board, the Supervisory Board and the Auditing company on financial year 2008; approval of the annual report as at 31 st December 2008, under articles 20 and 41.2 letter a) of the Articles of Association; presentation of the Consolidated Financial Statements and the Social Report; consequent resolutions under the law 2) Calculation of the total amount to be allocated to charity, social solidarity and public interest initiatives, in compliance with new art. 4 bis of the Articles of Association as resolved by the special shareholders meeting. 3) Authorization to purchase treasury shares to support the stock liquidity 4) Supplement to the fees of the auditing firm Reconta Ernst & Young S.p.A. in charge of audits from 2005 to ) Compensation of Supervisory board members, including Directors filling special offices, under art of the Articles of Association, as well as remuneration policies in compliance with Supervisory regulations and the new art. 20 of the Articles of Association as resolved by the special shareholders meeting 6) Appointment of five additional members of the Supervisory Board for the three-year period from 2009 to 2011 Should the meeting fail to reach the legal number, in compliance with art. 22 of the Articles of Association, it shall be held on second call on Saturday 25th April 2009 at 9 o clock in Verona at the Verona Fair Grounds (Pavilion n. 10 and 11) - Ente Autonomo Fiere di Verona, Viale dell Industria Entry in Re Teodorico, to resolve on the above agenda in compliance with articles 24 and 25 of the Articles of Association. Meeting attendance (art. 23 of the Articles of Association) Shareholders who were entered in the Shareholders record at least 90 (ninety) days before and who, at least 2 (two) working days before the meeting s first call, namely by Wednesday 22 nd April 2009, have given notice to Banco Popolare through their authorized intermediaries as provided for by art. 85, paragraph 4, Legislative Decree n. 58 of 24/2/98, and art. 23 of the joint Order by the Bank of Italy and Consob of 22/2/08, have the right to participate in the Shareholders meeting. Shareholders - whose shares are already deposited in a custody and administration account with the Banks of the Group, and precisely - Banca Popolare di Verona S.Geminiano e S.Prospero - Banca Popolare di Cremona - Banca Popolare di Lodi - Banca Aletti & C. - Banca Popolare di Novara - Banca Caripe - Banca Popolare di Crema - Cassa di Risparmio di Lucca Pisa Livorno - Credito Bergamasco and as such have already been dematerialized - must in any case give specific instructions that the notice be executed, and obtain an immediate copy thereof, to be used as admission ticket to the Shareholder s meeting. Shareholders whose shares are deposited with other authorized intermediaries, must instruct the latter to execute the above notice under the mentioned Consob Resolution, and obtain the relevant copy thereof. 7

9 Shareholders in possession of shares that have not been dematerialized yet, must turn them in to Banco Popolare, to the above banks of the Group or to other authorized intermediary for their dematerialization, and give instructions for the execution of the necessary notice to participate in the Shareholders meeting. Each Shareholder is entitled to one single vote, irrespective of the number of shares in his/her possession. Shareholders are entitled to be represented by another Shareholder at the meeting, provided the latter is not a member of the Supervisory or Management boards, or employee of Banco Popolare or member of the managing or auditing boards or employee of the companies directly or indirectly controlled by Banco Popolare, or does not fall under one of the incompatibility cases envisaged by law, and who is in possession of a written proxy valid under the law, duly filled out and whose signature has been authenticated by a public officer or by an employee of Banco Popolare or of one of the above mentioned banks of the Group. Each Shareholder may represent only one other Shareholder by proxy, with the exception of trustees. Pursuant to art. 26 of the Articles of Association, the Chairman of the Supervisory Board has full powers to verify the validity of the proxies, and in general the shareholders actual right to attend the Shareholders Meeting, so as to verify whether the meeting has been duly formed, and if the legal number necessary to pass resolutions has been reached. To this purpose, all Shareholders concerned may submit their proxies at Banco Popolare s Head offices, also by way of the Group s bank branches, by 20 th April Proxies submitted after the above deadline or at the Shareholders meeting must in any case be filled out and authenticated along the same modalities described above. Appointment of 5 additional Members of the Supervisory Board: presentation of the slates of candidates (art. 39 of the Articles of Association) In compliance with art , paragraph two, of the Articles of Association, the Shareholders meeting must appoint 5 (five) additional members to supplement the Supervisory Board, of which: 2 (two) shall be appointed among shareholders residing in the provinces of BPI s Original Franchise: the provinces of Lombardy (other than Brescia, Bergamo and Mantua), Tuscany, Liguria, Lazio, Abruzzo, Sicily and the province of Bologna (area of Imola); 3 (three) shall be appointed outside BPI s Original Franchise, among shareholders residing in the provinces of BPVN s Original Franchise: the provinces of Veneto, Emilia Romagna (other than Bologna, area of Imola), Piedmont and Valle d Aosta. They shall remain in office for three years, and their term of office shall expire upon the following General Meeting s date as provided for under paragraph two of art bis of the civil code, and they may be re-elected. The members of the Supervisory Board are elected based on lists pursuant to the Articles of Association and in compliance with existing laws and regulations. Now, therefore, under art of the Articles of Association, each list must be filed directly, or jointly with the Supervisory Board, by at least 500 Shareholders with voting rights, irrespective of the share capital percentage they hold as a whole, or by shareholders, who individually or altogether hold an interest representing at least 0.50% of Banco Popolare s share capital. Upon penalty of inadmissibility: a) candidate lists must be arranged in numerical sequence and, on penalty of nullity, must be filed with Banco Popolare s registered offices at least fifteen days before the date of the General meetings first call, namely by 9 th April In order to give evidence of the ownership of the number of shares necessary to present the lists, the shareholders must sign the list and present a copy of the certificates issued in compliance with existing laws and regulations. The signature of each presenting shareholder must be certified under the law or the shareholder must sign before an employee of Banco Popolare, duly authorized by the Supervisory Board; b) in compliance with article of the Articles of association, in the event that five Members of the Supervisory Board are to be elected, the lists shall provide for the first candidate of the list to be designated among shareholders residing in BPVN s Original Franchise (resident in the province of Verona), the second in BPI s Original Franchise (resident in the province of Lodi), the third in BPVN s Original Franchise (resident in the province of Novara), the fourth in BPI s Original Franchise, the fifth in BPVN s Original Franchise; c) each Shareholder may only present and vote one list of candidates, and each candidate may only run in one list, under penalty of ineligibility; d) the lists must indicate at least two names and in any case a number of candidates not exceeding the number of Board Members to be elected; e) each list must be supplemented by the relevant documentation, to be filed at Banco Popolare s registered offices within the same term envisaged for the lists (9 th April 2009), illustrating the candidates personal and professional characteristics, the statements with which the single candidates accept their candidacy, and state on their own responsibility that no ineligibility and incompatibility causes exist, that they meet the requirements prescribed for the office of Supervisory Board Member by the applicable laws, regulations and corporate governance provisions, and specify any other management and control offices filled in other Companies. 8

10 Any presented list failing to comply with the above procedures shall be deemed as not filed. In the event that upon expiration of the deadline mentioned in the above point a) only one list has been filed, or the filed lists pertain to shareholders who under the current regulations are considered related, Banco Popolare shall inform the market that other lists can be filed up to the 5 th day after the above deadline, and the thresholds prescribed by art. 144 sexies, paragraph 5 of the Issuers Regulation shall be lowered. In compliance with existing regulations, the lists that have been regularly filed shall be made available to the public, without delay, and in any case at least ten days before the General Meeting, at Banco Popolare s registered office, with Borsa Italiana S.p.A., and shall also be published on the Company s website ( Pursuant to art of the Articles of association, in the event that no list is presented within the specified term, the Shareholders meeting shall decide by relative majority of the attending Shareholders. Without prejudice to the compliance with by-law provisions, with the aim of harmonizing the activities necessary to prepare and present candidate slates for the appointment of Supervisory Board Members, Banco Popolare approved an operational procedure whose text has been filed with Banco Popolare s registered offices, in Verona Piazza Nogara, 2 (Ufficio Soci e Azioni Shareholders office tel. 045/ ), where it is available to Shareholders. In compliance with the existing laws, fifteen day before the General Meeting the executive reports and the required documentation covering the proposals on the agenda shall be filed with the registered offices and with Borsa Italiana S.p.A.; moreover, the report on Banco Popolare s acceptance of the Code of Conduct for Listed Companies in compliance with the existing regulations and laws shall be made available. The above documentation shall also be published on the Company s website ( Once filed, Shareholders have the faculty to obtain a copy. Verona, 19 th March 2009 Published on the Official Gazette of the Italian Republic, in compliance with the company Articles of Association - Section II n. 34 of 24 th March 2009 (S ) for the MANAGEMENT BOARD The Chairman (Vittorio Coda) 9

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12 REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR FINANCIAL YEAR 2008

13 Gruppo Banco Popolare Banca Popolare di Verona - S.Geminiano e S.Prospero Banca Popolare di Lodi Banca Popolare di Novara Credito Bergamasco Cassa di Risparmio di Lucca Pisa Livorno Banca Popolare di Crema Banca Popolare di Cremona Banca Caripe Banco Popolare eská Republika Banco Popolare Croatia Banco Popolare Hungary Banco Popolare Luxembourg Aletti & C. Banca di Investimento Mobiliare Valori Finanziaria Aletti Gestielle SGR Bipielle Finanziaria Aletti Gestielle Alternative SGR Bipitalia Alternative Banca Aletti & C. (Suisse) Bipielle Bank (Suisse) E banca Aletti Private Equity SGR E gestioni SGR Italfortune International Advisors B.P.I. International (UK) Aletti Fiduciaria Nazionale Fiduciaria Crite SIM Bipielle International Holding Società Gestione Crediti BP Società Gestione Servizi BP Holding di Partecipazioni Finanziarie Banco Popolare Bipielle Real Estate Immobiliare BP Tecmarket Servizi AT Leasing Romania 12

14 Core commercial banks Investment & Private Banking, Asset Management Others 13

15 GROUP GEOGRAPHICAL NETWORK Branches of Gruppo Banco Popolare in Italy Lombardia: 592 Trentino Alto Adige: 23 Valle d Aosta: 6 Friuli-Venezia Giulia: 16 Piemonte: 241 Veneto: 329 Emilia-Romagna: 257 Liguria: 137 Toscana: 242 Marche: 9 Umbria: 11 Abruzzo: 49 Lazio: 72 Molise: 8 Puglia: 6 Campania: 59 Basilicata: 3 Calabria: 3 Sicilia: 145 Sardegna: 1 14

16 Foreign operations The Group s foreign network comprises Banco Popolare s London branch, the subsidiaries BP Luxembourg, BP Croatia, BP Ceska Republiká, BP Hungary, Banca Aletti Suisse and the leasing company AT Leasing present in Romania with 6 local units. Foreign operations are also supported by Representative offices in India (Mumbai), China (Beijing, Shanghai and Hong Kong) and Russia (Moscow). Branches of Gruppo Banco Popolare (*) N Banca Popolare di Verona S.Geminiano e S.Prospero 547 Banca Popolare di Lodi 518 Banca Popolare di Novara 429 Credito Bergamasco 250 Cassa di Risparmio di Lucca Pisa Livorno 245 Banca Popolare di Cremona 74 Banca Caripe 55 Banca Popolare di Crema 45 Banca Aletti 40 Efibanca 5 Banco Popolare 2 Banco Popolare Croatia 36 Banco Popolare Hungary 10 Banco Popolare Ceska Republiká 7 Banca Aletti & C. (Suisse) 1 Banco Popolare Luxembourg 1 Total (*) including treasury branches. 15

17 GROUP FINANCIAL HIGHLIGHTS AND RATIOS Financial highlights Shown below are the Group s main financial highlights and ratios. (million euro) 31/12/ /12/2008 (*) 31/12/2007 adj. for comp. (**) Changes Income statement Net interest, dividend and similar income 2, , , % Net commission income 1, , , % Total income 3, , , % Operating costs 2, , , % Profit from operations 1, , , % Income before tax from continuing operations , % Net income for the year % (*) Excluding PPA impacts (purchase price allocation) to enable comparison with the previous year. (**) Inclusive of 1H07 contribution of Gruppo Banca Popolare Italiana adjusted to account for changes in consolidation scope and in assets held for sale under IFRS 5. (million euro) 31/12/ /12/2007 Changes Balance sheet data Total assets 121, , % Loans to customers (gross) 83, , % Financial assets and hedging derivatives 12, , % Shareholders equity 9, , % Customer financial assets Direct customer funds 93, , % Indirect customer funds 75, , % - Assets under management 31, , % - Mutual funds and Sicav 11, , % - Managed accounts in securities and funds 10, , % - Insurance policies 8, , % - Assets under custody 43, , % Operational structure Average number of employees (*) 20,949 21,084 - Bank branches 2,265 2,254 - (*) Monthly arithmetic mean 16

18 Financial ratios and other data 31/12/ /12/2007 Profitability ratios (%) ROE 3.7% 7.4% Net interest, dividend and similar income / Total income 60.3% 50.1% Net commission income / Total income 26.4% 29.8% Operating costs / Total income 57.8% 57.6% Operational productivity ( /1000) Customer loans (gross) per employee 3, ,120.3 Total income per employee Operating costs per employee Credit quality ratios (%) Net NPLs/ Customer loans (net) 1.22% 1.04% Net watchlist loans / Customer loans (net) 2.50% 1.52% Net NPLs / Shareholders equity 10.09% 8.26% 17

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20 REPORT ON GROUP OPERATIONS Head Of ce Banco Popolare, Verona

21 Report on group operations ECONOMIC BACKDROP World scenario In 2008, the economic slowdown that had started to emerge towards the end of 2007 unfolded worldwide. The progressive deterioration of the financial crisis with epicenter in the US banking and financial industry further consolidated this trend. In the first half of the year, however, it was less pronounced, while in the second half of 2008, in particular from the end of September, as the above mentioned persistent financial turbulences grew stronger, the situation grew remarkably worse and the economy declined significantly. The global economic and financial imbalances became manifest in all their magnitude. The financial crisis spilled over onto the economy through various channels. The oil price had a seesawing pattern, as many of the main raw materials, including agricultural commodities: at the beginning of the year it reached all-time highs, then it progressively and rapidly declined, driven by the worsening of the economic crisis. In the United States, in the last quarter of the year GDP took a sudden nosedive, -6.2% from the previous quarter, on an annual basis, strongly driven by the drop in private consumption, that fell by 4.3%. Nevertheless, thanks to the positive performance of the first two quarters, 2008 as a whole reported a GDP growth of 1.1%. This figure still reflects the strong falloff in private consumption, +0.2% in 2008 against +2.8% in 2007, the slowdown of exports, +6.2% (+8.4% in 2007), and the persistent shriveling of residential investments, -20.7% in 2008, while they were already declining in 2007 (- 17.9%). This had a fallout effect also on the labor market: throughout the year, more than 2.5 million jobs were lost as a whole in non-farm sectors. In the United States, inflation based on the consumer price index (annualized CPI) was at its lowest since the last 54 years, namely +0.1%, evidencing the sharp economic slowdown and the marked reduction in energy prices in the second half of the year. For the first time since WWII, emerging countries were hit by a crisis imported from highly industrialized countries, which historically had always been an external driver of development. The economic slowdown triggered in immediately and was further magnified by the falloff in commodity prices. In 2009 in China the GDP growth rate is estimated to be around 6.4% from 9.7% in 2008, and Chinese authorities had to undertake a public infrastructural plan to support employment and the business cycle. In the Euro area (Euro 15), from the second quarter of the year real GDP posted negative changes, thus attesting for the first time since the creation of the single currency the onset of a recessive phase. On an annual base, real GDP grew by 0.7% in the Euro-15 area and by 0.9% in the wider Euro-27 area. During the year, this weakness spread to the main sectors, with a particularly severe drop in the value added of the manufacturing and construction industries, as well as to the primary economies of the area. The stagnation of exports, reporting a 2.0% growth rate in 2008 in the Euro-27 area (+5.0% in 2007), and of private consumption, reporting a 1.3% growth rate (2.1% in 2007), further contributed to slowing down European growth. The harmonized consumer price index over the period grew by 3.3% in the wider Euro-27 area (2.1% in 2007). Italy In Italy, despite the recovery reported in the first three months of 2008, GDP declined by 1.0% on an annual basis. For three straight quarters, GDP fell in the midst of a negative real economic growth, thus reflecting a technical recession; among quarterly data, the fourth quarter stands out for being particularly grim: -1.9% over the previous quarter and 2.9% on a trend basis (Q42008 as compared to Q42007). This rapid deterioration was caused primarily by the sharp worsening of the international scenario and the consequent drop in foreign demand, with domestic demand persistently weak. Italian exports shrank significantly (-10.7% the last quarter trend rate) against an increase of almost 5% in Gross fixed investments bore the hardest brunt, and in the fourth quarter fell by 9.3% on a trend basis; in particular, business investments in machinery and equipment over the same period dropped by 9.3% on a trend basis. Resident consumer spending continued to stagnate ( 1.5% in Q4 over the same period of 2007), reflecting the patterns of real disposable income, that has been sagging under the weight of various factors, among which, in the first part of the year, the price increases caused by the rising prices of imported commodities. According to national calculations, jobs increased by 1%, but at the same time the unemployment rate rose to 6.5%, from 6.2% in Over the same period, INPS research releases reported an increase in the number of hours authorized to apply for the ordinary redundancy fund. As a whole, in 2008 the consumer price index for the entire national collectivity increased by 3.3%, from 1.8% the year before. As in the rest of the European area, during the year the inflation rate followed an upward trend until Summer, exceeding 4% on a trend basis, then dropped sharply (2.2 per cent in December), tracking the price pattern of commodities. In particular, the strong falloff in fuel prices in 2008 caused the index to report negative month on month changes for the entire national collectivity, also net of seasonal effects. 20

22 Report on group operations Monetary and financial markets During the year, owing to the deepening financial crisis, interbank market conditions remained tight, reflecting the persistence of liquidity and counterparty risks. The spreads between interbank deposit rates with and without guarantee, which had significantly increased in March affected by the crisis of the US investment bank Bear Stearns, slightly decreased later on, but remained well above the values reported before Summer The real estate market kept reporting a strong weakness, weighed down by the subprime mortgage crisis started in Finally, the crisis grew worse last September after the investment bank Lehman Brothers went bankrupt, with a ripple effect on other important US and European financial institutions, which caused trades on credit and interbank markets to shrink quickly and share prices to plummet worldwide. This chain of events prompted US monetary and economic Authorities to take immediate and decisive actions: by pumping a considerable amount of public capital, the US stopped bankruptcies from spreading to many other large institutions as AIG, Citigroup, etc. Only towards the end of the year, the tension on the interbank markets in the US, the Euro area and the UK eased off: the spread between the three-month dollar interbank deposit rate and the three-month overnight index swap rate, i.e., a good indicator of tensions, that on 10 th October had risen up to 360 basis points, declined to about points at year end. The corresponding euro spread decreased from 210 to 110 basis points. The strong policy response to counter the financial crisis developed along the guidelines set forth by the ministers for finance and by the governors of the Central Banks of the G7 countries on 10 th October Against easing inflationary pressures mainly induced by the decline in commodity prices, and the deterioration of real economy, Central Banks resorted to a considerable firepower to loosen monetary conditions and pump liquidity in monetary markets. The first simultaneous international monetary policy action in history was implemented at the beginning of October, leading on the 8 th of October to a concomitant interest rate cut by the major Central Banks. Fed Funds at the end of 2008 stood at 0.25%, while ECB s refi rate stood at 2.50%. Economic policy authorities in industrialized countries also adopted significant measures to recapitalize their banking industries. In particular, the US administration launched a relief program to support the US banking industry (TARP, Troubled Assets Relief Program), allowing the Treasury to purchase highly impaired assets, that clogged bank balance-sheets and therefore strongly crimped regular lending activities. The Italian Government passed a number of measures through Law Decrees, mainly aimed at: giving banks characterized by a capital inadequacy ascertained by the Bank of Italy the possibility to recapitalize by resorting to state funds, extending a state guarantee on loans granted by the Bank of Italy to Italian and foreign banks operating in Italy, to deal with severe liquidity crises; a supplementary state guarantee by the Interbank Fund for Deposit Protection; the Ministry for Economy and Finance is authorized to perform temporary swaps between Government bonds and financial instruments held by Italian banks until ; the possibility of backing with a State guarantee interbank repurchase agreements used as collaterals for refinancing with the Eurosystem and for the issue of bank securities with a max. 5 year maturity. In many countries, national authorities announced far-reaching plans to support the economic activity. As of June, after a first positive quarter, swept by the growing difficulties of the US banking and financial industry, the main stock markets entered a phase of sharp decline. At year end the US Standard & Poor s 500 index shed 38.5% over twelve months, the European DJ Eurostoxx 50 index (representing European large capitalization companies) shed 44.4%, the Japanese Nikkei 225 index 42.1%, and Hong Kong s Hang Seng index (China) 48.3%. Risk premiums on corporate bonds soared and by the beginning of the second half of the year they reached 790 b.p. in the US and 830 b.p. in the Euro area in the highest risk classes, 300 b.p in the US and 200 b.p in the Euro area for BBB rated companies. The first signs of reversal appeared only towards the end of the period. In 2008, ten-year government notes prices benefited from the high market volatility, albeit with ups and downs. The corresponding yields decreased, reflecting the performance of monetary conditions and the recomposition of portfolios in favor of government bonds. At year end, US ten-year Treasury notes decreased down to 2.5 percent. In the Euro area, in the UK and in Japan, government bonds reported shallower dips, going down to 3.0, 3.4 and 1.3 percent, respectively. Domestic banking industry As a whole, the Italian banking industry was less hard hit by the crisis than others, also thanks to an intermediation model primarily oriented towards loan and funding activities counterpoised by retail customers. Since the onset of market turbulences, Italian primary banking groups posted crisis-related impairments of 4.5 billion euro, a small amount when compared with that of major international banks, some of which had ended the first half 2008 posting a loss. On the long term, however, the marked economic cycle deterioration is bound to weigh down on bank profitability. In 2008, bank customer funds grew at an annualized rate of 12.8% (6.3% percent at the end of 2007). Deposits ratcheted up in the last months of the year, favored by a growing penchant for liquidity, and ended the period with an annual increase of 6.3%. Bonds issued by Italian banks grew at an annual rate of 21.5%, driven by the new substantial issues on the domestic market. According to the latest available data, also repo-based funding experienced a sustained growth: in October, the annual growth rate stood at 18.3%. Net foreign indebtedness of Italian banks declined, mainly reflecting the drop in net liabilities against extra-euro area residents. In 2008, the growth rate of bank loans sagged as compared with the high levels of the previous two years, and at year end it stood at 4.5%, evidencing the weakness of loan demand by businesses and households. In the first months of 2009, these trends translated into a further deceleration of granted loans. From the end of October of last year, bank rates started to ratchet down, following the cut in official rates. In December 2008, the mark-up (namely, the spread between the average rate of euro-denominated loans to households and non-financial businesses and the average BOT yield) reached 277 b.p, up from 223 basis points in December 2007, while the mark-down (spread between the average Euro-denominated interest 21

23 Report on group operations rate on deposits of households and non-financial business and the average BOT yield) stood at 128 b.p., down from 189 b.p at the end of Over the period, as a result of these two spreads, the average monthly net interest spread (difference in borrowing and lending rates) decreased by 9 b.p., from 412 b.p. in December 2007 down to 403 b.p. at the end of Credit quality started to be affected by the worsening business cycle. The latest available data show that in third quarter 2008, the flow of new non-performing loans increased with respect to granted loans, driving the NPL to loan ratio to 1.1% as compared with 1.2% at the end of Against this backdrop, the mild recovery of corporate loan demand dynamics is mainly linked to debt consolidation and restructuring processes. Based on latest estimates, AuM of mutual funds and Italian and foreign open-end SICAVs at the end of 2008 reported a sharp drop, falling at about billion euro from about billions at the end of This figure must be analyzed in the light of mutual fund net asset flows, reporting 140 billion euro worth of outflows over 2008, as compared with the 2007 figure, again an outflow of 53.2 billion euro. NOTEWORTHY EVENTS FOR THE YEAR The integration plan The integration plan can be considered practically concluded from a planning point of view; cost and revenue synergies as at 31 st December 2008 amounted to about 277 million, in line with the target for the period. Among the main residual actions taken in the last quarter of the year, it is worth mentioning the progressing centralization of functions at the Parent company s (retail, custodian bank, specialized external networks, etc), in keeping with the business plan, aiming at obtaining greater synergies and setting up a model whereby retail banks (Banche del Territorio) are in charge of commercial activities and customer service and management, while mutual activities that can be shared by all companies are centralized in the parent company, and in product and service companies. As to Specialized External Networks (Reti Esterne Specializzate - RES), in the second half of the year also Cassa di Risparmio di Lucca Pisa Livorno started to sell residential mortgages to retail customers (as of April this activity had been operational in Banca Popolare di Lodi). In order to meet integration targets, Organization and Human Resources infrastructural projects are progressing, with a strong focus on the requalification and relocation of employees in the most suitable structures, as well as on the completion of Solidarity Fund access and early retirement schemes. Reorganization of the Group s geographical network At the end of November 2008, in keeping with the original Integration plan, the Geographical Network Reorganization plan was completed, involving Banca Popolare di Verona-S.Geminiano e S.Prospero (then renamed Banca Popolare di Verona- SGSP), Banca Popolare di Lodi and Banca Popolare di Novara as approved by the Management and Supervisory Boards in their respective meetings on 11 th March last. In particular, switches from among retail banks involved 147 Branches, as well as Corporate Area units, totaling about 720 employees, that break down as follows in terms of Banks and geographical areas: BPL branches were transferred to BPN and are located in Basilicata (3), Campania (13, plus a treasury and cash sub-branch), Molise (8), Piedmont (13), Calabria (3); BPL branches were transferred to Banca Popolare di Verona-SGSP and are located in Emilia Romagna (22), Friuli Venezia Giulia (1), Veneto (20); BPN branches were transferred to BPL and are located in Sicily (18) and Lombardy (15); Banca Popolare di Verona- SGSP branches were transferred to BPL and are located in Emilia Romagna (25), Marche (1), Lombardy (5). The operations, also from an accounting and fiscal point of view, started as planned on: 1 st November 2008 for the branch switch between BPL and Banca Popolare di Verona-SGSP; 1 st December 2008 for the branch switch between BPL and BPN. From an operational point of view, the Plan has been completed in line with the IT migration schedule that had to take place in concomitance with the juridical coming into effect of the demergers, on the first and last weekend of the month of November 2008, so as to guarantee the necessary business continuity to the Branches concerned. The IT and organizational migrations, that called for the direct involvement of Rete and SGS personnel in the two above mentioned weekends, have been simplified by the fact that the same information system is used across the whole Group and that also the organizational models, adopted by the former BPI Group when migrating to the former BPVN Group target system between mid 2007 and the first months of 2008, are one and the same. During the planning phase, pre-existing commercial differences among the Banks involved were taken into due consideration, and specific IT actions were identified and implemented to minimize, whenever possible, the impact of Branch switches for customers, who were given timely information and help, also through a dedicated toll-free number. While implementing the IT and organizational migrations, also the brand signage of Branches under transfer was changed, 22

24 Report on group operations with the exception of only a few Branches (mostly located in historical town centers), which are still waiting for the necessary authorization from their Municipalities. The above described reorganization, whose benefits will come into full effect in 2009, shall enable each Bank to: guarantee a close-knit geographical coverage, and further strengthen and deepen their ties with the territory; minimize geographical overlaps among Group Banks, avoiding commercial cannibalizations, and channel disposable resources to strengthen our competitiveness against external competitors; benefit from operating in a homogeneous area in terms of social and demographical setting and of potential economic development. Moreover, as part of the organizational, commercial and IT rationalization actions, on 1 st January 2008, date on which the deal took also accounting, juridical and tax effect, the London branches of Banca Popolare di Verona-SGSP and of Banca Popolare di Lodi were transferred to the Parent company s, by partial demerger of the business lines made up of all the assets and liabilities, customer relations, banks and employees of the branches located in London. Valorization and rationalization of operating property In 2008, a project aiming at enhancing and rationalizing the Group s operating real estate assets was launched and successfully completed, so as to uncover the intrinsic value of said property and gain a greater management flexibility while obtaining a capital benefit through an optimized capital allocation. To achieve these goals, a closed-end real estate fund called Eracle was set up Fondo Immobili Strumentali, that received 456 operating property units (about 2/3 of Gruppo Banco Popolare s operating property, primarily bank branches), corresponding to a total market value of 751 million. Through this action, in financial years 2008 and 2009 Gruppo Banco Popolare shall post a 492 million capital gain, gross of tax effect and project costs, with a positive impact on the Group s consolidated capital ratios. More precisely, the 2008 P&L benefit added up to 378 million (264 million net of project costs and tax burden), while the P&L benefit for the first half of 2009, associated with the contribution of highly artistic property, and therefore subject to heritage protection under Legislative Decree n.42 of 22 nd January 2004, totals 114 million (79 million net of project costs and tax burden). The Group hired Banca IMI and Morgan Stanley as arranger and placement agent. Morgan Stanley acted also as advisor for Banco Popolare and Banca IMI as underwriter to guarantee the subscription of all the Fund units. The fund placement was successfully completed in December, with the subscription of all the units by primary international investors for a total price of 318 million. The Fund is managed by Generali Immobiliare Italia SGR, has a 25 year term and is comprised of property used by Gruppo Banco Popolare under a lease framework agreement having an 18 year term, renewable for other 9 years, on Banco s discretion. In any case, Banco Popolare retains pre-emption and veto rights on the sale of the property after the 15 year lock-in period during which it cannot be sold. The long term and the stability characteristics of the lease agreements shall allow Banco Popolare to retain the availability and manageability of the spaces used by the Group banks and companies, as well as a free hand to plan the rationalization and combination of structures dedicated to the management of real estate services, so as to reap significant economic advantages from the development of synergies and efficiency gains. A further fundamental step made by the Group to reorganize its real estate business was the consolidation in BPVN Immobiliare S.r.l. (100% controlled by Banco Popolare) of the Group s primary real estate services. More precisely, as of November 2008, BPVN Immobiliare S.r.l. acts as "property manager" for all the Companies of the Group and for the closed-end real estate fund "Eracle". Moreover, with the transactions closed on 22 nd December 2008, the company acquired the business lines related to Technical Services and Management of landlord & tenant properties" from Banco Popolare and its subsidiary Immobiliare BP S.r.l.. Note, that to modernize the company name, and in particular to bring it in line with the name of the Group of belonging, the Special Shareholders meeting of BPVN Immobiliare S.r.l., held on 12 th February 2009, approved among other things the change of the company name in BP Property Management S.r.l. Reorganization of the consumer credit business On 22 nd December, under the agreements signed on 20 th April and 19 th May 2008, Crédit Agricole and Banco Popolare finalized their consumer credit joint-venture, by combining their consumer credit companies in Italy, namely Agos and Ducato. The deal was authorized by the European Commission and by the competent Italian authorities. This agreement gives rise to the number one Italian player in the consumer credit industry with a market share of about 14% (13 billion loans in 2007), and with an excellent level of complementarity between Agos, a leader in finalized loans and revolving cards, and Ducato, a primary player in the personal loan business. The new entity shall count on a network of 256 owned agencies and on an exclusive partnership agreement with the banking network of Gruppo Banco Popolare (more than 2100 bank agencies), Cariparma and Friuladria (more than 700 bank agencies), as well as more than 25 thousand affiliated points of sale. Under the agreements, on 22 nd December 2008, the following corporate actions were implemented: 23

25 Report on group operations sale of shares representing the entire share capital of Ducato by Banco Popolare to Agos at a price of 1 billion euro; Agos capital increase of 1 billion euro, entirely subscribed by Banco Popolare. Following to the above capital increase, Agos is held 61% by Sofinco (Crédit Agricole s consumer credit company) and 39% by Banco Popolare. As a result of the transaction, Banco Popolare recognized a net capital gain of about million, including Ducato s contribution to the P&L over the entire financial year and the gain from its sale. Under the shareholders agreement, Crédit Agricole shall have the operational control over the new company. Banco Popolare shall retain the right of veto over some decisions. Moreover, Banco Popolare shall have the faculty to require that the joint venture be listed on the stock exchange on the medium term. As to corporate governance, in compliance with the signed agreements, again on 22 nd December 2008 Agos and Ducato held their Shareholders meetings, and appointed the companies new Boards of Directors, that include officers designated by the two partners Banco Popolare and Crédit Agricole. Reorganization of the private banking business In keeping with the integration plan between the former BPVN and BPI banking groups, the consolidation of all Private Banking activities of the Group banks in Banca Aletti has been completed. At corporate level, as of August 1 st, 2008 the Private business unit of Banca Valori has been transferred to Banca Aletti. The unit, in addition to legal relations with customers, also holds a shareholding in Nazionale Fiduciaria (Group company managing about 630 million assets under administration and controlling the fiduciary company Critefi SIM). Based on the assessment report prepared for the transfer under examination, total transferred assets amount to million, while disposed liabilities total 72 million. Against the transfer of 29.9 million net assets, Banca Valori shall hold an equivalent share in Banca Aletti. As to the business line relating to Banca Valori s non-private customers, on 29 th December 2008 the only branch located in Brescia was transferred to Credito Bergamasco, which has already branches operating in the same town. Based on the valuations carried out by the independent advisor (KPMG), the price of the sold business line was set at 0.3 million. The branch s IT and organizational migration was carried out concomitantly. Moreover, the competent bodies approved and started the procedure to close Banca Valori s banking business by canceling it from the Banks Register as practically it is devoid of its characteristic operating business and to turn it into a financial company under art. 113 TUB by registering it in the Register of Finance Companies under the new company name of Valori Finanziaria S.p.A. The above described procedure shall probably be completed by first half 2009, after receiving the necessary authorizations from the Supervisory Authority. Sale of 50% of Aletti Gestielle Alternative to Union Bancaire Privée Banco Popolare and Union Bancaire Privée (hereinafter UBP), a world leading Alternative Asset Management company, on March 29 th, 2008 had signed an agreement for the creation of a partnership, subject to the required authorizations from the Supervisory Authorities, in the Alternative Asset Management sector in Italy. Against this backdrop, on June 26 th, 2008, a contract of sale was signed under which UBP was to purchase 50% of Aletti Gestielle Alternative, owned 100% by Gruppo Banco Popolare. However, on 18 th December 2008, UBP sent a notice to the Bank of Italy, which was completing the authorization procedure, explaining its desire to discontinue the procedure. On 24 th December 2008, the Bank of Italy notified that the procedure had been discontinued. Hence, to date, since there is no certainty as to the possible outcome of the agreement with the counterparty, the sale of the shareholding is deemed highly unlikely. Sale of branches to Credito Emiliano In keeping with the agreement signed by the Parties, the sale of 33 bank branches located in Tuscany and of the 2 associated Business Areas by Banca Popolare di Verona-S.Geminiano e S.Prospero to Credito Emiliano was finalized on 1 st September This project, that had been launched jointly by the two Groups on April last, was successfully completed in the weekend of the 30 th and 31 st August with the IT migration onto the information system of Credem, thus guaranteeing the smooth operation of the administrative and commercial activities of the branches by the new owner, without causing any significant inconveniences to customers. 24

26 Report on group operations As a result of this action, the Group recognized a gross capital gain of million, with an consequent positive impact on the Group s consolidated capital ratios. Sale of the stake in Linea to Gruppo Mediobanca On 27 th June 2008, the sale of the stake in Linea S.p.A. held by Banco Popolare (47.963%) and by Banca Popolare di Vicenza (47.963%) to Compass, a Company of Gruppo Mediobanca, was finalized for million (corresponding to a total company value of 405 million). The deal gave rise to the recognition of a gross consolidated capital gain of 97.4 million (95.5 million, net of tax effect) through profit or loss for the period. Sale of Banca Popolare di Mantova to Banca Popolare di Milano On 22 nd December, upon completion of the administrative procedures, Banca Popolare di Lodi finalized the sale of its stake in Banca Popolare di Mantova to Banca Popolare di Milano, in keeping with the agreement signed between the parties on 23 rd July The sale of the stake, corresponding to 403,515 common shares of Banca Popolare di Mantova, equal to 56.99% of the share capital, was made at a price of euro per share, totaling million. The stake s book value implies a 2007 price/book value of As a result of this deal, Banco Popolare recognized a capital gain, net of tax effect, of about 1.5 million. A joint plan has been launched by the two Groups, and ad hoc project teams have been created, dedicated to specific operational areas in charge of preparing the operational migration schedule, monitoring the overall progress of activities and tackling criticalities so as to ensure that the time schedule is complied with. Based on analyses, two project implementation stages have been identified: stage one has been successfully completed, and it required a number of minimal actions related to Banca Popolare di Mantova joining with Gruppo Banca Popolare di Milano, while retaining the current IT and organizational service agreements; the second stage, that was rolled out immediately after the first one and that shall be completed by first half 2009, covers the migration of the current information systems onto the target system of Banca Popolare di Milano. Sale of the Basileus stake On 23 rd July, a preliminary agreement was signed to sell 100% of Basileus S.p.A. shares, a real estate company controlled by Bipielle Real Estate, to third parties. The sale was formalized on 7 th October 2008, was made at a price of 16.2 million, in line with the company s asset value, and gave rise to a capital gain, net of tax effect, of about 1million. Sale of 14.23% of Unione Fiduciaria On 6 th November, Gruppo Banco Popolare sold a 14.23% stake in Unione Fiduciaria to Banca Popolare di Milano. The sale of the n. 153,654 Unione Fiduciaria shares was made at a price of 30 euro per share, totaling 4.6 million. The deal gave rise to a capital gain, net of tax effect, of about 1 million. As a result of the above sale, Gruppo Banco Popolare holds a residual interest in Union Fiduciaria of n. 162,000 shares, corresponding to 15.00%. Sale of the stake in Centrale dei Bilanci On 23 rd Dec, the key shareholders of Centrale dei Bilanci, namely Intesa San Paolo with 24.7%, Unicredit with 22.8%, Monte dei Paschi di Siena with 12.6%, Banca d Italia with 9%, Banca Nazionale del Lavoro with 7%, UBI with 5% and Gruppo Banco Popolare with 10.8%, finalized the sale of 91.8% of the share capital of Centrale dei Bilanci, which in turn controls 85% of Cerved Business Information, a leading business information company in Italy, to Bain Capital and Clessidra SGR. The price offered by Bain Capital and Clessidra SGR is equal to 535 million in terms of Enterprise value. As regards Gruppo Banco Popolare, the deal gave rise to the recognition of a capital gain of 39.3 million, gross of tax effect, through profit or loss for financial year Reorganization of bancassurance shareholdings On 31 st July 2008, as part of its shareholding rationalization plan, Banco Popolare signed an agreement to sell its entire shareholding (amounting to 50%) in Finoa S.r.l. to Aviva Italia Holding. Finoa is the joint venture through which Banco and Aviva Italia Holding hold 81.14% of the share capital of the insurance company Eurovita S.p.A. The current direct financial interest held by Gruppo Banco Popolare in the share capital of Eurovita, amounting to 2.17%, shall not be sold, on the contrary it shall be raised to 5% by purchasing a 2.83% stake in Eurovita from Finoa. The deal shall enable Banco Popolare to rationalize the Group s shareholding portfolio, and to adopt a consistent shareholding structure in the Bancassurance sector with the agreements signed with Aviva and Fonsai for the distribution of 25