Basel 2 Pillar III Disclosure as at June 30, 2012

Transcription

1 I Basel 2 Pillar III Disclosure as at June 30, 2012

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3 I Contents Table 1 General requirements Table 2 Scope of application Table 3 Supervisory capital structure Table 4 Capital adequacy Table 5 Credit risk: general disclosures for all banks Table 6 Credit risk: disclosures for portfolios treated under the standardized approach and specialized lending and equity exposures treated under IRB approaches Table 7 Credit risk: disclosures for portfolios treated under IRB approaches Table 8 Risk mitigation techniques (CRM) Table 9 Counterparty risk Table 10 Securitization transactions Table 11 Market risks: disclosures for banks using the internal models approach (IMA) for position risk, foreign exchange risk and commodity risk Table 12 Operational risk Table 13 Equity exposures: disclosure of banking book positions Table 14 Interest rate risk on positions in the banking book Glossary / Abbreviations Declaration by the Manager Charged with preparing the financial reports

4 I Notes: All amounts, unless otherwise specified, are expressed in thousands of euros. Data refer to the prudential scope of consolidation. Any discrepancies between data disclosed in this document are due to the effect of rounding. With regard to both the standardized approach and the IRB methodology, non-weighted amounts concerning guarantees given and commitments to disburse funds were considered based on the credit equivalent, unless otherwise specified. This disclosure document was prepared in accordance with specific Internal Regulation (Group Governance Rules) regarding "Governance Guideline that defines the principles and rules for issuing Public Disclosure (Pillar III Basel II)". In compliance with the instructions of Banca d Italia (Circular 263/2006), Table 15 is not included in interim financial reports as of the end of the first half of the financial year. 4

5 >> Basel 2 Third Pillar Table 1 Table 1 General requirements Qualitative disclosure UniCredit group monitors and manages its risks through rigorous methodologies and procedures proving to be effective through all phases of the economic cycle. The control and steering of the Group s risks are exerted by the Parent Company s Risk Management function which pursues its own steering, coordination and control role in particular through the Portfolio Risk Managers which are responsible for the relevant risks, from a Group and cross-divisional perspective. Furthermore, the model considers a specific point of reference for Italy through the CRO Italy function, to which the responsibilities related to credit, operational and reputational risks of the Italian perimeter, as well as the managerial coordination of Risk Management functions in the Italian Legal Entities, have been assigned. In particular, the Risk Management function is responsible for the following tasks: optimizing Group s asset quality, minimizing the cost of risks, consistent with the risk / return targets assigned to each Business Area; defining, together with the Planning, Finance & Administration function, the Group s risk appetite and evaluating capital adequacy, within the Internal Capital Adequacy Process (ICAAP), consistently with Basel II, Pillar II requirements; defining - in compliance with Basel II standards and Bank of Italy requirements the Group rules, methodologies, guidelines, policies and strategies for risk management, and, in cooperation with the Organisation department, the relevant processes and their implementation; setting up a credit and concentration risk control system both of single counterpart/economic groups and significant clusters (e.g. as industrial areas/economic sectors), monitoring and reporting the limits defined beforehand; defining and providing to the Business Areas and to the Legal Entities the valuation, managerial, measurement, monitoring and reporting criteria of the risks and ensuring the consistency of systems and control procedures both at Group and Legal Entity level; supporting the Business Areas to achieve their targets, contributing to product and business development (e.g. innovation of credit products, competitive opportunities linked to Basel accords, etc.); verifying, by means of the initial and on-going validation process, the adequacy of the risk measurement systems adopted throughout the Group, steering the methodological choices towards higher and homogeneous qualitative standards and controlling the coherence in using the above systems within the processes; setting up an adequate system of preventive risk analysis, in order to quantify the impacts of a quick worsening of the economic cycle or of other shock factors (i.e. Stress Test) on the Group s economic and financial structure. This holds for single risk types as well as their integration and comparison to available capital; creating a risk culture across the whole Group. Consistently with the Risk Management function architecture and in order to strengthen the capacity of independent steering, coordination and control of Group risks, improving the efficiency and the flexibility on the risk decision process and addressing the interaction among the relevant risk stakeholders, three distinct levels of Risk Committees are in place: the "Group Risk Committee" responsible for the Group strategic risk decisions; the "Group Portfolio Risks Committees", tasked with addressing, controlling and managing the different portfolio risks; the "Group Transactional Committees" in charge of evaluating the single counterparties / transactions impacting the overall portfolio risk profile. 5

6 I Credit risk Structure and Organization The credit risk organization in Parent Company breaks down into two levels: - functions with responsibilities at Group level - functions with responsibilities at Country level Functions with responsibilities at Group level include: - the Group Credit, Operational & Reputational Risks department that, with respect to credit risk, breaks down into the following structures: the Group Credit Risks department (Portfolio Credit Risk Manager), responsible among others for the following activities: o defining strategies and risk limits, executing stress test activities and portfolio analysis o drawing up reports needed for monitoring the trend of the Group credit portfolio; o controlling the credit risk limit; o developing the methodologies for measuring credit risk; o drawing up Group regulations on credit risk topics, as well as the monitoring of its approval and implementation in the Legal Entities; Group Rating Desk unit responsible among others for the following activities: o assigning rating to certain types of relevant counterparties (Top Banking and Top Corporate); o deciding, within its delegated powers, or submitting to the competent deliberative Bodies the rating override proposals related to Group Wide rating systems and local rating systems; Group Credit Transactions department that, through the LPAC Risk Analyst, and the Country Risk Analysis unit and Group Credit Transactions Advice unit, is responsible, among others, for the following activities: o delivering expert advice on LPAC transactions (e.g. Project Finance, Acquisition & Leveraged Finance, etc.); o analyzing and monitoring Country risk; o deciding or collecting proposals to be submitted to the competent decision-making functions as regards cross border limits; o delivering expert advice on credit proposals intended for Group Transactional Credit Committee or for Group Credit Committee. - the Group Trading Risk department, that, with respect to credit risk, breaks down into the following structures: the FIBS & Trading Credit Risks, responsible among others for the following activities: o delivering expert advice on credit proposals related to Financial Institutions, Banks and Sovereigns (FIBS) counterparties made by Legal Entities, acting in its capacity as Group Competence Team; o deciding, within its delegated powers, or proposing to the competent deliberative bodies, credit proposals related to FIBS counterparties booked with the Parent Company; o issuing, within its delegated powers, or proposing to the competent deliberative bodies, Parent Company Non-Binding Opinion on credit proposals related to FIBS counterparties made by Legal Entities; the Special Products Risk Analysis, responsible among others for the following activities: o delivering expert advice on credit proposals related to Special Products made by Legal Entities, acting in its capacity as Group Competence Team; o deciding, within its delegated powers, or proposing to the competent deliberative bodies, credit proposals related to Special Products booked with the Parent Company (e.g. ABS, Securitization); BASEL 2 THIRD PILLAR AS AT JUNE 30,

7 >> Basel 2 Third Pillar Table 1 - the Group Risks Control department, responsible - among other activities - for the internal validation regarding the credit risk measurement systems, through competent functions of Group Internal Validation department; - the Group Risks Operating Office department, responsible - among other activities - for producing reports concerning consolidated credit risks, on the basis of data provided by competent functions of Group Credit, Operational & Reputational Risk department, as well as the management and the coordination of all IT initiatives related to credit risk; - the Group Special Credit department, responsible - among other activities - for coordinating, steering, supporting restructuring and workout activities carried out by the Group Legal Entities, managing restructuring and workout activities with reference to relevant files or defined as "strategic/sensitive, as well as managing the default propagation process for multinational customers with exposure to multiple Group Legal Entities. At Country level, steering and credit risk control activities, as well as the conducting of operational activities (e. g. credit delivery, performance monitoring, etc.) falls under the responsibility of CRO controlled subsidiaries. In UniCredit S.p.A., these functions are undertaken by organizational structures of CRO Italy, reporting to Group CRO and in particular: the Risk Management Italy department responsible among other activities for governance and control of credit risk originating in the Country Chairman Italy perimeter activities. Among others things, it is responsible for: o defining operational credit policies and ensuring the consistency of Group rules application within credit risk, as well as checking the consistency of credit products with the rules defined by GRM competent functions; o developing methodologies, models and tools for the evaluation of creditworthiness; o deciding or proposing to the competent deliberative Bodies the rating override requests related to local rating systems measuring credit risk related to counterparties belonging to the enterprises segment; the Consumer Finance Risks department that, for the pertaining perimeter, is responsible for governance and control of credit risks connected to consumer finance products (consumer credit, loans on salary and revolving credit cards). Among other activities, it is responsible for: o defining operational credit policies, implement strategies and the consistency of Group Rules application within credit risk, as well as checking the consistency of credit products with the rules defined by GRM competent functions; o developing methodologies, models and tools for the evaluation of creditworthiness; o analyzing and monitoring the composition and inherent risk of the consumer finance portfolio; o coordinating and managing underwriting processes and activities for customers and relevant products as well as fraud prevention and management activities; 7

8 I Special Credit Italy department responsible for the Italian perimeter of UniCredit S.p.A., except for files above a given threshold or defined as strategic/sensitive for the credit risk monitoring, the management of the collection of delinquent and overdue unpaid credits (as the classification as doubtful or non performing credits, according to the delegated powers) in relation to the Individuals segment, the coordination (giving guidelines and specific indications on specific positions) of the "Credit Hub Underwriting" and the RIT 6 (Regional Industry Team - Real Estate) departments, the identification, in cooperation with the competent functions of Group Special Credit department, the strategies which involve the area of competence, defining and monitoring related objectives and the deliberating, within its delegated powers, on restructuring and workout positions. Furthermore, the Head of the Special Credit Italy department, in the role of Commissioner for irregular and problematic credit portfolio, has the responsibilities for the coordination of the entire process of irregular and problematic credit management, the periodic reporting to main stakeholders and providing information to the appropriate person regarding potential issues in the process and regarding portfolio performance falling under his perimeter of responsibility. The department consists of the following structures: Special Credit Operating Office Italy department responsible for supporting the identification of the strategies which involve the area of competence and in the definition and monitoring of the related objectives, managing operational policies and processes, ensuring monitoring activities performance and the production and managing administrative workout activities; Restructuring Italy department responsible for coordinating and guiding the management of positions that are undergoing restructuring with reference to the customers of the Italian perimeter of UniCredit S.p.A., with an exposure under a defined threshold; Workout Italy department responsible for coordinating and guiding the management of positions that are undergoing workout with reference to the customers of the Italian perimeter of UniCredit S.p.A. with exposure under a defined threshold; Central Credit Risk Monitoring & Quality Support Italy department responsible (among other activities), with regard to the perimeter of UniCredit S.p.A., with the exception of the "Consumer Finance Risks" and "Individuals", for coordination and steering of monitoring activities carried out by Headquarter and Network offices, supervising the correct execution of the decision-making activities of Headquarter offices, with reference to their delegated powers concerning classification and identification of any corrective action or the first classification to "doubtful" or "non performing", technical and legal advice to Network structures and quality controls regarding credit processes; Territorial Credit Risk Monitoring Italy department responsible for supervising the quality of credit portfolios in their area of interest and coordination (giving guidelines and specific indications) on specific positions belonging to the department "Credit Hub Underwriting", with reference to the positions in the competent perimeter; Customer Recovery department responsible, among others, for monitoring of Individuals customers of UniCredit S.p.A., holding a significant account, managing the collection of delinquent and overdue unpaid credits for those counterparts, not yet classified as doubtful or non-performing loans or classified but not yet transferred, managing and monitoring the initiatives of restructuring or rehabilitation of the debt. BASEL 2 THIRD PILLAR AS AT JUNE 30,

9 >> Basel 2 Third Pillar Table 1 Credit Operations Italy department (reorganized in accordance to the new territorial breakdown of the Network), consists of as follow: o Territorial Hubs (Credit Hub Nord-Ovest, Credit Hub Nord-Est, Credit Hub Lombardia, Credit Hub Centro-Nord, Credit Hub Centro, Credit Hub Sud, Credit Hub Sicilia), departments distributed across the national territory, responsible for the managing activities relating to credit underwriting and support in their respective areas of competence; o Central Credit Underwriting department responsible for coordinating the activities of the Regional Industry Team Leaders (RITLs), supervising the correct execution of the decision-making activities of the RITLs and arranging preliminary and administrative activities for the applications to be submitted to the Group Credit Committee, the Group Transactional Credit Committee, the Italian Transactional Credit Committee and the Group Rating Committee ; o Loan Administration department (recently reorganized) responsible for overseeing administrative activities post-decision phases of the credit underwriting, managing the activities related to subsidized loans and credit and administrative activities related to Confidi; furthermore, the structure includes the Mortgages Loan Administration department which is responsible for ensuring coordination and management of post-sales activities related to mortgages seeking to protect the quality and integrity of the stock of information concerning loan applications and working to minimize risk and, where necessary, deciding on applications regarding post sales activities within its delegated powers. According to the current developments further fine tuning of organization structures, which will be implemented in the second part of the year, will concern CRO Italy structure and the set-up of a dedicated approval body regarding debt-related placement transactions. Furthermore, with respect to credit risk specific committees are active: the Group Credit Committee, in charge of discussing and approving competent credit proposals, including restructuring and workout files, relevant strategies and corrective actions to be taken (including classification of status when applicable) for watchlist files, specific limits for transactions related to debt capital markets on Trading Book, single issuer exposure limits on Trading Book; the "Group Credit and Cross-Border Risks Committee, responsible for monitoring credit and cross-border risks at Group level, for submitting to the Group Risk Committee - for either approval or information - credit and cross-border risk strategies, policies, methodologies and limits as well as regular reporting on credit and cross-border risk portfolio and profile; the "Group Transactional Credit Committee", with approval function, within the delegated powers (decision-making and/ or issuing of non-binding opinions to the Group Legal Entities) and/or consulting function for files to be approved by upper Bodies regarding credit proposals, excluding restructuring and workout files, strategies and relevant corrective actions to be taken for watchlist files, specific limits for transactions related to debt capital markets, single issuer exposure limits on Trading book; the Italian Transactional Credit Committee, in charge of approving, within the delegated powers, and/or consulting function for files to be approved by upper Bodies, regarding UniCredit S.p.A. counterparts (excluding FIBS counterparts) credit proposals (excluding restructuring and workout files), status classification of files, strategies and measures for watchlist files, pledge based credit transactions and for issuing non-binding opinion regarding Italian Legal Entities of the Group proposals; the Group Special Credit Committee, in charge of evaluating and approving, within the delegated powers, restructuring or workout files as well as monitoring the overall restructuring and workout portfolio proceeding and for ensuring coordination and support with reference to restructuring and workout files managed within the Group; 9

10 I the Group Rating Committee, responsible for taking decisions and/or issuing non-binding opinions to the Group Legal Entities on rating override proposals; the Italian Special & Transactional Credit Committee, in charge, within the delegated powers, of evaluation and approval (or issuing of consultative opinions for files to be approved by upper Bodies) of restructuring and workout positions as well as of the client s positions managed by the Special Credit Italy department. Finally, on the basis of a request by internal control bodies, Compliance function participates to "Group Credit and Cross-Border Risks Committee, "Group Transactional Credit Committee", Italian Transactional Credit Committee and Group Special Credit Committee. BASEL 2 THIRD PILLAR AS AT JUNE 30,

11 >> Basel 2 Third Pillar Table 1 Governance and policies Relationships between the Parent Company and Group Legal Entities carrying out credit-related businesses are defined by specific governance rules, assigning the role of guidance, support and control to the Parent Company, in respect of the following areas: credit policies, credit strategies, models development, rating systems validation, credit concentration risk, the issuance of credit products, monitoring and reporting portfolio credit risk. In particular, Group Legal Entities have to request the Group Risk Management function s opinion before granting or reviewing credit lines to individual borrowers or economic groups, whenever they exceed defined thresholds, also with reference to the obligation of compliance with the credit risk concentration limits that have to be measured with respect to the regulatory capital. According to the role assigned to the Parent Company, specifically to the Group Risk Management function under Group governance, the Global Policy Group General Principles for Credit Activity", recently reviewed, aims at defining the general principles and rules to guide, govern and standardise the credit risk assessment and management, in line with the regulatory requirements and Group best practice. The general rules are supplemented by policies governing defined subjects (business areas, segment activities, type of counterpart / transaction, etc.). Such documents are divided into two categories: policies on Group-wide topics, developed by the Parent Company and sent to all the Legal Entities. Some examples are the policies on FIBS customers (Financial Institutions, Banks and Sovereigns), on Country Limits, on Project Finance and Acquisition & Leveraged Finance transactions, on collateral management for OTC derivatives, Repo and securities lending business, on assessment, monitoring and management of underwriting risk limits for the syndicated loan, on Commercial Real Estate Finance (CREF) and on Structured Trade and Export Finance (STEF); policies developed locally by single Legal Entities. Such documents provide detailed credit rules for specific regions, subsidiaries, etc., if required by local market peculiarities, and are applicable only within the specific Legal Entity perimeter. At both Legal Entity and Parent Company (if necessary) level, the policies are further detailed through Operative Instructions, describing specific rules and instructions for the day-by-day activity. Credit Policies have generally a static approach and are revised when necessary. Therefore they need to be supplemented with Credit Risk Strategies that are updated at least annually and define customers / products, industry segments and geographical areas that will form the target of the Legal Entity / the Group s relevant credit business. 11

12 I Management and Measurements method Credit Risk generally represents the risk of losses of the value of a credit exposure arising from an unexpected worsening of the counterparty's credit quality. For the purpose of credit risk measurement, credit risk is defined as the risk of incurring losses arising from the possibility that a counterparty, a borrower or an issuer of a financial obligation (bond, note, etc.) is not able to repay interest and/or principal or any other amount due (Default Risk). In a broader sense, credit risk can also be defined as potential losses arising either from a default of the borrower / issuer or a decrease of the market value of a financial obligation due to a deterioration in its credit quality. On this topic the Group is exploring new approaches to cover also the market value component of banking book credit risk. Credit risk is measured by single borrower / transaction and for the whole portfolio. The tools and processes used for lending to single borrowers during both the approval and monitoring phases include a credit rating process, which is differentiated by customer segment / product to ensure maximum effectiveness. The assessment of a counterpart s creditworthiness, within the credit proposal evaluation, begins with an analysis of the financial statements and the qualitative data (competitive positioning, corporate and organisational structure, etc.), regional and industry factors and counterpart behaviour within the Legal Entity and the banking system (e.g., Centrale dei Rischi ), and results in a rating, i.e. the counterpart s probability of default (PD) on a one-year time horizon. Regular monitoring focuses on the borrower s performance management, using all available internal and external information in order to arrive at a score representing a synthetic assessment of the risk associated to each monitored customer. This score is obtained using a statistical function that summarizes available information using a set of proven significant variables that are predictors of an event of default within a 12 months horizon. The internal rating, or risk level assigned to the customer / transaction, forms a part of the lending decision calculation. In other words, at a constant credit amount the approval powers granted to the competent Bodies are gradually reduced in proportion to an increased borrower-related risk level. The organizational model in use includes also a dedicated function, which is separated from loan approval and business functions and is responsible for the management of the so-called rating overrides, i.e. any changes to the automatic rating calculated by the model. Each borrower s credit rating is reviewed at least annually on the basis of new information acquired. Each borrower is also assessed in the context of any economic group with which it is affiliated by, as a general rule, taking into account the theoretical maximum risk for the entire economic group. Besides the methodologies summarized in the rating systems, the Risk Management function uses portfolio models enabled to measure credit risk on an aggregated portfolio basis and, at the same time, to identify sub-portfolio, or single obligor contributions to the overall risk position. BASEL 2 THIRD PILLAR AS AT JUNE 30,

13 >> Basel 2 Third Pillar Table 1 There are three fundamental portfolio credit risk measures that are calculated and are evaluated on a one year time horizon: Expected Loss (EL), Credit Value at Risk (Credit VaR) and Expected Shortfall (ES). In order to derive the Credit VaR of the portfolio, the portfolio loss distribution is specified; it is represented by the probabilities of getting different values of the portfolio loss on the given time horizon ( discrete loss case ). The loss associated to a specific probability is the product of the percentage of losses given default (LGD) and exposures at default (EAD) considering the correlations among the defaults. The Expected Loss (EL) at portfolio level represents the aggregated average loss of the portfolio due to potential defaults of the obligors. The EL of the portfolio is just the sum of the single obligor ones, which can be evaluated as the product of PD x LGD x EAD, and is independent from the default correlations in the portfolio. EL is typically charged as a cost component. Value at Risk represents the threshold monetary loss overcome only with a given probability level (VaR at 1-α confidence level. UniCredit selected α =0.03% which corresponds to a 99.97% confidence level). Economic Capital is derived from Value at Risk subtracting the expected loss and it is an input for determining Internal Capital set up to cover potential unexpected losses from all risk factors. VaR is a widely used measure of portfolio risk but it does not provide information on potential losses in case the VaR limit has been exceeded. Such information is provided by the Expected Shortfall (ES) that represents the expected value of losses that exceed the VaR threshold. Portfolio Credit VaR and ES strongly depend on default correlation and can be reduced by proper portfolio diversification. The credit portfolio models produce also measures of economic capital reallocated by individual borrowers within each portfolio and are the basis for risk-adjusted performance measures. The measures of economic capital (Credit VaR based) are also a fundamental input for the design and application of credit strategies, the analysis of credit limits and risk concentration. The economic capital calculation engine is also used for the analysis of stress tests of the credit portfolio, starting from macroeconomic variables that affect the various customer segments, by Country, size, etc. All the above mentioned risk parameters are subject to an initial validation and a regular monitoring process for each rating system in all its components: models, processes, IT architecture and data quality. The aim is to give evidence of the systems compliance, highlighting improvement areas as well as possible misalignments in the methodologies, which could limit the full comparability among the resulting risk measures. The internal Credit VaR model is also subject to assessment in the context of Basel 2 - Pillar 2 validation. 13

14 I Credit Strategies and Concentration Risk According to Pillar II provisions, credit risk strategies for the Group s credit portfolio are an advanced credit risk management tool. Consistent both with the budget process and with Pillar II / Risk Appetite framework, they are aimed at providing the concrete deployment of risk appetite targets by Division and Legal Entity, considering the expected vulnerability of the Group credit portfolios to adverse economic downturns as well as the quantification of the sectorial concentration risk. Credit risk strategies aim to obtain a threefold goal: to define the optimal credit portfolio risk profile by minimizing the overall credit risk impact, starting from the risk appetite framework, in line with the Group s capital allocation and value creation criteria; to provide support to the responsible functions and Divisions at Parent Company and Legal Entities level aimed at the portfolio optimization through strategic plans and business initiatives; to provide a set of guidelines and support when drafting business and credit risk budgets, in line with the Group s strategic ambitions. Credit risk strategies are defined by synthesizing the top-down risk analysis with the portfolio view of the business functions, through a strict cooperation among the centralized and local Risk Management Departments. Credit risk strategies are defined by using different credit risk measures, like the expected loss (EL), the economic capital, the risk weighted assets (RWA) and the probability of default (PD). In parallel a set of qualitative information, taking into account the different divisional / territorial characteristics of the credit portfolio, are incorporated and transformed in input variables for the optimization models. Portfolio risk management pays special attention to credit risk concentration. Such risk, according to the Basel II definition, consists of a single exposure or of a group of correlated exposures with the potential to generate losses of such magnitude as to prejudice the Group s ability to carry on its normal business. It may arise in the form of concentration on: significant amount credit exposures to a single counterparty or to a set of counterparties economically connected ( bulk risk for Multinationals, Financial Institutions and Banks); credit exposures to counterparties belonging to the same economic sector ( sectorial risk ). In order to identify, manage, measure and monitor concentration risk, the Parent Company s competent functions define a set of specific credit limits to cover the two different types of concentration risk As part of credit risk strategy, both credit portfolio vulnerability analyses and Capital Adequacy support analyses are performed through the credit risk stress test (Pillar I and Pillar II). Stress test simulations enable to re-estimate some risk parameters like probability of default, expected loss, economic capital and risk weighted assets under the assumption of extreme but plausible macroeconomic and financial stressed scenario. Stressed parameters are used not only for regulatory purposes, but also as managerial indicators about the portfolio vulnerability of single Legal Entities, business lines, industries/regional areas, customer groups and other relevant clusters, conditioned to a downturn of economic cycle. In compliance with regulatory requirements, stress tests are performed on an on-going basis and their results are communicated to the Top management as well as to the Supervisory Authority. In addition to the regular stress test, ad hoc stress test simulations are performed on specific request by the Supervisory Authority. BASEL 2 THIRD PILLAR AS AT JUNE 30,

15 >> Basel 2 Third Pillar Table 1 Credit Risk Mitigation Techniques Unicredit group uses various credit risk mitigation techniques to reduce potential credit losses in case of the obligor default. Consistently with the International Convergence of Capital Measurement and Capital Standards A Revised Framework (Basel II), the Group is firmly committed to satisfy the requirements for recognition of Credit Risk Mitigation techniques, according to the different approaches adopted (Standardized, Foundation-IRB or Advanced-IRB) both for internal use in operations and for the purposes of calculating the credit risk capital requirement. With specific reference to credit risk mitigation, general guidelines are in force, issued by the Parent Company, to lay down Group-wide rules and principles that should guide, govern and standardise the credit risk mitigation techniques, in line with Group principles and best practice, as well as in accordance with the relevant regulatory requirements. Following the general Group credit risk mitigation guidelines all Legal Entities have adopted internal regulations, specifying processes, strategies and procedures for collateral management. In particular such internal regulations detail collateral eligibility, valuation and monitoring rules and ensure the soundness, legal enforceability and timely liquidation of valuable collateral according to each Country's local legal system. Collateral management assessments and credit risk mitigation compliance verifications have been performed by the Legal Entities, specifically as part of internal rating system applications, in order to assess the presence of adequate documentation and procedure concerning the credit risk mitigation instruments used for supervisory capital. According to credit policy, collaterals or guarantees can be accepted only to support loans and they cannot serve as a substitute for the borrower s ability to meet obligations. For this reason, in addition to the overall analysis of the credit worthiness and of the repayment capacity of the borrower, they are subject to specific evaluation and analysis of the support role for the repayment of the exposure. Collaterals accepted in support of credit lines granted by the Group s Legal Entities, primarily include real estate, both residential and commercial, financial collateral (including cash deposits, debt securities, equities, and units of Undertakings for Collective Investment in Transferable Securities (UCITS)). Other types of collateral (pledged goods or pledged loans and life insurance policies) are less common. The Group also makes use of bilateral netting agreements for OTC derivatives (by means of ISDA and CSA agreements), Repos and securities lending. The management system of credit risk mitigation techniques is embedded in the credit approval and in the credit risk monitoring processes, which widely support the evaluation and data quality checks of collaterals / guarantees and their appropriate linking to the categories defined for LGD estimates purposes. Controls and related responsibilities are duly formalized and documented in internal rules and job descriptions. Furthermore processes are implemented to control that all the relevant information regarding the identification and evaluation of the credit protection are correctly registered in the system. When accepting a collateral, UniCredit group emphasizes the importance of controls process and system for the legal certainty requirements of the protection, as well as the assessment of the suitability of the collateral or guarantee. In case of personal guarantees, the protection provider (or the protection seller in case of credit default swap) has to be assessed in order to measure his/her solvency and risk profile. 15

16 I In case of collaterals, the process of valuation is based on precautionary principles, with reference to the use of market values and to the application of adequate haircuts to ensure that, in case of liquidation, there are no unexpected losses. Monitoring processes of collaterals ensure that general and specific requirements established by credit policies, internal and regulatory rules are met over the time. BASEL 2 THIRD PILLAR AS AT JUNE 30,

17 >> Basel 2 Third Pillar Table 1 Reporting and Monitoring The fundamental objective of the reporting and monitoring activities performed by the Group Risk Management function is the analysis of the main drivers and parameters of credit risk (exposure at default ( EAD ), expected loss ( EL ), migration, cost of risk, etc.) in order to promptly initiate any countermeasures on portfolios, sub-portfolios or individual counterparties. Group Risk Management function performs credit risk reporting at portfolio level, producing reports at Group level, both recurring and specific (on demand of Top Management or Regulators or external entities, e.g. rating agencies) with the objective of analysing the main risk components and their development over time, and thus to detect any signals of deterioration at an early stage and, subsequently, to put in place the appropriate corrective actions. Credit portfolio performance is analysed with reference to its main risk drivers (such as growth and risk indicators), customer segments, regions, industrial sectors, and impaired credits performance and relevant coverage. Portfolio reporting activities at Group level are performed in close collaboration with the Chief Risk Officers at Legal Entities level and Credit Risk Portfolio Managers who, within their respective perimeters, implement specific reporting activities. Starting from the second half of 2010, reporting activities are carried out by two dedicated Group Risk Management functions: the Group Risk Reporting unit under the Group Risk Management Operating Office Department and the Group Credit Risk Portfolio Analytics team within the Group Credit Risks Department. The Group Risk Reporting unit is in charge of risk reporting at Group level, by leveraging on the information supplied by other competent structures of the Group Risk Management. The Group Credit Risk Portfolio Analytics team, in collaboration with the Group Risk Management Operating Office department, is responsible for the Group credit risk reporting, with specific detail of geographical area and Business Units, directly producing the data related to the Corporate, Investment Bank & Private Bank SBA and collecting and aggregating information related to the Families & SME SBA and to the CEE countries provided by the F&SME Risks department and "CEE Risks Officer. During the whole 2011 and in the first half of 2012 reporting activities have been additionally refined through the intensive fine-tuning activity of data collection and consolidation processes, an activity already started in late This has led to a significant improvement in terms of quality of the information reported in consolidated reports such as, for example, the ERM - Enterprise Risk Management Report. Furthermore, portfolio and business segment reporting units also helped to monitor credit risk exposure within their areas of responsibility. All monitoring activities that aim at identifying and reacting in a timely manner to possible deterioration in the asset quality of the Group s counterparties, instead, have been further enhanced with dedicated functions of the Group Risk Management, for example functions belonging to the Group Credit Risks department, that deal with the reporting activities aimed at analysing the main components of this risk and their temporal evolution, in order to be able to detect promptly any symptoms of deterioration and, therefore, take appropriate corrective actions. 17

18 I Market Risk Market risk derives from the effect that changes in market variables (interest rates, securities prices, exchange rates, etc.) can cause to the economic value of the Group s portfolio, including the assets held both in the trading book, as well as those posted in the banking book, both on the operations characteristically involved in commercial banking and in the choice of strategic investments. Market risk management within the UniCredit group accordingly includes all activities related to cash transactions and capital structure management, both for the Parent company, as well as for the individual companies making up the Group. The current organizational model guarantees the ability to steer, to coordinate and to control the activities of some aggregated risks (so-called Portfolio Risks), through dedicated responsibility centers (Portfolio Risk Managers), completely focused and specialized on such risks, under a Group and interdivisional perspective. According to this organization, the structures at first level of reporting to Group Risk Management, dedicated to market risk governance, are: Group Trading Risks, regarding market risk related to Trading Book positions; Group Balance Sheet & Liquidity Risk, regarding market risk related to Banking Book positions. Risk Management Strategies and Processes The Holding Company s Board of Directors lays down strategic guidelines for taking on market risks by calculating capital allocation for the Parent company and its subsidiaries, depending on risk appetite and value creation objectives in proportion to risks assumed. The Group Risk Committee meets with consulting and suggestion functions for the definition of the CEO s proposal for the Board of Directors, mainly for the following topics: I. Group risk appetite, including capitalization objectives, capital allocation criteria, risk-taking capacity, cost of equity and dividends policy, as well as internal capital limits; general strategies for the optimization of risks, general guidelines and general policies for Group risk management; fundamental modifications of risk control and measurement systems (for credit, market, operational and other risks) including possible action plans, processes, IT and data quality requirements; structure of limits by type of risk; strategic policies and funding plans; overall Loan Loss Provisions estimates; definition and periodic review of the "ICAAP General Framework", relevant perimeter of application, as well as yearly Regulatory Report. Furthermore, it decides on the following topics: the definition of guidelines relative to Group financial policies (asset and liability management strategies, including the duration profile at Group level); the risk allocation across Business Units and Legal Entities, specific risk guidelines and strategies and consequent limit setting for achieving the targets in terms of risk appetite and limits by type of risk; methodologies for the measurement and control of Internal Capital; guidelines, policies and strategies for real estate risk, financial investment risk and business risk; approval of action plans in case of critical level findings on the risk control and measurement systems derived from internal initial and ongoing validation reports; approval of business actions/initiatives also having strategic nature in order to safeguard the Group in the "alarm phase" of a liquidity crisis. BASEL 2 THIRD PILLAR AS AT JUNE 30,

19 >> Basel 2 Third Pillar Table 1 The Group Risk Committee also receives on regular basis information from the competent Committees/functions on the following topics: reorganization projects affecting risk processes and/or organization structures involved in risk management and control activities; periodic risk reports (portfolio, large exposures, loan loss provisions, etc.), including those intended for the Regulators (before they have been disseminated); reports on breaches of limits; corrective action to balance Group risk positions; regular reports on loan loss provisions development; status update of relevant Basel Accords project activities and processes. In addition to GRC, with reference to management of Market Risks, the responsible Committees are: Group Market Risk Committee; Group Assets & Liabilities Committee. The Group Market Risk Committee is responsible for monitoring market risks at Group level, for evaluating the impact of transactions approved by the competent bodies - significantly affecting the overall Market Risk portfolio profile, for submitting to the Group Risk Committee - for approval or information - market risk strategies, policies, methodologies and limits as well as regular reporting on market risk portfolio. The Committee is also responsible for ensuring consistency in market risk policies, methodologies and practices across Divisions, Business Units and Legal Entities. It controls and monitors the Group market risk portfolio. The Group Assets and Liabilities Committee is responsible for monitoring liquidity risk, Banking Book interest rate and FX risks, submitting to the Group Risk Committee, for either approval or information, the strategies for assets and liabilities management - including duration profile at Group level the overall overview of the Group ALM positioning, as well as strategies, policies, methodologies and limits for liquidity, Banking Book interest rate and FX risks. The Committee is responsible for ensuring consistency in liquidity, Banking book interest rate and FX risk policies, methodologies and practices across Regional Liquidity Centers, Divisions, Business Units and Legal Entities, with the objective to optimize the utilization of financial resources such as liquidity and capital and to reconcile the demand for them with business strategies across the Group. Moreover, it monitors the evolution of assets and liabilities of the whole Group and the execution of the funding plan. It analyses the impact of interest rate movements, liquidity constraints and foreign exchange exposures. Trading Book The Trading Book includes the positions in financial instruments and commodities held either with trading intent or in order to hedge other elements of the Trading Book itself. To be eligible for Trading Book capital treatment, financial instruments must either be free of any restrictive covenants on their tradability or able to be hedged completely. In addition, positions should be frequently and accurately valued, and the portfolio should be actively managed. 19

20 I The risk that the value of a financial instrument (an asset or a liability, cash or derivative) changes over time is determined by the following five standard market risk factors: Credit risk: the risk that the value of the instrument decreases due to credit spreads changes; Equity risk: the risk that the value of the instrument decreases due to stock or index prices changes; Interest rate risk: the risk that the value of the instrument decreases due to interest rates changes; Currency risk: the risk that the value of the instrument decreases due to foreign exchange rates changes; Commodity risk: the risk that the value of the instrument decreases due to commodity prices (e.g. gold, crude oil) changes. UniCredit group manages and monitors market risk through two sets of measures: I. Global Market Risk measures: Value at Risk (VaR), which represents the potential loss in value of a portfolio over a defined period for a given confidence interval; Stressed VaR (SVaR), which represents the potential VaR of a portfolio subject to a continuous 12-month period of significant financial stress; Incremental Risk Charge (IRC), which represents the amount of regulatory capital aimed at addressing the credit shortcomings (rating migration and default risks) that can affect a portfolio in a defined time period for a given confidence interval; Comprehensive Risk Measure (CRM), which represents the amount of regulatory capital aimed at addressing the credit shortcoming effects not included within the IRC measure (such as stochastic recovery and correlation effects for structured financial instruments) that can affect a portfolio in a defined time period for a given confidence interval; Loss Warning Level (LWL), which is defined as the 60 days rolling period accumulated economic P&L of a risk taker; Combined Stress Test Warning Level (STWL), which represents the potential loss in value of a portfolio calculated on the basis of a distressed scenario. II. Granular Market Risk measures: Sensitivities, which represent the change in the market value of a financial instrument due to moves of the relevant market risk factors. On the basis of these measures, two sets of limits are defined: Global Market Risk limits (Loss Warning Levels, Combined Stress Test Warning Level, VaR, SVaR, IRC, CRM): which are meant to establish a boundary to the economic capital absorption and to the economic loss accepted for activities under trading activities regime; these limits have to be consistent with the assigned budget of revenues and the defined risk taking capacity; Granular Market Risk limits (Sensitivity limits, Stress scenario limits, Nominal limits): which exist independently of, but act in concert with Global Market Risk limits and operate in a consolidated fashion across the Legal Entities (if applicable); in order to control more effectively and more specifically different risk types, desks and products, these limits are generally granular sensitivity or stress-related limits. The levels set for Granular Market Risk measures aim at limiting the concentration in individual risk factors and the excessive exposure in risk factors which are not sufficiently covered under VaR. BASEL 2 THIRD PILLAR AS AT JUNE 30,

21 >> Basel 2 Third Pillar Table 1 Banking Book The bank hedges the interest rate risk in the Banking Book mainly originated by its client business, while taking actively into account the changes in the market circumstances. Hedge strategies aim to take into account the consumer behavior as for example prepayment of mortgages and other loans. The view on the interest rate risk position of the Banking Book is reviewed at least on a monthly basis by the Group ALCO. The committee s involvement in interest rate risk management includes: limit setting and monitoring; hedge strategies; guidelines and policies; funds transfer pricing decisions; risk methodologies and measurement; It should be noted that Group ALCO sets the guidelines and Risk Framework for the Regional Centres. Their ALCOs fill in the process for their perimeter, while Group ALCO monitors the overall position. Risk Management proposes the limits that require approval from the Group Risk Committee. 21

22 I Structure and Organization Trading Book With reference to trading book risks governance, that is market risk originated by Group functions authorized to manage trading positions, the Group Trading Risks department has been created, as responsible for the governance and control of these type of risks at Group level, through the definition of the strategies and the limits, the drafting process of the related Group Regulations and the monitoring for their implementation at Group s Legal Entities level, the development of the methodologies for measuring the risks, the execution of the stress-test activities and the portfolio analysis. The aforementioned department is also responsible for a managerial coordination, within its area of competence, of the corresponding functions at Group s Legal Entities level, according to Internal Regulations ( GMGR 1 and GMGR Evolution ) and to address the choice of the correct pricing methodologies/models for financial instruments by coordinating activities for the development of pricing libraries and their integration in the front-office systems. This control is ensured through an organizational structure that consists, in particular, in the following units: Market Risk Management department responsible for the governance and control of the Group s market risks through: o the definition of strategies and risk limits, the execution of stress test activities and portfolio analysis; o market risk control for UniCredit S.p.A and at consolidated level. The department breaks down as follows: Group Market Risk Management unit responsible for: o coordinating (in cooperation with the Legal Entities Market Risk functions) the iterative process for the setting of global and granular limits to be submitted for approval to the Committees and competent deliberative bodies, both at local and at Parent Company level; o monitoring day-by-day global and granular limits, activating escalation process in the event of limits being reached or overtaken, determining also the right countermeasures/mitigation actions to be taken, if necessary; o analyzing day-by-day P&L on the basis of the reports provided by Group Entities; o defining the IPV 2 and FVA 3 methodologies that the Group Entities will be made to adopt; o assessing market risks pertaining to new products and formulating non-binding opinions on the issuance of such products; o managing the activities connected to the independent pricing validation (IPV) for non-listed or non-liquid securities and for market conformity check of the illiquid ones; o providing the "Risk Integration & Capital Adequacy" unit with the data necessary for monitoring and planning for the risk appetite and the EVA. Products Evaluation, Special Projects & Support unit responsible for: o adequately supporting the Bank in the activities related to MiFID application, which require the use of the methodologies developed within Risk Management; o defining the stress test program through the definition of new scenarios, the aggregation of the stress tests results supplied by the Group Legal Entities, the analysis the results of the stress tests and the identification of suitable corrective actions (such as risk mitigation activities, generation of new scenarios); o monitoring and managing market risk pertaining to non-core portfolios de-leveraging / de-risking; 1 Group Managerial Golden Rules. 2 Independent Price Valuation. 3 Fair Value Adjustment. BASEL 2 THIRD PILLAR AS AT JUNE 30,

23 >> Basel 2 Third Pillar Table 1 o o leading special market risk initiatives; reporting on market risk, in cooperation with the competent functions of the Group Risks Operating Office department, providing an updated view, at Group level, of the risks both in normal and stress scenarios. Market Risk Policies, Methodologies & Architecture unit responsible for: o developing methodologies for market risks management (e.g. VaR, Stressed VaR, Incremental Risk Charge, Comprehensive Risk Measure, Credit Counterparty Risk, Expected Positive Exposure, etc.), making sure the models used within the Group are mutually consistent and calculating the metrics in collaboration with the related structures of the Legal Entities; o drawing up Group Rules concerning trading risks; o verifying that operating policies on market risks issued by the Legal Entities are coherent and compliant with the strategies and the Group Rules defined by Group Trading Risks department; o monitoring, according to the current Group Internal Regulation in place, the approval and implementation, within the Group Legal Entities, of the Group Rules on market risk; o monitoring the results of the back testing carried out by the Legal Entities and of the back testing done at a consolidated level; o developing prototypes for new technologies in order to manage market risks; o setting up and updating, in collaboration with the relevant structures of the Legal Entities, the infrastructure for the management of market data and documenting and monitoring the relative processes (data collection, management and storage). Banking Book The control of market risks in the Banking Book is under responsibility of the Balance Sheet Risks Control unit in Group Risk Management. Responsibilities include: drawing up Group Rules on balance sheet risk related to the banking book; verifying that operational policies on balance sheet risks related to the Banking Book, issued by the Legal Entities, are coherent and compliant with the strategies and the Group Rules; proposing to the competent bodies the limits for managing the balance sheet risks related to the Banking Book, taking care of the related sub allocation of limits, in order to maintain the Group risk profile within the risk appetite framework approved by the Board of Directors and other competent bodies; monitoring the respect of balance sheet risk limits related to the Banking Book and medium-long term liquidity limits set by the competent bodies at Group and regional center level, proposing corrective actions in order to maintain the Group risk profile within the risk appetite framework approved by the Board of Directors; ensuring the substantial Groupwide harmonization of the analysis and measurement frameworks used for interest rate risk management and behavioral models; monitoring the right application of fund transfer prices among the Units and the Regional Centres of the Group. 23

24 I Risk measurement and reporting systems Trading Book During 2012, the Group continued to develop and expand existing models with the aim of achieving increasing accuracy in the representation of the Group s risk profiles for portfolios of complex financial products. In particular, in compliance with the new Basel Committee regulations and guidelines and in order to properly address the shortcomings of the standard VaR framework, UniCredit group completed during 2011 the development of internal models for Incremental Risk Charge (IRC) and Comprehensive Risk Measure (CRM) estimation, and updated the capital charge calculation including the Stressed VaR component. The monitoring of these risk profiles was made even more effective with the introduction of individual granular risk limits, in addition to VaR limits, in relation to primary investment banking operations. In the same way, and in an effort to achieve product/portfolio assessments based on more rigorous standards of prudence, methodologies for establishing valuation reserves for loan products were refined and made more specific with a special focus on structured loans. Within the organizational context described above, the policy implemented by the UniCredit group within the scope of market risk management is aimed at the gradual adoption and use of common principles, rules and processes in terms of appetite for risk, ceiling calculations, model development, pricing and risk model scrutiny. Market Risk Management department is specifically required to ensure that principles, rules and processes are in line with industry best practice and consistent with standards and uses in the various countries in which they are applied. The main tool used by the UniCredit group to measure market risk on trading positions is Value at Risk (VaR), calculated using the historical simulation method. Please refer to Table 11 for further detail on risk models. Market risk reporting standards are set by the Group Risk Committee under the proposal of the Market Risk function. Market Risk Management defines market risk reporting standards, both in terms of contents and recurrence, and provides timely information to Top Management and regulators regarding the market risk profile on a consolidated level. Banking Book The primary responsibility of the monitoring and control of the risk management for market risk in the Banking Book lies in the Bank s competent Bodies. For instance, the Parent Company is in charge of monitoring market risks for the Banking Book at the consolidated level. As such, defines structure, data and frequency of the necessary Group reporting. The Banking Book interest rate risk measures cover both the value and net interest income risk aspects. More precisely, the different, and complementary, perspectives involve: Economic value perspective: variation in interest rates can affect the economic value of assets and liabilities. The economic value of the bank can be viewed as the present value of the bank s expected net cash flows, defined as the expected cash flows on assets minus the expected cash flows on liabilities; Income perspective: the focus of the analysis is the impact of changes of interest rates on accrual or reported Net Interest Income that is the difference between revenues generated by interest sensitive assets and the cost related to interest sensitive liabilities. An example of a measure of risks used are Net Interest Income sensitivity. In addition a framework is set up to measures other market risk types such foreign exchange risk, equity risk, value risk due to credit spread fluctuations. BASEL 2 THIRD PILLAR AS AT JUNE 30,

25 >> Basel 2 Third Pillar Table 1 Stress tests: they are an important risk management tool that provides UniCredit with an indication of how much capital might be needed to absorb losses in case of large financial shocks. Stress testing forms an integral part of the internal capital adequacy assessment process (ICAAP), which requires UniCredit to undertake rigorous, forward-looking stress testing that identifies possible events or changes in market conditions that could adversely impact the bank. Hedging policies and risk mitigation Trading Book On a monthly basis a set of risk indicators is provided to the Group Risk Committee through the Enterprise Risk Management Report; these include VaR, Stressed-VaR, IRC and CRM usages, Sensitivities and Stress Test results. At the same time limit breaches are reported both to the Group Market Risk Committee and to the Group Risk Committee, the escalation process being ruled by the Global Policy for Market Risk Limits which defines the nature of the various thresholds/limits applied, as well as the relevant bodies to involve to establish the most appropriate course of action to restore exposure within the approved limits. If required, focus is provided from time to time on the activity of a specific business line/desk in order to ensure the highest level of comprehension and discussion of the risks in certain areas which are deemed to deserve particular attention. Banking Book ALCO discusses the main market risk drivers on a monthly basis. It receives an update about the current status of the Banking Book risk measures both from a value and income perspective. Limits and warning levels are monitored by Risk Management function. Limit breaches and warning levels are reported, upon occurrence, to the relevant bodies. Consequently the escalation process is activated in line with the procedures set in the Policy, to establish the most appropriate course of action to restore exposure within the approved limits. Execution of structural hedges to mitigate the interest rate risk exposure on client business are executed by the Treasury. Strategic transactions in the banking book can be executed by the Asset and Liability Management department. 25

26 I Liquidity Risk Liquidity risk is defined as the risk that the Group may find itself unable to fulfill its expected or unexpected payment obligations (by cash or delivery), current and future, without jeopardizing its day-to day operations or its financial condition. The key principles The Liquidity Centres The Group aims to maintain liquidity at the level enabling to conduct safe operations, to fund its operations at the best rate conditions under normal operating circumstances, and to remain always in a position to meet payment obligations. To this end, the Group complies accurately with the legal and regulatory provisions imposed by the national Central Banks and by the national authorities of each country where it operates. In addition to local legal and regulatory requirements the Group, through the Parent Company and under the responsibility of its Group Risk Management, defines policies and metrics to be applied at the Groupwide level, to ensure that liquidity position of any Entity meets the requirements of the Group. For these reasons, the Group is organized on a managerial perspective, according to the concept of the Liquidity Centres. The Liquidity Centres are Legal Entities that act in their responsibility as liquidity hub. They are in charge: of the liquidity management and concentration process of liquidity flows of the Legal Entities falling within their perimeter of responsibility; of the funding optimization carried out on the relevant local markets and are responsible to coordinate the access to short term and medium long term markets of the legal entities belonging to their perimeter; finally, of the implementation of the Group s liquidity rules at local level in line with Group s Governance Guideline and Policy and with local regulations. A particularly important role is played by the Parent Company, as a supervisory and overarching liquidity centre with its role of steering, coordinating, and controlling all the aspects regarding liquidity for the whole Group. The Parent Company, moreover, acts as the Liquidity Centre Italy. The principle of self-sufficiency The liquidity available at country level could be subject to restrictions due to legal, regulatory and political constraints. The so called Large Exposure Regime, applied throughout Europe, along with specific national laws like the German Stock Corporation Act, are examples of legal constraints to the free circulation of funds within a cross-border banking Group 4. As a general rule, the Large Exposure Regime, which came into force on 31 Dec 2010, limits interbank exposures to a maximum of 25% of own funds: this rule is also applicable to intra-group exposures. However, there are significant differences in the way in which this EU regulation has been implemented in the various countries. In many CEE countries the limit of 25% of free funds is valid, with some countries showing even stricter rules (e.g. Serbia); in Austria, according to the National law, the "25% of own funds limit" is not applied to exposures towards the parent company, if located in the European Economic Area; finally, in Germany the national Regulator has set up a process to apply for a waiver, exempting intragroup exposures from the large exposure limitation. 4 Also Bank of Italy Circular No. 263 provides that the liquidity reserves are placed in each Legal Entity in order to minimize the transfers of cash reserves (Title V, chapter 2, Section III. 7 second-last paragraph). BASEL 2 THIRD PILLAR AS AT JUNE 30,

27 >> Basel 2 Third Pillar Table 1 In the absence of official limits valid at National level, Austrian and German Regulators reserve the right to judge the exposure level on a case-by-case basis. In the current economic environment, in many of the territories in which the Group operates, Banking Regulatory Authorities are adopting measures aimed at reducing the exposure of their National banking system towards foreign jurisdictions with potential negative impacts on the ability of the Group to finance its activities. For these reasons, the Group Liquidity Policy provides for a further principle in order to enhance a sound liquidity risk management; that is, each Legal Entity (in particular those located in a country different from the one of its Liquidity Centre of reference), has to increase its liquidity self-sufficiency in an on-going basis and under stressed conditions, fostering each Legal Entity to exploit its strengths, in order to optimize the cost of funds of the Group. This type of organization allows the Group that the Legal Entities are self-sufficient by accessing the local and global markets for liquidity in a controlled and coordinated way, whilst optimizing: i) the liquidity surpluses and deficits within the Group s legal entities ii) the overall costs of funding across the Group. Roles and responsibilities At Group level, three main functions are identified in the management of the liquidity: the Group Risk Management competence line, the Finance function (within Planning, Finance & Administration competence line) and the Treasury function (within the Markets Business Unit), each with different roles and responsibilities. In particular, the operational responsibilities reside in the Finance and the Treasury functions, while the Risk Management function has responsibilities of independent controls and independent reporting compared to the operational functions (in line with the requirements of Bank of Italy 263 Circular). More specifically, Group Treasury acts as main coordinator in the management of infra-group flows, stemming from liquidity deficits or surplus of the various Group s Legal Entities, and applies the appropriate transfer prices to such funds movements. By doing so, Group Treasury ensures a disciplined and efficient access to the markets. Optimization of liquidity risks is pursued through the setting of specific limits on the standard banking activity of transforming short, medium and long-term maturities. This is implemented in accordance with legal and regulatory framework in each country and internal rules and policies of the Group companies through management models in place within the individual Liquidity Centres. Such models are subject to analyses carried out by the local Risk Management or equivalent structure with the same responsibilities in coordination with the Group s Risk Management to ensure that they comply with the metrics and the objectives of the Group s Liquidity Framework. Moreover, the regional rules must conform to national law and regulatory requirements. 27

28 I Risk measurement and reporting systems Techniques for risk measurement Liquidity risk, for its particular nature, is addressed by means of gap analyses, liquidity stress testing, and complementary measures (mainly through a set of indicators: e.g. loan to deposit gap, leverage ratio). In particular, gap analyses are performed within two distinct time horizons: liquidity imbalance mismatch approach on a daily basis, which controls for the short term liquidity risk arising from the overnight up to a 3 months maturity; gap ratios on a monthly basis, which control the medium to long term risk (structural liquidity) from the 1Y maturity onwards The Group s liquidity framework The Group s Liquidity Framework is based upon the Liquidity Risk Mismatch Model which is characterized by the following fundamental principles: Short-term liquidity risk management (operational liquidity), which considers the events that will impact upon the Group s liquidity position from 1 day up to one year. The primary objective is to maintain the Group s capacity to fulfill its ordinary and extraordinary payment obligations while minimizing the relevant costs. Structural liquidity risk management (structural risk), which considers the events that will impact upon the Group s liquidity position over one year. The primary objective is to maintain an adequate ratio between medium/long term liabilities and medium to long-term assets, with a view to avoiding pressures on short-term funding sources (both current and future), while in the meantime optimizing the cost of funding. Stress tests: liquidity risk is a low probability, high impact event. Therefore stress testing is an excellent tool to reveal potential vulnerabilities in the Balance Sheet. The Bank uses several scenarios ranging from general market crisis to idiosyncratic crisis, and combinations hereof. Moreover, the liquidity framework is also integrated by complementary measures, included in the Group s Risk Appetite framework. One of these is the loan-to-depo gap, which is calculated on a quarterly basis and which measures to what extent the commercial loan portfolio is financed through commercial liabilities. In this context, the Parent Company takes into account all of the assets, liabilities, off-balance sheet positions and present and future events which generate certain or potential cash flows for the Group, thereby protecting the Group Banks/Companies from risks related to the transformation of maturity. BASEL 2 THIRD PILLAR AS AT JUNE 30,

29 >> Basel 2 Third Pillar Table 1 Short term liquidity management Short-term liquidity management aims at ensuring that the Group remains in a position to fulfill its cash payment obligations, whether expected or unexpected, focused on the exposure for the first 12 months. The standard measures taken for such purposes are the following: management of the access to payment systems (operational liquidity management); management of cash payments to be made and monitoring of the level of liquidity reserves and the extent of their utilization (analysis and active management of the maturity ladder). These principles are applicable at Group level and have to be used across the Liquidity Centres. The Group adopts also the indicator "Cash Horizon" as a synthetic indicator of the short term liquidity risk levels; this indicator is monitored through the Operative Maturity Ladder, which measures the cash-in and outflows affecting the monetary base. The Cash Horizon identifies the number of days after which the relevant Entity is no longer able to meet its liquidity obligations as expressed in the operative Maturity Ladder, after having exhausted the available Counterbalancing Capacity. The objective of the Group during the reporting period has been to guarantee a cash horizon of at least three months. The Cash Horizon is one of the liquidity metrics included in the Group s Risk Appetite Framework. At the same time, a sensitivity analysis is performed aimed to verify the impact of 1 and 2 billion inflows or outflows on the Cash Horizon. Structural liquidity management The Group s structural liquidity management aims to limit refinancing exposures with respect to maturities exceeding one year and thus reducing refinancing needs in the shorter term. The structural Liquidity Ratio over 1 year is one of the liquidity metrics included in the Group s Risk Appetite Framework. The maintenance of an adequate ratio between medium to long-term liabilities and assets aims to avoid pressures on short-term sources, whether present or future. The standard measures taken for such purposes are the following: the spreading of the maturity of funding operations in order to reduce the usage of less stable funding sources, while in the meantime optimizing the cost of funding (integrated management of strategic liquidity and tactical liquidity); the financing of growth through strategic funding activities, setting the most appropriate maturities (Yearly Funding Plan); the balancing of medium- to long-term wholesale funding requirements with the need to minimize costs, by diversifying sources, national markets, currencies of issuance and instruments used (realization of the Yearly Funding Plan). 29

30 I Liquidity Stress Test Stress testing is a risk management technique used to evaluate the potential effects on an institution s financial condition of a specific event and/or movement in a set of financial variables. As a forward looking tool, liquidity stress testing diagnostics the institution s liquidity risk. In particular the results of the Stress tests are used to: assess the adequacy of liquidity limits both in quantitative and qualitative terms; plan and carry out alternative sourcing transactions for purposes of off-setting liquidity outflows; structure/modify the liquidity profile of the Group s assets; provide support to the development of the liquidity contingency plan. In order to execute Stress tests that are consistent across the Liquidity Centres, the Group has a centralised approach to stress testing, requiring each local Liquidity Centre to run the same scenario set under the coordination of the Group Risk Management. At the Liquidity Centre level the use of statistical/quantitative behavioural models are accepted, provided they are validated by the local Risk Management or equivalent structure with same responsibilities. The Group runs liquidity scenarios and sensitivity analyses on a regular basis, the latter by assessing the impact on an institution's financial condition of a move in one particular risk factor, the source of the shock not being identified, whereas scenario tests tend to consider the impact of simultaneous moves in a number of risk factors, based on a hypothetical, well defined and consistent stress scenario. Liquidity scenarios At macro level the Group identifies three basic different classes of potential liquidity crisis: market (systemic, global o sector) related crisis: Market Downturn Scenario. This scenario consists of a sudden turmoil in a monetary and capital market, which may be caused by closure (or limited access) to market/settlement system, critical political events, country crisis, credit crunch, etc.; specific to the Group, or part of it: name crisis, and downgrade scenarios; the assumption could be operational risk, event related to the worsen perception of the Group reputation risk and a downgrade in UniCredit S.p.A. rating; a combination of market and specific crisis: combined scenario. The survival period of the combined liquidity stress test scenario is one of the liquidity metrics included in the Group s Risk Appetite Framework. The results of the stress test may highlight the needs of setting up specific limits concerning, for instance, unsecured funding, the ratio between cash-in/cash-out flows and counterbalancing capacity, the ratio between eligible and non-eligible securities, among others. Monitoring and reporting The short term liquidity limits and the Cash Horizon are monitored and reported on a daily basis. The structural liquidity ratios and its exposure against limits are monitored and reported on a monthly basis. The survival period and the result of the liquidity Stress test are reported and monitored on a weekly basis. BASEL 2 THIRD PILLAR AS AT JUNE 30,

31 >> Basel 2 Third Pillar Table 1 Risk mitigation Mitigation factors It is generally accepted that liquidity risk cannot be mitigated by capital. As such liquidity risk does not add to the economic capital usage, nevertheless it is considered as an important risk category also for the risk appetite determination of the Group. The main liquidity mitigation factors for UniCredit group are: an accurate short term and medium to long term liquidity planning monitored monthly; an effective Contingency Liquidity Policy (CLP) with feasible and up-to-date Contingency Action Plan (CAP) to be executed in case of market crisis; a liquidity buffer to face unexpected outflows; robust and regular up to date stress testing performed on a high frequency. Funding Plan The Funding Plan plays a fundamental role in the overall liquidity management influencing both the short term and the structural position. The Funding Plan, defined at each level (i.e. Group, Liquidity Center and Legal Entity level), is developed consistently with a sustainable uses and sources analysis both on short term and structural position. One of the objectives of accessing the medium and long term channels is to avoid also the pressure on the short term liquidity position. The Funding Plan is updated at least on a yearly basis and is approved by the Board of Directors. Moreover, it is aligned with the Budgeting process and the Risk Appetite framework. The Parent Company is the responsible for accessing the market for Group Bank Capital Instruments. The Parent Company, through the Planning Finance and Administration (PFA) function, coordinates the market access of the Liquidity Centres and Legal Entities, while the Liquidity Centres coordinate the access of the Legal Entities falling within their perimeter. Each Legal Entity or Liquidity Centre, under the responsibility of PFA, can access the markets for medium and long term funding, in order to increase its self-sufficiency, exploit market opportunities and functional specialization, safeguarding the optimization of cost of funds of the Group. PFA is responsible for the elaboration of the Funding Plan. Risk Management is responsible for providing an independent assessment of the Funding Plan. 31

32 I Group Contingency Liquidity Policy A liquidity crisis is a high impact, low probability event. Therefore, a crisis-mode operating model, that can be activated effectively in case of crisis according to an approved procedure, has been defined. In order to be able to proceed timely, a set of mitigating actions have been be pre-defined. Depending on the situation some of these actions can then be approved for execution. The ability to act in time is essential to minimize the potentially disruptive consequences of a liquidity crisis. The analytics of the Stress tests will form a valuable tool to identify the expected consequences and to define up front the most suitable actions in a certain crisis scenario. In combination with Early Warning Indicators (EWI) the organization may even be able to reduce the liquidity effects in the initial stages of a crisis. Liquidity crises usually develop quickly and the relevant signals may be either difficult to interpret or may even be lacking; it is, therefore, important to identify clearly players, powers, responsibilities, communication and reporting criteria, in order to increase significantly the probability of overcoming the state of emergency successfully. A liquidity crisis could be classified as systemic (e.g. overall capital and money market disruption) or specific (e.g. specific within the sphere of the bank), or a combination of both. The Group Contingency Liquidity Policy (CLP) has the objective of ensuring effective interventions starting from the very outset (initial hours) of the liquidity crisis, through the clear identification of individuals, powers, responsibilities, communication, and reporting criteria, with a view of increasing significantly the probability of successfully overcoming the state of emergency. This is achieved through: activation of extraordinary liquidity governance and operating model; consistent internal and external communication; a set of available standby mitigating liquidity actions; a set of early warning indicators that may point towards a developing crisis. A fundamental part of the Contingency Liquidity Policy is the Contingency Funding Plan. Such a plan consists of a set of potential but concrete management actions. Such actions should be described in terms of a menu of actions together with sizes, instruments, and timing of execution aimed at improving the bank s liquidity position mainly during times of crisis. The Contingency Funding Plan has to be developed on the basis of the annual Funding Plan. Group Risk Committee (GRC) gives the final approval and decides whether the Board of Directors has to be informed. Early Warning Indicators A system of Liquidity Early Warning Indicators is necessary in order to continuously monitor situations of stress, which may, among others, be originated by market, sector or name specific events. That is, they could be based either on macroeconomic or microeconomic variables, internal or external, depending on the prevailing macroeconomic context, and by taking into account the monetary policy of the Central Banks. The system of Liquidity Early Warning Indicators should support the management decisions in case of deteriorating of Liquidity position or stressed situations. The associated reports should communicate in an efficient manner the main results of the indicators. BASEL 2 THIRD PILLAR AS AT JUNE 30,

33 >> Basel 2 Third Pillar Table 1 Operational Risk Operational risk is the risk of loss due to errors, infringements, interruptions, damages caused by internal processes or personnel or systems or caused by external events. This definition includes legal and compliance risks, but excludes strategic and reputational risk. For example, losses arising from the following can be defined as operational: internal or external fraud, employment practices and workplace safety, client claims, products distribution, fines and penalties due to regulation breaches, damage to the company s physical assets, business disruption and system failures, process management. Group operational risk framework UniCredit group sets the operational risk management framework as a combination of policies and procedures for controlling, measuring and mitigating the operational risk of the Group and controlled Entities. The operational risk policies, applying to all Group entities, are common principles defining the roles of the company bodies, the operational risk management function as well as the relationship with other functions involved in operational risk monitoring and management. The Parent Company coordinates the Group Entities according to the internal regulation and the Group operational risk control rulebook. Specific risk committees (Risk Committee, ALCO, Operational Risk Committee) are set up in the Entities to monitor risk exposure, mitigating actions and measurement and control methods. The methodology for data classification and completeness verification, scenario analysis, risk indicators, reporting and capital at risk measurement is set by the Parent Company Group Operational & Reputational Risks department and applies to all Group entities. A pivot element of the risk control framework is the operational risk management application, allowing the collection of the data required for operational risk control and capital measurement. The results from the various elements of the operational risk framework are as much as possible translated into actions that mitigate operational risk. In this way and through the years, the framework has evolved from a control system to a practice aimed at managing and mitigating the risk. The compliance of the Group Operational risk control and measurement system with external regulations and Group standards is assessed through an internal validation process under the responsibility of the Group Internal Validation department of the Parent Company and independent from the Group Operational & Reputational Risks department. In March 2008, UniCredit group received authorization to use the AMA model (Advanced Measurement Approach) for calculating operational risk capital. The use of this method in time is being rolled out to the main entities of the Group. 33

34 I Organizational structure Top Management is responsible for approving all aspects relating to the Group operational risk framework and verifying the adequacy of the measurement and control system and is regularly updated on changes to the risk profile and operational risk exposure, with support from the appropriate risk committees. The Group Operational & Reputational Risks Committee, chaired by the Parent Company's head of Group Credit Operational & Reputational Risks is made up of permanent and guest members. The list of participants of the Committee has been updated in 2012, also in the light of the changes in the organizational structure of the Group Risk Management department. The Group Operational & Reputational Risks Committee, relative to operational risk, meets with consulting and suggestion functions for submission to the Group Risk Committee, for: the Group risk appetite, including the goals and criteria of the operational risk capital allocation in the Group; the structure and definition of limits for Group operational risk for achieving risk allocation targets across Divisions, Business Units, legal entities and portfolios; initial approval and fundamental modifications of risk control and measurement systems and applications for operational risk, including possible action plans, processes, IT and data quality requirements, supported by the related internal validations; overall strategies for operational risk optimization, Governance Guidelines and general Policies for the management of Group operational risk; action plans to address possible critical findings related to risk control and measurement system resulting from Group Internal Validation and Internal Audit activities; status update of relevant Basel II project activities on operational risk topics; ICAAP topics for operational risks; yearly Regulatory Internal Validation Report on operational risk. The Group Operational & Reputational Risks Committee meets with approval functions instead for the following topics: special operational and reputational risk Policies ; corrective actions for balancing the Group operational risk positions, including the planned mitigation actions, within the limits defined by the competent bodies; Group insurance strategies, including renewals, limits and deductibles; initial approval and fundamental modifications of the methodologies for the measurement and control of operational risk, supported by the related internal validations. In the Parent Company, the Group Operational & Reputational Risks department is part of the Group Risk Management department and supervises and manages the overall profile of the operational and reputational risks in the Group by defining the strategies, methodologies and limits. It coordinates and steers the operational risk management functions in the Group entities, also by issuing Policies that are approved and implemented by the entities competent governing bodies. Regarding the operational risk management function, the department has two organizational units. The Operational Risk Methodologies and Control unit is responsible for the methodologies, the calculation model for the Group operational capital at risk and the guidelines for operational risk control activities; it executes the capital at risk calculation for regulatory and ICAAP purposes as well as the capital allocation to the single Group entities. It is also supporting and controlling the legal entities Operational Risk Management functions, in order to verify that Group standards are met in the implementation of control processes and methodologies. BASEL 2 THIRD PILLAR AS AT JUNE 30,

35 >> Basel 2 Third Pillar Table 1 The Operational Risk Strategies and Mitigation unit is responsible for the definition and monitoring of the risk limits and for the identification of strategies and mitigation actions and the monitoring of their implementation, including insurance strategies. This comprises the identification of products and processes that entail a particular, high level of operational risk, detecting the necessary mitigation actions and the monitoring of their results. It is also in charge for the user specifications for the Group operational risk management IT application. The Operational Risk Management functions of the controlled entities provide specific operational risk training to staff, also with the use of intranet training programs, and are responsible for the correct implementation of the Group framework elements. Validation process In compliance with regulations, an internal validation process for the operational risk control and measurement system has been set up at the Parent Company and in the relevant Group entities in order to verify the conformity with regulations and Group standards. This process is responsibility of the Pillar II Risks and Operational Risk Validation unit, within the Group Internal Validation department. Group methodologies for measuring and allocating the capital at risk are validated at Parent Company level by the abovementioned Unit, while the implementation of the operational risk control and management system within the relevant entities is analized by the local Operational Risk Management functions following the technical instructions and policies issued by the Group Internal Validation department. The results of the local assessments are annually verified by the Group Internal Validation department which also performs additional analysis on data and documentation. Detailed reports are then submitted to the Group CRO for the release of specific Non-Binding Opinions to the relevant subsidiaries. The local validation report, together with the opinion of the Parent Company and the Internal Audit report is submitted to the entities competent governing bodies for approval. All the validation outcomes on the operational risk control and measurement system, both at Parent Company and controlled entities level, are annually consolidated within the Group Validation report which, along with the annual Internal Audit report, is presented to the UniCredit Board of Directors. Periodical reporting on validation activities is submitted also to the Group Operational & Reputational Risks Committee. Reporting A reporting system has been developed by the Parent Company to inform Top Management and relevant control bodies on the Group operational risk exposure and the risk mitigation actions. In particular, quarterly (or more frequent) updates are provided on operational losses, capital-at-risk estimates, the main initiatives undertaken to mitigate operational risk in the various business areas, operational losses suffered in the credit linked processes ( cross-credit losses). A summary of the trend of the most critical risk indicators is distributed each month. The results of the main scenario analyses carried out at Group level and the relevant mitigation actions undertaken are also submitted to the attention of the Group Operational & Reputational Risks Committee. 35

36 I Operational risk management and mitigation Operational risk management exploits a number of tools like process reengineering to reduce the risk exposure and insurance policies management, by defining proper deductibles and policies limits. Regularly tested business continuity plans assure sound operational risk management in case of interruption of main business services. In the legal entities, the Risk Committee (or other bodies, in accordance with local regulations) reviews risks tracked by the Operational Risk functions with the support of functions involved in daily operational risk control, and monitors the risk mitigation initiatives. BASEL 2 THIRD PILLAR AS AT JUNE 30,

37 >> Basel 2 Third Pillar Table 1 Other Risks and Risk Aggregation The types of risk described above are the primary risks, but there are others the Group considers to be significant which include: business risk; real estate risk; financial investment risk; strategic risk; reputational risk. These risks are defined as follows. Business Risk Business risk is defined as adverse, unexpected changes in business volume and/or margins that are not due to credit, market and operational risks. Business risk can result, above all, from a serious deterioration in the market environment, changes in the competitive situation or customer behavior, but may also result from changes in the legal framework. The exposure data used to calculate business risk are taken from the income statements of each Group Entity for which the risk is significant. Volatility and correlation are calculated by Division on the basis of a time series of monthly income statements for the relevant Group Entities. Business risk is measured by Earnings at Risk (EaR), defined as the maximum annual loss with a 99.97% confidence interval, with a one-year time horizon and assuming normal distribution. Business Risk is calculated quarterly for monitoring purposes and for budgeting purposes according to planning time scheduling. Real Estate Risk Real estate risk is defined as the potential losses resulting from market value fluctuations of the Group s real estate portfolio, including real estate special purpose vehicles. It does not take into consideration properties held as collateral. Real estate risk is measured as a single risk type to determine its inherent risk and as an input to internal capital. Data are collected every six months, according to a set format provided by the Parent company. All Entities, further to general information related to properties, are also required to provide mapping to area or regional price indexes for each property to enable calculation of volatility and correlation in the model. Assessment of real estate risk estimates the maximum potential loss with a 99.97% confidence level and a one-year horizon, using a variance-covariance approach and assuming normal distribution. Real estate risk is calculated for monitoring purposes every six months and for budgeting purposes according to the timelines scheduled in the planning process. 37

38 I Financial Investment Risk Financial investment risk originates in equity held in companies not included in the Group or held in the trading book, it is measured as a single risk type to determine the inherent risk of the equity interests and as an input to internal capital. The equity portfolio mainly includes listed and unlisted shares, derivatives with equity underlyings, private equity, units of mutual, hedge and private equity funds. For all Group equity positions, capital absorption may be calculated using PDs and LGDs or a marketbased approach. The PD/LGD approach is used for unlisted companies, including direct private equity holdings. The market-based approach is used for traded equities, equity hedges, and all mutual, hedge and private equity funds through the mapping of market indexes. Assessment of financial investment risk is based on the maximum potential loss, i.e. Value at Risk (VaR), with a 99.97% confidence level and a one-year horizon. Financial investment risk is calculated quarterly for monitoring purposes and for budgeting purposes according to the timelines scheduled in the planning process. Strategic Risk Strategic Risk is the risk of suffering potential losses due to decisions or radical changes in the business environment, improper implementation of decisions, lack of responsiveness to changes in the business environment, which result in negative impacts to the risk profile, capital and earnings as well as the overall direction and scope of a bank over the long run. UniCredit s Top Management monitors Group s performance by analyzing the information received from the competent bodies and regularly comparing results with targets and the corporate governance system manages strategic risk for the Group. To mitigate its strategic risk, UniCredit is strengthening internal risk culture. To this end has been taken an important initiative as Risk Culture was launched, with the aim of creating a centre of risk education excellence for the whole Group. BASEL 2 THIRD PILLAR AS AT JUNE 30,

39 >> Basel 2 Third Pillar Table 1 Reputational Risk Reputational risk is identified as the current or future risk of a decline in profits as a result of a negative perception of the Group s image by customers, counterparties, bank shareholders, investors or the Regulator. In August 2010 the UniCredit S.p.A. Board of Directors approved the Group Reputational Risk Governance Guidelines, which aim at defining a general set of principles and rules for measuring and controlling reputational risk. In the Parent company the Reputational Risk Methodologies and Control unit is formally appointed within the Group Operational and Reputational Risks department. The Governance Guidelines were distributed to the UniCredit group Legal Entities for implementation, through a letter signed by the CEO and the Head of Group Risk Management. The primary role of Reputational Risk Methodologies and Control is to: develop methodologies for the measurement and control of reputational risk, facilitating the task of identifying, valuing and measuring such risk; monitor the implementation in the Legal Entities of methodologies of reputational risk (general guidelines for the management and control of reputational risk), defining the tasks to be carried out on a regular basis; propose mitigation actions to the competent functions and bodies; define the methodology for evaluating the reputational risk of products. Moreover, the set-up of the Group Operational and Reputational Risk Committee ensures consistency in reputational risk policies, methodologies and practices across Divisions, Business Units and Legal Entities, controlling and monitoring the Group Reputational Risk portfolio. Furthermore, the Transactional Credit Committees are in charge of evaluating possible reputational risks inherent in transactions, as defined by the current reputational risk Global Rules. Finally, in order to protect the UniCredit group from reputational risk-taking in addition to the already existing Group Reputational Risk Governance Guidelines the following policies in specific sectors are in place: Defense/Weapons, Nuclear Energy, Non-cooperative Jurisdictions, Mining and Water Infrastructures (dams). 39

40 I Risk Measurement Methods Within the Internal Capital Adequacy Assessment Process (ICAAP), in line with the proportionality principle defined in Pillar II of Basel II, the risk profile of the main companies of the Group is calculated analytically, while for small ones a synthetic approach (top down approach) is used. Credit, market, operational, business, real estate and financial investment risks are measured quantitatively, using: economic capital and aggregation as an input for internal capital; and stress tests. Internal Capital is the capital set aside as a buffer against the potential losses inherent in the Group s business activities and it takes into consideration all risk types identified by the Group as quantified in terms of Economic Capital in line with Pillar II requirements (credit, market, operational, business, financial investment and real estate risks, including the effects of diversification between risk types ( interdiversification ) and within each portfolio type ( intradiversification ) and a prudential cushion against the model risk and the variability of the economic cycle). Internal Capital is calculated using the Bayesian Copula approach for aggregation with a one-year time horizon and 99.97% confidence level in line with the Group rating target. The distribution of correlation matrixes that represents the dependence structure between risks is achieved combining expert opinions with empirical correlation coefficient calculated relying on the time series of specific risk factors. For control purposes, Internal Capital is calculated quarterly or ad hoc if needed; it is also projected for budgeting purposes. The multi-dimensional nature of risk makes it necessary to supplement the measurement of economic capital with stress testing, not only in order to estimate losses in certain scenarios, but also to ascertain the impact of their determinants. Stress testing is carried out on both individual risk types and their aggregation, providing as output conditional losses and stressed economic capital. The combined stress test calculation covers the changes on the amount of the individual risk types and of the diversification benefit in crisis conditions. The adequacy of the risk measurement methodologies supporting the ICAAP, including stress testing and risk aggregation, is checked by internal validation. Under the corporate governance system, the Parent Company s Group Risk Management is responsible for the Group Economic and Internal Capital methodology development and their measurement at Group and divisional level, moreover the Parent is responsible to set and implement the Group related processes. The "Group Rules", after the approval, are sent to interested LEs for approval and implementation. BASEL 2 THIRD PILLAR AS AT JUNE 30,

41 Internal Capital Adequacy Assessment Process (ICAAP) >> Basel 2 Third Pillar Table 1 Measuring the risk profile is a fundamental element of the Internal Capital Adequacy Assessment Process under Basel II Pillar II. The Group s approach to ICAAP relies on the definition of the Risk Governance, as a preliminary requirement, while the process consists of following phases: perimeter definition and risk identification; risk profile measurement; risk appetite setting and capital allocation; and monitoring and reporting. Capital adequacy is assessed considering the balance between the assumed risks, both Pillar I and Pillar II, and the available capital. With respect to Pillar II, the relevant metric is the Risk Taking Capacity, which is the ratio between available capital (Available Financial Resources, AFR) and Internal Capital. The Group defines the risk appetite 5 as the variability in terms of results, both in short and long term, that Top Management is willing to accept to support a defined strategy. The risk appetite framework is based on three dimensions: capital adequacy; profitability and risks; liquidity and funding; it is approved by Board of Directors and is regularly monitored and reported, at least quarterly, to the relevant committees. In addition, the Parent company is required to draft a yearly consolidated report on capital adequacy in accordance with Banca d Italia guidelines and including an overview of the main Group companies. 5 The main purpose is to ensure that the business develops within the risk tolerance set by the BoD in compliance with national and international regulations. The aim is not to prevent risk taking, but to pursue the execution of the Group s strategy according to the risk tolerance set by the BoD. 41

42 I Reporting The Group Risk Reporting Unit within the Group Risk Management department provides monthly and quarterly risk reports related to the Group asset quality whose main objectives are to analyze the key drivers and credit risk parameters (e.g. Exposure at Default EAD, Expected Loss EL, migrations, adjustments, coverage ratio, cost of risk, etc.), mainly from a Group s or a Regional perspective, and to offer a representation of all the aggregate risk faced by UniCredit group. The reports produced also constitute a support tool to take managerial decisions in terms of risk management and mitigation. Among all the reports produced by the Group Risk Reporting Unit, the ERM Report plays a strategic role in terms of portfolio asset quality monitoring. In fact, ERM report is mainly aimed at providing the most complete overview of main Group risks up to a significant level of detail, both in terms of type of risk (mainly credit risk, but also market, interest rate, investment, trading, liquidity and operational risk) and in terms of areas where these risks are originated (Italy, Germany, Austria, CEE and Poland). The ERM Report, through the consolidation of the information regarding Group s risk exposures, provides a detailed representation in terms of: credit risk through analyses at Group and Regional levels on the composition of assets and on the general asset quality of the Group, with a focus on the impaired portfolio and the coverage ratio, the loan loss provisions and analyses of selected portfolios (such as, for example, Leasing, LPAC, Shipping and Real Estate) as well as analyses by industry and concentration limits; liquidity risk - through analyses of the Group's ability to meet liquidity needs in the short, medium and long term even under distressed conditions (all the analyses are performed through the simulation of stress test scenarios), and to obtain/generate cash and finance on its own or through the access to financial markets; market risk core banking book - through a study of the exposures and of key market risk indicators trends on the banking book, as well as the attendance of VAR limits in the financial markets arising from the Group's core investments portfolio; market risk trading & non-core banking book - through the presentation of data (such as, for example, VAR, credit spreads, interest rates and exchange rates) related to the Group s trading book and non-core investment portfolio through stress test scenario analyses; operational risk - through monthly analyses of operating losses generated by each Region, with details of losses over 1 million and corrective measures taken to prevent events with potential future losses. On a quarterly basis, values of regulatory capital with the Standardized approach (TSA) and the Advanced approach (AMA) are also presented. Group Risk Reporting Unit has, in addition, the responsibility to ensure the congruence of risk definitions and metrics used, as well as to ensure the efficiency and effectiveness of all the reports produced in the Risk Management Competence Line, both at Parent Company and Legal Entity level. During the first months of 2011, Group Risk Reporting unit concluded a homogenization activity of the definitions used for risk metrics, so that they are evenly shared and accepted by all Group Entities. In 2011, data quality and reporting processes consistently improved, also thanks to an intensive review of existing reports and data analysis considering the changed market environment. The aim of 2012, instead, is to consolidate the achievements of the past few years while constantly adapting the reporting activities to the needs of the Top Management and of Regulators in the light of the current macroeconomic scenario. The fine tuning phase and a further improvement of the reports produced are already ongoing and significant results have been achieved so far in terms of consistency and quality of the information provided. BASEL 2 THIRD PILLAR AS AT JUNE 30,

43 43 >> Basel 2 Third Pillar Table 1

44 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

45 >> Basel 2 Third Pillar Table 2 Table 2 Scope of application Qualitative disclosure Name of the bank to which the disclosure requirements apply UniCredit S.p.A., Parent company of "UniCredit" banking group registered in the Register of Banking Groups. Outline of the differences in the basis of consolidation for accounting and prudential purposes In this section of the Third Pillar the prudential scope of consolidation of the UniCredit group is disclosed. It should be noted that the scope of consolidation is determined according to the prudential regulations and differs from the scope of the consolidated financial statements, determined under IAS/IFRS. This situation can create mismatches between the data disclosed in this document and that included in the Consolidated Financial Statements. These different treatments are disclosed in the lists of this section, which have the following characteristics: 1) Consolidated entities as at June 30, 2012 banking, financial and instrumental companies directly or indirectly controlled by UniCredit S.p.A. to which the line-by-line consolidation method is applied; banking, financial and instrumental companies in which UniCredit S.p.A. holds, directly or indirectly, a 20% stake or more, when they are jointly controlled with other entities and/or according to agreements signed with them; to these subsidiaries the proportional consolidation method is applied; other banking and financial companies in which UniCredit S.p.A. holds, directly or indirectly, a 20% stake or more or anyway subject to significant influence, to which the equity method is applied; companies, other than banking, financial and instrumental companies, directly or indirectly controlled by UniCredit S.p.A., exclusively or jointly, or subject to significant influence, to which the equity method is applied. 2) Entities deducted from capital as at June 30, 2012 insurance, banking and financial companies with a stake of more than 10% deducted from regulatory capital. 3) Entities added to risk-weighted assets as at June 30, 2012 other equity investments classified under risk-weighted assets. This disclosure, which refers to the consolidated data, does not include equity investments that individually are worth less than 1,000: n 56 subsidiaries and joint ventures n 16 associate companies n 189 minority interests included in the available for sale (AFS) financial assets portfolio. It should be noted that the investments in 195 subsidiaries were accounted for at cost (209 as at December 31, 2011), of which: (I) n 19 belonging to the banking group (see Quantitative disclosure of Table 2); (II) n 176 not belonging to the banking group (n 190 as at December 31, 2011). 45

46 Full Proportional At Equity (RWA) Full Proportional At Equity Basis of consolidation for accounting and prudential purposes Consolidated entities as at June 30, 2012 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country UNICREDIT SPA BANKS ROME ITALY x x AS UNICREDIT BANK, LATVIA BANKS RIGA LATVIA x x BANK AUSTRIA REAL INVEST GMBH BANKS VIENNA AUSTRIA x x BANK AUSTRIA REAL INVEST IMMOBILIEN-KAPITALANLAGE GMBH BANKS VIENNA AUSTRIA x x BANK AUSTRIA WOHNBAUBANK AG BANKS VIENNA AUSTRIA x x BANK PEKAO SA BANKS WARSAW POLAND x x BANKHAUS NEELMEYER AG BANKS BREMEN GERMANY x x CARD COMPLETE SERVICE BANK AG BANKS VIENNA AUSTRIA x x CJSC BANK SIBIR BANKS OMSK CITY RUSSIA x x DAB BANK AG BANKS MUNICH GERMANY x x DIREKTANLAGE.AT AG BANKS SALZBURG AUSTRIA x x FACTORBANK AKTIENGESELLSCHAFT BANKS VIENNA AUSTRIA x x FINECOBANK SPA BANKS MILAN ITALY x x FONDO SIGMA BANKS ROME ITALY x x JSC ATF BANK BANKS ALMATY CITY KAZAKISTAN x x LEASFINANZ BANK GMBH BANKS VIENNA AUSTRIA x x MEZZANIN FINANZIERUNGS AG BANKS VIENNA AUSTRIA x x PEKAO BANK HIPOTECZNY S.A. BANKS WARSAW POLAND x x PIONEER INVESTMENTS AUSTRIA GMBH BANKS VIENNA AUSTRIA x x PRVA STAMBENA STEDIONICA DD ZAGREB BANKS ZAGREB CROATIA x x PUBLIC JOINT STOCK COMPANY UKRSOTSBANK BANKS KIEV UKRAINE x x PUBLIC JOINT STOCK COMPANY UNICREDIT BANK BANKS KIEV UKRAINE x x SCHOELLERBANK AKTIENGESELLSCHAFT BANKS VIENNA AUSTRIA x x BOSNIA AND UNICREDIT BANK A.D. BANJA LUKA BANKS BANJA LUKA HERCEGOVINA x x UNICREDIT BANK AG BANKS MUNICH GERMANY x x UNICREDIT BANK AUSTRIA AG BANKS VIENNA AUSTRIA x x UNICREDIT BANK CZECH REPUBLIC A.S. BANKS PRAHA CZECH REPUBLIC x x BOSNIA AND UNICREDIT BANK D.D. BANKS MOSTAR HERCEGOVINA x x UNICREDIT BANK HUNGARY ZRT. BANKS BUDAPEST HUNGARY x x UNICREDIT BANK IRELAND PLC BANKS DUBLIN IRELAND x x UNICREDIT BANK OJSC BANKS BISHKEK KIRGHIZISTAN x x UNICREDIT BANK SERBIA JSC BANKS BEOGRAD SERBIA x x UNICREDIT BANK SLOVAKIA A.S. BANKS BRATISLAVA SLOVAKIA x x UNICREDIT BANKA SLOVENIJA D.D. BANKS LJUBLJANA SLOVENIA x x UNICREDIT BULBANK AD BANKS SOFIA BULGARIA x x UNICREDIT CREDIT MANAGEMENT BANK SPA BANKS VERONA ITALY x x UNICREDIT INTERNATIONAL BANK (LUXEMBOURG) SA BANKS LUXEMBOURG LUXEMBOURG x x UNICREDIT JELZALOGBANK ZRT. BANKS BUDAPEST HUNGARY x x UNICREDIT LEASING FINANCE GMBH BANKS HAMBURG GERMANY x x UNICREDIT LUXEMBOURG S.A. BANKS LUXEMBOURG LUXEMBOURG x x UNICREDIT TIRIAC BANK S.A. BANKS BUCHAREST ROMANIA x x ZAGREBACKA BANKA D.D. BANKS ZAGREB CROATIA x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

47 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country ZAO UNICREDIT BANK BANKS MOSCOW RUSSIA x x ACTIVE ASSET MANAGEMENT GMBH COMPANIES GRUNWALD GERMANY x x AI BETEILIGUNGS GMBH ALINT 458 GRUNDSTUCKVERWALTUNG GESELLSCHAFT M.B.H. ALLEGRO LEASING GESELLSCHAFT M.B.H. ALLIB LEASING S.R.O. ALLIB NEKRETNINE D.O.O. ZA POSLOVANJE NEKRETNINAMA ALLIB ROM S.R.L. ALMS LEASING GMBH. ALPINE CAYMAN ISLANDS LTD. ALV IMMOBILIEN LEASING GESELLSCHAFT M.B.H. ANI LEASING IFN S.A. ANTARES IMMOBILIEN LEASING GESELLSCHAFT M.B.H. ARANY PENZUEGYI LIZING ZRT. ARNO GRUNDSTUCKSVERWALTUNGS GESELLSCHAFT M.B.H. ATF CAPITAL B.V. ATF FINANCE JSC AUSTRIA LEASING GMBH AUTOGYOR INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG B.I. INTERNATIONAL LIMITED BA ALPINE HOLDINGS, INC. BA CA LEASING (DEUTSCHLAND) GMBH BA CA SECUND LEASING GMBH BA CREDITANSTALT BULUS EOOD BA EUROLEASE BETEILIGUNGSGESELLSCHAFT M.B.H. BA/CA-LEASING BETEILIGUNGEN GMBH BA/CA-LEASING FINANZIERUNG GMBH BA-CA ANDANTE LEASING GMBH BACA CENA IMMOBILIEN LEASING GMBH BACA CHEOPS LEASING GMBH BA-CA FINANCE (CAYMAN) II LIMITED BA-CA FINANCE (CAYMAN) LIMITED BACA HYDRA LEASING GESELLSCHAFT M.B.H. BACA KOMMUNALLEASING GMBH COMPANIES BAD HOMBURG GERMANY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES ZAGREB CROATIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES GEORGE TOWN CAYMAN ISLAND x x COMPANIES BUCHAREST ROMANIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES ROTTERDAM NETHERLANDS x x COMPANIES ALMATY CITY KAZAKISTAN x x COMPANIES BUDAPEST HUNGARY x x COMPANIES GEORGE TOWN CAYMAN ISLAND x x COMPANIES WILMINGTON U.S.A. x x COMPANIES BAD HOMBURG GERMANY x x COMPANIES SOFIA BULGARIA x x COMPANIES GEORGE TOWN CAYMAN ISLAND x x COMPANIES GEORGE TOWN CAYMAN ISLAND x x 47

48 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country BACA LEASING ALFA S.R.O. BACA LEASING CARMEN GMBH BA-CA LEASING DREI GARAGEN GMBH BACA LEASING GAMA S.R.O. BA-CA LEASING MAR IMMOBILIEN LEASING GMBH BA-CA LEASING MODERATO D.O.O. BACA LEASING UND BETEILGUNGSMANAGEMENT GMBH BA-CA MARKETS & INVESTMENT BETEILIGUNG GES.M.B.H. BACA NEKRETNINE DOO BA-CA PRESTO LEASING GMBH BACA ROMUS IFN S.A. BACAL ALPHA DOO ZA POSLOVANJE NEKRETNINAMA BACAL BETA NEKRETNINE D.O.O. ZA POSLOVANJE NEKRETNINAMA BACA-LEASING AQUILA INGATLANHASNOSITO KORLATOLT FELELOSSEGU TARSASAG BACA-LEASING GEMINI INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG BACA-LEASING NERO INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG BACA-LEASING OMIKRON INGATLANHASZNOSTO KORLATOLT FELELOSSEGU TARSASAG BACA-LEASING URSUS INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG BA-CREDITANSTALT LEASING ANGLA SP. Z O.O. BAL CARINA IMMOBILIEN LEASING GMBH BAL DEMETER IMMOBILIEN LEASING GMBH BAL HESTIA IMMOBILIEN LEASING GMBH BAL HORUS IMMOBILIEN LEASING GMBH BAL HYPNOS IMMOBILIEN LEASING GMBH BAL LETO IMMOBILIEN LEASING GMBH BAL OSIRIS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. BAL PAN IMMOBILIEN LEASING GMBH BAL SOBEK IMMOBILIEN LEASING GMBH BANK AUSTRIA CREDITANSTALT LEASING IMMOBILIENANLAGEN GMBH BANK AUSTRIA FINANZSERVICE GMBH BANK AUSTRIA HUNGARIA BETA LEASING KORLATOLT FELELOSSEGU TSRSASAG BANK AUSTRIA LEASING ARGO IMMOBILIEN LEASING GMBH BANK AUSTRIA LEASING HERA IMMOBILIEN LEASING GMBH BANK AUSTRIA LEASING IKARUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES ZAGREB CROATIA x x COMPANIES ZAGREB CROATIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES WARSAW POLAND x x COMPANIES BUDAPEST HUNGARY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

49 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country BANK AUSTRIA LEASING MEDEA IMMOBILIEN LEASING GMBH BANK AUSTRIA REAL INVEST CLIENT INVESTMENT GMBH BARODA PIONEER ASSET MANAGEMENT COMPANY LTD BARODA PIONEER TRUSTEEE COMPANY PVT LTD BAULANDENTWICKLUNG GDST 1682/8 GMBH & CO OEG BETEILIGUNGSVERWALTUNGSGESELLSCHAFT DER BANK AUSTRIA CREDITANSTALT LEASING GMBH BIL LEASING-FONDS GMBH & CO VELUM KG BIL V & V VERMIETUNGS GMBH BREWO GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. BULBANK AUTO LEASING EOOD BULBANK LEASING EAD BV GRUNDSTUCKSENTWICKLUNGS-GMBH CABET-HOLDING GMBH CABO BETEILIGUNGSGESELLSCHAFT M.B.H. CAC REAL ESTATE, S.R.O. CAC-IMMO SRO CAFU VERMOEGENSVERWALTUNG GMBH & CO OG CA-LEASING ALPHA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING BETA 2 INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING DELTA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING EPSILON INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING EURO, S.R.O. CA-LEASING KAPPA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING LAMBDA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING OMEGA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING OVUS S.R.O. CA-LEASING PRAHA S.R.O. CA-LEASING SENIOREN PARK GMBH CA-LEASING TERRA POSLOVANJE Z NEPREMICNINAMI D.O.O. CA-LEASING YPSILON INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CA-LEASING ZETA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CALG 307 MOBILIEN LEASING GMBH CALG 443 GRUNDSTUCKVERWALTUNG GMBH COMPANIES MUMBAI INDIA x x COMPANIES MUMBAI INDIA x x COMPANIES SOFIA BULGARIA x x COMPANIES SOFIA BULGARIA x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x 49

50 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country CALG 445 GRUNDSTUCKVERWALTUNG GMBH CALG 451 GRUNDSTUCKVERWALTUNG GMBH CALG ALPHA GRUNDSTUCKVERWALTUNG GMBH CALG ANLAGEN LEASING GMBH CALG ANLAGEN LEASING GMBH & CO GRUNDSTUCKVERMIETUNG UND -VERWALTUNG KG CALG DELTA GRUNDSTUCKVERWALTUNG GMBH CALG GAMMA GRUNDSTUCKVERWALTUNG GMBH CALG GRUNDSTUCKVERWALTUNG GMBH CALG IMMOBILIEN LEASING GMBH CALG IMMOBILIEN LEASING GMBH & CO 1050 WIEN, SIEBENBRUNNENGASSE OG CALG IMMOBILIEN LEASING GMBH & CO 1120 WIEN, SCHONBRUNNER SCHLOSS-STRASSE OG CALG IMMOBILIEN LEASING GMBH & CO PROJEKT ACHT OG CALG IMMOBILIEN LEASING GMBH & CO PROJEKT FUNF OG CALG IMMOBILIEN LEASING GMBH & CO PROJEKT VIER OG CALG IMMOBILIEN LEASING GMBH & CO PROJEKT ZEHN OG CALG MINAL GRUNDSTUCKVERWALTUNG GMBH CAL-PAPIER INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG CAMERON GRANVILLE 2 ASSET MANAGEMENT INC CAMERON GRANVILLE 3 ASSET MANAGEMENT INC. CAMERON GRANVILLE ASSET MANAGEMENT (SPV-AMC), INC CDM CENTRALNY DOM MAKLERSKI PEKAO SA CEAKSCH VERWALTUNGS G.M.B.H. CHARADE LEASING GESELLSCHAFT M.B.H. CHEFREN LEASING GMBH CIVITAS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. CLOSED JOINT-STOCK COMPANY UNICREDIT SECURITIES CO.RI.T. S.P.A. IN LIQUIDAZIONE COFIRI S.P.A. IN LIQUIDAZIONE COMMUNA - LEASING GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT M.B.H. CONTRA LEASING-GESELLSCHAFT M.B.H. CORDUSIO SIM - ADVISORY & FAMILY OFFICE SPA CORDUSIO SOCIETA' FIDUCIARIA PER AZIONI COMPANIES BUDAPEST HUNGARY x x COMPANIES TAGUIG PHILIPPINES x x COMPANIES TAGUIG PHILIPPINES x x COMPANIES TAGUIG PHILIPPINES x x COMPANIES WARSAW POLAND x x COMPANIES MOSCOW RUSSIA x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES MILAN ITALY x x COMPANIES MILAN ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

51 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country DEBO LEASING IFN S.A. DINERS CLUB CEE HOLDING AG DINERS CLUB CS S.R.O. DINERS CLUB POLSKA SP.Z.O.O. DLV IMMOBILIEN LEASING GESELLSCHAFT M.B.H. DOM INWESTYCYJNY XELION SP. Z O.O. DUODEC Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EK MITTELSTANDSFINANZIERUNGS AG ENTASI SRL EUROFINANCE 2000 SRL EUROLEASE AMUN IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROLEASE ANUBIS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROLEASE ISIS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROLEASE MARDUK IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROLEASE RA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROLEASE RAMSES IMMOBILIEN LEASING GESELLSCHAFT M.B.H. EUROPA BEFEKTETESI ALAPKEZELOE ZRT (EUROPA INVESTMENT FUND MANAGEMENT LTD.) EUROPEAN-OFFICE-FONDS EUROVENTURES-AUSTRIA-CA-MANAGEMENT GESMBH EXPANDA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. FAMILY CREDIT NETWORK SPA FCT UCG TIKEHAU FINECO LEASING S.P.A. FINECO VERWALTUNG AG FMC LEASING INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG FMZ SAVARIA SZOLGALTATO KFT FMZ SIGMA PROJEKTENTWICKLUNGS GMBH FOLIA LEASING GESELLSCHAFT M.B.H. FUGATO LEASING GESELLSCHAFT M.B.H. G.N.E. GLOBAL GRUNDSTUCKSVERWERTUNG GESELLSCHAFT M.B.H. GALA GRUNDSTUCKVERWALTUNG GESELLSCHAFT M.B.H. COMPANIES BUCHAREST ROMANIA x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES MILAN ITALY x x COMPANIES PARIS FRANCE x x COMPANIES BRESCIA ITALY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x GBS GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT M.B.H. 51

52 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country GEBAUDELEASING GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT M.B.H. GEMEINDELEASING GRUNDSTUCKVERWALTUNG GESELLSCHAFT M.B.H. GRUNDSTUCKSVERWALTUNG LINZ-MITTE GMBH GUS CONSULTING GMBH GYOR BEVASARLOKOZPONT INGATLANBERUHAZO ES UZEMELTETO KORLATOLT FELELOSSEGU TAESASAG H.F.S. HYPO-FONDSBETEILIGUNGEN FUR SACHWERTE GMBH HERKU LEASING GESELLSCHAFT M.B.H. HOKA LEASING-GESELLSCHAFT M.B.H. HONEU LEASING GESELLSCHAFT M.B.H. HVB - LEASING PLUTO KFT HVB ALTERNATIVE ADVISORS LLC HVB ASIA LIMITED HVB ASSET LEASING LIMITED HVB ASSET MANAGEMENT HOLDING GMBH HVB AUTO LEASING EOOD HVB CAPITAL LLC HVB CAPITAL LLC II HVB CAPITAL LLC III HVB CAPITAL LLC VI HVB CAPITAL PARTNERS AG HVB EXPORT LEASING GMBH HVB FIERO LEASING EOOD HVB FINANCE LONDON LIMITED HVB FUNDING TRUST HVB FUNDING TRUST II HVB FUNDING TRUST III HVB GLOBAL ASSETS COMPANY (GP), LLC HVB GLOBAL ASSETS COMPANY L.P. HVB HONG KONG LIMITED HVB IMMOBILIEN AG HVB INVESTMENTS (UK) LIMITED HVB LEASING CZECH REPUBLIC S.R.O. HVB LEASING MAX INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES WILMINGTON U.S.A. x x COMPANIES SINGAPORE SINGAPORE x x COMPANIES LONDON UNITED KINGDOM x x COMPANIES SOFIA BULGARIA x x COMPANIES WILMINGTON U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES SOFIA BULGARIA x x COMPANIES LONDON UNITED KINGDOM x x COMPANIES WILMINGTON U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES DOVER U.S.A. x x COMPANIES DOVER U.S.A. x x COMPANIES HONG KONG CHINA x x COMPANIES GEORGE TOWN CAYMAN ISLAND x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUDAPEST HUNGARY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

53 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country HVB LEASING OOD HVB LONDON INVESTMENTS (AVON) LIMITED HVB LONDON INVESTMENTS (CAM) LIMITED HVB PRINCIPAL EQUITY GMBH HVB PROJEKT GMBH HVB REALTY CAPITAL INC. HVB SUPER LEASING EOOD HVB TECTA GMBH HVB VERWA 1 GMBH HVB VERWA 4 GMBH HVB VERWA 4.4 GMBH HVBFF INTERNATIONAL GREECE GMBH HVBFF INTERNATIONALE LEASING GMBH HVBFF OBJEKT BETEILIGUNGS GMBH HVBFF PRODUKTIONSHALLE GMBH I.L. HVB-LEASING AIDA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING ATLANTIS INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING DANTE INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING FIDELIO INGATLANHASNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING FORTE INGATLANHASNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING GARO KFT HVB-LEASING HAMLET INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING JUPITER KFT HVB-LEASING LAMOND INGATLANHASZNOSITO KFT. HVB-LEASING MAESTOSO INGATLANHASZNOSITO KFT. HVB-LEASING NANO KFT HVB-LEASING OTHELLO INGATLANHASNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING ROCCA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG HVB-LEASING RUBIN KFT. HVB-LEASING SMARAGD KFT. HVB-LEASING SPORT INGATLANHASZNOSITO KOLATPOT FEOEOASSEGU TARSASAG HVB-LEASING ZAFIR KFT. HYPOVEREINSFINANCE N.V. COMPANIES SOFIA BULGARIA x x COMPANIES COMPANIES LONDON LONDON UNITED KINGDOM x x UNITED KINGDOM x x COMPANIES NEW YORK U.S.A. x x COMPANIES SOFIA BULGARIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES AMSTERDAM NETHERLANDS x x 53

54 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country IMMOBILIENLEASING GRUNDSTUCKSVERWALTUNGS- GESELLSCHAFT M.B.H. INPROX CHOMUTOV, S.R.O. INPROX KLADNO, S.R.O. INPROX POPRAD, SPOL. S.R.O. INPROX SR I., SPOL. S R.O. INTERKONZUM DOO SARAJEVO INTERNATIONALES IMMOBILIEN-INSTITUT GMBH INTRO LEASING GESELLSCHAFT M.B.H. JAUSERN-LEASING GESELLSCHAFT M.B.H. KINABALU PRODUCTS LLP KINABALU SOLUTIONS LTD KUNSTHAUS LEASING GMBH KUTRA GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. LAGERMAX LEASING GMBH LAGEV IMMOBILIEN LEASING GESELLSCHAFT M.B.H. LARGO LEASING GESELLSCHAFT M.B.H. LEASFINANZ GMBH LEGATO LEASING GESELLSCHAFT M.B.H. LELEV IMMOBILIEN LEASING GESELLSCHAFT M.B.H. LF BETEILIGUNGEN GMBH LIFE MANAGEMENT ERSTE GMBH LIFE MANAGEMENT ZWEITE GMBH LIMITED LIABILITY COMPANY AI LINE LINO HOTEL-LEASING GMBH LIPARK LEASING GESELLSCHAFT M.B.H. LIVA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. LOCAT CROATIA DOO LOWES LIMITED IN LIQUIDATION LTD SI&C AMC UKRSOTS REAL ESTATE M. A. V. 7., BANK AUSTRIA LEASING BAUTRAGER GMBH & CO.OHG. M.A.I.L. FINANZBERATUNG GESELLSCHAFT M.B.H. MBC IMMOBILIEN LEASING GESELLSCHAFT M.B.H. MENUETT GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x COMPANIES COMPANIES LONDON LONDON UNITED KINGDOM x x UNITED KINGDOM x x COMPANIES GRUNWALD GERMANY x x COMPANIES MOSCOW RUSSIA x x COMPANIES ZAGREB CROATIA x x COMPANIES NICOSIA CYPRUS x x COMPANIES KIEV UKRAINE x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

55 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country MIK BETA INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG MIK INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG MM OMEGA PROJEKTENTWICKLUNGS GMBH MOBILITY CONCEPT GMBH MOGRA LEASING GESELLSCHAFT M.B.H. MOVIE MARKET BETEILIGUNGS GMBH NAGE LOKALVERMIETUNGSGESELLSCHAFT M.B.H. NATA IMMOBILIEN-LEASING GESELLSCHAFT M.B.H. NO. HYPO LEASING ASTRICTA GRUNDSTUCKVERMIETUNGS GESELLSCHAFT M.B.H. OCEAN BREEZE FINANCE S.A. - COMPARTMENT 1 OCT Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H OLG HANDELS- UND BETEILIGUNGSVERWALTUNGSGESELLSCHAFT M.B.H. OOO UNICREDIT LEASING ORESTOS IMMOBILIEN-VERWALTUNGS GMBH PARZHOF-ERRICHTUNGS- UND VERWERTUNGSGESELLSCHAFT M.B.H. PAZONYI'98 INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG PEKAO FAKTORING SP. ZOO PEKAO SERVICES SP. ZOO PEKAO FUNDUSZ KAPITALOWY SP. ZOO PEKAO LEASING HOLDING S.A. PEKAO LEASING SP ZO.O. PEKAO PIONEER P.T.E. SA PELOPS LEASING GESELLSCHAFT M.B.H. PESTSZENTIMREI SZAKORVOSI RENDELO KFT. PIANA LEASING GESELLSCHAFT M.B.H. PIONEER ALTERNATIVE INVESTMENT MANAGEMENT (BERMUDA) LIMITED PIONEER ALTERNATIVE INVESTMENT MANAGEMENT LTD PIONEER ALTERNATIVE INVESTMENT MANAGEMENT SGR PA PIONEER ALTERNATIVE INVESTMENTS (ISRAEL) LTD PIONEER ALTERNATIVE INVESTMENTS (NEW YORK) LTD PIONEER ASSET MANAGEMENT AS PIONEER ASSET MANAGEMENT S.A.I. S.A. PIONEER ASSET MANAGEMENT SA COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES OBERHACHING GERMANY x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES MOSCOW RUSSIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES LUBLIN POLAND x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES BUDAPEST HUNGARY x x COMPANIES HAMILTON BERMUDA x x COMPANIES DUBLIN IRELAND x x COMPANIES MILAN ITALY x x COMPANIES RAMAT GAN. ISRAEL x x COMPANIES DOVER U.S.A. x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUCHAREST ROMANIA x x COMPANIES LUXEMBOURG LUXEMBOURG x x 55

56 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country PIONEER FUNDS DISTRIBUTOR INC PIONEER GLOBAL ASSET MANAGEMENT SPA PIONEER GLOBAL FUNDS DISTRIBUTOR LTD PIONEER GLOBAL INVESTMENTS (AUSTRALIA) PTY LIMITED PIONEER GLOBAL INVESTMENTS (TAIWAN) LTD. PIONEER GLOBAL INVESTMENTS LIMITED PIONEER INSTITUTIONAL ASSET MANAGEMENT INC PIONEER INVESTMENT COMPANY AS PIONEER INVESTMENT FUND MANAGEMENT LIMITED PIONEER INVESTMENT MANAGEMENT INC PIONEER INVESTMENT MANAGEMENT LIMITED PIONEER INVESTMENT MANAGEMENT LLC PIONEER INVESTMENT MANAGEMENT SHAREHOLDER SERVICES INC. PIONEER INVESTMENT MANAGEMENT SOC. DI GESTIONE DEL RISPARMIO PER AZ PIONEER INVESTMENT MANAGEMENT USA INC. PIONEER INVESTMENTS AG PIONEER INVESTMENTS KAPITALANLAGEGESELLSCHAFT MBH PIONEER PEKAO INVESTMENT FUND COMPANY SA (POLISH NAME: PIONEER PEKAO TFI SA) PIONEER PEKAO INVESTMENT MANAGEMENT SA POLLUX IMMOBILIEN GMBH POSATO LEASING GESELLSCHAFT M.B.H. PRELUDE GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. PRIM Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. PRIVATE JOINT STOCK COMPANY FERROTRADE INTERNATIONAL PROJEKT-LEASE GRUNDSTUCKSVERWALTUNGS- GESELLSCHAFT M.B.H. QUADEC Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. QUART Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. QUINT Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H RAMSES IMMOBILIEN GESELLSCHAFT M.B.H. & CO OG REAL ESTATE MANAGEMENT POLAND SP. Z O.O. REAL INVEST IMMOBILIEN GMBH REAL-LEASE GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. REAL-RENT LEASING GESELLSCHAFT M.B.H. REDSTONE MORTGAGES LIMITED COMPANIES BOSTON U.S.A. x x COMPANIES MILAN ITALY x x COMPANIES HAMILTON BERMUDA x x COMPANIES SYDNEY AUSTRALIA x x COMPANIES TAIPEI TAIWAN x x COMPANIES DUBLIN IRELAND x x COMPANIES WILMINGTON U.S.A. x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUDAPEST HUNGARY x x COMPANIES WILMINGTON U.S.A. x x COMPANIES DUBLIN IRELAND x x COMPANIES MOSCOW RUSSIA x x COMPANIES BOSTON U.S.A. x x COMPANIES MILAN ITALY x x COMPANIES WILMINGTON U.S.A. x x COMPANIES BERN SWITZERLAND x x COMPANIES WARSAW POLAND x x COMPANIES WARSAW POLAND x x COMPANIES KIEV UKRAINE x x COMPANIES WARSAW POLAND x x COMPANIES LONDON UNITED KINGDOM x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

57 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country REGEV REALITATENVERWERTUNGSGESELLSCHAFT M.B.H. RIGEL IMMOBILIEN GMBH RONDO LEASING GMBH ROYSTON LEASING LIMITED RSB ANLAGENVERMIETUNG GESELLSCHAFT M.B.H. SCHOELLERBANK INVEST AG SECA-LEASING GESELLSCHAFT M.B.H. SEDEC Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. SEXT Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H SHS LEASING GMBH SIA UNICREDIT LEASING SIGMA LEASING GMBH SIRIUS IMMOBILIEN GMBH SOFIPA SOCIETA' DI GESTIONE DEL RISPARMIO (SGR) S.P.A. COMPANIES CAYMAN ISLANDS CAYMAN ISLAND x x COMPANIES SALZBURG AUSTRIA x x COMPANIES RIGA LATVIA x x COMPANIES MILAN ITALY x x SOLOS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. SIRIUS BETEILIGUNGS KG SONATA LEASING-GESELLSCHAFT M.B.H. SPECTRUM GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. STATUS VERMOGENSVERWALTUNG GMBH STEWE GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. STRUCTURED INVEST SOCIETE ANONYME STRUCTURED LEASE GMBH TERRONDA DEVELOPMENT B.V. TERZ Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. TREDEC Z IMMOBILIEN LEASING GESELLSCHAFT M.B.H. TREUCONSULT BETEILIGUNGSGESELLSCHAFT M.B.H. TREVI FINANCE N. 2 S.P.A. TREVI FINANCE N. 3 S.R.L. TREVI FINANCE S.P.A. TRINITRADE VERMOGENSVERWALTUNGS-GESELLSCHAFT MIT BESCHRANKTER HAFTUNG UCL NEKRETNINE D.O.O. UFFICIUM IMMOBILIEN LEASING GESELLSCHAFT M.B.H. UNICOM IMMOBILIEN LEASING GESELLSCHAFT M.B.H. UNICREDIT (CHINA) ADVISORY LIMITED COMPANIES SCHWERIN GERMANY x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES HAMBURG GERMANY x x COMPANIES AMSTERDAM NETHERLANDS x x COMPANIES COMPANIES COMPANIES CONEGLIANO (TREVISO) ITALY x x CONEGLIANO (TREVISO) ITALY x x CONEGLIANO (TREVISO) ITALY x x COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x COMPANIES BEIJING CHINA x x 57

58 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country UNICREDIT AURORA LEASING GMBH UNICREDIT AUTO LEASING E.O.O.D. UNICREDIT BETEILIGUNGS GMBH UNICREDIT BPC MORTGAGE S.R.L. UNICREDIT CAIB CZECH REPUBLIC A.S. UNICREDIT CAIB HUNGARY LTD UNICREDIT CAIB POLAND S.A. UNICREDIT CAIB ROMANIA SRL UNICREDIT CAIB SECURITIES ROMANIA SA UNICREDIT CAIB SECURITIES UK LTD. UNICREDIT CAIB SERBIA LTD. BELGRADE UNICREDIT CAIB SLOVAKIA A.S. UNICREDIT CAIB SLOVENIJA, D.O.O. UNICREDIT CAPITAL MARKETS LLC UNICREDIT CONSUMER FINANCING AD UNICREDIT CONSUMER FINANCING IFN S.A. UNICREDIT DELAWARE INC UNICREDIT FACTORING EAD UNICREDIT FACTORING SPA UNICREDIT FLEET MANAGEMENT S.R.O. UNICREDIT FLEET MANAGEMENT S.R.O. UNICREDIT GARAGEN ERRICHTUNG UND VERWERTUNG GMBH UNICREDIT GLOBAL LEASING EXPORT GMBH UNICREDIT GLOBAL LEASING PARTICIPATION MANAGEMENT GMBH UNICREDIT INGATLANLIZING ZRT UNICREDIT KFZ LEASING GMBH UNICREDIT LEASING (AUSTRIA) GMBH UNICREDIT LEASING AD UNICREDIT LEASING AVIATION GMBH UNICREDIT LEASING BAUTRAGER GMBH UNICREDIT LEASING CORPORATION IFN S.A. UNICREDIT LEASING CROATIA D.O.O. ZA LEASING UNICREDIT LEASING CZ, A.S. UNICREDIT LEASING D.O.O. COMPANIES SOFIA BULGARIA x x COMPANIES VERONA ITALY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BUDAPEST HUNGARY x x COMPANIES WARSAW POLAND x x COMPANIES BUCHAREST ROMANIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES LONDON UNITED KINGDOM x x COMPANIES BEOGRAD SERBIA x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES NEW YORK U.S.A. x x COMPANIES SOFIA BULGARIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES DOVER U.S.A. x x COMPANIES SOFIA BULGARIA x x COMPANIES MILAN ITALY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES SOFIA BULGARIA x x COMPANIES HAMBURG GERMANY x x COMPANIES BUCHAREST ROMANIA x x COMPANIES ZAGREB CROATIA x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

59 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country UNICREDIT LEASING FLEET MANAGEMENT S.R.L. UNICREDIT LEASING GMBH UNICREDIT LEASING HUNGARY ZRT UNICREDIT LEASING IMMOTRUCK ZRT. UNICREDIT LEASING KFT UNICREDIT LEASING LUNA KFT UNICREDIT LEASING MARS KFT UNICREDIT LEASING REAL ESTATE S.R.O. UNICREDIT LEASING ROMANIA S.A. UNICREDIT LEASING S.P.A. UNICREDIT LEASING SLOVAKIA A.S. UNICREDIT LEASING SRBIJA D.O.O. BEOGRAD UNICREDIT LEASING TECHNIKUM GMBH UNICREDIT LEASING TOB UNICREDIT LEASING URANUS KFT UNICREDIT LEASING, LEASING, D.O.O. UNICREDIT LONDON INVESTMENTS LIMITED UNICREDIT LUNA LEASING GMBH UNICREDIT LUXEMBOURG FINANCE SA UNICREDIT MERCHANT S.P.A. UNICREDIT MOBILIEN LEASING GMBH UNICREDIT OBG S.R.L. UNICREDIT PEGASUS LEASING GMBH UNICREDIT POLARIS LEASING GMBH UNICREDIT RENT D.O.O. BEOGRAD UNICREDIT SECURITIES INTERNATIONAL LIMITED IN LIQUIDATION UNICREDIT TECHRENT LEASING GMBH UNICREDIT U.S. FINANCE LLC UNICREDIT ZEGA LEASING-GESELLSCHAFT M.B.H. UNICREDIT-LEASING HOMONNA INGATLNHASZNOSITO KFT UNICREDIT-LEASING HOSPES KFT COMPANIES BUCHAREST ROMANIA x x COMPANIES HAMBURG GERMANY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES BOLOGNA ITALY x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BEOGRAD SERBIA x x COMPANIES KIEV UKRAINE x x COMPANIES BUDAPEST HUNGARY x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES LONDON UNITED KINGDOM x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES ROME ITALY x x COMPANIES VERONA ITALY x x COMPANIES BEOGRAD SERBIA x x COMPANIES NICOSIA CYPRUS x x COMPANIES WILMINGTON U.S.A. x x COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x UNICREDIT-LEASING MIDAS INGATLANHASZNOSITO KARLATOLT FELELOSSEGU TARSASAG UNICREDIT-LEASING NEPTUNUS KFT COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x 59

60 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country UNICREDIT-LEASING ORION INGATLANHASZNOSITO KORLATOLT FELELOSSEGU TARSASAG UNICREDIT-LEASING SATURNUS KFT UNICREDITO ITALIANO CAPITAL TRUST III UNICREDITO ITALIANO CAPITAL TRUST IV UNICREDITO ITALIANO FUNDING LLC III UNICREDITO ITALIANO FUNDING LLC IV US PROPERTY INVESTMENTS INC. VANDERBILT CAPITAL ADVISORS LLC VAPE COMMUNA LEASINGGESELLSCHAFT M.B.H. VERBA VERWALTUNGSGESELLSCHAFT MBH WEALTH MANAGEMENT CAPITAL HOLDING GMBH WEALTHCAP EQUITY GMBH WEALTHCAP FONDS GMBH WEALTHCAP INITIATOREN GMBH WEALTHCAP INVESTORENBETREUUNG GMBH WEALTHCAP PEIA KOMPLEMENTAR GMBH WEALTHCAP PEIA MANAGEMENT GMBH WEALTHCAP REAL ESTATE MANAGEMENT GMBH WEALTHCAP STIFTUNGSTREUHAND GMBH WOM GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. Z LEASING ALFA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING ARKTUR IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING AURIGA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING CORVUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING DORADO IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING DRACO IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING GAMA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING GEMINI IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING HEBE IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING HERCULES IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING IPSILON IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING ITA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING JANUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. COMPANIES BUDAPEST HUNGARY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES NEWARK U.S.A. x x COMPANIES NEWARK U.S.A. x x COMPANIES DELAWARE U.S.A. x x COMPANIES DELAWARE U.S.A. x x COMPANIES DALLAS U.S.A. x x COMPANIES WILMINGTON U.S.A. x x COMPANIES GRUNWALD GERMANY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

61 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country Z LEASING KALLISTO IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING KAPA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING LYRA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING NEREIDE IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING OMEGA IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING PERSEUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING SCORPIUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING TAURUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING VENUS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. Z LEASING VOLANS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. ZAO LOCAT LEASING RUSSIA ZB INVEST DOO ATF INKASSATSIYA LTD BA BETRIEBSOBJEKTE GMBH BA BETRIEBSOBJEKTE GMBH & CO BETA VERMIETUNGS OG BA BETRIEBSOBJEKTE PRAHA, SPOL.S.R.O. BA GVG-HOLDING GMBH BA PRIVATE EQUITY GMBH BALEA SOFT GMBH & CO. KG BALEA SOFT VERWALTUNGSGESELLSCHAFT MBH BIL LEASING-FONDS VERWALTUNGS-GMBH CENTRUM BANKOWOSCI BEZPOSREDNIEJ SPOLKA Z OGRANICZONA ODPOWIEDZIALNOSC CENTRUM KART SA COMPANIES MOSCOW RUSSIA x x COMPANIES ZAGREB CROATIA x x ANCILLARY BANKING SERVICES COMPANIES ALMATY CITY KAZAKISTAN x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES PRAHA CZECH REPUBLIC x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES HAMBURG GERMANY x x ANCILLARY BANKING SERVICES COMPANIES HAMBURG GERMANY x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES CRACOW POLAND x x ANCILLARY BANKING SERVICES COMPANIES WARSAW POLAND x x 61

62 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country DOMUS CLEAN REINIGUNGS GMBH DOMUS FACILITY MANAGEMENT GMBH EUROPA FACILITY MANAGEMENT LTD. FOOD & MORE GMBH GRUNDSTUCKSGESELLSCHAFT SIMON BESCHRANKT HAFTENDE KOMMANDITGESELLSCHAF HUMAN RESOURCES SERVICE AND DEVELOPMENT GMBH HVB GESELLSCHAFT FUR GEBAUDE BETEILIGUNGS GMBH HVB GESELLSCHAFT FUR GEBAUDE MBH & CO KG HVB SECUR GMBH HVZ GMBH & CO. OBJEKT KG HYPO-BANK VERWALTUNGSZENTRUM GMBH HYPOVEREINS IMMOBILIEN EOOD IMMOBILIEN RATING GMBH KLEA ZS-IMMOBILIENVERMIETUNG G.M.B.H. KLEA ZS-LIEGENSCHAFTSVERMIETUNG G.M.B.H. LASSALLESTRASSE BAU-, PLANUNGS-, ERRICHTUNGS- UND VERWERTUNGSGESELLSCHAFT M.B.H. LOCALMIND SPA ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES BUDAPEST HUNGARY x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES SOFIA BULGARIA x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES MILAN ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

63 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country MERKURHOF GRUNDSTUCKSGESELLSCHAFT MIT BESCHRANKTER HAFTUNG PALAIS ROTHSCHILD VERMIETUNGS GMBH & CO OG POMINVEST DD PORTIA GRUNDSTUCKS-VERWALTUNGSGESELLSCHAFT MBH & CO. OBJEKT KG PORTIA GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT MIT BESCHRANKTER HAFTUNG PROPERTY SP. Z.O.O. (IN LIQUIDAZIONE) SALVATORPLATZ-GRUNDSTUCKSGESELLSCHAFT MBH SALVATORPLATZ-GRUNDSTUCKSGESELLSCHAFT MBH & CO. OHG SAARLAND SALVATORPLATZ-GRUNDSTUCKSGESELLSCHAFT MBH & CO. OHG VERWALTUNGSZENTRUM SAS-REAL INGATLANUEZEMELTETO ES KEZELO KFT (ENGL ISH :SAS-REAL KFT) SOCIETA' ITALIANA GESTIONE ED INCASSO CREDITI S.P.A. IN LIQUIDAZIONE SOFIGERE SOCIETE PAR ACTIONS SIMPLIFIEE SUVREMENE POSILOVNE KOMUNIKACIJE D.O.O TIVOLI GRUNDSTUCKS-AKTIENGESELLSCHAFT UNI IT SRL UNICREDIT AUDIT SOCIETA' CONSORTILE PER AZIONI UNICREDIT BUSINESS INTEGRATED SOLUTIONS AUSTRIA GMBH ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES SPLIT CROATIA x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES WARSAW POLAND x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES BUDAPEST HUNGARY x x ANCILLARY BANKING SERVICES COMPANIES ROME ITALY x x ANCILLARY BANKING SERVICES COMPANIES PARIS FRANCE x x ANCILLARY BANKING SERVICES COMPANIES ZAGREB CROATIA x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES TRENTO ITALY x x ANCILLARY BANKING SERVICES COMPANIES MILAN ITALY x x ANCILLARY BANKING SERVICES 63

64 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country UNICREDIT BUSINESS INTEGRATED SOLUTIONS SOCIETA CONSORTILE PER AZIONI UNICREDIT BUSINESS PARTNER S.R.O. UNICREDIT CREDIT MANAGEMENT IMMOBILIARE S.P.A. UNICREDIT DIRECT SERVICES GMBH UNICREDIT GLOBAL BUSINESS SERVICES GMBH UNIMANAGEMENT SCRL VERWALTUNGSGESELLSCHAFT KATHARINENHOF MBH ZAGREB NEKRETNINE DOO ZANE BH DOO ALTUS ALPHA PLC BA IMMO GEWINNSCHEIN FONDS1 BANDON LEASING LTD. EUROPE REAL-ESTATE INVESTMENT FUND GEMMA VERWALTUNGSGESELLSCHAFT MBH & CO. VERMIETUNGS KG H.F.S. LEASINGFONDS DEUTSCHLAND 1 GMBH & CO. KG (IMMOBILIENLEASING) H.F.S. LEASINGFONDS DEUTSCHLAND 7 GMBH & CO. KG MOC VERWALTUNGS GMBH & CO. IMMOBILIEN KG OCEAN BREEZE ENERGY GMBH & CO. KG SVIF UKRSOTSBUD THE TRANS VALUE TRUST COMPANY LTD ANCILLARY BANKING SERVICES COMPANIES MILAN ITALY x x ANCILLARY BANKING SERVICES COMPANIES PRAHA CZECH REPUBLIC x x ANCILLARY BANKING SERVICES COMPANIES VERONA ITALY x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES UNTERFOHRING GERMANY x x ANCILLARY BANKING SERVICES COMPANIES TURIN ITALY x x ANCILLARY BANKING SERVICES ANCILLARY BANKING SERVICES COMPANIES ZAGREB CROATIA x x ANCILLARY BANKING SERVICES COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x COMPANIES SPV DUBLIN IRELAND x x COMPANIES SPV VIENNA AUSTRIA x x COMPANIES SPV DUBLIN IRELAND x x COMPANIES SPV BUDAPEST HUNGARY x x COMPANIES SPV PULLACH GERMANY x x COMPANIES SPV MUNICH GERMANY x x COMPANIES SPV MUNICH GERMANY x x COMPANIES SPV MUNICH GERMANY x x COMPANIES SPV MUNICH GERMANY x x COMPANIES SPV KIEV UKRAINE x x COMPANIES SPV TOKYO JAPAN x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

65 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country YAPI KREDI BANK AZERBAIJAN CLOSED JOINT STOCK COMPANY BANKS BAKU AZERBAIJAN x x YAPI KREDI BANK MOSCOW BANKS MOSCOW RUSSIA x x YAPI KREDI BANK NEDERLAND N.V. BANKS AMSTERDAM NETHERLANDS x x YAPI KREDI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY BANKS GEORGE TOWN CAYMAN ISLAND x x YAPI VE KREDI BANKASI AS BANKS ISTANBUL TURKEY x x BA HYPO FINANCIRANJE D.O.O. ZA POSLOVANJE NEKRET- NINAMA EUROLEASE FINANCE, D.O.O. FIDES LEASING GMBH HYBA NEKRETNINE D.O.O. ZA POSLOVANJE NEKRTNINAMA HYPO-BA LEASING SUD GMBH HYPO-BA PROJEKT, FINANCIRANJE D.O.O. HYPO-BA ZAGREB D.O.O. ZA POSLOVANJE NEKRETNINAMA INPROX LEASING, NEPREMICNINE, D.O.O. INPROX OSIJEK D.O.O. KOC FINANSAL HIZMETLER AS MONTREAL NEKRETNINE D.O.O. ORBIT ASSET MANAGEMENT LIMITED RCI SERVICES S.R.O. STICHTING CUSTODY SERVICES YKB SYNERGA NEKRETNINE D.O.O. ZA POSLOVANJE NEKRETNIN- AMA UNICREDIT MENKUL DEGERLER AS YAPI KREDI B TIPI YATIRIM ORTAKLIGI A.S. YAPI KREDI FAKTORING AS YAPI KREDI FINANSAL KIRALAMA AO YAPI KREDI HOLDING BV YAPI KREDI INVEST LIMITED LIABILITY COMPANY YAPI KREDI PORTFOEY YOENETIMI AS YAPI KREDI YATIRIM MENKUL DEGERLER AS COMPANIES ZAGREB CROATIA x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES ZAGREB CROATIA x x COMPANIES KLAGENFURT AUSTRIA x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES ZAGREB CROATIA x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES ZAGREB CROATIA x x COMPANIES ISTANBUL TURKEY x x COMPANIES ZAGREB CROATIA x x COMPANIES HAMILTON BERMUDA x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES AMSTERDAM NETHERLANDS x x COMPANIES ZAGREB CROATIA x x COMPANIES ISTANBUL TURKEY x x COMPANIES ISTANBUL TURKEY x x COMPANIES ISTANBUL TURKEY x x COMPANIES ISTANBUL TURKEY x x COMPANIES AMSTERDAM NETHERLANDS x x COMPANIES BAKU AZERBAIJAN x x COMPANIES ISTANBUL TURKEY x x COMPANIES ISTANBUL TURKEY x x MEDIOBANCA BANCA DI CREDITO FINANZIARIO SPA BANKS MILAN ITALY x x A&T-PROJEKTENTWICKLUNGS GMBH & CO. POTSDAMER PLATZ BERLIN KG ACIS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. OBERBAUM CITY KG ACIS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. PARKKOLONNADEN KG ACIS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. STUTTGART KRONPRINZSTRASSE KG ADLER FUNDING LLC AGROB IMMOBILIEN AG COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES DOVER U.S.A. x x COMPANIES ISMANING GERMANY x x 65

66 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country ANGER MACHINING GMBH ANTUS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH ARGENTAURUS IMMOBILIEN-VERMIETUNGS- UND VERWALTUNGS GMBH ARRONDA IMMOBILIENVERWALTUNGS GMBH ARTIST MARKETING ENTERTAINMENT GMBH ATLANTERRA IMMOBILIENVERWALTUNGS GMBH AUFBAU DRESDEN GMBH AWT HANDELS GESELLSCHAFT M.B.H. AWT INTERNATIONAL TRADE GMBH BA GEBAEUDEVERMIETUNGSGMBH BA-CA INFRASTRUCTURE FINANCE ADVISORY GMBH BA-CA WIEN MITTE HOLDING GMBH BANK AUSTRIA IMMOBILIENSERVICE GMBH BDK CONSULTING BIL IMMOBILIEN FONDS GMBH & CO OBJEKT PERLACH KG BLUE CAPITAL EQUITY MANAGEMENT GMBH BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. ACHTE OBJEKTE GROSSBRITANNIEN KG BLUVACANZE SPA BORGO DI PEROLLA SRL BV GRUNDSTUCKSENTWICKLUNGS-GMBH & CO. VERWALTUNGS-KG CA IMMOBILIEN ANLAGEN AKTIENGESELLSCHAFT CAMPO DI FIORI SAS CARDS & SYSTEMS EDV-DIENSTLEISTUNGS GMBH CASH SERVICE COMPANY AD CBD INTERNATIONAL SP.ZO.O. CENTAR KAPTOL DOO CENTER HEINRICH-COLLIN-STRASSE1 VERMIETUNGS GMBH U.CO KG COMPANIES TRAUN AUSTRIA x x COMPANIES LUCK UKRAINE x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES MILAN ITALY x x COMPANIES MASSA MARITTIMA (GROSSETO) ITALY x x COMPANIES ROME ITALY x x COMPANIES SOFIA BULGARIA x x COMPANIES WARSAW POLAND x x COMPANIES ZAGREB CROATIA x x CHIYODA FUDOSAN GK CHRISTOPH REISEGGER GESELLSCHAFT M.B.H. COM.P.I.S. - COMPAGNIA PETROLIFERA ITALIA SUD SOCIETA' A RESPONSABILITA' LIMITATA COMPAGNIA FONDIARIA ROMANA (C.F.R.) SRL COMPAGNIA ITALPETROLI S.P.A. COMTRADE GROUP B.V. COMPANIES SPV TOKYO JAPAN x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES AMSTERDAM NETHERLANDS x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

67 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country CONSORZIO SE.TEL. SERVIZI TELEMATICI IN LIQUIDAZIONE CRIVELLI SRL CUMTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH DA VINCI S.R.L. DBC SP.Z O.O. DC ELEKTRONISCHE ZAHLUNGSSYSTEME GMBH COMPANIES NAPLES ITALY x x COMPANIES MILAN ITALY x x COMPANIES ROME ITALY x x COMPANIES WARSAW POLAND x x DELPHA IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. GROSSKUGEL BAUABSCHNITT ALPHA MANAGEMENT KG DELPHA IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. GROSSKUGEL BAUABSCHNITT BETA MANAGEMENT KG DELPHA IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH & CO. GROSSKUGEL BAUABSCHNITT GAMMA MANAGEMENT KG DIRANA LIEGENSCHAFTSVERWERTUNGSGESELLSCHAFT M.B.H. ENDERLEIN & CO. GMBH ERSTE ONSHORE WINDKRAFT BETEILIGUNGSGESELLSCHAFT MBH & CO. WINDPARK GREFRATH KG ERSTE ONSHORE WINDKRAFT BETEILIGUNGSGESELLSCHAFT MBH & CO. WINDPARK KRAHENBERG KG ERSTE ONSHORE WINDKRAFT BETEILIGUNGSGESELLSCHAFT MBH & CO. WINDPARK MOSE KG ESPERTI IN MEDIAZIONE SRL FONDIARIA LASA SPA FORSTINGER INTERNATIONAL GMBH FORUM POLSKIEGO BIZNESU MEDIA SP.Z O.O. GIMMO IMMOBILIEN-VERMIETUNGS- UND VERWALTUNGS GMBH GOLF- UND COUNTRY CLUB SEDDINER SEE IMMOBILIEN GMBH GRUNDSTUCKSAKTIENGESELLSCHAFT AM POTSDAMER PLATZ (HAUS VATERLAND) H & B IMMOBILIEN GMBH & CO. OBJEKTE KG H.F.S. IMMOBILIENFONDS GMBH HAWA GRUNDSTUCKS GMBH & CO. OHG HOTELVERWALTUNG HAWA GRUNDSTUCKS GMBH & CO. OHG IMMOBILIENVERWALTUNG HOLDING SP. Z.O.O. (IN LIQUIDATION) HVB EXPERTISE GMBH HVB LIFE SCIENCE GMBH & CO. BETEILIGUNGS-KG HVB PROFIL GESELLSCHAFT FUR PERSONALMANAGEMENT MBH COMPANIES BIELEFELD GERMANY x x COMPANIES OLDENBURG GERMANY x x COMPANIES OLDENBURG GERMANY x x COMPANIES OLDENBURG GERMANY x x COMPANIES VERONA ITALY x x COMPANIES ROME ITALY x x COMPANIES WARSAW POLAND x x COMPANIES EBERSBERG GERMANY x x COMPANIES WARSAW POLAND x x 67

68 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country HYPO-BANK VERWALTUNGSZENTRUM GMBH & CO. KG OBJEKT ARABELLASTRASSE HYPO-REAL HAUS- UND GRUNDBESITZ GESELLSCHAFT MBH & CO. IMMOBILIEN-VERMIETUNGS KG I-FABER SPA IMMOBILIARE PATETTA SRL IMMOBILIARE TABACCAIA SRL INFISSER SRL INTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH IPG-INDUSTRIEPARK GYOR PROJEKTIERUNGSGESELLSCHAFT M.B.H. IPSE 2000 S.P.A. (IN LIQUIDAZIONE) ISB UNIVERSALE BAU GMBH ISTRA D.M.C. DOO ISTRATURIST UMAG, HOTELIJERSTVO TURIZAM I TURISTICKA AGENCIJA DD IVONA BETEILIGUNGSVERWALTUNG GMBH JANA KAZIMIERZA DEVELOPMENT SP.Z.O.O. JOHA GEBAEUDE- ERRICHTUNGS- UND VERMIETUNGS- GESELLSCHAFT M.B.H. KAISERWASSER BAU- UND ERRICHTUNGS GMBH UND CO OG KELLER CROSSING L.P. KSG KARTEN-VERRECHNUNGS- UND SERVICEGESELLSCHAFT M.B.H. LIFE SCIENCE I BETEILIGUNGS GMBH LLC UKROTSBUD M.A.I.L. BETEILIGUNGSMANAGEMENT GESELLSCHAFT M.B.H. & CO. MCL THETA KG MARINA CITY ENTWICKLUNGS GMBH MARINA TOWER HOLDING GMBH MARTIANEZ COMERCIAL, SOCIEDAD ANONIMA MARTUR SUNGER VE KOLTUK TESISLERI TICARET VE SANAYI A. S. MC MARKETING GMBH MC RETAIL GMBH MERIDIONALE PETROLI SRL METROPOLIS SP. ZO.O. MILLETERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH MULTIPLUS CARD D.O.O. ZA PROMIDZBU I USLUGE MY BETEILIGUNGS GMBH NEEP ROMA HOLDING SPA COMPANIES MILAN ITALY x x COMPANIES ROME ITALY x x COMPANIES MASSA MARITTIMA (GROSSETO) ITALY x x COMPANIES ROME ITALY x x COMPANIES GERASDORF AUSTRIA x x COMPANIES ROME ITALY x x COMPANIES BRANDEBURGO GERMANY x x COMPANIES UMAG CROATIA x x COMPANIES UMAG CROATIA x x COMPANIES WARSAW POLAND x x COMPANIES LEONDING AUSTRIA x x COMPANIES WILMINGTON U.S.A. x x COMPANIES KIEV UKRAINE x x COMPANIES PUERTO DE LA CRUZ SPAIN x x COMPANIES ISTANBUL TURKEY x x COMPANIES VIBO VALENTIA ITALY x x COMPANIES WARSAW POLAND x x COMPANIES ZAGREB CROATIA x x COMPANIES ROME ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

69 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country NF OBJEKT FFM GMBH NF OBJEKT MUNCHEN GMBH NF OBJEKTE BERLIN GMBH NXP CO-INVESTMENT PARTNERS VIII L.P. OESTERREICHISCHE WERTPAPIERDATEN SERVICE GMBH OMNIA GRUNDSTUCKS-GMBH & CO. OBJEKT EGGENFELDENER STRASSE KG OMNIA GRUNDSTUCKS-GMBH & CO. OBJEKT HAIDENAUPLATZ KG OTHMARSCHEN PARK HAMBURG GMBH & CO. CENTERPARK KG OTHMARSCHEN PARK HAMBURG GMBH & CO. GEWERBEPARK KG PAPCEL A.S. PEKAO PROPERTY SA PEKAO TELECENTRUM SP. ZOO PETROLI INVESTIMENTI SPA PIRELLI PEKAO REAL ESTATE SP. Z O.O. PLANETHOME AG PLANETHOME GMBH RANA-LIEGENSCHAFTSVERWERTUNG GMBH RHOTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH ROMA 2000 SRL RONCASA IMMOBILIEN-VERWALTUNGS GMBH S.I.P.I.C. - SOCIETA' INDUSTRIALE PETROLIFERA ITALIA CENTRALE SRL SANITA' - S.R.L. IN LIQUIDAZIONE SANTA ROSA SAS SELFOSS BETEILIGUNGSGESELLSCHAFT MBH SIA SPA SIMON VERWALTUNGS-AKTIENGESELLSCHAFT I.L. SIRIUS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH SOCIETA ' SPORTIVA TORREVECCHIA SRL SOCIETA' BENI CULTURALI A R.L. SOCIETA' DEPOSITI COSTIERI - SO.DE.CO. SRL SOCIETA' GESTIONE PER IL REALIZZO SPA IN LIQUIDAZIONE SOCIETA' PETROLIFERA GIOIA TAURO SRL SOCIETA' VERONESE GESTIONE COMPRAVENDITA IMMOBILI A R.L. SOLARIS VERWALTUNGSGESELLSCHAFT MBH & CO. VERMIETUNGS KG COMPANIES LONDON UNITED KINGDOM x x COMPANIES LITOVEL CZECH REPUBLIC x x COMPANIES WARSAW POLAND x x COMPANIES CRACOW POLAND x x COMPANIES CIVITAVECCHIA (ROME) ITALY x x COMPANIES WARSAW POLAND x x COMPANIES UNTERFOHRING GERMANY x x COMPANIES MANNHEIM GERMANY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES GRUNWALD GERMANY x x COMPANIES MILAN ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES REGGIO CALABRIA ITALY x x COMPANIES ROME ITALY x x 69

70 Full Proportional At Equity (RWA) Full Proportional At Equity Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country SP PROJEKTENTWICKLUNG SCHOENEFELD GMBH & CO.KG SPREE GALERIE HOTELBETRIEBSGESELLSCHAFT MBH SVILUPPO GLOBALE GEIE SW HOLDING SPA T & P FRANKFURT DEVELOPMENT B.V. T & P VASTGOED STUTTGART B.V. TERRENO GRUNDSTUCKSVERWALTUNG GMBH & CO. ENTWICKLUNGS- UND FINANZIERUNGSVERMITTLUNGS-KG TRANSTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH TRICASA GRUNDBESITZ GESELLSCHAFT MBH & CO. 1. VERMIETUNGS KG TRICASA GRUNDBESITZGESELLSCHAFT DES BURGERLICHEN RECHTS NR. 1 TRIESTE ADRIATIC MARITIME INITIATIVES SRL UCTAM BALTICS SIA UCTAM BULGARIA EOOD UCTAM D.O.O. BEOGRAD UCTAM RK LIMITED LIABILITY COMPANY UCTAM RO S.R.L. UCTAM RU LIMITED LIABILITY COMPANY UCTAM UKRAINE LLC UCTAM UPRAVLJANJE D.O.O. UNI GEBAEUDEMANAGEMENT GMBH UNICREDIT LEASING FUHRPARKMANAGEMENT GMBH UNICREDIT LOGISTICS SRL UNICREDIT TURN-AROUND MANAGEMENT CEE GMBH UNICREDIT TURN-AROUND MANAGEMENT GMBH UNIVERSALE INTERNATIONAL REALITAETEN GMBH V.A. HOLDING GMBH V.M.G. VERMIETUNGSGESELLSCHAFT MBH VIENNA DC BAUTRAEGER GMBH VIENNA DC TOWER 1 LIEGENSCHAFTSBESITZ GMBH VIENNA DC TOWER 2 LIEGENSCHAFTSBESITZ GMBH VILLINO PACELLI SRL VUWB INVESTMENTS INC. WEALTH CAPITAL INVESTMENT INC. COMPANIES STUTTGART GERMANY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES AMSTERDAM NETHERLANDS x x COMPANIES AMSTERDAM NETHERLANDS x x COMPANIES TRIESTE ITALY x x COMPANIES RIGA LATVIA x x COMPANIES SOFIA BULGARIA x x COMPANIES BEOGRAD SERBIA x x COMPANIES ALMATY CITY KAZAKISTAN x x COMPANIES BUCHAREST ROMANIA x x COMPANIES MOSCOW RUSSIA x x COMPANIES KIEV UKRAINE x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES LINZ AUSTRIA x x COMPANIES VERONA ITALY x x COMPANIES ROME ITALY x x COMPANIES ATLANTA U.S.A. x x COMPANIES WILMINGTON U.S.A. x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

71 Full Proportional At Equity (RWA) Full Proportional At Equity >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Consolidation Treatment IAS/IFRS Consolidation Company Name Type Town Country WEALTHCAP USA IMMOBILIEN VERWALTUNGS GMBH WED DONAU-CITY GESELLSCHAFT M.B.H. WED HOLDING GESELLSCHAFT M.B.H. WED WIENER ENTWICKLUNGSGESELLSCHAFT FUER DEN DONAURAUM AKTIENGESELLSCHAFT WIEN MITTE IMMOBILIEN GMBH ZAPADNI TRGOVACKI CENTAR D.O.O. ZETA FUENF HANDELS GMBH COMPANIES RIJEKA CROATIA x x 71

72 Deductions from capital RWA Full Proportional At Equity Cost AFS Entities deducted from capital as at June 30, 2012 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type Town Country AIRPLUS AIR TRAVEL CARD VERTRIEBSGESELLSCHAFT M.B.H. BANKS VIENNA AUSTRIA x x AKA AUSFUHRKREDIT-GESELLSCHAFT MBH BANKS FRANKFURT GERMANY x x BANCA D' ITALIA BANKS ROME ITALY x x BANCA IMPRESA LAZIO S.P.A. BANKS ROME ITALY x x BANCA UBAE S.P.A. BANKS ROME ITALY x x BANK FUER TIROL UND VORARLBERG AKTIENGESELLSCHAFT BANKS INNSBRUCK AUSTRIA x x BANK OF VALLETTA PLC BANKS LA VALLETTA MALTA x x BANQUE DE COMMERCE ET DE PLACEMENTS SA BANKS GENEVA SWITZERLAND x x BGG BAYERISCHE GARANTIEGESELLSCHAFT MBH FUR MITTELSTANDISCHE BETEILIGUNGEN BANKS MUNICH GERMANY x x BKS BANK AG BANKS KLAGENFURT AUSTRIA x x BURGSCHAFTSGEMEINSCHAFT HAMBURG GMBH BANKS HAMBURG GERMANY x x ISTITUTO PER IL CREDITO SPORTIVO EDP BANKS ROME ITALY x x KREDITGARANTIEGEMEINSCHAFT DES BAYERISCHEN HANDWERKS GMBH BANKS MUNICH GERMANY x x KREDITGARANTIEGEMEINSCHAFT DES HOTEL- UND GASTSTATTENGEWERBES IN BAYERN GMBH BANKS MUNICH GERMANY x x NOTARTREUHANDBANK AG BANKS VIENNA AUSTRIA x x OBERBANK AG BANKS LINZ AUSTRIA x x OESTERREICHISCHE HOTEL- UND TOURISMUSBANK GESELLSCHAFT M.B.H. BANKS VIENNA AUSTRIA x x OESTERREICHISCHE KONTROLLBANK AKTIENGESELLSCHAFT BANKS VIENNA AUSTRIA x x PAYLIFE BANK GMBH BANKS VIENNA AUSTRIA x x ADF SERVICE GMBH ALLIANZ ZB D.O.O. DRUSTVO ZA UPRAVLJANJIE DOBROVOLJNIM MIROVINSKIM FONDOM ALLIANZ ZB D.O.O. DRUSTVO ZA UPRAVLJANJIE OBVEZNIM MIROVINSKIM FONDOM BACA INVESTOR BETEILIGUNGS GMBH BA-CA LEASING VERSICHERUNGSSERVICE GMBH BANK AUSTRIA LEASING - IMMORENT IMMOBILIENLEASING GMBH BANK AUSTRIA-CEE BETEILIGUNGSGMBH BIURO INFORMACJI KREDYTOWEJ SA BORICA-BANKSERVICE AD BTG BETEILIGUNGSGESELLSCHAFT HAMBURG MBH BWA BETEILIGUNGS- UND VERWALTUNGS- AKTIENGESELLSCHAFT CAFU VERMOEGENSVERWALTUNG GMBH CALG 435 GRUNDSTUCKVERWALTUNG GMBH CENTRAL POLAND FUND LLC CHINA INVESTMENT INCORPORATIONS (BVI) LTD. CREDIFARMA SPA COMPANIES ZAGREB CROATIA x x COMPANIES ZAGREB CROATIA x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES WARSAW POLAND x x COMPANIES SOFIA BULGARIA x x COMPANIES HAMBURG GERMANY x x COMPANIES SALZBURG AUSTRIA x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES DELAWARE U.S.A. x x COMPANIES TORTOLA VIRGIN BRITISH ISLANDS x x COMPANIES ROME ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

73 Deductions from capital RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type Town Country DIL CZECH LEASING JIHLAVA S.R.O. EUROPROGETTI & FINANZA S.P.A. IN LIQUIDAZIONE EUROTLX SIM SPA F2I SGR SPA - FONDI ITALIANI PER LE INFRASTRUTTURE SOCIETA DI GESTIONE FIDIA SGR SPA FIRST SHIP LEASE LTD. FONDO ITALIANO D'INVESTIMENTO SGR SPA G.B.S. - GENERAL BROKER SERVICE S.P.A. GLS (GP) LIMITED HVB LONDON TRADING LTD. KAPITAL-BETEILIGUNGS AKTIENGESELLSCHAFT KRAJOWA IZBA ROZLICZENIOWA SA KREDI KAYIT BUEROSU AS LLC UKRSOTSFINANCE LNC (SPV-AMC) CORP LNC INVESTMENT HOLDING INC MACCORP ITALIANA SPA MEZZANIN CORPORATE FINANCE UNTERNEHMENSBERATUNG GMBH OAK RIDGE INVESTMENT LLC COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES ROME ITALY x x COMPANIES MILAN ITALY x x COMPANIES MILAN ITALY x x COMPANIES MILAN ITALY x x COMPANIES SINGAPORE SINGAPORE x x COMPANIES MILAN ITALY x x COMPANIES ROME ITALY x x COMPANIES ST. PETER PORT GUERNSEY x x COMPANIES (*) LONDON UNITED KINGDOM x x COMPANIES WARSAW POLAND x x COMPANIES ISTANBUL TURKEY x x COMPANIES (*) KIEV UKRAINE x x COMPANIES TAGUIG PHILIPPINES x x COMPANIES TAGUIG PHILIPPINES x x COMPANIES MILAN ITALY x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES WILMINGTON U.S.A. x x OBEROESTERREICHISCHE UNTERNEHMENSBETEILIGUNGSGESELLSCHAFT M.B.H. OOE HIGHTECHFONDS GMBH PALATIN GRUNDSTUCKVERWALTUNGS GESELLSCHAFT M.B.H. PAYTRIA UNTERNEHMENSBETEILIGUNGEN GMBH PRACOWNICZE TOWARZYSTWO EMERYTALNE S.A. RCG HOLDINGS LLC SCHUL- UND AMTSGEBAUDE GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT M.B.H. SCHULERRICHTUNGSGESELLSCHAFT M.B.H. SFS SERVICES GMBH SIA UNICREDIT INSURANCE BROKER SOCIETA' DI GESTIONI ESATTORIALI IN SICILIA SO.G.E.SI. S.P.A. IN LIQ. SOCIETA' GESTIONE CREDITI DELTA SPA SOCIETA ITALIANA PER LE IMPRESE ALL ESTERO - SIMEST SPA SOVAGRI SOC.CONSORTILE P.A. IN LIQ. SPARKASSEN-HAFTUNGS AKTIENGESELLSCHAFT COMPANIES LINZ AUSTRIA x x COMPANIES LINZ AUSTRIA x x COMPANIES STOCKERAU AUSTRIA x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES WARSAW POLAND x x COMPANIES NEW YORK U.S.A. x x COMPANIES GRAZ AUSTRIA x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES RIGA LATVIA x x COMPANIES PALERMO ITALY x x COMPANIES BOLOGNA ITALY x x COMPANIES ROME ITALY x x COMPANIES NAPLES ITALY x x 73

74 Deductions from capital RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type Town Country TORRE SGR S.P.A. UNICREDIT (U.K.) TRUST SERVICES LTD UNICREDIT BROKER DOO SARAJEVO ZA BROKERSKE POSLOVE U OSIGURANJU UNICREDIT BROKER S.R.O. UNICREDIT FUGGETLEN BIZTOSITASKOZVETITO KFT UNICREDIT GLOBAL LEASING VERSICHERUNGSSERVICE GMBH UNICREDIT INSURANCE BROKER EOOD UNICREDIT INSURANCE BROKER SRL UNICREDIT LEASING VERSICHERUNGSSERVICE GMBH & CO KG UNICREDIT PARTNER D.O.O UNICREDIT PARTNER D.O.O BEOGRAD UNICREDIT PARTNER LLC UNICREDIT POIJIST'OVACI MAKLERSKA SPOL. S R.O. UNICREDIT ZAVAROVALNO ZASTOPINSKA DRUZBA DOO VBV-BETRIEBLICHE ALTERSVORSORGE AG VENETO SVILUPPO SPA VENETO SVILUPPO SPA VEREINWEST OVERSEAS FINANCE (JERSEY) LIMITED VV IMMOBILIEN GMBH & CO. GB KG WIENER KREDITBUERGSCHAFTSGESELLSCHAFT M.B.H. YAPI KREDI KORAY GAYRIMENKUL YATIRIM ORTAKLIGI AS Z LEASING METIS IMMOBILIEN LEASING GESELLSCHAFT M.B.H. ALLIANZ ZAGREB DD AVIVA SPA BANK AUSTRIA CREDITANSTALT VERSICHERUNG AG BOSNA REOSIGURANJE DD SARAJEVO CNP UNICREDIT VITA S.P.A. CREDITRAS ASSICURAZIONI SPA CREDITRAS VITA SPA EUROVITA ASSICURAZIONI SPA FONDIARIA - SAI SPA GENERALI LIFE INSURANCE AD GRAND CENTRAL RE LIMITED INCONTRA ASSICURAZIONI S.P.A. NET INSURANCE S.P.A. COMPANIES ROME ITALY x x COMPANIES (*) COMPANIES LONDON SARAJEVO UNITED KINGDOM x x BOSNIA AND HERCEGOVINA x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BUDAPEST HUNGARY x x COMPANIES SOFIA BULGARIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES ZAGREB CROATIA x x COMPANIES BEOGRAD SERBIA x x COMPANIES KIEV UKRAINE x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES VENEZIA ITALY x x COMPANIES VENEZIA ITALY x x COMPANIES (*) ST. HELIER JERSEY x x COMPANIES DUSSELDORF GERMANY x x COMPANIES ISTANBUL TURKEY x x INSURANCE COMPANIES ZAGREB CROATIA x x INSURANCE COMPANIES MILAN ITALY x x INSURANCE INSURANCE COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x INSURANCE COMPANIES MILAN ITALY x x INSURANCE COMPANIES MILAN ITALY x x INSURANCE COMPANIES MILAN ITALY x x INSURANCE COMPANIES ROME ITALY x x INSURANCE COMPANIES TURIN ITALY x x INSURANCE COMPANIES SOFIA BULGARIA x x INSURANCE COMPANIES HAMILTON BERMUDA x x INSURANCE COMPANIES MILAN ITALY x x INSURANCE COMPANIES ROME ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

75 Deductions from capital RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type Town Country SARAJEVO OSIGURANJE D.D. YAPI KREDI EMEKLILIK AS YAPI KREDI SIGORTA AS INSURANCE COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x INSURANCE COMPANIES ISTANBUL TURKEY x x INSURANCE COMPANIES ISTANBUL TURKEY x x (*)Company belonging to the Banking Group consolidated at cost due to immateriality. Please note that the equity investment in Banca d Italia is entirely deducted from the Regulatory Capital (50% from Tier 1 and 50% from Tier 2). 75

76 Town Country RWA Full Proportional At Equity Cost AFS Entities added to risk-weighted assets as at June 30, 2012 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type BANCA MEDIOCREDITO DEL FRIULI VENEZIA GIULIA SPA BANKS UDINE ITALY x x BANK ROZWOJU ENERGETYKI I OCHRONY SWODOWISKA S.A. MEGABANK IN LIQUIDATION BANKS (*) WARSAW POLAND x x BBB BURGSCHAFTSBANK ZU BERLIN-BRANDENBURG GMBH BANKS BERLIN GERMANY x x BURGSCHAFTSBANK BRANDENBURG GMBH BANKS POTSDAM GERMANY x x BURGSCHAFTSBANK MECKLENBURG-VORPOMMERN GMBH BANKS SCHWERIN GERMANY x x BURGSCHAFTSBANK NORDRHEIN-WESTFALEN GMBH - KREDITGARANTIEGEMEINSCHAFT - BANKS NEUSS GERMANY x x BURGSCHAFTSBANK RHEINLAND-PFALZ GMBH BANKS MAINZ GERMANY x x BURGSCHAFTSBANK SAARLAND GESELLSCHAFT MIT BESCHRANKTER HAFTUNG, KREDITGARANTIEGEMEINSCHAFT FUR DEN HANDEL, HANDWERK UND GEWERBE BANKS SAARBRUCKEN GERMANY x x BURGSCHAFTSBANK SACHSEN GMBH BANKS DRESDEN GERMANY x x BURGSCHAFTSBANK SACHSEN-ANHALT GMBH BANKS MAGDEBURGO GERMANY x x BURGSCHAFTSBANK SCHLESWIG-HOLSTEIN GMBH BANKS KIEL GERMANY x x BURGSCHAFTSBANK THURINGEN GMBH BANKS ERFURT GERMANY x x EUROPEAN INVESTMENT FUND BANKS LUXEMBOURG LUXEMBOURG x x FUNDAMENTA-LAKAKASSZA LAKAS-TAKAREKPENZTAR ZRT. BANKS BUDAPEST HUNGARY x x KREDITGARANTIEGEMEINSCHAFT DER FREIEN BERUFE BADEN-WURTTEMBERG VERWALTUNGS-GMBH BANKS STUTTGART GERMANY x x KREDITGARANTIEGEMEINSCHAFT DER INDUSTRIE, DES VERKEHRSGEWERBES UND DES GASTGEWERBES BADEN- WURTTEMBERG VERWALTUNGS-GMBH BANKS STUTTGART GERMANY x x KREDITGARANTIEGEMEINSCHAFT DES BAYERISCHEN GARTENBAUES GMBH BANKS MUNICH GERMANY x x KREDITGARANTIEGEMEINSCHAFT DES HANDELS BADEN- WURTTEMBERG VERWALTUNGS-GMBH BANKS STUTTGART GERMANY x x KREDITGARANTIEGEMEINSCHAFT DES HANDWERKS BADEN- WURTTEMBERG VERWALTUNGSGESELLSCHAFT MBH BANKS STUTTGART GERMANY x x KREDITGARANTIEGEMEINSCHAFT FUR DEN HANDEL IN BAYERN GMBH BANKS MUNICH GERMANY x x KREDITGARANTIEGEMEINSCHAFT IN BADEN-WURTTEMBERG VERWALTUNGS-GMBH BANKS STUTTGART GERMANY x x LIQUIDITATS-KONSORTIALBANK GMBH BANKS FRANKFURT GERMANY x x NIEDERSACHSISCHE BURGSCHAFTSBANK GMBH BANKS HANNOVER GERMANY x x SAARLANDISCHE INVESTITIONSKREDITBANK AG BANKS SAARBRUCKEN GERMANY x x SDIC FINANCE CO. LTD. BANKS HONGKONG HONG KONG x x TAKAS VE SAKLAMA BANKASI AS (I.M.K.B. TAKAS VE SAKLAMA BANKASI AS) BANKS ISTANBUL TURKEY x x TURKIYE CUMHURIYETI MERKEZ BANKASI A.S. (T.C. MERKEZ BANKASI A.S.) BANKS ANKARA TURKEY x x ABE CLEARING SAS COMPANIES PARIS FRANCE x x ALTOS-IMMORENT IMMOBILIENLEASING GMBH ARABELLA FINANCE LTD. COMPANIES DUBLIN IRELAND x x AUGUSTO SRL COMPANIES MILAN ITALY x x B. GROUP SPA COMPANIES BOLOGNA ITALY x x B.I.G. - BENI IMMOBILI GESTITI SPA COMPANIES MILAN ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

77 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type BAMCARD DD SARAJEVO BANKALARARASI KART MERKEZI AS BANKART D.O.O. BAYERISCHE IMMOBILIEN-LEASING GMBH & CO. VERWALTUNGS-KG BLACK FOREST FUNDING LLC BUERGSCHAFTSBANK SALZBURG GMBH CASA DE COMPENSARE BUCURESTI SA CENTRAL DEPOSITORY AD CENTRO FACTORING SPA CLS GROUP HOLDINGS AG CME GROUP INC CO.SVI.G. SCRL COBB BETEILIGUNGEN UND LEASING GMBH COLOMBO SRL CONCARDIS GESELLSCHAFT MIT BESCHRANKTER HAFTUNG CONFIDICOOP MARCHE SOCIETA COOPERATIVA A MUTUALITA PREVALENTE DIOCLEZIANO SRL E-MID SIM SPA EUREX BONDS GMBH EURO KARTENSYSTEME GESELLSCHAFT MIT BESCHRANKTER HAFTUNG EUROFIDI SOCIET CONSORTILE DI GARANZIA COLLETTIVA FIDI S.C.P.A. FINPIEMONTE PARTECIPAZIONI SPA FONDUL ROMAN DE GARANTARE A CREDITELOR PENTRU INTREPRINZATORII PRIVATI-IFN S.A. FRIULIA SPA - FINANZIARIA REGIONALE FRIULI-VENEZIA GIULIA GE.S.E.T.T. - GESTIONE SERVIZI ESAZIONE TRIBUTI E TESORERIE S.P.A. IN LIQUIDAZIONE GELDILUX-PP-2011 S.A. GELDILUX-TS-2007 S.A. GELDILUX-TS-2010 S.A. GELDILUX-TS-2011 S.A. GEPAFIN SPA GIRO ELSZAMOLASFORGALMI RT. H2I - HOLDING DI INIZIATIVA INDUSTRIALE S.P.A. IMMORENT-EINRICHTUNGSHAUSERRICHTUNGS- UND GRUND- VERWERTUNGSGESELLSCHAFT M.B.H., WIEN COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x COMPANIES ISTANBUL TURKEY X x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES PULLAH IM ISARTAL GERMANY x x COMPANIES DELAWARE U.S.A. x x COMPANIES SALZBURG AUSTRIA x x COMPANIES BUCHAREST ROMANIA x x COMPANIES SOFIA BULGARIA x x COMPANIES FIRENZE ITALY x x COMPANIES ZURICH SWITZERLAND x x COMPANIES CHICAGO U.S.A. x x COMPANIES ROME ITALY x x COMPANIES (*) VIENNA AUSTRIA x x COMPANIES MILAN ITALY x x COMPANIES FRANKFURT GERMANY x x COMPANIES ANCONA ITALY x x COMPANIES MILAN ITALY x x COMPANIES MILAN ITALY x x COMPANIES FRANKFURT GERMANY x x COMPANIES FRANKFURT GERMANY x x COMPANIES TURIN ITALY x x COMPANIES TURIN ITALY x x COMPANIES BUCHAREST ROMANIA x x COMPANIES TRIESTE ITALY x x COMPANIES (*) NAPLES ITALY x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES PERUGIA ITALY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES ROME ITALY x x 77

78 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type IMMORENT-MARCO GRUNDVERWERTUNGSGESELLSCHAFT M.B.H.WIEN KREDI GARANTI FONU A.S. LEASING 439 GMBH MALREWARD LIMITED IN LIQUIDATION MBG MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT SCHLESWIG-HOLSTEIN MBH MEDIOFIMAA SRL MOLISE SVILUPPO S.C.P.A. MPC MUNCHMEYER PETERSEN CAPITAL AG NOE BETEILIGUNGSFINANZIERUNGEN GMBH NOE BUERGSCHAFTEN GMBH OBEROESTERREICHISCHE KREDITGARANTIEGESELLSCHAFT M.B.H. OBJEKT-LEASE GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT M.B.H. OPEN JOINT-STOCK COMPANY ALL UKRAINIAN SECURITIES DEPOSITARY PAR.CO. S.P.A. PURGE GRUNDSTUCKSVERWALTUNGS-GESELLSCHAFT M.B.H. REGISTAR VRIJEDNOSNIH PAPIRA U FEDERACIJI BOSNE I HERCEGOVINE D.D. SARAJEVO RETEX MISURA 5 - PROGRAMMA DI INIZIATIVA COMUNITARIA ROSENKAVALIER 2008 GMBH SAARLANDISCHE KAPITALBETEILIGUNGSGESELLSCHAFT MBH SALOME FUNDING PLC SERFACTORING S.P.A. SOCIETA' CONSORTILE MATESE PER L'OCCUPAZIONE S.P.A. SOCIETA REGIONALE DI GARANZIA MARCHE SOC.COOP.A R.L. SREDISNJE KLIRINSKO DEPOZITARNO DRUSTVO, DIONICKO DRUSTVO STEIRISCHE BETEILIGUNGSFINANZIERUNGSGESELLSCHAFT M.B.H. TIKEHAU CAPITAL ADVISORS S.A.S TRANSFOND S.A. TRZISTE NOVCA I KRATKOROCNIH VRJEDNOSNICA D.D. VINTNERS LONDON INVESTMENTS (NILE) LIMITED COMPANIES ANKARA TURKEY x x COMPANIES (*) NICOSIA CYPRUS x x COMPANIES KIEL GERMANY x x COMPANIES ROME ITALY x x COMPANIES CAMPOBASSO ITALY x x COMPANIES HAMBURG GERMANY x x COMPANIES LINZ AUSTRIA x x COMPANIES KIEV UKRAINE x x COMPANIES REGGIO EMILIA ITALY x x COMPANIES COMPANIES SARAJEVO BOSNIA AND HERCEGOVINA x x MARGHERA VENEZIA ITALY x x COMPANIES FRANKFURT GERMANY x x COMPANIES SAARBRUCKEN GERMANY x x COMPANIES DUBLIN IRELAND x x COMPANIES SAN DONATO MILANESE (MILANO) ITALY x x COMPANIES CAMPOBASSO ITALY x x COMPANIES ANCONA ITALY x x COMPANIES ZAGREB CROATIA x x COMPANIES GRAZ AUSTRIA x x COMPANIES PARIS FRANCE x x COMPANIES BUCHAREST ROMANIA x x COMPANIES ZAGREB CROATIA x x COMPANIES (*) GEORGE TOWN CAYMAN ISLANDS x x VISA INC. VV IMMOBILIEN GMBH & CO. UNITED STATES KG COMPANIES SAN FRANCISCO CALIFORNIA U.S.A. x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

79 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type VV IMMOBILIEN GMBH & CO. US CITY KG WUSTENROT & WURTTEMBERGISCHE AG ABC - CONSORZIO DI BANCHE E ASSICURAZIONI PER LO SVILUPPO DEGLI ASSET OPERATIVI, DEL PROCUREMENT E DEL COST MANAGEMENT ABI LAB - CENTRO DI RICERCA E INNOVAZIONE PER LA BANCA ACIS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH AEDES SPA AEROPORTO DI REGGIO EMILIA S.R.L. AEROPORTO G. MARCONI DI BOLOGNA SPA AGENZIA DI POLLENZO S.P.A. COMPANIES STUTTGART GERMANY x x COMPANIES ROME ITALY x x COMPANIES ROME ITALY x x COMPANIES GRUNWALD GERMANY x x COMPANIES MILAN ITALY x x COMPANIES REGGIO EMILIA ITALY x x COMPANIES BOLOGNA ITALY x x COMPANIES BRA (CUNEO) ITALY x x AGENZIA PER LA TRASFORMAZIONE TERRITORIALE IN VENETO SPA (IN SIGLA ATTIVA SPA) AGRUND GRUNDSTUCKS-GMBH ALTEA VERWALTUNGSGESELLSCHAFT MBH & CO. OBJEKT I KG AMFA SPA AMMS ERSATZ-KOMPLEMENTAR GMBH AMMS KOMPLEMENTAR GMBH ANWA GESELLSCHAFT FUR ANLAGENVERWALTUNG MBH AQM S.R.L. ARENA STADION BETEILIGUNGSVERWALTUNGS-GMBH ARETHA FACILITY MANAGEMENT GMBH AREZZO FIERE E CONGRESSI SRL ARZ ALLGEMEINES RECHENZENTRUM GMBH ASC LOGISTIK GMBH ASTRIM S.P.A. A-TRUST GESELLSCHAFT FUER SICHERHEITSSYSTEME IM ELEKTRONISCHEN DATENVERKEHR GMBH BAKU STOCK EXCHANGE BANJALUCKA BERZA HARTIJA OD VRJEDNOSTI A.D. BANJA LUKA BANK AUSTRIA IMMOBILIEN ENTWICKLUNGS- UND VERWERTUNGSGMBH BANK AUSTRIA REAL INVEST ASSET MANAGEMENT GMBH BAREAL IMMOBILIENTREUHAND GMBH COMPANIES BAGNOLI DI SOPRA ITALY x x COMPANIES RIMINI ITALY x x COMPANIES EBERSBERG GERMANY x x COMPANIES EBERSBERG GERMANY x x COMPANIES PROVAGLIO D'ISEO (BS) ITALY x x COMPANIES AREZZO ITALY x x COMPANIES INNSBRUCK AUSTRIA x x COMPANIES ROME ITALY x x COMPANIES BAKU AZERBAIJAN x x COMPANIES BANJA LUKA BOSNIA AND HERCEGOVINA x x BAVARIA SERVICOS DE REPRESENTACAO COMERCIAL LTDA. BAYBG BAYERISCHE BETEILIGUNGSGESELLSCHAFT MBH ANCILLARY BANKING SERVICES COMPANIES (*) SAO PAULO BRAZIL x x 79

80 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type BAYERISCHE WOHNUNGSGESELLSCHAFT FUR HANDEL UND INDUSTRIE, GESELLSCHAFT MIT BESCHRKTER HAFTUNG BFL BETEILIGUNGSGESELLSCHAFT FUR FLUGZEUG-LEASING MBH BIL AIRCRAFTLEASING GMBH BIL IMMOBILIEN FONDS GMBH BIL LEASING GMBH & CO OBJEKTE FREIBERG KG BILANCIAI INTERNATIONAL SPA BIROUL DE CREDIT S.A. BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. ERSTE OBJEKTE NIEDERLANDE KG I.L. BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. FUNFTE OBJEKTE OSTERREICH KG BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. SECHSTE OBJEKTE GROSSBRITANNIEN KG BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. SIEBTE OBJEKTE OSTERREICH KG BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. VIERTE OBJEKTE OSTERREICH KG BLUE CAPITAL EUROPA IMMOBILIEN GMBH & CO. ZWEITE OBJEKTE NIEDERLANDE KG BLUE CAPITAL EUROPA IMMOBILIEN VERWALTUNGS GMBH BLUE CAPITAL IMMOBILIEN UND VERWALTUNG SEKUNDAR GMBH BLUE CAPITAL KANADA GMBH & CO ERSTE IMMOBILIEN KG I.L. COMPANIES GRUNWALD GERMANY x x COMPANIES CAMPOGALLIANO ITALY x x COMPANIES BUCHAREST ROMANIA x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x BLUE CAPITAL METROPOLITAN AMERIKA GMBH & CO. KG (GI AMERIKA GMBH & CO DRITTE OBJEKT USA KG) BONUM ANLAGE-UND BETEILIGUNGSGESELLSCHAFT MBH BORSE DUSSELDORF AG BOX 2004 S.P.A. (IN LIQUIDAZIONE) BRIXIA EXPO - FIERA DI BRESCIA S.P.A. BUCHSTEIN IMMOBILIENVERWALTUNG GESELLSCHAFT M.B.H. BULGARIAN STOCK EXCHANGE SOFIA BURGO GROUP S.P.A. BURSA ROMANA DE MARFURI S.A. BURZA CENNYCH PAPIEROV BRATISLAVA AS C.A.A.B. SCPA- CENTRO AGROALIMENTARE DI BOLOGNA COMPANIES HAMBURG GERMANY x x COMPANIES BREMA GERMANY x x COMPANIES DUSSELDORF GERMANY x x COMPANIES ROME ITALY x x COMPANIES BRESCIA ITALY x x COMPANIES SOFIA BULGARIA x x COMPANIES ALTAVILLA VICENTINA (VI) ITALY x x COMPANIES BUCHAREST ROMANIA x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES BOLOGNA ITALY x x C.A.A.N. - CENTRO AGRO ALIMENTARE DI NAPOLI S.C.P.A. C.A.R. - CENTRO AGRO ALIMENTARE DI ROMA S.C.P.A. C.I.M. BETEILIGUNGEN 1998 GMBH C.I.M.VERWALTUNG UND BETEILIGUNGEN 1999 GMBH CAAT - CENTRO AGRO-ALIMENTARE TORINO SCPA COMPANIES COMPANIES LOCALITA' LUFRANO - VOLLA (NAPOLI) ITALY x x GUIDONIA MONTECELIO (ROMA) ITALY x x COMPANIES GRUGLIASCO ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

81 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type CBCB - CZECH BANKING CREDIT BUREAU, A.S. CEESEG AG CENTER FOR BUSINESS AND CULTURE - DOBRICH - AD CENTRAL REGISTER OF SECURITIES CENTRAL SECURITIES DEPOSITORY JSC CISFI SPA CITEC IMMO BERLIN GMBH CITTA' STUDI SPA CIVITA SICILIA S.R.L. CL DRITTE CAR LEASING GMBH & CO. KG CL DRITTE CAR LEASING VERWALTUNGSGESELLSCHAFT MBH CLASS CNBC SPA COMMODITY EXCHANGE INTERBANK CURRENCY EXCHANGE OF CRIMEA COMPAGNIA INVESTIMENTI E SVILUPPO C.I.S. - SPA CONSORZIO PER LA GESTIONE DEL MARCHIO PATTICHIARI CONSORZIO PER LO SVILUPPO ECONOMICO DELLA PROVINCIA DI RIETI CONSORZIO QUENIT CONSORZIO ROMA RICERCHE COWEN GROUP, INC CPI ADMINISTRATION AND HOLDING GMBH DELTATERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH DFA DEGGENDORFER FREIHAFEN ANSIEDLUNGS-GMBH DII GMBH DUNAV OSIGURANJE A.D. BANJA LUKA DUSSELDORFER BORSENHAUS GMBH DUTY FREE ZONE BOURGAS AD EBG - EUROPAY BETEILIGUNGS GMBH EINKAUFSGALERIE ROTER TURM BETEILIGUNGS GMBH & CO. KG EINKAUFSGALERIE ROTER TURM CHEMNITZ GMBH & CO. KG COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES DOBRICH BULGARIA x x COMPANIES BANJA LUKA BOSNIA AND HERCEGOVINA x x COMPANIES ALMATY CITY KAZAKISTAN x x COMPANIES NAPLES ITALY x x COMPANIES BERLIN GERMANY x x COMPANIES BIELLA ITALY x x COMPANIES PALERMO ITALY x x COMPANIES HAMBURG GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES MILAN ITALY x x COMPANIES SIMPHEROPOL UKRAINE x x COMPANIES VILLAFRANCA ITALY x x COMPANIES ROME ITALY x x COMPANIES RIETI ITALY x x COMPANIES VERONA ITALY x x COMPANIES ROME ITALY x x COMPANIES WILMINGTON U.S.A. x x COMPANIES LECK GERMANY x x COMPANIES DEGGENDORF GERMANY x x COMPANIES BANJA LUKA BOSNIA AND HERCEGOVINA x x COMPANIES DUSSELDORF GERMANY x x COMPANIES BOURGAS BULGARIA x x ERZET-VERMOEGENSVERWALTUNGSGESELLSCHAFT M.B.H. ES SHARED SERVICE CENTER SOCIETA' PER AZIONI EURO-BOND BLUE CAPITAL MANAGEMNT GMBH I.L. EURO-BOND BLUE CAPITAL VERWALTUNGS GMBH I.L. EUROCLASS MULTIMEDIA HOLDING S.A. COMPANIES CERNUSCO SUL NAVIGLIO ITALY x x COMPANIES BAD SODEN GERMANY x x COMPANIES BAD SODEN GERMANY x x COMPANIES LUXEMBOURG LUXEMBOURG x x 81

82 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type EUROIMPRESA LEGNANO S.C.R.L. EUROPEAN DATAWAREHOUSE GMBH EUROSANITA' S.P.A. FELICITAS GMBH I.L. FIERA DI FORLI SPA FIERA TRIESTE SPA IN LIQUIDAZIONE FILMAURO - ASSOCIAZIONE IN PARTECIPAZIONI VACANZE DI NATALE 2011 RISK MANAGEMENT GMBH G.A.L. DELL'ALTA MARCA TREVIGIANA SCRL G.A.L. TERRE DI MARCA SCRL GABETTI PROPERTY SOLUTIONS SPA GARAGE AM HOF GESELLSCHAFT M.B.H. GELDSERVICE AUSTRIA LOGISTIK FUER WERTGESTIONIERUNG UND TRANSPORTKOORDINATION GMBH GEMINA S.P.A. GESCHUETZTE WERKSTAETTE WR. NEUSTADT GESELLSCHAFT M.B.H. GESFOE GEMEINNUETZIGE BAU- UND SIEDLUNGSGESELLSCHAFT M.B.H. GIELDA PAPIEROW WARTOSCIOWYCH W WARSZAWIE S.A. GOLF CLUB MODENA SPA COMPANIES LEGNANO (MILANO) ITALY x x COMPANIES ROME ITALY x x COMPANIES FORLI' ITALY x x COMPANIES TRIESTE ITALY x x COMPANIES ROME ITALY x x COMPANIES PIEGHE DI SOLIGO ITALY x x COMPANIES GORGO AL MONTICANO ITALY x x COMPANIES MILAN ITALY x x COMPANIES FIUMICINO ITALY x x COMPANIES WR. NEUSTADT AUSTRIA x x COMPANIES WARSAW POLAND x x COMPANIES COLOMBARO DI FORMIGINE ITALY x x GOLFANLAGEN VELDEN-KOESTENBERG ERRICHTUNGS- UND BETRIEBSGESELLSCHAFT M.B.H. & CO.KG GOLFPARK KLOPEINERSEE-SUEDKAERNTEN GMBH GRAND CENTRAL FUNDING CORPORATION H.F.S. IMMOBILIENFONDS BAHNHOFSPASSAGEN POTSDAM GMBH & CO. KG H.F.S. IMMOBILIENFONDS DAS SCHLOSS BERLIN-STEGLITZ GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 1 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 10 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 11 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 12 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 15 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 16 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 18 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 2 GMBH & CO. KG I.L. H.F.S. IMMOBILIENFONDS DEUTSCHLAND 3 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 4 GMBH & CO. KG COMPANIES KOSTENBERG AUSTRIA x x COMPANIES ST.KANZIAN AUSTRIA x x COMPANIES NEW YORK U.S.A. x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

83 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type H.F.S. IMMOBILIENFONDS DEUTSCHLAND 6 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 7 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 8 GMBH & CO. KG H.F.S. IMMOBILIENFONDS DEUTSCHLAND 9 GMBH & CO. KG H.F.S. IMMOBILIENFONDS EUROPA 2 BETEILIGUNGS GMBH H.F.S. IMMOBILIENFONDS EUROPA 3 BETEILIGUNGS B.V. H.F.S. IMMOBILIENFONDS GMBH & CO. EUROPA 2 KG H.F.S. IMMOBILIENFONDS GMBH & CO. EUROPA 3 KG H.F.S. IMMOBILIENFONDS KOLN GMBH & CO. KG H.F.S. IMMOBILIENFONDS SCHWEINFURT GMBH & CO. KG H.F.S. LEASINGFONDS GMBH H.F.S. VALUE MANAGEMENT GMBH H.F.S. ZWEITMARKTFONDS DEUTSCHLAND 1 GMBH & CO. KG H.F.S. ZWEITMARKTFONDS DEUTSCHLAND 2 GMBH & CO. KG H.F.S. ZWEITMARKTFONDS DEUTSCHLAND 3 KG GMBH & CO. KG H.F.S. ZWEITMARKTFONDS DEUTSCHLAND 4 GMBH & CO. KG HEIZKRAFTWERK COTTBUS VERWALTUNGS GMBH HEIZKRAFTWERKE-POOL-VERWALTUNGS-GMBH HISI - HOLDING DI INVESTIMENTO IN SANITA' ED INFRASTRUTTURE SRL HITELGARANCIA RT. HOBEX AG HP IT-SOLUTIONS GESELLSCHAFT MIT BESCHRAENKTER HAFTUNG HROK DOO HVB LIFE SCIENCE GMBH COMPANIES L'AJA NETHERLANDS x x COMPANIES EBERSBERG GERMANY x x COMPANIES EBERSBERG GERMANY x x COMPANIES EBERSBERG GERMANY x x COMPANIES MILAN ITALY x x COMPANIES BUDAPEST HUNGARY x x COMPANIES WALS-SIEZENHEIM AUSTRIA x x COMPANIES INNSBRUCK AUSTRIA x x COMPANIES ZAGREB CROATIA x x HVB SERVICES SOUTH AFRICA (PROPRIETARY) LIMITED HVBFF BAUMANAGEMENT GMBH HVBFF KAPITALVERMITTLUNGS GMBH HVBFF LEASING OBJEKT GMBH HVBFF LEASING-FONDS VERWALTUNGS GMBH HVBFF OBJEKT LEIPZIG GMBH HVH IMMOBILIEN GMBH & CO. NEW YORK KG HYPO-REAL HAUS- UND GRUNDBESITZ GESELLSCHAFT MBH IDROENERGIA SCRL ANCILLARY BANKING SERVICES COMPANIES (*) JOHANNESBURG SOUTH AFRICA x x COMPANIES LEIPZIG GERMANY x x COMPANIES CHATILLON (AOSTA) ITALY x x 83

84 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type IGEPA GEWERBEPARK GMBH & CO VERMIETUNGS KG IMAREX ASA IMMOBILIARE STAZIONE DI COSSATO S.P.A. IMMOBILIEN VERMIETUNGS GMBH & CO PROJEKT GUMPENDORFERSTRASSE 140 KG IMOF SPA - SOCIETA' CONSORTILE PER LA REALIZZAZIONE DEL CENTRO AGROALIMENTARE ALL'INGROSSO DI FONDI INFRAM ONE CORPORATION INGOSSTRAKH INNSBRUCKER STADTMARKETING GES.M.B.H. INTERBANKING SYSTEMS S.A. (DIAS S.A.) INTERNATIONAL FACTORS GROUP SCRL INTERPORTO PADOVA SPA INTERPORTO BOLOGNA SPA INTERPORTO CAMPANO S.P.A. INTERPORTO DI ROVIGO SPA INTERPORTO MARCHE SPA ISFOR 2000 S.C.P.A. ISTICA - ISTITUTO IMMOBILIARE DI CATANIA SPA ISTITUTO DELLA ENCICLOPEDIA ITALIANA FONDATA DA G.TRECCANI S.P.A. ISTITUTO EUROPEO DI ONCOLOGIA SRL ITALCARNI SOCIETA COOPERATIVA AGRICOLA ITALIAN INTERNATIONAL FILM - ASSOCIAZIONE IN PARTECIPAZIONI L' ULTIMA SPIAGGIA JOINT-STOCK COMPANY PFTS STOCK EXCHANGE KAZAKHSTAN STOCK EXCHANGE INCORPORATED KOC KUELTUER SANAT VE TANITIM HITZMETLERI VE TICARET (KOC KUELTUER SANAT TANITIM AS) KRAJINA OSIGURANJE D.D. BANJA LUKA KREDITNI BIRO SISBON, UPRAVLJALEC SISTEMA IZMENJAVE INFORMACIJO BONITETI STRANK, D.O.O. LANDOS IMMOBILIEN- UND PROJEKTENTWICKLUNGS GMBH LEASINGFONDS PLUS DEUTSCHLAND 14 GMBH & CO. KG LIFE BRITANNIA MANAGEMENT GMBH LIFE GMBH & CO ERSTE KG LIFE GMBH & CO. ZWEITE KG LIFE VERWALTUNGS ERSTE GMBH LIFE VERWALTUNGS ZWEITE GMBH COMPANIES FURSTENFELDBRUCK GERMANY x x COMPANIES OSLO NORWAY x x COMPANIES ROME ITALY x x COMPANIES FONDI (LATINA) ITALY x x COMPANIES DELAWARE U.S.A. x x COMPANIES MOSCOW RUSSIA x x COMPANIES INNSBRUCK AUSTRIA x x COMPANIES MAROUSSI GREECE x x COMPANIES BRUXELLES BELGIUM x x COMPANIES PADOVA ITALY x x COMPANIES BOLOGNA ITALY x x COMPANIES NAPLES ITALY x x COMPANIES ROVIGO ITALY x x COMPANIES JESI ITALY x x COMPANIES BRESCIA ITALY x x COMPANIES CATANIA ITALY x x COMPANIES ROME ITALY x x COMPANIES MILAN ITALY x x COMPANIES MIGLIARINA DI CARPI (MODENA) ITALY x x COMPANIES ROME ITALY x x COMPANIES KYIV UKRAINE x x COMPANIES ALMATY CITY KAZAKISTAN x x COMPANIES ISTANBUL TURKEY x x COMPANIES BANJA LUKA BOSNIA AND HERCEGOVINA x x COMPANIES LJUBLJANA SLOVENIA x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

85 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type LIMITED LIABILITY PARTNERSHIP PROFIX COMPANY LUXTRUST S.A. M.A.I.L. BETEILIGUNGSMANAGEMENT GESELLSCHAFT M.B.H. M.A.I.L. REAL ESTATE MANAGEMENT JOTA BRATISLAVA S.R.O. MANTOVA INTERPORTO SRL MARINA DI NETTUNO CIRCOLO NAUTICO S.P.A. COMPANIES KIEV UKRAINE x x COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES BRATISLAVA SLOVAKIA x x COMPANIES MANTOVA ITALY x x COMPANIES NETTUNO (ROME) ITALY x x MARTIN SCHMALZLE GRUNDESTUCKSGESELLSCHAFT OBJEKT WOLFSBURG GMBH & CO. KG MATILDE DI CANOSSA SRL MBG MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT BADEN-WURTTEMBERG GMBH MBG MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT RHEINLAND-PFALZ MBH MERKUR VERWALTUNGSGESELLSCHAFT MBH & CO. VERMIETUNGS KG MFG FLUGHAFEN- GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT MBH & CO BETA KG MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT BERLIN- BRANDENBURG GMBH COMPANIES REGGIO EMILIA ITALY x x COMPANIES MAINZ GERMANY x x COMPANIES FURSTENFELDBRUCK GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES SCHWERIN GERMANY x x MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT MECKLENBURG-VORPOMMERN MBH MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT NIEDERSACHSEN (MBG) MBH MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT SACHSEN MBH MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT SACHSEN- ANHALT MIT BESCHRANKTER HAFTUNG MITTELSTANDISCHE BETEILIGUNGSGESELLSCHAFT THURINGEN MBH MIZUHO CORPORATE BANK - BA INVESTMENT - CONSULTINGGMBH MOLISEINNOVAZIONE SOC.CONS. P.A. MOPET CZ A.S. MOTION PICTURE PRODUCTION GMBH MOTION PICTURE PRODUCTION GMBH & CO. ERSTE KG MTS-PORTUGAL - SOCIEDADE GESTORA DO MERCATO ESPECIAL DE DIVIDA PUBLICA SGMR SA MUHOGA MUNCHNER HOCHGARAGEN GESELLSCHAFT MIT BESCHRANKTER HAFTUNG MUTNEGRA BETEILIGUNGS- UND VERWALTUNGS-GMBH COMPANIES SCHWERIN GERMANY x x COMPANIES HANNOVER GERMANY x x COMPANIES DRESDA GERMANY x x COMPANIES MAGDEBURGO GERMANY x x COMPANIES ERFURT GERMANY x x COMPANIES CAMPOBASSO ITALY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES LISBON PORTUGAL x x MY DREI HANDELS GMBH NATIONAL PROCESSING CENTER JSC ANCILLARY BANKING SERVICES COMPANIES (*) VIENNA AUSTRIA x x COMPANIES ALMATY CITY KAZAKISTAN x x 85

86 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type NATURAL STONE INVESTMENTS SA NEUMAYER TEKFOR VERWALTUNGS GMBH NOMISMA - SOCIETA' DI STUDI ECONOMICI SPA OFFICINAE VERDI SOCIETA' PER AZIONI OJSC MICEX - RTS OJSC NATIONAL BUREAU OF CREDIT HISTORIES OMNIA GRUNDSTUCKS-GMBH OMNIA GRUNDSTUCKS-GMBH & CO. BETRIEBS KG OMNIA GRUNDSTUCKS-GMBH & CO. OBJEKT OSTRAGEHEGE KG OPP DEUTSCHLAND BETEILIGUNGSGESELLSCHAFT MBH COMPANIES LUXEMBOURG LUXEMBOURG x x COMPANIES OFFENBURG GERMANY x x COMPANIES BOLOGNA ITALY x x COMPANIES ROME ITALY x x COMPANIES MOSCOW RUSSIA x x COMPANIES MOSCOW RUSSIA x x COMPANIES BERLIN GERMANY x x OSCA GRUNDSTUCKSVERWALTUNGSGESELLSCHAFT MBH & CO. KG P.A.N. GMBH & CO. KG P.A.N. VERWALTUNGS GMBH P.B. SRL IN LIQUIDAZIONE PACO CINEMATOGRAFICA SRL - ASSOCIAZIONE IN PARTECIPAZIONI THE BEST OFFER COMPANIES GRUNWALD GERMANY x x COMPANIES MILAN ITALY x x COMPANIES ROME ITALY x x PALAIS ROTHSCHILD VERMIETUNGS GMBH PATTO 2000 SCARL PEGASO INVESTIMENTI - CAMPIONI D'IMPRESA SPA PEGASUS PROJECT STADTHAUS HALLE GMBH PERTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH PEVEC D.D. PHG POS - HANDELSGESELLSCHAFT M.B.H. PONTI ENGINEERING SCARL PROJEKTENTWICKLUNG SCHOENEFELD VERWALTUNGSGESELLSCHAFT MBH QUINTERRA GESELLSCHAFT FUR IMMOBILIENVERWALTUNG MBH RAMSES-IMMOBILIENHOLDING GMBH REAL INVEST ASSET MANAGEMENT CZECH REPUBLIC S.R.O. REAL INVEST PROPERTY GMBH & CO SPB JOTA KG REAL INVEST PROPERTY GMBH & CO. EPSILON KG REGGIO EMILIA FIERE S.R.L. REGGIO EMILIA INNOVAZIONE S.C.A R.L. RIMINITERME SPA ANCILLARY BANKING SERVICES COMPANIES (*) VIENNA AUSTRIA x x COMPANIES CITTA DELLA PIEVE ITALY x x COMPANIES TURIN ITALY x x COMPANIES BJELOVAR CROATIA x x COMPANIES CITTA DI CASTELLO ITALY x x COMPANIES STUTTGART GERMANY x x COMPANIES PRAHA CZECH REPUBLIC x x COMPANIES REGGIO EMILIA ITALY x x COMPANIES REGGIO EMILIA ITALY x x COMPANIES MIRAMARE DI RIMINI ITALY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

87 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type RISANAMENTO SPA ROLAND BERGER STRATEGY CONSULTANTS HOLDING GMBH ROLIN GRUNDSTUCKSPLANUNGS- UND - VERWALTUNGSGESELLSCHAFT MBH ROTUS IMMOBILIEN-VERWALTUNGS GMBH ROUBINI GLOBAL ECONOMICS LLC S.A.S.E. SPA COMPANIES MILAN ITALY x x COMPANIES WILMINGTON U.S.A. x x COMPANIES PERUGIA ITALY x x SALZBURGER UNTERNEHMENSBETEILIGUNGSGESELLSCHAFT M.B.H. SATEL SABAH TELEVIZYON PRODUKSIYON A.S. (SATEL) SEEWINKELTHERME BESITZ GMBH SESTO IMMOBILIARE SPA SHOPPING USA GMBH & CO. ERSTE IMMOBILIEN KG SICILIA CONVENTION BUREAU SRL SINERA AG SK BV GRUNDSTUCKSENTWICKLUNG VERWALTUNG GMBH I.L. SOCIETA COOPERATIVA BILANCIAI CAMPOGALLIANO SOCIETA DI GESTIONE AEROPORTO DI CUNEO-LEVALDIGI SPA (IN SIGLA GEAC SPA) SOCIETA' AREE INDUSTRIALI ED ARTIGIANALI - S.A.I.A. SPA SOCIETA' ITALIANA DI MONITORAGGIO S.P.A. SOCIETY FOR WORLDWIDE INTERBANK TELECOMMUNICATION S.C. (S.W.I.F.T.) SOFIA L.P. SOFIA LP SOLWO GRUNDBESITZ GMBH SPA IMMOBILIARE FIERA DI BRESCIA SPARKASSEN IT HOLDING AG STAR22 PLANUNGS - UND ERRICHTUNGS GMBH COMPANIES SALZBURG AUSTRIA x x COMPANIES TURKEY x x COMPANIES EISENSTADT GERMANY x x COMPANIES MILAN ITALY x x COMPANIES HAMBURG GERMANY x x COMPANIES CATANIA ITALY x x COMPANIES ZURICH SWITZERLAND x x COMPANIES COLOGNE GERMANY x x COMPANIES CAMPOGALLIANO ITALY x x COMPANIES SAVIGLIANO ITALY x x COMPANIES VERBANIA ITALY x x COMPANIES ROME ITALY x x COMPANIES LA HULPE BELGIUM x x COMPANIES ST. PETER PORT GUERNSEY x x COMPANIES LUXEMBOURG x x COMPANIES BERLIN GERMANY x x COMPANIES BRESCIA ITALY x x STUDIENGESELLSCHAFT FUER ZUSAMMENARBEIT IM ZAHLUNGSVERKEHR (STUZZA) G.M.B.H. TC-PRIMA PROJEKTVERWALTUNGS GESELLSCHAFT M.B.H. TECHNOLOGIE-U DIENSTLEISTUNGSZENTRUM ENNSTAL THE FIRST CREDIT BUREAU LLP (FCB) LTD THERME WIEN G.M.B.H. & CO KG THERME WIEN GES.M.B.H. THERMENGOLFANLAGEN- LOIPERSDORF/FUERSTENFELD/RUDERSDORF BETRIEBSGESELLSCHAFT M.B.H.& CO KG TORINO PARCHEGGI SRL IN LIQUIDAZIONE COMPANIES LIEZEN AUSTRIA x x COMPANIES ALMATY CITY KAZAKISTAN x x COMPANIES LOIPERSDORF AUSTRIA x x COMPANIES TURIN ITALY x x 87

88 Town Country RWA Full Proportional At Equity Cost AFS Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type TREUCONSULT BETEILIGUNGSGESELLSCHAFT M.B.H. U. CO. ARBEITERHEIM FAVORITEN REVITALISIERUNGS KG TREUCONSULT PROPERTY ALPHA GMBH TREUCONSULT PROPERTY BETA GMBH TREUCONSULT PROPERTY EPSILON GMBH TREVISO GLOCAL SOC. CONS. A RL TSG EDV-TERMINAL-SERVICE GES.M.B.H. TURKIYE PETROLLERI AO COMPANIES TREVISO ITALY x x COMPANIES ANKARA TURKEY x x UNICREDIT AUDIT (IRELAND) LTD (IN LIQUIDATION) UNICREDIT MERCHANT PARTNERS GMBH UNIPEG - SOCIETA COOPERATIVA AGRICOLA VADELI ISLEM VE OPSIYON BORSASI A.S. VALDARNO SVILUPPO SPA VBII INDUSTRIE UND IMMOBILIEN GMBH VBW BAUEN UND WOHNEN GMBH VICTORIA-VOLKSBANKEN PENSIONSKASSEN AKTIEN- GESELLSCHAFT WACHSTUMSINITIATIVE SUDERELBE AKTIENGESELLSCHAFT WCREM CANADIAN INVESTMENTS INC. WCREM CANADIAN MANAGEMENT INC. WEALTHCAP AIRCRAFT 1 GMBH & CO. KG WEALTHCAP DRITTE EUROPA IMMOBILIEN VERWALTUNGSGESELLSCHAFT MBH WEALTHCAP EQUITY SEKUNDAR GMBH WEALTHCAP ERSTE KANADA IMMOBILIEN VERWALTUNGSGESELLSCHAFT MBH WEALTHCAP EUROPA ERSTE IMMOBILIEN - OBJEKTE NIEDERLANDE - VERWALTUNGS GMBH WEALTHCAP EUROPA IMMOBILIEN FUNFTE OBHEKTE OSTERREICH KOMPLEMENTAR GMBH WEALTHCAP EUROPA IMMOBILIEN SIEBTE OBJEKTE TERREICH KOMPLEMENT GMBH WEALTHCAP FLUGZEUG PORTFOLIO 25 GMBH & CO. KG WEALTHCAP IMMBILIENFONDS DEUTSCHLAND 33 GMBH & CO KG WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 30 GMBH & CO. KG WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 31 GMBH & CO. KG WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 32 GMBH & CO. KG WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 34 GMBH & CO. KG WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 35 GMBH & CO. KG ANCILLARY BANKING SERVICES COMPANIES (*) DUBLIN IRELAND x x COMPANIES REGGIO EMILIA ITALY x x COMPANIES IZMIR TURKEY x x COMPANIES MONTEVARCHI ITALY x x COMPANIES HAMBURG GERMANY x x COMPANIES BOCHUM GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES TORONTO CANADA x x COMPANIES TORONTO CANADA x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x BASEL 2 THIRD PILLAR AS AT JUNE 30,

89 Town Country RWA Full Proportional At Equity Cost AFS >> Basel 2 Third Pillar Table 2 Headquarter Treatment in supervisory report Treatment IAS/IFRS Company Name Type WEALTHCAP IMMOBILIENFONDS DEUTSCHLAND 36 GMBH & CO. KG WEALTHCAP IMMOBILIENFONDS EUROPA 11 GMBH & CO. KG WEALTHCAP INFRASTRUCTURE FUND I GMBH & CO. KG WEALTHCAP INFRASTRUKTUR AMERIKA GMBH & CO. KG WEALTHCAP LEBENSWERT 1 GMBH & CO. KG WEALTHCAP LEBENSWERT 2. GMBH & CO. KG WEALTHCAP LIFE BRITANNIA 2 GMBH & C0 KG WEALTHCAP LIFE USA 4 GMBH & CO. KG WEALTHCAP PEIA SEKUNDAR GMBH WEALTHCAP PHOTOVOLTAIK 1 GMBH & CO. KG WEALTHCAP PRIVATE EQUITY GMBH WEALTHCAP PRIVATE EQUITY SEKUNDAR GMBH WEALTHCAP REAL ESTATE GMBH WEALTHCAP REAL ESTATE KOMPLEMENTAR GMBH WEALTHCAP REAL ESTATE SEKUNDAR GMBH WEALTHCAP SACHWERTE PORTFOLIO 1 GMBH & CO. KG WEALTHCAP US LIFE DRITTE GMBH & CO.KG WEALTHCAP ZWEITE EUROPA IMMOBILIEN VERWALTUNGSGESELLSCHAFT MBH WEALTHCAP ZWEITMARKT 3 BASIS GMBH & CO.KG WEALTHCAP ZWEITMARKT 3 PLUS GMBH & CO. KG WEALTHCAP ZWEITMARKTWERTE IMMOBILIEN 4 GMBH & CO. KG WEALTHCAP ZWEITMARKTWERTE IMMOBILIEN 4 KOMPLEMENTAR GMBH WH - ERSTE GRUNDSTUCKS GMBH & CO. KG WILDSIDE-ASSOCIAZIONE IN PARTECIPAZIONI CHE BELLO FAR L'AMORE (F. BRIZZI) WIRTSCHAFTSVEREIN DER MITARBEITERINNEN DER UNICREDIT BANK AUSTRIA E.GEN. WOHNUNGSBAUGESELLSCHAFT DER STADT ROTHENBACH A.D.PEGNITZ MIT BESCHRANKTER HAFTUNG WWE WOHN- UND WIRTSCHAFTSPARK ENTWICKLUNGSGESELLSCHAFT M.B.H. XING AG YAPI KREDI KUELTUER-SANAT YAYINCILIK TICARET VE SANAYI AS YATIRIM FINANSMAN A.S. ZAGREBACKA BURZA D.D. ZAO IMB-REAL ESTATE COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES GRUNWALD GERMANY x x COMPANIES SCHOENEFELD GERMANY x x COMPANIES ROME ITALY x x COMPANIES ROTHENBACH A.D. PEGNITZ GERMANY x x COMPANIES HAMBURG GERMANY x x COMPANIES ISTANBUL TURKEY x x COMPANIES ISTANBUL TURKEY x x COMPANIES ZAGREB CROATIA x x COMPANIES MOSCOW RUSSIA x x (*) Company belonging to the Banking Group consolidated at cost due to immateriality. 89

90 Substantial or legal impediments, current or foreseeable, that hinder the rapid transfer of capital resources or funds within the Group. As a result of the current financial crisis, some regulatory authorities have asked starting from previous periods that Group companies reduce their credit exposure to other Group companies operating in other jurisdictions, included their exposure to UniCredit S.p.A. In particular, the total net exposure of UniCredit Bank AG to Entities of UniCredit Group (excluded Entities controlled by UniCredit Bank AG itself) has been reduced to around 10 billion, of which around 5 billion related to gross cash exposure. Such reduction has been realized also providing UniCredit Bank AG with collaterals, including pledges on financial instruments, against financial exposures of UniCredit Bank AG to UniCredit S.p.A. itself. With reference to this topic, it has to be noted that during the first half 2012: o the pledge through which UniCredit S.p.A. granted UniCredit Bank AG with shares representing equity investments in foreign subsidiaries belonging to the banking group as collateral against financial exposures for a total value of 7.05 billion expired; o collateral agreements (Credit Support Annex) were signed with respect to the ISDA Master Agreements that regulate transactions in derivatives traded among UniCredit Bank AG and certain Group companies (among which UniCredit S.p.A., UniCredit Bank (Ireland) Plc and UniCredit Leasing S.p.A.) in order to optimize the management of intragroup exposures. UniCredit S.p.A. ( UCI ) and UniCredit Bank AG ( UCB AG ) committed themselves with the German regulator Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) to maintain an additional capital requirement for UCB AG, in addition to the regulatory requirement, that brings the Total Capital Ratio above 13%, as of June 30, Such commitment aims to maintain UCB AG regulatory capital both at an individual level and on a sub-consolidated basis sufficient to absorb any losses arising from lack of risk management policies, and it has to be considered valid till BaFin will positively judge related improvements. Moreover, the obligation has been taken to avoid actions such as the approval of a special dividend, which might bring UCB AG own funds below the agreed threshold. Commitments to maintain local supervisory capital higher than regulatory thresholds exist in some jurisdictions and for some foreign entities of the Group; it is considered that such overall commitments are not material at Group level. Moreover, constraints related the availability of some balance sheet assets exist in light of the ordinary transactions (e.g. repo, securities lending, etc.). Reduction of individual capital requirements applied to the Parent company and the Italian subsidiaries. Banca d Italia s Circular no. 263 of December 27, 2006 provided that "for Italian banks belonging to a banking group, the individual capital requirements for credit, counterparty, market and operational risks shall be reduced by 25 per cent, provided that supervisory capital at the consolidated level is at least equal to the total capital requirement. As at June 30, 2012, the UniCredit group met the aforementioned requirement at the consolidated level, and therefore benefited from these regulations. BASEL 2 THIRD PILLAR AS AT JUNE 30,

91 Quantitative disclosure >> Basel 2 Third Pillar Table 2 Names of all subsidiaries not included in the basis of consolidation and aggregate amount of their capital deficiencies with respect to any mandatory capital requirements. Here follows a list of the banking, financial and instrumental companies directly or indirectly controlled by UniCredit S.p.A. registered in the banking group that are held at cost due to immateriality. As at June 30, 2012, for these companies no capital deficiencies with respect to the any mandatory capital requirements were disclosed. Company Name Type Town Headquarter Country BANK AUSTRIA-CEE BETEILIGUNGSGMBH COMPANIES VIENNA AUSTRIA BANK ROZWOJU ENERGETYKI I OCHRONY SWODOWISKA S.A. MEGABANK IN LIQUIDATION BANKS WARSAW POLAND BAVARIA SERVICOS DE REPRESENTACAO COMERCIAL LTDA. ANCILLARY BANKING SERVICES COMPANIES SAO PAULO BRAZIL CAFU VERMOEGENSVERWALTUNG GMBH COMPANIES VIENNA AUSTRIA COBB BETEILIGUNGEN UND LEASING GMBH COMPANIES VIENNA AUSTRIA GE.S.E.T.T. - GESTIONE SERVIZI ESAZIONE TRIBUTI E TESORERIE S.P.A. IN LIQUIDAZIONE COMPANIES NAPLES ITALY HVB LONDON TRADING LTD. COMPANIES LONDON UNITED KINGDOM HVB SERVICES SOUTH AFRICA (PROPRIETARY) LIMITED ANCILLARY BANKING SERVICES COMPANIES JOHANNESBURG SOUTH AFRICAN REPUBLIC LLC UKRSOTSFINANCE COMPANIES KIEV UKRAINE MALREWARD LIMITED IN LIQUIDATION COMPANIES NICOSIA CYPRUS MEZZANIN CORPORATE FINANCE UNTERNEHMENSBERATUNG GMBH COMPANIES VIENNA AUSTRIA MY DREI HANDELS GMBH PALAIS ROTHSCHILD VERMIETUNGS GMBH ANCILLARY BANKING SERVICES COMPANIES VIENNA AUSTRIA ANCILLARY BANKING SERVICES COMPANIES VIENNA AUSTRIA PAYTRIA UNTERNEHMENSBETEILIGUNGEN GMBH COMPANIES VIENNA AUSTRIA SFS SERVICES GMBH COMPANIES VIENNA AUSTRIA UNICREDIT (U.K.) TRUST SERVICES LTD COMPANIES LONDON UNITED KINGDOM UNICREDIT AUDIT (IRELAND) LTD (IN LIQUIDATION) ANCILLARY BANKING SERVICES COMPANIES DUBLIN IRELAND VEREINWEST OVERSEAS FINANCE (JERSEY) LIMITED COMPANIES ST. HELIER JERSEY VINTNERS LONDON INVESTMENTS (NILE) LIMITED COMPANIES GEORGE TOWN CAYMAN ISLANDS 91

92 BASEL 2 THIRD PILLAR AS AT JUNE 30,

93 >> Basel 2 Third Pillar Table 3 Table 3 Supervisory capital structure The Item "A.1.1. Capital" of the table "Regulatory Capital Breakdown" (Quantitative disclosure) includes the effects of the share capital increase for cash by way of a rights issue for the amount of 7.5 /billion through the issuance of new ordinary shares with regular beneficial ownership rights, approved by UniCredit S.p.A.'s Extraordinary Shareholders' Meeting held on December 15, 2011, and carried out in the first quarter of On January 24th, 2012, UniCredit S.p.A. launched a Tier 1 and Upper Tier II tender offer, closed on February 3rd, In addition to such offer, in the first half of 2012 further repurchases of own financial instruments were carried out on the secondary market, even if for marginal amounts. Qualitative disclosure Capital instruments included in Tier 1 Capital INTEREST RATE MATURITY STARTING DATE OF PREPAYMENT OPTION AMOUNT IN ORIGINAL CURRENCY (mln) AMOUNT INCLUDED IN REGULATORY EQUITY ( '000) STEP-UP OPTION TO SUSPEND INTEREST PAYMENT ISSUED THROUGH A SPV SUBSIDIARY 9.375% 31- DEC -50 JUL - 20 EUR ,029 yes yes no 4.028% perpetual OCT - 15 EUR ,158 yes yes yes 5.396% perpetual OCT - 15 GBP ,643 yes yes yes % 31- DEC -50 JUN - 18 GBP ,692 yes yes no 8.125% 31- DEC -50 DEC - 19 EUR ,460 yes yes no 8.741% 30 - JUN- 31 JUN - 29 USD ,998 no yes yes 7.760% 13 - OCT - 36 OCT - 34 GBP ,310 no yes yes 9.000% 22 - OCT- 31 OCT - 29 USD ,363 no yes yes 3.500% 31 - DEC - 31 DEC - 29 JPY 25, ,675 no yes yes 10y CMS ( ) +0.10%, perpetual OCT -11 EUR ,439 no yes no cap 8.00 % 10y CMS ( ) +0.15%, cap 8.00 % perpetual MAR - 12 EUR ,100 no yes no TOTAL 1,940,867 ( ) Constant Maturity Swap 93

94 I Tier 2 Capital upper tier 2 instruments which account for more then 10% of the total issued amount INTEREST RATE MATURITY STARTING DATE OF PREPAYMENT OPTION AMOUNT IN ORIGINAL CURRENCY (mln) AMOUNT INCLUDED IN REGULATORY EQUITY ( '000) STEP-UP OPTION TO SUSPEND INTEREST PAYMENT 3.95% 1 - FEB - 16 not applicable EUR ,461 not applicable yes ( ) 5.00% 1 - FEB - 16 not applicable GBP ,389 not applicable yes ( ) 6.70% 5 - JUN - 18 not applicable EUR 1, ,661 not applicable yes ( ) ( ) if dividend is not paid, payment of interest is suspended (deferral of interest); if losses take share capital and reserves under the threshold set by Banca d Italia to authorize banking business, face value and interests are proportionally reduced. Tier 3 There are no values to be disclosed. BASEL 2 THIRD PILLAR AS AT JUNE 30,

95 >> Basel 2 Third Pillar Table 3 Quantitative disclosure Regulatory Capital Breakdown ( '000) REGULATORY CAPITAL A. Tier 1 before prudential filters 52,482,186 46,354,217 A.1 Tier 1 positive items: 68,458,574 71,381,206 A Capital ( ) ( ) ( ) 19,434,937 11,927,702 A Share premium account ( ) 34,624,245 38,562,472 A Reserves 10,913,628 16,346,472 A Innovative capital instruments and non-innovative capital instruments with maturity date 332, ,584 A Non-innovative capital instruments computable up to the limit of 50% ( ) 609, ,085 A Instruments subject to transitional provisions (grandfathering) ( ) ( ) 1,657,222 3,439,891 A Net income of the year/interim profit 887,428 - A.2 Tier 1 negative items: (15,976,388) (25,026,989) A Treasury stocks (8,212) (7,960) A Goodwill (12,675,871) (12,676,344) A Other intangible assets (3,292,305) (3,304,950) A Loss of the year/interim loss - (9,037,735) A Other negative items: - - * Value adjustments calculated on the supervisory trading book - - * Others - - B. Tier 1 prudential filters (456,184) (682,629) B.1 Positive IAS/IFRS prudential filters (+) 15,474 66,197 B.2 Negative IAS/IFRS prudential filters (-) ( ) (471,658) (748,826) C. Tier 1 capital gross of items to be deducted (A+B) 52,026,002 45,671,588 D. Items to be deducted 3,050,935 2,754,567 E. Total TIER 1 (C-D) 48,975,067 42,917,021 F. Tier 2 before prudential filters 15,784,402 17,952,485 F.1 Tier 2 positive items: 16,899,749 19,505,609 F Valuation reserves of tangible assets - - F Valuation reserves of available-for-sale securities 230, ,807 F Non-innovative capital instruments not eligible for inclusion in Tier 1 capital - - F Innovative capital instruments not eligible for inclusion in Tier 1 capital - - F Hybrid capital instruments 2,211,969 3,163,769 F Tier 2 subordinated liabilities 13,247,457 14,824,299 F Surplus of the overall value adjustments compared to the expected losses 931, ,871 F Net gains on participating interests - - F Other positive items 277, ,863 F.2 Tier 2 negative items (1,115,347) (1,553,124) F Net capital losses on participating interests (73,242) (57,085) F Loans - - F Other negative items (1,042,105) (1,496,039) G. Tier 2 prudential filters: (115,340) (147,404) G.1 Positive IAS/IFRS prudential filters (+) 2 - G.2 Negative IAS/IFRS prudential filters (-) (115,342) (147,404) H. Tier 2 capital gross of items to be deducted (F+G) 15,669,062 17,805,081 I. Items to be deducted 3,050,935 2,754,567 L. Total TIER 2 (H-I) 12,618,127 15,050,514 M. Deductions from Tier 1 and Tier 2 1,133, ,305 N. Capital for regulatory purposes (E+L-M) 60,459,366 56,973,230 O. Tier 3 Capital - - P. Capital for regulatory purposes included Tier 3 (N+O) 60,459,366 56,973,230 95

96 I Notes to previous page table: ( ) Includes the effects of the share capital increase for cash by way of a rights issue for the amount of 7.5 /billion through the issuance of new ordinary shares with regular beneficial ownership rights, approved by UniCredit S.p.A.'s Extraordinary Shareholders' Meeting held on December 15, 2011, and carried out in the first quarter of ( ) The ordinary shares underlying to the CASHES transaction are accounted under Share capital for a total amount of 2,373,915 thousands, and under Non-innovative capital instruments computable up to the limit of 50% for a total amount of 609,085 thousands, after the capital increase for no consideration for a nominal amount of ,96 thousands approved by the EGM on December 15, The CASHES are equity-linked instruments, issued for a counter value of 2,983,000 thousand in February 2009 by The Bank of New York (Luxembourg) SA, with a maturity on December 15, 2050 and convertible, under certain conditions, into n 96,756,406 ordinary shares of UniCredit S.p.A. (reduced from n 967,564,061 after the reverse split occurred on December 23, 2011) underwritten by Mediobanca in the context of the capital increase approved by the UniCredit Extraordinary Shareholders' Meeting on November 14, Therefore, since such shares are already issued, they are fully loss absorbing as any other ordinary share. ( ) Besides the amount related to Cashes above mentioned ( ) included in the item A.1.5, further 31,169 thousands related to saving shares have been reclassified (in the item A.1.6), of which 22,943 thousands related to minorities. ( ) 17,215 thousands have been reclassified in the item A.1.6 because referred to Share premium account related to saving shares. ( ) With reference to revaluation reserves arising from holdings of debt instruments issued by governments of EU member countries, on May 18, 2010 Banca d Italia recognized, for the purposes of the calculation of regulatory capital (prudential filters), the possibility of completely neutralizing capital gains and losses arising in the revaluation reserves after December 31, 2009 ( symmetric approach). The Group adopted this method starting from the regulatory capital calculation made in June 2010, and thereby replaced the asymmetric approach previously in use. As of June 30, 2012, the net minus amount neutralized is equal to 1,853 million. BASEL 2 THIRD PILLAR AS AT JUNE 30,

97 >> Basel 2 Third Pillar Table 3 Detail of Items to be decuted (50% TIER1-50% TIER2) ( '000) Shareholdings in banking and financial companies with a percentage higher than 10% ( ) 2,111,699 2,061,251 Shareholdings in insurance companies acquired after July 20th , ,425 Deductions for securitizations exposures 570, ,924 Deductions for expected losses/provisions (IRB models) 3,267,706 2,623,636 Deductions for expected losses on capital instruments and O.I.C.R. 6,362 6,898 Deductions related to settlement risk on non DVP transactions - - Total Deducted items (50% TIER1-50% TIER2) 6,101,870 5,509,134 ( ) The amount includes both the stake in Banca d Italia and subordinated assets issued by the same shareholdings companies deducted. Detail of Items to be deducted from TIER1 and TIER2 ( '000) Shareholdings in insurance companies acquired before July 20th ,133, ,305 Total Deducted items from TIER1 and TIER2 1,133, ,305 97

98 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

99 >> Basel 2 Third Pillar Table 4 Table 4 Capital adequacy Qualitative disclosure The UniCredit group has made a priority of capital management and allocation on the basis of the risk assumed in order to expand the Group s operations and create value. These activities are part of the Group planning and monitoring process and comprise: planning and budgeting processes: o proposals as to risk propensity and capitalization objectives; o analysis of risk associated with value drivers and allocation of capital to business areas and units; o assignment of risk-adjusted performance objectives; o analysis of the impact on the Group s value and the creation of value for shareholders; o preparation and proposal of the financial plan and dividend policy; monitoring processes: o analysis of performance achieved at Group and business unit level and preparation of management reports for internal and external use; o o analysis and monitoring of limits; analysis and performance monitoring of the capital ratios of the Group and individual companies. The Group has set itself the goal of generating income in excess of that necessary to remunerate risk (cost of equity), and thus of creating value for its shareholders by allocating capital to the various business areas and business units on the basis of specific risk profiles. In support of planning and monitoring processes, the Group has adopted a methodology based on risk-adjusted performance measurement (RAPM) which provides a number of indicators that combine and summarize the operating, financial and risk variables to be considered. Capital and its allocation are therefore extremely important in defining strategies, since on the one hand it represents the shareholders investment in the Group which must be adequately remunerated, on the other hand it is a scarce resource on which there are external limitations imposed by regulatory provisions. The definitions of capital used in the allocation process are as follows: Risk or employed capital: This is the equity component provided by shareholders (employed capital) for which a return that is greater than or equal to expectations (cost of equity) must be provided; Capital at risk: This is the portion of capital and reserves that is used (the budgeted amount or allocated capital) or was used to cover (at period-end - absorbed capital) risks assumed to pursue the objective of creating value. If capital at risk is measured using risk management methods, it is defined as economic capital, if it is measured using regulatory provisions, it is defined as regulatory capital. Economic capital is set at a level that will cover adverse events with a probability of 99.97% (confidence interval), while regulatory capital is quantified on the basis of a Core Tier 1 target ratio in line with that of major international banking groups and taking into account the impacts of the supervisory regulations which will be adopted (Basel 3, Global Systemically Important Financial Institutions: G-SIFIs, etc.). The purpose of the capital management function performed by the Capital Management unit of Planning, Strategy and Capital Management is to define the target level of capitalization for the Group and its companies in line with regulatory restrictions and the propensity for risk. 99

100 I Capital is managed dynamically: the Capital Management unit prepares the financial plan, monitors capital ratios for regulatory purposes and anticipates the appropriate steps required to achieve its goals. On the one hand, monitoring is carried out in relation to both shareholders equity and the composition of capital for regulatory purposes (Core Tier 1, Tier 1, Lower and Upper Tier 2 and Tier 3 Capital), and on the other hand, in relation to the planning and performance of risk-weighted assets (RWA). The dynamic management approach aims to identify the investment and capital-raising instruments and hybrid capital instruments that are most suitable for achieving the Group s goals. If there is a capital shortfall, the gaps to be filled and capital generation measures are indicated, and their cost and efficiency are measured using RAPM. In this context, value analysis is enhanced by the joint role played by the Capital Management unit in the areas of regulatory, accounting, financial, tax-related, risk management and other aspects and the changing regulations 6 affecting these aspects so that an assessment and all necessary instructions can be given to other Group HQ areas or the companies asked to perform these tasks. 6 E.g. Basel II/III, IAS/IFRS etc. BASEL 2 THIRD PILLAR AS AT JUNE 30,

101 >> Basel 2 Third Pillar Table 4 Capital Strengthening UniCredit S.p.A. s Extraordinary Shareholders Meeting, held in Rome on December 15, 2011, approved the capital strengthening measures announced to the market on November 14, More specifically, the Shareholders Meeting approved: the capitalization of the share premium reserve originated by the CASHES shares through a free capital increase, pursuant to Article 2442 of the Italian Civil Code; the cancellation of the nominal value of UniCredit ordinary and savings shares; a share capital increase by way of a rights issue for a total maximum amount of 7.5 billion to be carried out through the issuance of new ordinary shares with regular beneficial ownership rights to be offered on a pre-emptive basis to existing holders of UniCredit ordinary and savings shares, pursuant to Article 2441, first, second and third paragraph of the Italian Civil Code; a reverse stock split of ordinary and savings shares based on a ratio of 1 new ordinary or savings share for every 10 existing ordinary or savings shares; an amendment to UniCredit s Articles of Association enabling the Board of Directors to offer shareholders the chance to receive dividends either in cash or UniCredit ordinary shares (scrip dividend) or a mix of cash and ordinary shares. UniCredit S.p.A. s Board of Directors has also announced its intention not to submit to the Shareholders' Meeting, in 2012, any proposals for the payment of dividends with respect to its 2011 financial results, as per Bank of Italy s paper dated March 2, Therefore, in 2011 the following steps were taken: the 2,499,217, free capital increase, through the allocation to capital of an equivalent amount transferred from the Issue-premium reserve ; the cancellation of the nominal value of UniCredit S.p.A. ordinary and savings shares; the reverse stock split of ordinary and savings shares based on the ratio approved by the Extraordinary Shareholders Meeting on December 15, As a result of this initiative, the number of ordinary and savings shares has decreased from 19,274,251,710 to 1,927,425,171 and from 24,238,980 to 2,423,898 respectively. On January 4, 2012 the Board of Directors of UniCredit S.p.A. approved the terms and the timetable of the pre-emptive offer of ordinary shares to existing shareholders based on the resolution of the Extraordinary Shareholders Meeting of December 15, 2011: the new ordinary shares, with no par value, have been offered on a pre-emptive basis to existing holders of ordinary and savings shares of the Company at the price of per share, at the subscription ratio of 2 new ordinary shares for every 1 ordinary and/or savings share held; a maximum of 3,859,602,938 new ordinary shares will be issued, increasing the Company s share capital by, and for an aggregate amount of, 7,499,208,508.53; During the subscription period (January 9, 2012 January 27, 2012 in Italy, Germany and Austria and January 12, January 27, 2012 in Poland), 1,925,199,755 subscription rights were exercised and, thus, 3,850,399,510 shares were subscribed representing 99.8% of the total shares offered, for an aggregate amount of 7,481,326, The unexercised rights, relating to the subscription of 9,203,428 UniCredit S.p.A. ordinary shares, have been offered by UniCredit, through UniCredit Bank AG, Milan Branch, on the Stock Exchange, pursuant to Article 2441, paragraph 3, of the Italian Civil Code. All the rights were sold during the first trading session on February 1, 2012 and the new shares were subsequently subscribed. The capital increase was therefore fully subscribed. Furthermore, on March 22, 2011 the Board of Directors approved the issue of the performance shares promised under the 2007 UniCredit Group Long Term Incentive Plan, following the verification of the achievement of the performance targets set in the Plan. To this end, the Board of Directors approved a free increase in share capital for an amount of nominal 454,385 corresponding to 908,770 ordinary shares. 101

102 I Quantitative disclosure AMOUNTS AS AT AMOUNTS AS AT ( 000) NON-WEIGHTED WEIGHTED NON-WEIGHTED WEIGHTED CREDIT AND COUNTERPARTY RISKS AMOUNTS AMOUNTS REQUIREMENT AMOUNTS AMOUNTS REQUIREMENT A. CREDIT AND COUNTERPARTY RISK 903,277, ,062,273 29,364, ,404, ,509,585 29,800,767 A.1 STANDARDIZED APPROACH - RISK ASSETS 415,884, ,760,800 15,660, ,468, ,327,110 15,146,169 A.1.1. Exposures with or secured by central governments or central banks 125,268,718 7,319, ,552 99,569,974 5,415, ,232 A.1.2. Exposures with or secured by regional administrations and local authorities 52,316,174 2,284, ,778 51,997,467 2,365, ,271 A.1.3. Exposures with or secured by administrative bodies and non-commercial undertakings 13,412,442 6,661, ,952 9,891,839 3,874, ,991 A.1.4. Exposures with or secured by multilateral development banks 232,086 20,692 1, ,953 3, A.1.5. Exposures with or secured by international organizations A.1.6. Exposures with or secured by supervised institutions 15,553,916 4,719, ,571 13,140,203 3,683, ,661 A.1.7. Exposures with or secured by corporates 90,160,839 87,715,597 7,017,248 90,409,283 87,192,836 6,975,427 A.1.8. Retail exposures 40,910,919 30,666,096 2,453,288 39,438,323 29,500,238 2,360,019 A.1.9. Exposures secured by real estate property 28,533,767 14,951,405 1,196,112 30,529,447 15,790,898 1,263,272 A Past due exposures 11,676,133 14,150,814 1,132,065 11,022,994 13,881,242 1,110,499 A High risk exposures 2,135,258 2,600, ,075 2,302,422 2,778, ,246 A Exposures in the form of guaranteed bank bonds (covered bond) 1,466, ,074 32,886 1,249, ,883 13,831 A Short term exposures with corporates 120,109 45,676 3, , ,564 25,645 A Exposures in the form of Collective Investment Undertakings (CIU) 4,755,359 4,209, ,764 4,749,817 4,253, ,272 A Other exposures 29,341,666 20,003,248 1,600,260 29,403,449 20,093,599 1,607,488 A.2 IRB APPROACH - RISK ASSETS 486,893, ,137,869 13,611, ,384, ,930,421 14,554,434 A.2.1. Exposures with or secured by central administration and central banks 8,364, ,550 40,844 7,445, ,934 45,115 A.2.2. Exposures with or secured by supervised institutions, public and territorial entities and other entities 84,270,167 15,913,208 1,273,057 84,688,547 17,725,117 1,418,009 A.2.3. Exposures with or secured by corporate 251,319, ,881,977 9,990, ,381, ,614,347 10,529,149 A.2.4. Retail exposures secured by residential real estate property 87,134,539 12,174, ,994 90,112,389 13,574,856 1,085,988 A.2.5. Qualified revolving retail exposures 5,186, ,152 62,012 5,444, ,680 75,814 A.2.6. Other retail exposures 50,003,067 14,427,284 1,154,183 49,861,247 15,816,216 1,265,297 A.2.7. Purchased receivables: diluition risk A.2.8. Other assets - 1,060,174 84,814-1,366, ,338 A.2.9. Specialized lending - slotting criteria 615, ,342 31, , ,480 24,278 A Alternative treatment of mortgages A Settlement risk: exposures connected to non DVP transactions with supervisory weighting factors 1,262 1, ,069 18,069 1,446 A.3 IRB APPROACH - EXPOSURES IN EQUITY INSTRUMENTS 499,125 1,163,604 93, ,716 1,252, ,164 A.3.1. PD/LGD approach: risk assets 165, ,965 32, , ,954 36,876 A.3.2. Simple risk weight approach: risk assets 333, ,639 60, , ,101 63,288 - Private equity exposures in sufficiently diversified portfolios 262, ,785 39, , ,443 44,996 - Exchange-traded equity exposures 13,185 38,237 3,059 9,385 27,216 2,177 - Other equity exposures 58, ,617 17,249 54, ,442 16,115 A.3.3. Internal models approach: risk assets BASEL 2 THIRD PILLAR AS AT JUNE 30,

103 >> Basel 2 Third Pillar Table 4 Credit and counterparty risk ( 000) AMOUNTS AS AT AMOUNTS AS AT Credit risk Counterpary risk Credit risk Counterpary risk RWA (net of IC) Assets requiremets RWA (net of IC) Assets requiremets RWA (net of IC) Assets requiremets RWA (net of IC) Assets requiremets Standard method Exposures with or secured by central administrations and central banks 7,272, ,821 46,638 3,731 5,401, ,145 13,589 1,087 Supervised institutions 2,258, ,717 25,753 2,060 2,342, ,406 23,316 1,865 Public entities and local authorities 6,651, ,106 10, ,863, ,063 11, Others 20,692 1, , Specialized lending Small/Medium enterprises (SME) 4,021, , ,890 55,831 2,963, , ,769 57,582 Other enterprises 84,993,439 6,799,475 2,722, ,773 84,293,191 6,743,455 2,899, ,972 Exposure secured by residential real estate property: SME - RWA- STD - Credit risk 30,545,330 2,443, ,766 9,661 29,374,413 2,349, ,825 10,066 Exposures secured by residential real estate property: Individual 14,951,405 1,196, ,790,898 1,263, Qualified revolving retail exposures 14,150,306 1,132, ,878,251 1,110,260 2, Other retail exposures: SME 2,600, , ,778, , Other retail exposures: individuals 411,074 32, ,883 13, Purchased receivables: dilution risk 45,544 3, ,534 25, Others assets 4,161, ,893 48,397 3,872 4,209, ,735 44,217 3,537 Specialized lending - slotting criteria 20,003,248 1,600, ,093,599 1,607, Alternative treatment of mortgages 308,512 24, ,743 35, IRB Foundation Exposures with or secured by central administrations and central banks 309,112 24,729 2, ,601 17,568 2, Supervised institutions 896,882 71, ,184 16, ,361 67, ,075 9,686 Public entities and local authorities , Others Specialized lending 1,251, , ,287, , Small/Medium enterprises (SME) 4,430, , ,108 8,409 4,531, , ,707 8,217 Other enterprises 4,133, , ,848 10,628 3,969, , ,265 13,381 Exposure secured by residential real estate property: SME Exposures secured by residential real estate property: Individual Qualified revolving retail exposures Other retail exposures: SME Other retail exposures: individuals Purchased receivables: dilution risk Others assets Specialized lending - slotting criteria 393,342 31, ,480 24, Alternative treatment of mortgages Settlement risk: Exposures connected to non DVP transactions (Delivery Versus Payment) with supervisory weighting factors Advanced Exposures with or secured by central administrations and central banks 193,530 15,482 4, ,235 27,059 3, Supervised institutions 7,940, ,276 6,446, ,689 9,243, ,465 7,148, ,910 Public entities and local authorities 398,787 31,903 3, ,289 25,783 3, Others 24,216 1, ,918 3, Specialized lending 4,749, , ,154 22,412 4,241, , ,530 14,762 Small/Medium enterprises (SME) 35,985,974 2,878,878 1,676, ,101 38,013,955 3,041,116 2,962, ,977 Other enterprises 66,520,932 5,321,675 5,615, ,236 70,824,320 5,665,946 5,330, ,413 Exposure secured by residential real estate property: SME 424,627 33, ,596 41,

104 I Exposures secured by residential real estate property: Individual 11,750, , ,058,260 1,044, Qualified revolving retail exposures 775,152 62, ,680 75, Other retail exposures: SME 9,520, , ,211 9,057 10,411, ,889 64,820 5,185 Other retail exposures: individuals 4,634, , ,123 12,730 5,101, , ,610 19,089 Purchased receivables: dilution risk Others assets 1,060,174 84, ,366, , Specialized lending - slotting criteria Alternative treatment of mortgages Settlement risk: Exposures connected to non DVP transactions (Delivery Versus Payment) with supervisory weighting factors 1, ,069 1, Other IRB exposures Equity instruments - PD/LGD approach: risk assets 410,965 32, ,954 36, Equity instruments - Simple risk weight approach: risk assets 752,639 60, ,101 63, Equity instruments - Internal models approach: risk assets Securitization - IRB approach 4,315, , ,835, , In Capital Adequacy Template, weighted amounts regarding securitization exposures are included in item A.1.3 Securitization; capital requirement regarding securitization exposures is included in item B.1 Credit and counterparty Risk. BASEL 2 THIRD PILLAR AS AT JUNE 30,

105 >> Basel 2 Third Pillar Table 4 Capital Adequacy ( '000) NON WEIGHTED ASSETS WEIGHTED ASSETS A. RISK ASSETS A.1 Credit and counterparty risk 915,432, ,776, ,686, ,783, Standardized approach 415,884, ,468, ,760, ,327, IRB approaches 487,392, ,935, ,301, ,182, Foundation 28,838,351 25,024,203 11,858,513 11,546, Advanced 458,554, ,911, ,442, ,636, Securitizations 12,154,765 14,372,051 4,624,458 4,274,208 B. CAPITAL REQUIREMENTS B.1 Credit and counterparty risk ,734,938 30,142,704 B.2 Market Risk - - 1,895,767 2,518, Standardized approach , , Internal models - - 1,700,052 2,122, Concentration risk B.3 Operational risk - - 4,188,021 4,116, Basic indicator approach (BIA) , , Traditional standardized approach (TSA) , , Advanced measurement approach (AMA) - - 3,566,096 3,525,121 B.4 Other capital requirements B.5 Other calculation elements ,861 B.6 Total capital requirements ,818,726 36,831,588 C. RISK ASSETS AND CAPITAL RATIOS C.1 Weighted risk assets 447,734, ,394,842 C.2 TIER 1 capital/weighted risk assets (TIER 1 capital ratio) 10.94% 9.32% C.3 Capital for regulatory purposes (included TIER 3)/Weighted risk assets (Total capital ratio) 13.50% 12.37% Market Risk capital requirement ( '000) Position risk 1,859,484 2,436,118 - Assets included in regulatory trading portfolio 1,859,484 2,436,118 - Assets not included in regulatory trading portfolio - - Settlement risk for DVP transactions 3,534 3,211 Exchange rate risk 32,749 79,298 Commodities risk position - - Market Risk capital requirement 1,895,767 2,518,627 Position risk requirement includes 38,968 thousand regarding securitization position. 105

106 I Reclassification of Financial Assets The amendments to IAS 39 and to IFRS 7 Reclassification of financial assets approved by the IASB in 2008 make it possible to reclassify certain financial assets, after their initial recognition, out of the HfT and AfS portfolios. In particular, the following may be reclassified: those HfT or AfS financial assets that would have satisfied the definition specified by international accounting standards for the loan portfolio (if such assets were not classified as HfT or AfS respectively on initial recognition) if the entity intends, and is able, to hold them for the foreseeable future or until maturity; "only in rare circumstances" those HfT financial assets, which, at the time of their recording, did not satisfy the definition of loans. As a result of some amendments to the regulations in force, made also in the light of the continuing turbulence on financial markets, in one of the CEE countries where the Group operates debt securities with a carrying value of 42,168 thousand were reclassified from the financial assets held for trading portfolio to the financial assets available for sale portfolio during the first half of The following table provides the book value and fair value as at June 30, 2012 (broken down by type of underlying asset and portfolio) of assets which had been reclassified in H2 2008, H and H The income/expenses that would have been recognized if such reclassifications had not occurred, as well as those effectively recognized through profit or loss or at equity are also provided. These income/expenses before taxes are broken down into two categories: those arising from measurement (including any write-downs) and other (including interest and gains/losses on the disposal of the transferred assets. Furthermore, it should be noted that, before the transfer, the financial instruments subject to reclassification in the first half of 2012 led to the recognition of gains amounting to 620 thousand. As a result the overall impact before taxes that would have been recognized in the income statement as of June 30, 2012, if these assets had not been reclassified, would have been a gain of 324,829 thousand, while the impact actually recognized was a gain of 184,275 thousand. BASEL 2 THIRD PILLAR AS AT JUNE 30,

107 >> Basel 2 Third Pillar Table 4 Reclassified financial assets: book value, fair value and effects on comprehensive income ( '000) INCOME/EXPENSES ABSENT RECLASSIFICATION (BEFORE TAXES) INCOME/EXPENSE RECOGNIZED DURING THE PERIOD (BEFORE TAXES) INSTRUMENTS ACCOUNTING PORTFOLIO BEFORE ACCOUNTING PORTFOLIO AFTER CARRYING AMOUNT AS AT FAIR VALUE AS AT FROM FROM TYPE RECLASSIFICATION RECLASSIFICATION MEASUREMENT MEASUREMENT (1) (2) (3) (4) (5) (6) (7) (8) (9) A. Debt securities A. Debt securities 7,796,194 6,973, , ,456 (1,711) 170,867 Held for trading Available for sale 51,404 51, Held for trading Held to maturity 194, ,868 (121) 2,751-2,500 Held for trading Loans to Banks 2,209,766 2,236,963 52,605 46,830-49,361 Held for trading Loans to Customers 5,157,438 4,353,722 90, ,350 (2,122) 114,827 Available for sale Loans to Banks Available for sale Loans to Customers 182, ,134 (11,459) 3,875-3,674 B. Equity instruments B. Equity instruments Held for trading Available for sale C. Loans C. Loans 346, ,552 3,944 13,621-15,119 Held for trading Available for sale Held for trading Held to maturity Held for trading Loans to Banks 100, ,318 3,058 6,640-7,544 Held for trading Loans to Customers 245, , ,981-7,575 Available for sale Loans to Banks Available for sale Loans to Customers D. Units in investment D. Units in investment funds funds Held for trading Available for sale Total Total 8,142,234 7,344, , ,077 (1,711) 185,986 Debt securities reclassified in the loan with customers portfolio include structured credit products (other than derivative contracts and financial instruments with incorporated derivatives) for an amount of 4,234,159 thousand at June 30,

108 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

109 >> Basel 2 Third Pillar Table 5 Table 5 Credit risk: general disclosures for all banks Qualitative disclosure Definition of impaired and past-due exposures According to Banca d Italia s regulations, impaired loans and receivables are classified into the following categories: Non-performing loans formally impaired loans, being exposure to insolvent borrowers, even if the insolvency has not been recognized in a court of law, or borrowers in a similar situation. Measurement is generally on a loan-by-loan basis or, for loans singularly not significant, on a portfolio basis for homogeneous categories of loans; Doubtful loans exposure to borrowers experiencing temporary difficulties, which the Group believes may be overcome within a reasonable period of time. Doubtful loans also include loans not classified as non-performing granted to borrowers other than government entities where the following conditions are met: o They have fallen due and remained unpaid for more than 270 days (or for more than 150 or 180 days for consumer credit exposure with an original term of less than 36 months, or 36 months or over, respectively); o The amount of the above exposure to the same borrower and other defaulted payments that are less than 270 days overdue, is at least 10% of the total exposure to that borrower. Doubtful loans are valued analytically when special elements make this advisable or by applying analytically flat percentages on a historical or stochastic basis in the remaining cases. Restructured loans exposure to borrowers with whom a rescheduling agreement has been entered into including renegotiated pricing at interest rates below market, the conversion of part of a loan into shares and/or reduction of principal; measurement is on a loan-by-loan basis, including discounted cost due to renegotiation of the interest rate at a rate lower than the original contractual rate. Past-due loans total exposure to any borrower not included in the other categories, which at the balance-sheet date has expired facilities or unauthorized overdrafts that are more than 90 days past due and meet the requirements set out by supervisory regulations (ref. Bank of Italy s Circular No. 263 of December 27, 2006 New regulations for the prudential supervision of banks ) for their classification under the past due exposures category (TSA banks) or under the defaulted exposures category (IRB banks). Since January 1, 2012 impaired past-due loans have included certain type of exposures which at December 31, 2011 benefited from a temporary or permanent 180-days default trigger. Loans that benefited from the temporary waiver (i.e. loans to resident firms or firms registered in Italy) fall under Bank of Italy rules that came into force on January 1, 2012; those that benefited from the permanent waiver (i.e. retail loans and loans to public-sector entities resident or registered in Italy) under the Financial Stability Board s recommendations, to which the Group has adhered. 109

110 I Total exposure is recognized in this category if, at the balance-sheet date, either: the expired or unauthorized borrowing; or: the average daily amount of expired or unauthorized borrowings during the last preceding quarter is equal to or exceeds 5% of total exposure. Overdue exposures are valued at a flat rate on a historical or stochastic basis by applying where available the risk rating referred to LGD Loss Given Default under Basel 2. Collective assessment is used for groups of loans for which individually there are no indicators of impairment, but to which latent impairment can be attributed, according to the method described below, inter alia on the basis of the risk factors used under Basel 2. Description of methodology applied to determine writedowns Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables are recognized on the date of contract signing, which normally coincides with the date of disbursement to the borrower. These items include debt instruments with the above characteristics or that are subject to portfolio reclassification in accordance with the rules of IAS 39 (see Part A.3.1 below - Transfers between portfolios) and the net value of finance leases of assets under construction or awaiting lease, provided the leases have the characteristics of contracts entailing the transfer of risk. After initial recognition at fair value, which usually is the price paid including transaction costs and income which are directly attributable to the acquisition or issuance of the financial asset (even if not paid), a loan or receivable is measured at amortized cost using the effective interest method, allowances or reversals of allowances being made where necessary on remeasuring. A gain or loss on loans and receivables is recognized in profit or loss: when a loan or receivable is derecognized: in item 100 (a) Gains (losses) on disposal ; or: when a loan or receivable is impaired: in item 130 (a) Impairment losses (a) loans and receivables. Interest on loans and receivables is recognized in profit or loss on an accrual basis under item 10 Interest income and similar revenue. Delay interest is taken to the income statement on collection or receipt. Loans and receivables are reviewed in order to identify those that, following events occurring after initial recognition, show objective evidence of possible impairment. These impaired loans are reviewed and analysed periodically at least once a year. A loan or receivable is deemed impaired when it is considered that it will probably not be possible to recover all the amounts due according to the contractual terms, or equivalent value. Allowances for impairment of loans and receivables are based on the present value of expected cash flows of principal and interest; in determining the present value of future cash flows, the basic requirement is the identification of estimated collections, the timing of payments and the rate used. BASEL 2 THIRD PILLAR AS AT JUNE 30, 2012

111 >> Basel 2 Third Pillar Table 5 The amount of the loss on impaired exposures classified as non-performing, doubtful or restructured according to the categories specified below, is the difference between the carrying value and the present value of estimated cash flows discounted at the original interest rate of the financial asset. If the original interest rate of a financial asset being discounted cannot be found, or if finding it would be excessively onerous, the average rate was applied that was recorded for positions with similar characteristics, which had not deteriorated in the year in which the original deterioration of the asset concerned occurred. For all fixed-rate positions, the rate determined in this manner was also held constant in future years. Recovery times are estimated on the basis of any repayment schedules agreed with the borrower or included in a business plan or in forecasts based on historical recovery experience observed for similar classes of loans, taking into account the type of loan, the geographical location, the type of security and any other factors considered relevant. Any subsequent change vis-à-vis initial expectations of the amount or timing of expected cash flows of principal and interest causes a change in allowances for impairment and is recognized in profit or loss in item 130(a) Impairment losses (a) loans and receivables. Write-downs of impaired loans are classified as specific in the relevant income statement item even when the calculation is flat-rate or statistical, as indicated in the previous chapter. When the reasons for the impairment no longer exist, and this assessment is objectively attributable to an event occurred after the impairment, a reversal is made in the same profit or loss item, within the amount of the amortized cost that there would have been if there had been no impairments. Derecognition of a loan or receivable in its entirety is made when the loan or receivable is deemed to be irrecoverable or is written off. Write-offs are recognized directly in profit or loss under item 130(a) Impairment losses (a) loans and receivables and reduce the amount of the principal of the loan or receivable. Reversals of all or part of amounts previously written off are recognized in the same item. Loans under renegotiation involving a debt/equity swap are valued, pending swap finalization, on the basis of the conversion agreements entered into on the balance-sheet date. Any negative differences between the value of the loans and the fair value of the shares are taken to profit and loss as write-downs. 111

112 I Quantitative disclosure Sovereign Exposures In keeping with Consob Notice no. DEM/ dated August 5, 2011 (which is based on ESMA Statement 2011/266 of July 28, 2011) on the information regarding listed companies exposures to sovereign debt securities and loans to be included in financial statements, and with reference to the evolution of international markets, a detailed description of the Group s sovereign exposures 7 as at June 30, 2012 is provided below. Overall, the book value of sovereign debt securities as at June 30, 2012 amounted to 89,875 million, of which about 93% concentrated in eight countries; Italy, with 40,983 million, represents 46% of the total. For each one of the eight countries, the table below shows the nominal value, the book value and the fair value of the exposures broken down by portfolio as at June 30, Breakdown of Sovereign Debt Securities by Country and Portfolio ( '000) Country / portfolio Amounts as at Nominal value Book value Fair Value - Italy 42,160,975 40,982,619 40,658,366 financial assets/liabilities held for trading (net exposures 1 ) 5,586,096 5,163,906 5,163,906 financial assets at fair value through profit or loss 675, , ,351 available for sale financial assets 32,440,628 31,699,769 31,699,769 loans and receivables 225, , ,938 held to maturity investments 3,232,965 3,214,403 2,948,401 - Germany 20,642,740 21,552,475 21,551,131 financial assets/liabilities held for trading (net exposures 1 ) 1,479,958 1,542,652 1,542,652 financial assets at fair value through profit or loss 15,421,748 16,165,047 16,165,047 available for sale financial assets 240, , ,108 loans and receivables 3,497,919 3,598,590 3,597,246 held to maturity investments 3,000 3,077 3,077 - Poland 7,775,602 7,991,782 7,832,833 financial assets/liabilities held for trading (net exposures 1 ) 230, , ,046 financial assets at fair value through profit or loss available for sale financial assets 5,679,455 5,876,334 5,876,334 loans and receivables 825, , ,397 held to maturity investments 1,040,036 1,046, ,056 - Austria 3,641,718 3,719,156 3,789,179 financial assets/liabilities held for trading (net exposures 1 ) 442, , ,187 financial assets at fair value through profit or loss 14,827 20,259 20,259 available for sale financial assets 2,900,908 3,305,191 3,305,191 loans and receivables 50,000 61,701 61,336 held to maturity investments 233, , ,205 - Turkey ( 2 ) 3,094,726 3,335,717 3,485,088 financial assets/liabilities held for trading (net exposures 1 ) 65,887 57,298 57,298 financial assets at fair value through profit or loss available for sale financial assets 1,019,251 1,111,413 1,111,413 loans and receivables held to maturity investments 2,009,588 2,167,006 2,316,377 - Czech Republic 2,269,965 2,313,751 2,313,787 financial assets/liabilities held for trading (net exposures 1 ) 174, , ,043 financial assets at fair value through profit or loss 280, , ,507 available for sale financial assets 1,815,217 1,905,788 1,905,788 loans and receivables held to maturity investments Spain 2,449,186 1,889,013 1,888,763 financial assets/liabilities held for trading (net exposures 1 ) 393,497 14,295 14,295 financial assets at fair value through profit or loss 400, , ,460 available for sale financial assets 1,647,248 1,552,962 1,552,962 loans and receivables held to maturity investments 8,114 6,296 6,045 - Hungary 1,481,273 1,476,856 1,476,633 financial assets/liabilities held for trading (net exposures 1 ) 53,539 51,762 51,762 financial assets at fair value through profit or loss available for sale financial assets 1,380,339 1,377,078 1,377,078 loans and receivables 28,568 29,011 29,011 held to maturity investments 18,826 19,005 18,783 Total on-balance sheet exposures 83,516,186 83,261,368 82,995,778 ( 1 ) including exposures in Credit Derivatives. ( 2 ) amounts recognized using proportionate consolidation w ith reference to the ow nership percentage for exposures held by joint ventures. 7 Sovereign exposures are bonds issued by and loans given to central and local governments and governmental bodies. ABSs are not included. BASEL 2 THIRD PILLAR AS AT JUNE 30, 2012

113 >> Basel 2 Third Pillar Table 5 The weighted duration of the sovereign bonds shown in the table above, divided by the banking 8 and trading book, is the following: Weighted duration (years) Banking book Trading book - Italy Germany Poland Turkey Austria Spain Czech Republic Hungary The remaining 7% of the total of sovereign debt securities, amounting to 6,614 million with reference to the book values as at June 30, 2012, is divided into 45 countries, among which the US ( 141 million), Ireland ( 80 million) and Portugal ( 24 million). These exposures were not subject to impairment at June 30, 2012, with the exception of those towards Greece, With reference to the latter exposures, we remind that on February 21, 2012, the Greek Republic and the public sector (EU Member States and the International Monetary Fund-IMF) reached a mutual agreement conditional on the participation of private investors in the new bailout plan, which besides calling for further financial support from the public sector provided for an offer to swap old Greek bonds with new financial instruments. More specifically, these instruments consist of (i) European Financial Stability Facility (EFSF) notes with a face value of 15% of the exchanged bonds, (ii) new Greek government bonds with maturities between 10 and 30 years and a face value of 31.5% of the exchanged bonds and (iii) GDP-linked securities. From February 24 to March 8, 2012, the Greek Republic carried out the bond swap and subsequently enforced the Collective Action Clauses (CAC) on all holders of bonds governed by Greek law who had rejected the voluntary deal. The participation in Greece s bond swap offer and the subsequent evolution of the resulting bonds market price as at June 30, 2012, have entailed an overall loss in the consolidated Income Statement of 25 million. The book amount of Greece exposure totals 18 million, with a face/nominal value of 125 million. The table below shows the classification of bonds belonging to the banking book and their percentage incidence on the total of the portfolio under which they are classified. Breakdown of Sovereign Debt Securities by Portfolio Amounts as at ( '000) Financial assets at fair value Available for sale financial assets Loans Held to maturity investments Total Book value 17,889,606 51,151,454 5,811,286 6,852,995 81,705,340 % Portfolio 62.50% 88.32% 0.94% 73.96% 9.70% In addition to the exposures to sovereign debt securities, loans 9 given to central and local governments and governmental bodies must be taken into account. 8 The banking book includes assets at fair value through profit or loss, available-for-sale assets, held to maturity assets and loans. 9 Tax items are not included. 113

114 I The table below shows the total amount as at June 30, 2012 of loans given to countries towards which the overall exposure exceeds 150 million, representing more than 97% of the total. Breakdow n of Sovereign Loans by Country Country ( '000) Amounts as at Book value - Germany ( 1 ) 9,764,117 - Italy 7,362,321 - Austria ( 2 ) 5,626,763 - Poland 1,763,635 - Croatia 1,723,244 - Indonesia 562,615 - Slovenia 398,593 - Turkey ( 3 ) 259,797 - Hungary 247,411 - Brazil 222,706 - Serbia 191,416 Total on-balance sheet exposures 28,122,619 ( 1 ) of w hich 1,267,492 in financial assets held for trading and those at fair value through profit or loss. ( 2 ) of w hich 240,526 in financial assets at fair value through profit or loss. (3) amounts recognized using proportionate consolidation w ith reference to the ow nership percentage for exposures held by joint ventures. Lastly, it should be noted that derivatives are traded within the ISDA master agreement and accompanied by Credit Support Annexes, which provide for the use of cash collaterals or low-risk eligible securities. Some figures as at reported in the following tables have been re-exposed following some analysis performed during the period. BASEL 2 THIRD PILLAR AS AT JUNE 30, 2012

115 >> Basel 2 Third Pillar Table 5 Credit Risk: on/off balance sheet information to banks AMOUNTS AS AT ( '000) BALANCE-SHEET EXPOSURES ASSETS HELD FOR TRADING ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AVAILABLE FOR SALE ASSETS HELD TO MATURITY INSTRUMENTS LOANS AND RECEVAIBLES WITH BANKS NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE OFF-BALANCE SHEET EXPOSURES EXPOSURES/PORTFOLIO A. Balance sheet exposures GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE a) Non-performing loans , , b) Doubtful loans ,070 12, c) Restructured exposures ,168 13, d) Past due exposures ,271 4, e) Other assets 6,188,661 6,789,694 5,631,258 8,263,053 9,001,039 9,885,932 2,652,197 3,151,544 65,362,119 64,318,940 1,058 28, Total A 6,188,661 6,789,694 5,631,258 8,263,053 9,001,745 9,886,286 2,652,197 3,151,544 65,592,552 64,603,397 1,058 28, B. Off-balance sheet exposures a) Impaired ,254 16,592 b) Others ,018,273 71,998,521 Total B ,031,527 72,015,113 TOTAL A+B as at ,188,661 6,789,694 5,631,258 8,263,053 9,001,745 9,886,286 2,652,197 3,151,544 65,592,552 64,603,397 1,058 28,522 60,031,527 72,015,113 TOTAL A+B as at ,235,650 7,599,900 9,425,119 9,697,545 10,315,577 10,331,586 3,885,869 2,696,659 56,557,344 66,108,273-39,895 64,247,272 83,220,778 GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE 115

116 I Credit Risk: on/off balance sheet information to customers AMOUNTS AS AT ( '000) BALANCE-SHEET EXPOSURES ASSETS HELD FOR TRADING ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS AVAILABLE FOR SALE ASSETS HELD TO MATURITY INSTRUMENTS LOANS AND RECEIVABLES WITH CUSTOMERS NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE OFF-BALANCE SHEET EXPOSURES EXPOSURES/PORTFOLIO A. Balance sheet exposures GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE a) Non-performing loans ,072 50,010 15,975 28,524 45,020,281 42,652,460 14,582 4, b) Doubtful loans , ,341-73,759 19,924,490 19,160, c) Restructured exposures ,317 11, ,019,763 7,320, d) Past due exposures ,161 16,523 8,405 2,802 5,035,602 4,488, e) Other assets 17,442,288 22,334,387 15,447,646 17,463,225 60,222,120 53,092,139 4,985,768 5,432, ,970, ,852,444-30, Total A 17,442,665 22,334,513 15,447,646 17,463,225 60,328,607 53,301,134 5,010,148 5,537, ,970, ,474,408 14,582 35, B. Off-balance sheet exposures a) Impaired ,854,185 2,683,549 b) Others ,674, ,573,623 Total B ,528, ,257,172 TOTAL A+B as at ,442,665 22,334,513 15,447,646 17,463,225 60,328,607 53,301,134 5,010,148 5,537, ,970, ,474,408 14,582 35, ,528, ,257,172 TOTAL A+B as at ,678,121 27,219,492 18,587,750 17,702,463 50,992,411 49,519,447 5,567,754 6,759, ,561, ,268,296 38,794 77, ,326, ,360,485 GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE GROSS EXPOSURE AVERAGE EXPOSURE BASEL 2 THIRD PILLAR AS AT JUNE 30,

117 >> Basel 2 Third Pillar Table 5 Distribution of on-b/s and off-b/s exposures to banks by geographic area ( '000) AMOUNT AS AT ITALY EUROPEAN COUNTRIES AMERICA ASIA REST OF THE WORLD EXPOSURES/GEOGRAPHIC AREA GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE A. Balance sheet exposures a) Non-performing loans ,460 18,447 39,728 4,482 67,399 21, b) Doubtful loans 1, ,624 3, ,606 - c) Restructured exposures , , d) Past due exposures , e) Other exposures 13,594,453 13,593,250 61,991,623 61,978,937 4,852,160 4,851,676 1,615,042 1,611,647 6,783,054 6,782,573 Total A 13,596,293 13,594,167 62,107,211 62,001,208 4,891,888 4,856,158 1,686,355 1,633,259 6,785,724 6,782,594 B. Off-Balance Sheet exposures a) Non-performing loans b) Doubtful loans c) Other impaired assets ,143 1, e) Other exposures 9,476,072 9,468,768 43,576,828 43,573,615 3,938,629 3,938,027 2,112,502 2,111, , ,120 Total B 9,476,072 9,468,768 43,590,071 43,574,891 3,938,629 3,938,027 2,112,502 2,111, , ,131 TOTAL (A+B) ,072,365 23,062, ,697, ,576,099 8,830,517 8,794,185 3,798,857 3,744,485 7,699,977 7,696,725 TOTAL (A+B) ,478,420 23,475, ,138, ,012,974 9,503,575 9,419,569 5,059,080 5,005,252 7,486,941 7,474,

118 I Distribution of balance sheet and off-b/s exposures to customers by geographic area ( '000) AMOUNT AS AT ITALY EUROPEAN COUNTRIES AMERICA ASIA REST OF THE WORLD EXPOSURES/GEOGRAPHIC AREA GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE GROSS EXPOSURE NET EXPOSURE A. Balance sheet exposures a) Non-performing loans 28,735,003 13,021,910 13,226,013 5,218, , ,272 2,461,681 1,143, , ,972 b) Doubtful loans 14,519,655 10,368,519 4,747,229 3,422,945 14,615 12, , , ,803 59,591 c) Restructured exposures 3,480,458 3,004,012 3,968,870 2,457, ,798 47, , , , ,462 d) Past due exposures 3,823,793 3,339,576 1,025, ,071 2,322 2,023 88,493 73, ,409 85,302 e) Other exposures 274,342, ,118, ,057, ,850,208 10,035,447 9,962,714 4,880,867 4,844,298 17,752,718 17,605,011 Total A 324,900, ,852, ,024, ,792,541 10,505,158 10,147,011 8,212,402 6,586,327 18,571,262 17,977,338 B. Off-Balance Sheet exposures a) Non-performing loans 236, , , , ,835 21,626 25,479 2,606 b) Doubtful loans 674, , , , ,296 33,329 4,273 1,487 c) Other impaired assets 630, , , , ,444 10,359 69,214 62,099 e) Other exposures 52,935,069 52,182, ,578, ,527,813 8,501,493 8,500,334 2,037,241 2,034,831 21,621,908 21,612,760 Total B 54,476,974 53,610, ,718, ,315,468 8,502,524 8,501,362 2,109,816 2,100,145 21,720,874 21,678,952 TOTAL (A+B) 30:06: ,377, ,462, ,742, ,108,009 19,007,682 18,648,373 10,322,218 8,686,472 40,292,136 39,656,290 TOTAL (A+B) 31:12: ,573, ,611, ,952, ,143,189 22,925,559 22,582,051 11,405,234 9,869,345 35,896,842 35,373,028 BASEL 2 THIRD PILLAR AS AT JUNE 30,

119 >> Basel 2 Third Pillar Table 5 Distribution of on-b/s and off-b/s exposures to customers by business sector (1st part) AMOUNTS AS AT ( '000) GOVERNMENTS PUBLIC ENTITIES COMPANIES Exposures/Business sector A. Balance sheet exposures GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE a) Non-performing loans 10,711 6,438 4,273 30,787 20,014 10, , , ,461 b) Doubtful loans 1, ,931 15, , ,912 97, ,689 c) Restructured exposures 30,066 12,389 17,677 3, , ,413 64,349 46,064 d) Past due exposures 11,628 3,285 8, ,067 3, ,796 82,650 13,327 69,323 e) Other exposures 64,859,032 21,449 64,837,583 44,162, ,393 44,043,598 58,222, ,602 57,886,816 Total A 64,912,634 44,119 64,868,515 44,491, ,618 44,332,834 59,349, ,924 58,527,353 B. Off-Balance Sheet exposures a) Non-performing loans - - X - - X 39,819 3,774 36,045 b) Doubtful loans - - X 18, ,668 20, ,516 c) Other impaired assets - - X 7, ,616 3,703-3,703 e) Other exposures 1,745, ,745,587 17,385,782 1,549 17,384,233 42,302, ,381 41,560,461 Total B 1,745, ,745,587 17,412,123 1,606 17,410,517 42,367, ,574 41,620,725 TOTAL (A+B) ,658,385 44,283 66,614,102 61,903, ,224 61,743, ,716,576 1,568, ,148,078 TOTAL (A+B) ,753, ,829 63,323,513 63,779, ,556 63,627,252 94,782,620 1,683,122 93,099,

120 I Distribution of on-b/s and off-b/s exposures to customers by business sector (2st part) AMOUNTS AS AT ( '000) INSURANCE COMPANIES NON- COMPANIES ENTITIES Exposures/Business sector A. Balance sheet exposures GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE GROSS EXPOSURE TOTAL WRITEDOWNS NET EXPOSURE a) Non-performing loans 30,180 12,859 17,321 30,037,422 17,373,118 13,437,140 14,294,926 7,738,782 5,783,308 b) Doubtful loans 1, ,400,068 3,930,926 11,140,647 5,160,191 1,729,187 2,759,499 c) Restructured exposures 146,723 11, ,702 7,489,697 2,091,244 5,402, ,882 38, ,481 d) Past due exposures ,006, ,696 3,548, , , ,040 e) Other exposures 1,353,494 3,343 1,350, ,395,066 1,236, ,398, ,075, , ,863,315 Total A 1,531,758 27,526 1,504, ,329,067 25,156, ,927, ,599,909 10,650, ,194,643 B. Off-Balance Sheet exposures a) Non-performing loans , ,734 93, ,604 24, ,570 b) Doubtful loans - - X 977, , ,535 13,801 4,212 9,589 c) Other impaired assets ,724 78, , ,696 4, ,367 e) Other exposures 1,631, ,630, ,264,279 56, ,207,476 34,344,335 14,406 34,329,929 Total B 1,631, ,630, ,320, , ,794,362 35,051,436 46,981 35,004,455 TOTAL (A+B) ,163,194 28,096 3,135, ,404,332 25,682, ,722, ,896,472 10,697, ,199,098 TOTAL (A+B) ,147,849 25,235 4,122, ,656,306 24,232, ,423, ,633,346 10,650, ,982,634 BASEL 2 THIRD PILLAR AS AT JUNE 30,

121 >> Basel 2 Third Pillar Table 5 Time breakdown by contractual residual maturity of financial assets ( '000) AMOUNTS AS AT ITEMS/MATURITIES ON DEMAND 1 TO 7 DAYS 7 TO 15 DAYS 15 DAYS TO 1 MONTH 1 TO 3 MONTHS 3 TO 6 MONTHS 6 MONTHS TO 1 YEAR 1 TO 5 YEARS OVER 5 YEARS UNSPECIFIED MATURITY Balance sheet assets 105,534,800 28,033,658 8,653,021 26,649,072 46,702,063 44,719,677 56,323, ,750, ,253,108 12,637,624 A.1 Government securities 89, , , ,569 2,759,526 9,053,068 8,499,330 27,671,309 13,132, A.2 Other debt securities 274,858 2,140, , ,111 1,845,487 1,464,594 5,809,168 38,420,008 26,674, ,743 A.3 Units in investment funds 800,623 29, , ,215,599 A.4 Loans 104,370,003 25,559,281 7,981,399 25,229,392 42,082,654 34,202,015 42,014, ,658, ,446,142 9,682,757 - Banks 30,376,466 8,540,130 3,663,380 3,866,903 9,300,900 1,990,293 1,133,864 2,151,434 2,361,534 1,275,780 - Customers 73,993,537 17,019,151 4,318,019 21,362,489 32,781,754 32,211,722 40,880, ,507, ,084,608 8,406,977 Balance sheet liabilities 252,525,506 43,545,121 20,680,304 38,295,528 70,833,828 44,572,378 46,223, ,872,252 62,047,870 6,560,530 B.1 Deposits and current accounts 244,183,743 11,101,587 8,334,984 15,064,210 40,075,173 19,903,804 15,982,661 19,647,450 2,078, ,798 - Banks 18,669,542 5,177,099 1,168,955 2,134,214 1,720, , ,711 4,661, ,111 2,202 - Customers 225,514,201 5,924,488 7,166,029 12,929,996 38,355,061 19,411,753 15,017,950 14,985,524 1,248, ,596 B.2 Debt securities 1,086,883 1,228,001 1,671,170 3,889,575 7,622,005 9,944,869 21,142,835 83,416,943 41,994,169 2,025,622 B.3 Other liabilities 7,254,880 31,215,533 10,674,150 19,341,743 23,136,650 14,723,705 9,097,720 47,807,859 17,975,523 4,393,110 Off-balance sheet "transactions" C.1 Physically settled financial derivatives - Long positions 125,690 11,405,307 8,339,885 7,187,614 27,883,986 9,953,723 13,116,419 10,796,906 9,494,570 12,490 - Short positions 125,693 11,314,053 8,267,280 7,151,019 27,742,501 10,460,940 12,919,734 11,390,699 9,456,575 11,499 C.2 Cash settled financial derivatives - Long positions 47,957,435 1,125, ,193 1,605,830 2,799,041 3,338,678 5,203,340 33,662,932 6,017, ,069 - Short positions 45,809,835 1,125, ,192 1,605,666 2,800,334 3,339,184 5,206,488 33,660,232 6,002, ,069 C.3 Deposit to be received - Long positions 3,817,618 4,691, Short positions - 6,303, ,372-1,306, ,852 53, C.4 Irrevocable commitments to disburse funds - Long positions 32,644,421 7,165, ,058 1,855,914 1,890,798 7,080,779 12,545,963 18,855,386 4,126,278 2,965,915 - Short positions 58,395,086 1,869,722 73,663 1,034,619 1,117,917 1,567,155 10,189,275 11,365, ,535 2,965,907 C.5 Written guarantees 1,486,328 65,690 3,370 61, , , , ,144 1,105,

122 I Balance Sheet exposures: change in overall impairments ( '000) AMOUNTS AS AT 2012 EXPOSURES TO BANKS EXPOSURES TO COSTUMERS SOURCE/CATEGORIES NON-PERFORMING LOANS DOUBTFUL LOANS RESTRUCTURED EXPOSURES PAST DUE EXPOSURES TOTAL NON-PERFORMING LOANS DOUBTFUL LOANS RESTRUCTURED EXPOSURES PAST DUE EXPOSURES TOTAL A. Opening gross writedowns 210,906 6,546 13,514 3, ,626 24,314,845 6,174,319 1,856, ,573 32,978,561 B. Increases 3, ,122 4,665,919 2,464,472 1,210, ,172 8,968,290 B.1 Writedowns ,688,237 1,759, , ,930 5,346,905 B.2 Transfer from other impaired exposure categories ,489, , ,718 52,174 2,533,576 B.3 Other increases 2, , , ,388 77, ,068 1,087,809 C. Reductions 51,744 2, ,657 56,912 3,518,130 2,864, , ,748 7,775,892 C.1 Write-back from evaluation , ,886 42,397 43, ,056 C.2 Write-backs from recoveries 4, ,656 6, , ,042 98,323 46, ,733 C.3 Write-offs 45, ,629 1,973, , ,738 8,629 2,649,891 C.4 Transfer from other impaired exposure categories ,259 1,959, , ,156 2,533,576 C.5 Other reductions 1,343 2, , , ,769 59, , ,636 D. Final gross writedowns 162,300 4,364 13,168 2, ,836 25,462,634 5,774,021 2,217, ,997 34,170,959 The overall amount of write-downs, Other exposures included, booked in first half 2012 are: - Loans to banks (5,405) write-backs - Loans to customers 3,237,158 (I dati si riferiscono al solo Gruppo Bancario, in coerenza con quelli esposti nella tabella soprastante). BASEL 2 THIRD PILLAR AS AT JUNE 30,

123 123 >> Basel 2 Third Pillar Table 6

124 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

125 >> Basel 2 Third Pillar Table 6 Table 6 Credit risk: disclosures for portfolios treated under the standardized approach and specialized lending and equity exposures treated under IRB approaches Qualitative disclosure Credit risk Standardized approach List of the ECAI (External Credit Assessment Institution) and ECA (Export Credit Agency) used in the standardized approach and of the credit portfolios on which the ratings supplied by these entities are applied. Credit risk Porfolios Exposures with central governments and central banks Exposures with international organizations Exposures with multilateral development banks Exposures with corporate and other entities Exposures with Collective Investments Undertakings (CIU) ECA / ECAI - Fitch Ratings; - Moody's Investor Services; - Standard and Poor's Rating Services Ratings characteristics 10 Solicited e Unsolicited See Table 10 for the list regarding Securitizations. 10 solicited rating: shall mean a rating assigned for a fee following a request a request from the entity evaluated. Ratings assigned without such a request shall be treated as equivalent to solicited ratings if the entity had previously obtained a solicited rating from the same ECAII. unsolicited rating: shall mean a rating assigned without a request from the entity evaluated and without payment of a fee. 125

126 I Quantitative disclosure Distribution of exposures: standardized method AMOUNT AS AT AMOUNT AS AT ( '000) ASSET CLASSES EXPOSURES WITH CREDIT RISK MITIGATION EXPOSURES WITHOUT CREDIT RISK MITIGATION EXPOSURES WITH CREDIT RISK MITIGATION EXPOSURES WITHOUT CREDIT RISK MITIGATION 490,265, ,775, ,953, ,765,288 A.1.1. Exposures with or secured by central governments or central banks 127,391, ,067, ,881, ,653,474 A.1.2. Exposures with or secured by regional administrations and local authorities 57,547,506 57,629,669 57,127,490 57,204,759 A.1.3. Exposures with or secured by administrative bodies and non-commercial undertakings 16,223,303 16,394,081 12,996,196 13,230,918 A.1.4. Exposures with or secured by multilateral development banks 254, , , ,677 A.1.5. Exposures with or secured by international organizations A.1.6. Exposures with or secured by supervised institutions 23,837,746 79,354,680 21,642,916 53,441,723 A.1.7. Exposures with or secured by corporates 120,637, ,812, ,460, ,615,732 A.1.8. Retail exposures 64,796,767 70,512,904 62,308,600 69,122,304 A.1.9. Exposures secured by real estate property 29,216,922 29,231,641 31,071,995 31,085,681 A Past due exposures 11,965,836 12,041,667 11,454,188 11,962,385 A High risk exposures 2,136,542 2,136,732 2,309,678 2,310,325 A Exposures in the form of guaranteed bank bonds (covered bond) 1,466,953 1,466,953 1,249,812 1,249,812 A Short term exposures with corporates 120, , , ,770 A Exposures in the form of Collective Investment Undertakings (CIU) 5,227,263 5,269,882 5,211,230 5,613,613 A Other exposures 29,443,152 29,461,407 29,454,189 29,469,789 In the table, Guarantees given and commitments to disburse funds are at nominal value. Specialized lendings REMAINING MATURITY/ASSESMENT EXPOSURE AMOUNTS AS AT REGULATORY CATEGORIES ( '000) 1 - STRONG 2 - GOOD 3 - SATISFACTORY 5 - WEAK 5 - DEFAULT Remaining maturity less than 2,5 years Remaining maturity equal to or more than 2,5 years 95, , ,007 11, ,901 Total Specialized Lendings at , , ,007 11, ,901 Total Specialized Lendings at ,544 93,837 19, ,715 Equity exposures - simple risk weight approach CATEGORIES WEIGHTS EXPOSURE AMOUNTS AS AT ( '000) EXPOSURE AMOUNTS AS AT Private equity exposures in sufficiently diversified portfolios 190% 262, ,023 Exchange-traded equity exposures 290% 13,185 9,385 Other equity exposures 370% 58,276 54,444 Total Equity Exposures 333, ,852 BASEL 2 THIRD PILLAR AS AT JUNE 30,

127 >> Basel 2 Third Pillar Table 6 Standardized approach - risk assets ( '000) AMOUNT AS AT AMOUNT AS AT SECURED EXPOSURES SECURED EXPOSURES EXPOSURES CLASSES GUARANTEES GUARANTEES EXPOSURE AMOUNT AND CREDIT EXPOSURE AMOUNT AND CREDIT COLLATERALS COLLATERALS SIMILAR DERIVATIVES SIMILAR DERIVATIVES CONTRACTS CONTRACTS Exposures with or secured by central governments and central banks - 683,543 5,433, ,511 4,636, credit quality step 1 112,276, ,422, credit quality step 2 3,478, ,278, credit quality step 3 5,782, ,217, credit quality step 4 and 5 3,728, ,650, credit quality step 6 2, Exposures with or secured by regional administrations and local authorities - 82,051 3,544, ,490 3,578, ,622 - credit quality step 1 51,703, ,240, credit quality step 2 197, , credit quality step credit quality step 4 and 5 415, , credit quality step Exposures with or secured by administrative bodies and noncommercial undertakings - 171,598 3,361, ,129 3,679, credit quality step 1 4,330, ,443, credit quality step 2 5,426, ,735, credit quality step credit quality step 4 and 5 3,655, ,712, credit quality step Exposures with or secured by multilateral development banks credit quality step 1 232, , credit quality step credit quality step credit quality step 4 and credit quality step Exposures with or secured by international organizations Exposures with or secured by supervised institutions - 57,023, , ,707, , credit quality step 1 12,368, ,702, credit quality step 2 1,778, ,489, credit quality step credit quality step 4 and 5 1,399, , credit quality step 6 6, , Exposures with or secured by corporates - 4,927,255 2,237, ,019,255 2,676, credit quality step 1 1,229, ,434, credit quality step 2 2,789, ,496, credit quality step 3 and 4 85,992, ,289, credit quality step 5 and 6 149, , Retail exposures 40,910,919 5,614, ,057-39,438,323 6,766, ,367 - Exposures secured by real estate property 28,533,767 3,181,815 29,033-30,529,447 3,384,241 17,598 - Past due exposures 11,676, ,701 10,326-11,022, ,708 6,192 - High risk exposures 2,135, ,302, Exposures in the form of guaranteed bank bonds 1,466, ,175-1,249, ,274 - Short-term exposures with corporates - 9,037 1, , credit quality step 1 49, , credit quality step 2 69, , credit quality step , credit quality step form 4 to , Exposures in the form of Collective Investment Undertakings (CIUs) - 42, , credit quality step 1 314, , credit quality step 2 1, , credit quality step 3 and 4 4,146, ,119, credit quality step 5 and 6 292, , Other exposures 29,341, ,701-29,403, ,701 - Total on-balance-sheet risk assets 379,768,340 7,596,036 14,286, ,964,692 8,799,950 14,366,886 4,169 Total guarantees given and committed lines 21,056,238 1,174,171 1,111,073-18,866, ,313 1,014, ,453 Total derivatives contracts 10,061, ,650 5,122-10,116, ,600 3,172 - Total SFT transactions and long settlement transactions 4,767,249 62,912, ,335,646 41,088, Total from contractual cross product netting 231, , Total 415,884,381 71,842,338 15,402, ,468,813 51,014,880 15,384, ,

128 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

129 >> Basel 2 Third Pillar Table 7 Table 7 Credit Risk: disclosures for portfolios treated under IRB approaches Qualitative disclosure By its authorization no dated March 28, 2008 Bank of Italy authorized UniCredit group to use the advanced approach for calculating the capital requirement for credit and operational risks. With reference to credit risk, the Group has been authorized to use internal PD, LGD and EAD calculations for Groupwide credit portfolios (Sovereign, Banks, Multinationals and Global Project Finance) and for credit portfolios of the relevant subsidiaries (corporate and retail). With reference to the Italian mid-corporate and small business portfolios, the EAD foundation values are currently being used. In the first stage this approach has been adopted by the Parent Company and by some Italian subsidiaries, subsequently merged in UniCredit S.p.A. (UCI) due to the One4C reorganization, by UniCredit Bank AG (UCB AG) and UniCredit Bank Austria (BA AG). According to Roll-out plan for progressive extension of IRB rating system approved by Group and shared with the Regulator, starting from 2008 these methods have been extended to UniCredit Credit Management Bank S.p.A., UniCredit Bank Luxembourg S.A., UniCredit Banka Slovenija dd, UniCredit Bulbank AD, UniCredit Bank Czech Republic a.s. and UniCredit Bank Ireland p.l.c, Unicredit Bank Hungary. Subsequently it is expected that other Group entities will adopt IRB systems following the above mentioned Roll-out plan. This qualitative information was restructured as a whole compared to the previous version, with the aim of simplifying the content and to reflect more consistently the Regulator s requirements; for this purpose the rating systems are illustrated below by prevailing asset class and no more by geographical location. In general, the following table summarizes the rating systems used by the Group with specification of the related prevailing asset class and the entities where they are used. 129

130 Local Groupwide I Prevailing asset class Central governments and central banks Institutions subjected to supervision Rating system Sovereign (PD, LGD,EAD) Financial Institutions & Banks (PD, LGD,EAD) Multinational (PD, LGD,EAD) Global Project Finance (PD, LGD, EAD) Integrated Corporate Rating RIC (PD, LGD) Mid Corporate (PD, LGD, EAD) Foreign Small and Mediumsized Enterprises (PD, LGD, EAD) Legal entity UCI, UCB AG, BA, UCB CZ(*) UCI, UCB AG, BA, UCB Lux, UCB Slo(*), UCB IE(*), UCB BG(*), UCB CZ(*), UCB HU(*) (**) UCI, UCB AG, BA, UCB Lux, UCB Slo(*), UCB BG(*), UCB CZ(*), UCB HU(*) UCI, UCB AG, UCB CZ(*) UCI, UCCMB UCB AG, UCB Lux UCB AG Income Producing Real Estate (IPRE) (PD, LGD, EAD) UCB AG Corporate Acquisition and Leverage Finance (PD, LGD, EAD) UCB AG, UCB Lux Global Shipping (PD, LGD, EAD) UCB AG Wind Project Finance (PD, LGD, EAD) UCB AG Mid Corporate (PD, LGD, EAD) BA Income Producing Real Estate (PD, LGD, EAD) BA, UCB CZ(*) Income Producing Real Estate (IPRE) (Slotting criteria) UCB BG(*) Non Profit (PD, LGD, EAD) BA Mid-Corporate (PD) UCB HU(*) Mid-Corporate (PD) UCB Slo(*) Mid-Corporate (PD) UCB CZ(*) Mid-Corporate (PD) UCB BG(*) Banks / Corporate Other minor rating systems (Public Sector Entities, Municipalities, Religious Companies, Leasing) (PD) UCB CZ(*) Corporate / Retail exposures Commercial Real Estate Finance (PD, LGD, EAD) UCB AG, UCB Lux Integrated Small Business Rating RISB (PD, LGD) UCI, UCCMB Integrated Private Rating (RIP) Mortgages (PD, LGD, EAD) UCI, UCCMB Overdraft and credit cards (PD, LGD, EAD)(***) UCI, UCCMB Retail exposures Personal Loan (PD, LGD, EAD)(***) UCI, UCCMB Small Business (PD, LGD, EAD) UCB AG Private Individuals (PD, LGD, EAD) UCB AG Small Business (PD, LGD, EAD) BA Private Individuals (PD, LGD, EAD) BA Securitization Asset Backed Commercial Paper (PD, LGD, EAD) UCB AG (*) These Banks are currently authorized only to use the IRB Foundation, so that may use only PD internal estimations for capital calculation (**) This country is authorized by Local Regulator to adopt Groupwide model Financial Institution & Banks only for Commercial Bank segment with the exclusion of Securities Industry segment (***) Systems authorized since 2010 which regulatory use is prudentially planned after the completion of the models revision. Keywords: UCI UniCredit Spa UCCMB UniCredit Credit Management Bank UCB AG UniCredit Bank AG BA UniCredit Bank Austria AG UCB IE UniCredit Bank Ireland p.l.c. UCB Lux UniCredit Bank Luxembourg S.A. UCB Slo UniCredit Banka Slovenija d.d. UCB BG UniCredit Bulbank AD UCB CZ UniCredit Bank Czech Republic, a.s. UCB HU UniCredit Hungary Regarding the applications sent to Bank of Italy during 2011 for the authorization to use the Foundation Internal Rating Based approach (F-IRB) for UniCredit Tiriac Bank SA and Bank of Slovakia, it is expected that the outcome of the authorization process will end in the second half of 2012, with reference to the following prevailing asset classes: Central Government and Central banks, Institutions subjected to supervision, Corporate, through the use of both GW rating systems and Local rating system. Furthermore, it is still pending the authorization for use of the Groupwide rating system Global Project Finance in UniCredit Bank Austria, for which the conclusion is expected within According to the Roll Out plan, in June 2012 the UniCredit Group carried out the second phase of the IRB extension to the subsidiary UniCredit Luxembourg S.A., with regard to the Groupwide rating systems or modules for Sovereign, Global Project Finance, Corporate Treasury / Funding Vehicles and Securities Industry, along with the local rating systems developed by UniCredit Bank A.G. for Income Producing Real Estate (IPRE) transactions, Foreign Mid Corporates, Small Business and Private Wealthy customers. BASEL 2 THIRD PILLAR AS AT JUNE 30,

131 >> Basel 2 Third Pillar Table 7 Finally, the Group is planning to send soon the application for authorization to Advanced Internal Rating Based approach (AIRB) regarding the new Groupwide Financial Institutions rating systems (Insurance, Leasing Companies and Funds) relating to German, Luxemburg and Italian perimeter as well as for the Italian Local rating system Income Producing Real Estate and for UC Leasing Gmbh in Germany. The need for a common and shared vision of the customer riskiness at Group level has required the introduction of a Group Master Scale in order to increase communication and effectiveness of decisions among the delivery process and management reporting. The Master Scale is aimed to address the following: allow risk and relationship managers to communicate with a common language; ensure consistency of credit decisions, even if they are based on rating classes (RC) and not on PD; facilitate the definition of credit policies/guidelines by avoiding unnecessary ambiguities. The Group Rating Master Scale, introduced by the Group Governance Rules with the Internal Regulation No. 488 of December 2010, is based on the following assumptions: the investment grade / non-investment grade rating classes are clearly separated; the range of PD is sufficiently large (AAA to Default); the Group Rating Master Scale is based on Standard & Poor's rating scale: Investment grade classes are closely aligned with the S&P's PD classes, while the non-investment rating classes are more granular. The introduction of a Group Rating Master Scale is for management reporting purposed only; thus it has no impact on the Internal Rating Based (IRB) approaches, Roll-out plan or on the Basel II compliance of rating models. The Risk Weighted Asset, Expected Loss, and Loan Loss Provision calculations will not change. There is also no impact on the pricing of loans and it is not necessary to recalibrate existing rating models, which should have to be approved by regulators. The overall PD range covers the entire spectrum from AAA to Default. The default classes correspond to those defined by the Bank of Italy. All the internal rating systems adopted by UniCredit Group represent a fundamental component of decision-making and governance of credit risk process. Specifically, the areas where internal rating systems are most often used are as follows: Various phases of credit process: - Approval/renewal. The assignment of internal ratings is a key moment in the credit assessment of the counterparty/transaction and is a preliminary phase in providing/renewing lines of credit. The rating, which is assigned before approval, is made available as a part of the approval process, which is largely integrated in the assessment and discussed in the credit proposal. Thus, combined with loan exposure, as a rule the rating is a key factor for defining the appropriate body for the approval. - Monitoring. The loan monitoring process is aimed at identifying and quickly reacting to the initial symptoms of a potential deterioration in a customer s credit quality, and thus making it possible to intervene before an actual default occurs (i.e., when it is still possible to recover credit exposure). This activity mainly focuses on monitoring exposure movements leading to the point when it is necessary to completely disengage from the customer. In addition to determining the positive impact in terms of EAD, the monitoring process makes it possible to optimize conditions for the potential subsequent recovery phase through requests for additional security resulting in the reduction of LGD. 131

132 I - Loan recovery. The evaluation of the strategy to be adopted is aimed at defining the recovery plan, loan loss provisions, expected net cash flows (after levying on collaterals and guarantees) all the other values for the calculation of the Net Present Value ( NPV ), on the basis of the related prudential collection hypothesis considering all the costs and the probability of the strategy to fail. This evaluation results in the Estimated LGD. LGD is also the basis for pricing to be assigned to non-performing loans transferred to UniCredit Credit Management Bank. Provision policies. For performing loan customers, the incurred but not reported losses (IBNR) methodology has been adopted. This approach uses the amount of the projected loss by means of the Loss Confirmation Period (LCP) parameter for the calculation of provisions. For counterparties in the default category, coherence between provisioning, NPV calculation and historical data of losses for similar types of exposure shall be always ensured Capital management and allocation. Ratings are also an essential element in the process of quantifying, managing and allocating capital. Specifically, the output of rating systems is integrated, at the level of the Parent Company of the overall Group, into the processes aimed at measuring and managing (regulatory and economic) capital, as well as into the processes aimed at determining risk adjusted performance" measures and the adjusted income statement for the purposes of strategic planning. Strategic planning. Customer risk is a key determinant in the area of strategic planning, budgeting and previsions for quantifying RWA, net write-downs reported in the income statement, and loans reported in the balance sheet. Reporting. Specific reports are produced for Top Management at the consolidated, divisional and regional levels and for individual entities. These reports show credit risk portfolio performance and provide information on default exposure, expected losses, PD and average LGDs for various customer segments in accordance with the internal rating systems implemented. Ratings are also used to determine pricing and MBOs to be assigned to account managers and to identify customers with negative EVA for which targeted strategies are adopted. To achieve compliance with the so-called Basel II regulations, UniCredit Group has carried out specific actions aimed at determining and meeting all the requirements needed to apply Credit Risk Mitigation (CRM) procedures. These actions include the following: Issuance of internal policies reflecting the implementation, interpretation and internalization of CRM regulatory requirements within the Group. The production of this documentation has pursued different aims in order to encourage the optimization of collateral management and to establish rules for the acceptability, assessment, monitoring and management of guarantees and collateral in keeping with general and specific requirements established by Regulator; Integration of above mentioned policies in guarantees acquisition and management processes within the Group with particular focus on legal certainty requirements; Implementation of adequate IT tools that support the managing collateral process, starting with the assessment and acquisition of collateral to the monitoring and enforcement of collateral. The implementation of the IT system made it possible to manage, gather and archive the data needed to verify whether acceptability regulatory requirements have been met and to calculate risk indicators. For more details on managing and recognition process of Credit Risk Mitigation techniques, refer to Table 8 "Techniques for mitigating credit risk Qualitative disclosure." BASEL 2 THIRD PILLAR AS AT JUNE 30,

133 >> Basel 2 Third Pillar Table 7 In addition, based on the new regulatory structure, the development of advanced rating systems and their introduction in corporate processes have resulted in the need to establish at both the Parent Company and individual entities a process for validating rating systems and an increase in the activities that Internal Audit is required to audit with respect to such systems. The purpose of the validation process is to express an opinion concerning the proper operation, predictive ability and overall performance of the IRB systems adopted and their consistency with regulatory requirements specifically through: the assessment of the model development process with a particular emphasis on the underlying approach and the methodological criteria supporting the estimate of risk parameters; the assessment of the accuracy of estimates of all major risk components through system performance analysis, parameter calibration and benchmarking; verification that the rating system is actually used in various management areas; the analysis of operating processes, monitoring safeguards, documentation and IT facilities related to the rating systems. The validation process established within the Group first calls for a distinction between the initial and ongoing validation. The purpose of the initial validation is to assess the positioning of the Group s rating systems in relation to minimum regulatory requirements and the Group s guidelines and standards concerning methodology, processes, data quality, quantitative and qualitative validation procedures, internal governance and technological environment by identifying any gaps or critical areas in relation to these requirements. On the other hand, the purpose of ongoing validation is to continuously assess the proper operation of all components of the rating system and to monitor its compliance with internal and regulatory requirements. Additionally, the process calls for the specific assignment of responsibilities for validating so-called Groupwide systems and local systems. For Groupwide systems, whose respective methodology is unified at the Group level, the responsibility is assigned to the Parent Company, while for local rating systems this responsibility is assigned, accordingly with the ONE4C new organization, only in case of systems used in UniCredit SpA. With reference to the other local rating systems, each Legal Entity is fully responsible for their own local systems. In this latter case, Parent Company is still responsible for the initial and ongoing monitoring of the proper performance of development and validation activities carried out locally and the proper operation of the rating system by also providing suggestions generated by internal and external benchmarking that are aimed at following best practices. Based on the revalidation process, the Parent Company issues a Non-Binding Opinion on local rating systems during the initial phase before approval is given by the appropriate bodies, later whenever significant changes are made and also after on-going validation results. The department responsible for validation procedures is independent from the units responsible for developing models and from the internal audit area that audits the process and outcome of the validation. This department has established and maintains guidelines for validating rating systems aimed at a convergence towards standard validation procedures in terms of both content and tools, thereby ensuring that the criteria for assessing results are shared including through the introduction of standard common thresholds and encouraging a comparison between the different systems. The use of thresholds makes it possible to depict test results using a stop-light system whose colors are associated with various levels of severity of the phenomena reported. 133

134 I Special emphasis was placed on establishing a standard approach for validating models by identifying minimum test requirements and methods for reporting the related results. Tests are divided into qualitative and quantitative analyses: the qualitative section is used to assess the effectiveness of the methodology used to create the model, the inclusion of all significant factors and the ability to depict the data used during the development phase; the quantitative section assesses the performance, stability and calibration of the overall model as well as its specific components and individual factors. A hierarchy of the above analyses has been established that provides details as a function of the specific (initial or ongoing) validation. In fact, the performance of certain tests is dependent on whether critical areas are identified in the performance of analyses at the next-highest level. Additional areas of analysis, related to the organizational requirements stated in the Italian regulation, are: model design, internal use and reporting, IT and data quality and governance. The data and documents related to the validation procedures done to date are saved in special storage areas ensuring rapid access to, and security of, the information and the ability to reproduce all analyses performed. In addition, the Group has a validation tool that makes it possible to calculate both the indicators required by the Basel Committee in Working Paper 14, Studies on the Validation of Internal Rating Systems, and the statistics requested by the Group guidelines for validating credit risk models. The results of internal validation activities, that involve each component of the rating system (methods, process, IT and data quality), are summarized in a report, submitted to the attention of the Top Management and of the Regulators. The annual validation report has the aim to show the level of compliance of the IRB rating systems in the Group showing the main improvement areas. When auditing internal rating systems, Internal Audit s aim is to check the functionality of the entire system of controls over them. The activity consists in verifying: the compliance of IRB systems with regulations; the effective use of rating systems for business purposes; the adequacy and completeness of the rating validation process. In order to assist Group entities to ensure the quality (functionality and adequacy) of their Internal Control Systems and to modify their internal auditing methods in line with changes in their business scenarios, the Parent s Internal Audit (UC IA) has coordinated the development of a common set of internal auditing methods and manages on an ongoing basis the maintenance and improvement. These methods have been developed in order to assess the accuracy of the conclusions of the risk control functions as well as compliance with the regulatory requirements, particularly in respect of the internal validation process of internal rating and risk control systems. It should be noted that internal audit functions are not directly involved in the design or selection of the model. In accordance with its mission UC IA directly audits UniCredit S.p.A. and, when needed, the Legal Entities of the Group, also managing the coordination of the activity of subsidiaries internal audit functions. BASEL 2 THIRD PILLAR AS AT JUNE 30,

135 >> Basel 2 Third Pillar Table 7 The audits necessary to assess the functionality of the rating systems are given suitable space in the Group audit planning process, organized by UC IA, which agrees their inclusion in internal audit plans with the Group entities. UC IA then monitors performance of these audits by a specific function and if necessary contacts the entity where there are deviations from plan. Moreover, UC IA periodically draws up an annually summary report which presents an assessment of the Internal Control System s overall functionality, describing, inter alia, audits outcomes and highlighting the main criticalities and short comings found, and recommending corrective measures. Finally, UC IA regularly reports on its activity and results to the Parent s Board of Statutory Auditors, the Internal Control & Risks Committee and the Board of Directors. On the basis of validation activities and Internal Audit results, annually summed up in the Basel II Credit Risk Validation Function s and Internal Audit s Annual Reports above mentioned, and also on the basis of the activities plan relating to the areas requiring improvement pointed out by the Internal Control Functions, the Board of Statutory Auditors and the Board of Directors, during the first months of 2012, confirmed to the Regulator that the requirements for the use of IRB systems in UniCredit group are still fulfilled. Sovereign (Central governments and central banks) Groupwide models Sovereigns Rating model The approach used for the development of the country rating model is shadow rating whereby an attempt is made to duplicate the ranking capabilities of external (ECAI) ratings using macroeconomic and qualitative factors. Two separate models were designed for emerging and developed countries (EM and DC). The quantitative module for the latter (DC) uses variables related to the balance of trade, interest rates, the importance of the banking system, per-capita GDP and the level of government debt. The qualitative module includes variables related to the development of the financial system, socio-political conditions and economic conditions. The quantitative module for emerging countries (EM) uses the following variables: exports as a percentage of gross domestic product (GDP); external debt; the amount of foreign currency reserves; the level of direct foreign investments as a percentage of GDP; debt service compared to exports; the inflation rate and per-capita GDP. The qualitative module includes variables concerning the stability of the financial system, the flexibility of the economic system, socio-political conditions, economic conditions and debt service. The validation unit checked on an ongoing basis the design of the model, the implicit default definition, the qualitative and quantitative characteristics of the model, override methods, calibration, segmentation into the two groups (developed and emerging countries), the development sample and conducted the usual performance and stability tests. Despite the overall positive outcomes, the monitoring activities carried out in 2011 highlighted some areas for improvement to be read together with an increase in override rate; however, a review of the model, which will also involve the LGD parameter, has already been planned. 135

136 I Sovereigns LGD model This model uses a regressive approach with the involvement of experts, starting with a large set of macroeconomic variables, of which six were included in the final version. The dependent variable (LGD) was calculated using internal and external data. The model provides LGD only for direct unsecured exposure to sovereign counterparties. The explanatory variables selected are as follows: GDP as a percentage of total world GDP; external debt as a percentage of exports; indicator of debt position with respect to IMF; export volatility; average inflation rate in G7; and default timing (period preceding the default). In addition to performing the usual performance and stability tests, the validation unit checked the consistency of definitions of default, segmentation and override; the use of internal and external sources for recoveries; cost estimates and the methodology for discounting recoveries; and the need to introduce conservative adjustments for negative phases in the economic cycle. Besides the methodology, the assessment activity has involved the IT and process features, including more relevant aspects on the data quality. Banks (banks and other financial companies) Groupwide models Banks Rating model The approach used for developing bank ratings, which are defined as shadow ratings, attempts to duplicate the ranking capability of external ratings using a combination of quantitative and qualitative factors. It was decided to construct two different models one for banks resident in developed countries (DC) and one for banks in emerging markets (EM) since it is believed that there are different risk drivers for the two segments. The final quantitative module for domestic banks resident in developed countries (DC) covers several categories of factors: profitability, risk profile, size and funding. The situation is similar for banks in emerging countries with different weightings for factor categories: profitability, risk profile, size, capitalization and funding. Specific adjustments to be applied to the PD resulting from both EM and DC are expected to consider the following aspects: the three types of support (if any) provided to banks - by the government, by the economic group to which they belong, by an Institutional Protection Fund, and these factors are discussed separately, in a homogeneous (based on PD) and non-additive (only one with more mitigation effect is actually applied). the risk factor country in general (considered in the calibration phase of the model); in this context, the model considers the country risk and the more specific transfer risk, i.e. the risk that the debtor is unable to obtain foreign currency to meet its obligations, even though it has the corresponding local currency. BASEL 2 THIRD PILLAR AS AT JUNE 30,

137 >> Basel 2 Third Pillar Table 7 The rating scale model is based on the default rates implied by external rating. During a revision in order to properly measure the credit risk of exposures to counterparties Securities Industry (SI) 11, a specific model was developed. The approach used for the Securities Industry is similar to that adopted for commercial banks, however, it provides that the support of the economic Parent Company, particularly important in the SI segment, is estimated as a separate module through the development of qualitative answers. The scope of the Banks rating system was also extended to those subsidiaries that are involved in a corporate treasury activity or funding vehicles through the specific model of CTFV (see section "Multinational Corporate Rating model"). The validation unit evaluated both the Bank rating model, and the specific model for Securities Industry counterparts, in conducting its activities have been applied (as for the rest of the system) the official validation guidelines for the entire Group 12, which cover both aspects of the model structure and performance analysis, calibration, stability, not only on the final result but also in terms of individual components and factors. The validation unit has expressed an overall positive, while underling some points of attention that will be monitored. Banks LGD model The model developed is based on an expert basis. The methodology is currently only applied to senior unsecured performing loan exposure, which represents the majority of exposure to banks. Then the application of advanced methodologies (common to several Groupwide segments) has been extended to junior exposures. Currently, the LGD model estimate covers both commercial and investment banks (Securities Industry). The individual LGD value is calculated starting with an analysis of financial statements by simulating the recovery in case of default deriving from the liquidation of different categories of assets bank s after repaying any creditors with a higher level of seniority (the current version of the model provides a more refined treatment of the deposits, considering the possible priorities under the local regulation). In order to obtain a realistic and conservative valuation of the bank s assets, haircuts have been established for each type of asset to take into account the likely deterioration that occurs before default, the differences between market and book value and between market value and sales proceeds (the current version of the model provides more haircuts to be applied to the mortgage loans value in the financial statement of the counterparty). In addition, based on the fact that the success of the recovery phase largely depends on the applicable legal/institutional environment, specific haircuts have been introduced for each country to take into account the legal risk. Finally, haircuts reflecting the costs of the recovery process have been included based on the assessment of workout experts. Since the assets of the borrowing bank are stated in local currency, but the final recovery must be estimated in the currency of the creditor, an additional haircut is applied to assets in local currency that is tied to exchange rate volatility in order to take depreciation risk into account. 11 The SI segment is represented by counterparties which are occupied in activities of broker/dealer, merchant/investment banking, corporate finance, M&A e Wealth Management and include both pure SI companies, for which these activities are absolutely prevailing, and hybrid banks, that are equally dedicated to commercial and investment activities. Before the development of an internal rating system dedicated, those counterparties were mostly unrated, with some exceptions covered by Banks model. 12 The guidelines for the validation of PD models, has recently been revised and issued in a new version in April

138 I Within the banks segment, the LGD framework has been improved to reflect more accurately the typically lower risk profile of some specific products (or transactions), in particular with respect to covered bonds and products with country risk mitigation. As regards covered bonds, two different values of LGD have been defined, to be applied on the basis of the country of the issuer and confirmation by the credit analyst responsible that the emission the specific covered bond issuer is in line with local market standards. For products with country risk mitigation, the counterparty LGD is reduced according to the contribution of country risk on the counterparty total PD, through the application on LGD unsecured of a recovery factor of the specific transaction (Transaction Specific Recovery factor). Within the banks segment, the reduction of LGD applies to a particular type of product: short-term commercial loans between banks (Short Term Commercial Financing). The validation unit has checked on an ongoing basis the design and scope for applying the model, the model s components, experience-based amendments and overrides. As much as it has been possible external benchmarks, too, have been examined. Furthermore, during the check special attention was given to the assessment of the conservative haircuts related to the different assets categories. In addition to methodology, the assessment activity has covered the IT and process, including the most significant aspects related to data quality. Corporate (non-financial companies, including SMEs, specialized lending and purchased Receivables) Groupwide Models Multinational Corporate Rating model This rating model applies to multinational companies defined as companies with consolidated turnover or operating revenues greater than 500 million for at least 2 consecutive years (the definition of the segment has recently been clarified to reflect the decision to remove the leasing and factoring companies from the scope of application MNC). The approach used for the estimation of the Multinational rating, defined as a shadow rating, attempts to replicate the ability of ranking of external ratings (from ECAIs) through a combination of quantitative and qualitative factors. The quantitative module covers several categories of factors such as capital structure, profitability, interest coverage and size. The result of this module is a quantitative score. The qualitative model consists of a set of questionnaires that analyze corporate aspects such as management quality, the industry sector performance, market share etc. The result of this module is a quality score. The quantitative and qualitative scores are then integrated and the result is converted into a PD (through an estimated function during calibration phase). Specific PD adjustments have been planned in order to consider the following aspects: the support (if any) by the economic group to which the company belongs (based on an average of PD); the country risk factor in general (considered in the model calibration phase); in this context, the model considers the country risk and the more specific transfer risk i.e. the risk that the debtor is not able to obtain foreign currency to meet its obligations even if in possession of relevant local currency. BASEL 2 THIRD PILLAR AS AT JUNE 30,

139 >> Basel 2 Third Pillar Table 7 In March 2012 the Group sent to Bank of Italy a communication for the adoption of Groupwide Multinational Corporate (MNC) for the Italian Large Corporate (ILC) portfolio, which includes all companies with an operating revenues/value between 250 and 500 million. This will allow a gain in efficiency, since a specific system for the ILC portfolio was no longer justifiable considering both the characteristics of ILC counterparts and the expected benefits in term of risk assessment of the MNC models application revised in the meantime. This choice is supported by the characteristics of this segment, potentially characterized by the need for a unique risk profile at cross-border level and by greater internationalization and similarities - in terms of business nature and structure - to the existing MNC customers respect to the local mid-corporate companies. The above proposed change will have effects in Italy starting from September 2012, according to the gradual replacement of the ratings assigned at their expiration date. The validation unit has verified the new version of the model, following the official Group validation guidelines 13 that cover not only model design but also performance, calibration and stability aspects both on final results and on single factors and components. Overall, the validation activities have expressed an overall positive evaluation, although an improvement is possible with respect to the estimates calibration. Then a recalibration of PD model has been already planned by the end of the year. As part of the "Ongoing Validation" of the GW MNC rating system, the competent function has expressed a positive evaluation regarding a specific analysis aimed to test the effects of applying the MNC PD model on "ILC" counterparts, in particular confirming that the model application, more than overcome the limitations of the previous one, is more conservative. The scope of the rating system and Multinational Banks also includes those subsidiaries that exercise corporate treasury functions- (such as cash concentration, FX management and funding) or must be a specialized funding vehicle (issuing MLT securities, notes, bonds) whose creditworthiness is driven by the parent/group support in the form of an explicit guarantee for the counterparties or its issues or via some other support mechanism (e.g. an agreement with the Parent Company): the rating of these counterparties is calculated by the specific model of Corporate Treasury and Funding Vehicles (CTFV). Since in most cases the default of a CTFV customer is caused by the default of the group it belongs to, the approach adopted, both for the PD and for the unsecured LGD the distance in notches to the PD and the LGD of the parent company was estimated on the basis of the contributions and opinions by industry experts. On the basis of a qualitative questionnaire, the downgrading notch of the parent company s rating is determined to calculate the rating of CTFV and to increase LGD to be added to the parent company LGD to calculate that of CTFV. Multinational Corporate LGD model Given the lack of historical time series of internal recovery rates for multinational companies (since this is a portfolio with a low risk of default), a regressive-statistical model, mainly based on recovery data provided by an external provider, has been developed. The LGD model only refers to senior unsecured exposures towards performing companies (advanced methodologies common to several segments of Groupwide are applied to juniors exposures). 13 The guidelines for the validation of PD models, has recently been revised and issued in a new version in April

140 I More in detail, the LGD model consists of four main phases (in which the add-on, that takes account of the negative phases of the economic cycle, downturn, is incorporated): in a first phase, a total of LGD counterparts (Overall LGD), independent from the seniority of creditors, is calculated on the basis of financial statements quantitative factors; in a second phase, on the basis of a qualitative questionnaire, the variation on the increase of the senior unsecured Bond debts LGD is calculated, determining the Gross senior unsecured Bond LGD; then the LGD is adjusted to take into account the legal risks and costs related to the recovery process (Adjusted Senior Unsecured Bond LGD); to the final value of the unsecured Bond LGD (applicable to the bond debt) is applied a conversion factor that allows to a Loan LGD (Final LGD Senior Unsecured Loan) which is lower, because it considers the probability and effects of the debt restructuring, typical of bank loans and similar products that are the most representative part of the UniCredit Group portfolio. As well as the PD parameter, also the Loss Given Default of Multinational Corporate system has been extended to Italian large Corporate segment (ILC). During 2011, the LGD framework was improved to properly reflect the lower risk profile typical of some specific products (or transactions), in particular, products with risk mitigation. Within the scope of the MNC segment, a special class of transactions has been considered, those in which payment is guaranteed by the sale of assets to a third party resident in a low risk country (Only Risk Delivery). The use of such regulatory changes has been applied since December 31, The validation unit checked on an ongoing basis the design of the model and the quality, the performance and estimates conservativeness. It also performed extensively analysis on external benchmark (in literature and / or in the form of recovery ratings published by rating agencies). In addition to the methodology, the validation activity was done on all IT and process aspects, including the most significant data quality aspects. Global Project Finance rating model (GPF) The Groupwide rating model Global Project Finance (GPF) was revised in 2011 to decrease the judgmental elements influencing the rating decision and therefore to increase the statistical predictive power of the whole system, also trying to address and remove the weaknesses identified by the internal validation and audit functions or by the Supervisors. The new had effect from December The revision of PD optimized the existing expert based PD model in a statistical way, and to limit the number of possibilities for manual adjustments. The segment definition remains broadly the same, (project finance with a total debt of the project not less than 20 million), as well as the rating model approach, which remains basically based on a scorecard made of 21 qualitative questions. The analysis is carried out by grouping the project risks in 5 main areas: risk of the project sponsor; risk of completion; operational risk; "special" risk (e.g. The risk of an earthquake, the interest rate risk); the cash flows risk. BASEL 2 THIRD PILLAR AS AT JUNE 30,

141 >> Basel 2 Third Pillar Table 7 The main changes to the PD model compared to the previous version are: optimization of the statistical weights of single factors (expert based); the use of a statistical approach for estimating the weights of the model increases the predictive power based on the historical default; a general model standardization, with a limitation of manual adjustments on rating only to the practice of override (only the weak link feature, to downgrade a rating in case of problems, has been maintained); a new treatment of completion risk which allows to reduce weight factors along with the progress of construction and when the project begins to produce cash flows; an explicit consideration of country-induced risk (general and transfer) has been implemented as an add-on on the intrinsic score/pd dependent on the PD of the country; a more detailed description of risk factors in order to enhance the objectivity of the assessment. Finally the model has been calibrated to a long-term average default rate, considering the full rating history and not only the current portfolio since the considerable changes showed in its composition over time. The validation unit has checked the model structure, the performance at the aggregate level of risk areas and of single factor. It has also analyzed the stability, the adjustment mechanisms and override, the calibration of the estimates and performed a benchmarking analysis, although the availability of external ratings has been limited. All these analyses have focused on the Group GPF portfolio within the Entity: UniCredit SpA, UCB AG, UCBA AG. The validation function performed a specific activity on the above mentioned changes, with an overall positive evaluation from both a quantitative and a qualitative standpoint. Also the aspects related to processes, data quality and IT procedures for the revised GPF rating system have been subject to internal assessment. Global Project Finance LGD model (GPF) The internal model for estimating GPF LGD, implemented in 2009, was revised in 2010 with the aim to overcome the weaknesses highlighted during the internal validation activities and to make the Group s risk management practices more effective. The model applies to the total direct exposures for performing counterparts GPF (while for default exposures, the method applied is common to several advanced Groupwide segment). The previous version of the LGD model was based on the "distressed assets" method developed by S&P s, which examines the distribution tail of the project value, in the region where default has occurred and, thus, defines the LGD probability distribution as a distribution of debt minus asset value in this region. This general framework has been then adapted to real practices and to the business standard procedures in place in the Group, through the adoption of certain changes concerning the calculation method of the asset value, the determination of the default region and the introduction of appropriate volatility scorecards calibrated by sector and based on a specific set of questions. During 2010, activities aimed at refining the LGD methodology by improving the model performance were carried out. The measures taken, first, consist in the simplification of the methodology "distressed assets", with the elimination of explicit determination of the value of assets, replaced by direct calculation of the ratio between debt and the (maximum) value of "distressed assets" (DMDA), on the basis of a qualitative questionnaire; and with the removal of "volatility scorecard"; in the second place, they are related to the introduction of a scenario of "extreme event", which is characterized by very high losses, in addition to the "standard" scenario based on the methodology "distressed assets". The probability of "extreme event" is determined based on responses to a qualitative questionnaire and used as "weight" of "standard" and "extreme event" weighted average LGD: that average is the expected LGD. 141

142 I Also add-ons that take into account the negative phases of the business cycle (downturn add-on) and recovery costs were explicitly considered. The model structure has been updated allowing parallel calculation of LGD for senior positions and for those junior. In this context the validation unit, besides performing the usual activities for monitoring the use of current model, focused on the evaluation of the structure of the new model expressing a positive overall. Groupwide EAD model The main driver of the EAD is the product type and the calculation is tied to three components. Firstly, according to supervisory requirements, it has been assumed that the current balance sheet exposure will continue to exist up until the default. To this value the expected value of a possible drawdown of the granted credit line has to be added, and third, the possibility of an overdraft over the amount of the current credit line is considered as a percentage of the granted credit line. Furthermore, for the significant products, the probability of a request of refund by a third party, which has been granted a guarantee in case of default, has to be considered. In order to make the default sample consistent with the model s scope of application, it has been limited to the counterparts with at least a granted credit line equal to or exceeding 500,000. The ongoing validation activities carried out in previous years checked the model design and the reasonableness of the estimates compared with the observed values. The assessment highlighted areas for improvement, which are currently being considered in the redevelopment underway. Local models, Italian Legal Entities Italian Corporate Rating model The Integrated Corporate Rating (RIC) model provides a rating for the counterparties of UniCredit S.p.A. with revenues (or total assets if revenue information is not available) from 5 to 250 million, according to the new segmentation, effective since November 2010, decided within the One4C merge project, also in the light of the results of a specific comparison between the performances of the different available models for the corporate segments in Italy. The model for industrial sector has been redesigned (RIC3) based on recommendations from the previous validation activities, and it has been adopted since November The structure of the rating system consists of three basic modules, two of which are quantitative and one qualitative: the economic-financial module, that considers the financial statements information in the archives of the Central Financial System (Sistema Centrale Bilanci) (cash flow and profitability, financial charges, financial structure and composition of debt, financial stability and liquidity; growth, volatility and operational structure); the behavioral module, that, considering only the external source data obtained by both first sending streams and return ones of Central Credit (Centrale Rischi), allows customers' monitoring either toward the Group and the entire banking system (cash loans: withdrawal, shortterm maturity, long-term maturity, self-liquidating loans; loan guarantees: commercial, financial; collateral); the qualitative module, that considers the answers to the questions of the qualitative questionnaire filled out during application phase. Unlike in previous versions of the model, the qualitative component was developed with a total statistical approach. BASEL 2 THIRD PILLAR AS AT JUNE 30,

143 >> Basel 2 Third Pillar Table 7 The new RIC3 model was significantly revised during 2011; the main revision is related to the refinement of the rating updating process through a system of trigger events aimed at ensuring greater stability in the assessments, both on timely update and on intervention of experts, where necessary (operators and rating desk). At the same time, a recalibration was done to include the impact of 2010 default rates (both for RIC3 model and RIC2 for non-industrial companies). During 2011, the approach that applies a correction to the stand-alone PD (RIC or RISB) was developed within firms with a size less than 250 million, for counterparties which have a Parent Company, that is based on the average PD of the Group, by differentiating the weights of these adjustments on the presence or absence of consolidated financial statements and in the latter case on the commercial division of the parent company (Corporate vs. F&SME). With reference to the segments of activities not covered by the changes implemented by the RIC3, during the period a specific rating system for Producing Income Real Estate 14 transactions for which, in line with the Roll Out plan on the IRB approaches, in July 2012 it is expected to request an authorization to Bank of Italy for regulatory purposes was developed, validated and implemented for management purposes. In addition, starting from June 2012 regulatory reporting, the specific modules for Real Estate exposures have been introduced within RIC and RISB Systems. The Real Estate modules are designed to take into account the various types and riskiness of that counterparties with particular attention to the internal control functions and Supervisory Authority recommendations. The Real Estate models are used for counterparties having the "05" balance structure (Real Estate Companies) according to the classification of Centrale Bilanci and they are differentiated depending on their size. They are mainly based on the development of an economic / financial ad hoc component and the consequent integration with the existing modules in case of the RE-RISB, and with the qualitative RIC3 or behavioral RISB ( Centrale Rischi and internal behavioral) in case of the RE-RIC model. They will be applied to all counterparts of this type, except those classifiable as "IPRE" (SPV and Real Estate Funds) for which a specific model has been developed. The threshold used (+ / - 5 million of assets) is consistent with the clients classifications adopted by the Bank following One4C project and the respective credit processes. Specific activities of initial validation have been performed on Real Estate modules separately for the two models (RIC and RISB), aiming to assess their adequacy concerning both the quantitative aspects and their use in rating processes. The two models were deemed in line with regulatory requirements and Group's standards, although the need for a recalibration that has already been planned before the production of the new estimates has been highlighted. In particular an overall higher discriminatory power was detected, with specific reference to the financial component; also the IT system validation activities on Real Estate reached an overall positive evaluation. Also the validation activities on IPRE rating system expressed a general judgment of adequacy, with a positive assessment on the design aspects of PD and LGD, which are closely linked. Following an updated calibration conducted by the model development function, also the quantitative evidences are deemed satisfactory, although there is still only a partial coverage of the target portfolio. 14 The target segment is made up of that transactions in which credit lines are granted for purchase or construction of real estate and they are fully repaid by the cash flows generated by the asset financed, with a contemporary imposition of a lien on the cash flows in favor of UniCredit (and of any others involved in the pool) and the granting of the asset as collateral. 143

144 I Only the segment of the Financial Holding, for which the development of a specific model is in progress, is still within the RIC2 model. In the first half of 2012, the whole new RIC system was recalibrated with the aim of implementing the amendment made to the existing regulation relating to necessary time limit for the determination of past due (thus using a definition of overdraft after 90 days) and to extend the time series data to the most recent defaults. During the validation activities on these changes, the performance of RIC models were good and default rates have not significantly diverged from the corresponding PD values. Local Italian Corporate LGD models The LGD models used for Corporate and Small Business Italian portfolios have been developed using a common workout LGD approach. In particular, the loss rate is calculated using the cash flows for the different defaulted position observed from their entrance into default until the end of the recovery process. With regard to LGD estimation, specific module has been developed for each default stage (incaglio, sofferenza and past due), adopting regressive estimates for incagli and sofferenze and historical averages for past due exposure changes.this building block approach requires to define a way to integrate them in order to calculate the overall LGD. In particular, two types of parameters must be defined: the composition of the first entry in default (the probability that, given the default, it occurs in the form of past due, incaglio or sofferenza) and the transition probabilities between the different states of default (the so-called Danger Rates). These parameters are defined based on empirical observations (observed frequency of the development sample). The regressive models developed provide for the use of both personal and product/credit line information; additional information on guarantees pledging exposures is relevant. In this regard, UniCredit S.p.A. decided to incorporate the effect of different types of collateral in the LGD estimates, excepted for Corporate exposures granted by banks or sovereigns, where the substitution principle is adopted. Then, the Loss Given Default is calculated at transaction level, according to the collateral provided and, if significant, their value. Only for pledges the LGD is also differentiated also according to the level of coverage. With reference to Corporate and Small Business, the group opted to use a jointly developed model for certain types of relationships (i.e. Advances). Limited to the non-performing loan phase, the highest level of detail possible, i.e., the relationship was taken into account for the calculation of the value of LGD. With regard to the watchlist phase, the bank instead developed two models for each segment with a differentiation based on installment and non-installment exposure. During 2008 some changes to the LGD model were introduced. The first measure consisted in the introduction of the risk free rate in the models on an ongoing basis rather than in a discrete form. Secondly a new approach for the estimation of downturn LGD was developed providing the calculation for the downturn effect as an adjustment of LGD estimated by the models through two ratios obtained with a regression that interpolates the estimated LGD from the models and a new variable that identifies the presence or not of a recessive phase for the non-performing loan (as the recession has been considered the period from 2 nd to 4 th quarter of 2001). The third measure was a review of the effect of the bankruptcy legal action, while the fourth concerned the correction of the defaulted asset LGD estimates to consider the possible partial write-downs. All the models were recalibrated in accordance with what had been done in the PD models. BASEL 2 THIRD PILLAR AS AT JUNE 30,

145 >> Basel 2 Third Pillar Table 7 During 2009, the LGD models for Italian portfolios were further improved with the enlargement of the historical data sample, that led to the exclusion from the portfolios of all the defaults prior to This decision was taken to ensure that there was the greatest consistency between the processes underlying recoveries seen in the samples used and current processes. Following this upgrade, existing models are based on estimates that include samples for sofferenza module, transactions closed between 2001 and 2007 and have been opened since 1997, and for incaglio, the transactions closed between 2003 and In addition, based on the recommendation of the internal control function, also the methodology to determine the discount rates to calculate the observed LGD has been revised, with the use of a the risk free rate plus a risk premium based not only on the historical volatility of recoveries, but also on the asset correlation provided for the capital requirement calculation. In this context, the analysis of the validation function have focused on the qualitative assessment of all revisions made on the adequacy of the choices adopted in the recently context of a recession and on the monitoring of performance and calibration of models already authorized, with a focus on the verification of the adequacy of estimates defined for transactions already in default. In particular, the validation analysis carried out on samples relating to 2010 showed the presence of underestimation of the losses for the default model, however compensated by the contribution of Downturn component in production. With respect to all other default status and the danger rate, observed and expected values are instead substantially aligned. Consistent with what is happening within the PD, the Danger rate component for the Corporate portfolio is annually updated to include in the risk estimates the more recent data (last year). In this context, the most recent update (June 2012) was carried out with the introduction of the new calibration of the Danger Rate component by the extension to 2011 default data and the introduction of 90 days past due. In this regard, the validation takes a positive view about the parameters conducted in 2012 also regarding the adoption of the definition of past due to 90 days. The redevelopment of LGD models will be performed during Local models, German Legal Entities Mid-corporate rating model The Mittelstandsrating model aims to provide ratings for exposure to the UCB AG category of companies headquartered in Germany with turnover of million. The target has been amended in April 2011 (previously the lower turnover boundary was 3 million) as a result of the ONE4C Group s initiative aimed of getting more focus on the requirements of the customers and to be closer on the regional markets. The Mittelstandsrating model version currently in use was developed with the aim of simplifying the previous model (the number of models for the automatic assessment of financial statements has been reduced from 12 to 4) and implementing the improvements suggested during the previous validation stage. The model is made up of two components: a quantitative and qualitative module. The score resulting from the analysis of financial statements results in the partial rating for operating conditions. The qualitative model instead provides the partial rating for the company s situation. The final rating is created from a combination of the two partial ratings. 145

146 I The quantitative module is made up of 4 statistical sub-modules called Maschinelle Analyse von Jahresabschlüssen (automated financial statement analyses) or MAJA. The area of application of each of these sub-modules is dependent upon the company s industry (Production, Trade, Construction, Services). The risk factors included in the quantitative module (which were selected using a process including statistical analyses and discussions with experts) cover the following areas of analysis: asset structure; financial situation; growth in production/margins. The qualitative module covers areas of analysis concerning: financial conditions; management qualification; planning and controlling; industry/market/products; special risk; industry sector rating. In case of worsening conditions of the debtor (warning signals) already included in a specific section of the qualitative module, the rating is automatically adjusted. Finally, the final rating can be adjusted manually (overridden) if the additional information indicate that the calculated rating is not appropriate. This practice is subject to specific restrictions and constraints and is closely monitored by the internal validation unit. The model is to subject to ordinary calibration activities over the time. The internal validation unit checked the design of the model, the reliability (performance and stability) of its various modules (the quantitative module with its related sub-modules, and the qualitative module) and its calibration resulting in a favorable opinion: the model performances are above internal thresholds also in the new portfolio of application and the average PD resulted in line with the observed default rates. This rating model, as described before, has been adopted by UniCredit Bank Luxembourg S.A. Foreign SME Rating model Foreign SME rating system is aimed at the assessment of foreign companies or foreign consolidation groups. The rating is assigned to these counterparties based on an external country specific quantitative component, which is integrated with an internally developed qualitative module leveraging on the correspondent module defined for German Mid Corporate segment. In its first version the Foreign SME rating model has been applied for the 22 countries for which specific RiskCalc models for the analysis of financial statements had been available at the time of development, and for further 45 countries for which Moody s suggested the use of the models as so-called proxy models. Afterwards, Moody's has developed additional RiskCalc models. Therefore, in December 2011 the application of the model was extended to all countries worldwide. After the use-test phase, in June 2012 a communication of the above-mentioned extension was submitted to the regulators, with December 2012 the expected regulatory reporting. Also in this specific case, the validation and revalidation activities made it possible for the Group to certify the maintenance of the compliance of this rating model to the regulatory requirements, taking into consideration that the application perimeters modest sizes do not permit an internal estimation of the financial modules; on the calibration side the model estimates have been in line with the realized defaults and they have been updated on the enlarged perimeter. A part from this the scope extension has had no significant impact neither on the model nor on the relevant process. BASEL 2 THIRD PILLAR AS AT JUNE 30,

147 >> Basel 2 Third Pillar Table 7 The FSME rating model is applied, as described above, also in UniCredit Bank Luxembourg SA and is part of the application package which was submitted to the regulators in June Commercial Real Estate Finance Rating mode (CREF)l The rating model for UCB AG s Commercial Real Estate Finance (CREF) is used in Germany to assess exposure to: Real estate developers: companies whose financial statements incomes derives mainly from the construction (or purchase) and subsequent sale of buildings for residential or commercial (offices, stores); Real estate investors that publish financial statements: companies whose financial statements income derives mainly from the lease of owned residential and commercial properties; Real estate investors that do not publish financial statements: companies with no financial statements or individual customers with income originating mainly from the lease of owned properties, anyway exceeding 200,000 per year. These clients are evaluated through models built combining three basic modules: a) a qualitative module that aims to assess the quality and reliability of management, the abilities of the management team, the quality of organizational management and the bank's experience in managing relationships with the company; b) a qualitative module that aims to assess the asset/project to be financed or already financed (by the bank or other lender), including the quality and implicit risk of the portfolio of the company s properties/projects, its planning capabilities (based on past experience) and cash flows planned/projected in future years c) a quantitative financial module based on the company s financial statements supplemented with a qualitative assessment of the quality, reliability and completeness of the financial statements In April 2011 a revised and recalibrated version of the CREF rating was implemented. The main changes concerned a complete revision of the models for automated assessment of the financial modules for counterparties with financial statements (MAJA) and without financial statements (MULA) as well as the statistical determination/confirmation of the factor weightings and their combination. The three models (Real estate developers, RE Investors with or without financial statements) all use the same sub-modules. The main change is the weighting used to combine the partial scores into the overall score. A revalidation of the CREF PD rating model was performed and complementary analyses were carried out in the first half of 2011 to closer examine the model performances in terms of discriminatory power and calibration. The new MAIA and MULA models implementation and the following recalibration led to a better alignment between observed and realized defaults and an overall increase of the relevant discriminatory power. During 2011 steps were taken to the extension of the rating system CREF to segment of "Building Societies" and "Real Estate Funds" previously treated with a standardized method. The extension of the application perimeter, was carried out using the model already used for the segment "RE Investors, with minor adjustments of some experts judgments to take into account the specific characteristic of the segment. The above extension for Building Societies was subjected to a specific revalidation activity in September 2011 with generally positive results. The regulatory audit of the extension for Building Societies and Real Estate Funds took place in December 2011 with a positive assessment by Deutsche Bundesbank. The regulatory use of these changes will produce effects after formal approval by the regulators which is still outstanding. 147

148 I Finally, at the beginning of 2012 the CREF system underwent two further immaterial modifications due to the extension of the application perimeter to Real Estate Funds and Foreign Reporting Investors and Developers. A structured local assessment of this new version of the model including the extension will be carried out in the next local validation planned for September The CREF rating model is applied, as described above, also in UniCredit Bank Luxembourg SA. Acquisition and Leveraged Finance transactions rating model (ALF) The Acquisition and Leveraged Finance" (ALF) model is used for the assessment of projects to finance/refinance corporate acquisition transactions, in which additional bank liabilities are added to the normal operating debt of the company acquired in order to finance the acquisition. The debt resulting from the acquisition is repaid out of the future cash flow of the company acquired, and, in certain cases (e.g., acquisitions that involve strategic investors), out of the cash flows of the acquiring company. Acquisition transactions and their corporate and tax implications (often involving several jurisdictions) demand specific expertise during the audit phase, and require: appropriate risk-return relationships in addition to a loan structure based on a realistic cash flow simulation model; the adjustment of the acquired company s financial and debt repayment structure to future cash flows; the combined use of highly differentiated borrowing tools (senior debt, junior debt, mezzanine debt, etc.). In terms of procedural aspects, the "ALF rating" is essentially a financial rating that calculates the acquired company s probability of default based on equity and financial ratios taken from the provisional financial statements and income statement. There is no qualitative module since in the preparation of the provisional financial statements, a large amount of qualitative information based on experts opinions is already implicitly taken into consideration. The provisional financial statements are prepared through models that simulate future cash flows (INCAS, international financial model). In this case, manual adjustments (overrides) are also allowed with respect to individual financial ratios and the final rating, and these adjustments must be approved by the responsible units and must be closely monitored by the internal validation unit. The validation unit performed qualitative and quantitative analyses which confirmed the model s reliability. The ALF rating model is applied, as described above, in Unicredit Bank Luxembourg SA. Income Producing Real Estate (IPRE) rating model The IPRE rating model provides an assessment of a particular category of specialized loan related to cash-flow-based real estate transactions in which the bank has direct access to the cash flows produced in the transaction. The UCB AG IPRE rating model is a transaction based rating model that assigns a PD to a transaction - and not to the corporate customer or fund who initiates and structures the transaction. The model is applied to counterparties/transactions which fulfill a number of strictly defined criteria. BASEL 2 THIRD PILLAR AS AT JUNE 30,

149 >> Basel 2 Third Pillar Table 7 The core of the UCB AG IPRE model is a cash flow simulation (module 1). The main idea behind this approach is that an IPRE transaction defaults if the cash flow (after costs) that is realized in the transaction from rental income or sale of the property will not cover the debt service to repay the loan - or if the value of the real estate property falls below the face value of the loan. This in turn is assumed to happen if the relevant macroeconomic parameters (such as the vacancy rate, rent index or sales price index) are developing negatively. The simulation approach is chosen to explore a diversity of possible scenarios of the development of the relevant macroeconomic parameters probability weighted and thus to understand the likeliness of the transaction to default. In order to capture additional aspects the result of the simulation can be altered based on qualitative questions (module 2 and 3): specific object characteristics module, to take into account the characteristics of the specific objects held by the SPV; soft facts module, for the qualitative assessment (this component has been subsequently enriched with specific guidelines for the correct interpretation of the questions, as well as with detailed explanations of the factors contained in the module). The results of each simulation are combined to produce the one-year probability of default (PD) then calibrated on long-term observed default rates, and the other risk parameters (Market Value), that are subsequently adjusted to take into account the characteristics of the specific objects (position and quality of the building) and the qualitative assessment. Based on the local validation released in 2011 the rating model resulted as overall compliant, even though minor areas of improvement was identified and will be addressed by UCB AG in the further model refinements. The validation, performed for the first time on a representative and independent data sample, shows generally satisfying results with reference to predictive power, stability and calibration, but results have to be interpreted in the light of a still low number of cases in the validation sample, expected however to increase in next few years. Also the 2012 revalidation activity confirmed the positive assessment on the IPRE model. The IPRE rating model is applied, as described above also in UniCredit Bank Luxembourg SA and is part of the application package which has been submitted to the regulators in June Global Shipping rating model for Ship financing (GLOS) The principal characteristic of ship financing is the granting of loans for the acquisition of ships, principally secured by a mortgage on the financed asset. Ship finance is an asset based credit business which completely depends on the cash flow generating capabilities of those vessels being financed. The focus of UCB AG's ship finance is the financing of ships for which a liquid, transparent, and efficient secondary market exists. This includes e.g. container vessels, bulk carrier, and tanker. The GLOS model is mainly related to the transaction and it is characterized by an absent (or limited) use of the sponsor and allows calculating the probability of default (PD) and the loss given default (LGD) of the borrower. The PD calculation in the quantitative module is based on a Monte Carlo simulation. The development of the quantitative factors (e.g. the ship value) is based on the stochastic process, where the parameters are validated and estimated annually, based on external data. The cash flow is calculated for each quarter of the financing period. 149

150 I The financial rating based on quantitative factors is adjusted based on the following qualitative factors (upward or downward adaptation of PD by a certain number of notches): commercial management (e.g. reputation); technical management (e.g. fleet size); position of UCB AG (e.g. covenants); insurance; vessel quality; fallback financing. The qualitative and quantitative validation showed good performance of the rating model. The time series parameters were updated according to market evolution. Wind Project Finance transactions rating model UCB AG adopted a specific rating system to evaluate the Wind Project Finance transactions, meaning the transactions aimed at financing wind power plant projects, with project volume below 20 million. The PD model is made up of a quantitative model, stemming from future cash flows Monte Carlo simulations, whose outcome was adjusted by means of a qualitative component based on judgemental factors and weights. Both modules, the quantitative and qualitative, are mandatory for the final evaluation and their combination can be upgraded up to 2 notches or downgraded up to 3 notches. The resulting final PD is converted via master scale to the final rating of the transaction. Regarding LGD parameter, UCB AG developed a method to evaluate the collateral value of the Wind Energy plants. This approach is based on Monte Carlo simulations of future cash flows of the Wind Energy plants. The simulations are consistently used for PD and collateral evaluation. Additionally a LGD on the unsecured exposure is determined. During 2010, the model was recalibrated aiming an alignment of the quantitative implied PD with historical default rate and an override process was introduced. The validation function assessed the methodology adopted and the overall model design, both considered in line with portfolio s characteristics and internal standards, and the information completeness. Also the calibration and the statistical definition of the qualitative module were assessed, showing some improvement areas. Local German LGD model The scope of application of the UC AG LGD model is all the facilities related to corporate and retail customers, except for bonds and all specialized lending. The LGD represents the financial loss suffered by the bank on the individual transaction, and is calculated as a percentage of the exposure to default. The LGD is calculated for each individual transaction and takes account of the fact that different types of default are possible: Liquidation: total liquidation and forced recovery of collaterals. The relationship with the customer is terminated and the customer is removed from the portfolio. Settlement: the customer re-enters the performing portfolio after reporting a major loss (> 100) to the bank. Cure: once the period of difficulty is over, the customer re-enters the performing portfolio without reporting a major loss to the bank. BASEL 2 THIRD PILLAR AS AT JUNE 30,

151 >> Basel 2 Third Pillar Table 7 In the case of a Cure, the LGD is set at 0, while in the other two cases the estimation of the LGD follows a work-out approach, with separate estimation of the recoveries deriving from collaterals and those deriving from the unsecured part of the exposure. Personal guarantees are not taken into account in the models, since the substitution approach is used for this type of guarantees. In order to determine the final value of the LGD, the following factors are taken into consideration: minimum value that the LGD can assume according legislative provisions (e.g. 10% for mortgages); estimated rate of non-cure cases; discounted expected recovery value of the collaterals, net of direct costs; discounted expected rate of loss of the unsecured portion of the transaction; percentage of indirect costs; any adjustment factor to take into account a potential worsening of the economic cycle. With regard to the procedure for estimating the rate of recovery from the guarantee, this has been obtained on the basis of a historical sample and calculated differently for the following types of collaterals: real estate; other collaterals. This value has then been discounted by taking account of the average observed duration of the defaults. With regard to the procedure for estimating the unsecured part, on the other hand, this has been carried out by customer segments (the main categories are retail, small business, corporate, real estate developers, real estate investors, real estate housing companies, etc.). During 2011 a new parameterization was driven by local validation outcomes: since significant gaps were highlighted for specific model components, a model updating was carried out. Within the new parameterization, as far as unsecured LGD is concerned, new risk drivers related to rating procedures have been introduced increasing the model granularity; particularly, for customers with a rating procedure "Small Business Customers" and " German Middle Market" the LGD unsecured is determined independently from the costumer segment (besides the rating procedure "Product Scoring", which was introduced in 2010 as risk driver). As before for all other customers, the customer segment is the relevant risk driver. Moreover, the validation unit has examined the model structure, the specific parameters as well as the effect of the economic cycle. Finally, the model calibration and its components have also been assessed with positive results. As usual an yearly local validation activity will be performed within 2012, in order to evaluate whether the model is still fully adequate and if there is the need for carrying out a re-parameterization to include more recent data. Local German EAD model The model is applied in UC AG to all the products belonging to local partner that are IRB-A relevant (with the exclusion of the transactions belonging to partners with a group wide rating). The EAD is defined as the exposure at the time of default. The exposure is the total outstanding amount before loan loss provisions and write-offs. The prediction horizon of the EAD model is one year. This means that, when the model is applied, the estimates refer to the expected exposure when default occurs within one year time. 151

152 I It is estimated for each individual transaction as the sum of two components, Ead On Balance and Ead off Balance, where the parameter that is estimated is obviously the EAD (Off balance). This parameter depends on the following elements: CEQ: Credit Equivalent Factor; this is the credit conversion factor for the credit, and represents the portion of the commitment/guarantee issued by the bank that will be used; LEQ: Limit Equivalent Factor; this is the percentage of the amount unused 1,2,,12 months before the default (on average 6 months before) that is expected to be used at the time of the default; LOF (Limit Overdraft Factor) and BO (Base Overdraft) are the parameters that estimate the expected amount of use that, at the time of the default, will exceed the allocated maximum limit (overdraft amount); in the application phase BO is always zero; Endorsement: amount of commitments issued to the bank s customer; External line: line of credit; Drawing: current use of the line of credit. The parameters defined above are then differentiated according to the product macro-typologies defined within the regulatory calculation engine. For the purposes of evaluating the model, the parameters have been assessed by calculating on the basis of the weighted averages for each segment. Over all the validation activities confirm satisfactory model performance and that the EAD parameter is quite stable. Only for the LOF of current accounts and for five contingent liability products a new parameterization was put in to production at the beginning of 2012 to reduce the excessive conservativeness observed. Local Models, Austrian Legal Entities Mid corporate rating model The Firmenkundenrating Inland rating (= Midcorporate PD rating model) is applied to customers domiciled in Austria or in any other country outside CEE with annual turnover of more than 1.5 million and less than 500 million. The model consists of two components: a quantitative module and a qualitative module. The risk factors for the quantitative module have been selected on the basis of both statistical and expert criteria. The principal risk factors included in the quantitative module generally cover the following areas of analysis: size; structure of liabilities; dynamic factors (such as ROI); equity ratio. The qualitative module, on the other hand, covers the areas of analysis relating to: management quality; accounting and reporting; equipment, systems and organization; market and market position; level of orders/utilization of capacity; overdraft behavior. BASEL 2 THIRD PILLAR AS AT JUNE 30,

153 >> Basel 2 Third Pillar Table 7 The qualitative rating and the final financial rating (= quantitative rating after verification of the possibility of applying an age restriction and carrying out a first override on the basis of the information available) are combined to obtain the so-called Combined Customer Rating. The warning signals are applied to this rating in order to obtain the Modified Customer Rating. It is also possible to apply an override to this rating, thus producing the Stand alone Customer Rating. If this rating is older than 15 months, an age restriction is applied, resulting in a downgrade. The validation unit has evaluated the design and tested the behavior of the model and the modules that it comprises in terms of performance and calibration. Based on the last validation outcomes, the model showed overall good performance and, after the application of a conservative add-on, a good alignment between estimates and realized default rates. Finally, analyses aimed at identifying any distorting behaviours in the use of the qualitative questionnaire, the overrides and the warning signals, as well as analyzing the transition matrices between subratings have been carried out. In mid-june 2012 the calibration got updated. Non Profit Joint Building Association rating model The Non Profit Joint Building Association (NPJBA) rating model is applied to non-profit associations created for the construction of buildings. This is a rating model consisting of a quantitative component (financial rating) and a qualitative component. The financial rating is based on three principal types of information: adequacy of the available capital; profitability; available liquidity. The qualitative rating, on the other hand, is based on 6 basic components quality of management; quality of management; accounting and reporting; organization; market position; performance behaviour; specific characteristics of the NPJBA. The quantitative and qualitative ratings are combined in order to obtain the Combined Rating ; this rating may be subjected to an overruling on the basis of additional information available to the manager of the transaction, leading finally to the so-called Valid customer rating. During 2011, the validation unit checked on an on-going basis the design of the model, the qualitative and quantitative characteristics of the model, overrides, calibration, and carried out the usual performance and stability tests: in light of the validation outcomes, the model discriminatory power can be considered overall adequate and the calibration sufficiently conservative. 153

154 I Income Producing Real Estate (IPRE) rating model The IPRE model is a transaction rating applied to a particular type of specialized loans linked to cash flow based real estate transactions in which the bank has direct access to the cash flows deriving from the transaction. In this type of transaction, the essential question is whether the cash flows from the transaction are sufficient to repay the loans to the bank. In addition, BA also carries out an evaluation of the investor/builder. Consequently, the IPRE model consists of two components: transaction rating; counterparty rating. Both of these components are combined in order to obtain the final rating. The transaction rating distinguishes three different phases in which the financing may take place: construction of the building; sale of the building; renting of the building. The counterparty rating is a corporate rating which differentiates between real estate investors and real estate constructors, the latter being further divided into residential constructors and other constructors. For all of these, a quantitative module (referring to the balance sheet data) and a qualitative module are used. After integration of the transaction rating and the counterparty rating, further adjustments are applied to take account of warning signals, over rulings and age restrictions (according to the age of the rating). The present version of the IPRE rating model considers updated macroeconomic scenarios underlying the simulation and introduces a conservatively factor in the calibration as suggested by the local validation. A revision of the Real Estate Customer Rating module has been performed as well, mainly regarding the statistical revision of financial and qualitative modules. In addition, other minor adjustments regarding the revision of warning signals, the qualitative questionnaire and the updating of the management of missing balance sheets and/or start-up companies were done. Also these changes were tested through a specific initial validation and succeeding verifications by the internal validation unit, whose results showed an overall improvement in model performances and a general strengthen of the model soundness currently more based on statistical fundaments. In 2012 a refinement of the Transaction Rating was performed mainly consisting of the introduction of additional factors and re-parameterization of existing weights. This contains amongst other things the following enhancements and improvements: additional factors were considered (Pre-realisation rate, LTC) for the quantitative part on phase level. New weights were calculated based on regression models; different questions were merged for the qualitative part. Parameters of standardization were recalculated. New weights were calculated based on regression models; for the combination of the qualitative and the quantitative part new weights were calculated; for the country adjustment national data will be used to estimate a specific country adjustment coefficient; for the combination of phases the methodology was reassessed and only one investor PD for all years is considered; calibration is done separately for each phase using an exponential function. Furthermore an additional calibration is performed after combination with the customer rating; for the combination of customer and transaction rating new segmentation and corresponding weights were implemented. BASEL 2 THIRD PILLAR AS AT JUNE 30,

155 >> Basel 2 Third Pillar Table 7 Local Austrian LGD models The LGD model developed by BA applies to all facilities related to all local customer segments (both corporate and retail). The LGD represents the financial loss suffered by the bank, and is calculated as a percentage of the exposure at default. The local LGD model applied by BA based on average calculation of the internal data of defaulted borrowers and represents a transaction-specific workout LGD approach. The methodology accounts for three potential default events as outcome of the workout process for defaulted clients: Cure / Re-aging: return of the client to the performing portfolio without relevant loss for the bank Settlement / restructuring: re-entering of the client in restructured form to the performing portfolio with a substantial loss (> 100) for the bank; Liquidation: complete collateral realization and debt enforcement with termination of credit relationship After closure of the workout process all defaults can be associated to one of the three default events and an ex-post LGD is calculated, based on the realized revenues and costs. In doing this all single cash flows based on balance changes are discounted to default time. The general scheme of the LGD model in BA provides separate estimation of the recoveries deriving from collateral and those deriving from the unsecured part of the exposure. Personal guarantees and credit derivatives are not taken into account in the models, since the substitution approach is used for this type of guarantees. In order to determine the final value of the LGD, the following quantities are taken into consideration: EAD; expected recovery rate of the collateral, net of direct costs (especially regarding estimation of specific collateral haircuts based on realized recoveries and depending on collateral type); expected recovery rate of the unsecured portion of the transaction, net of direct costs; recovery period respectively processing duration; discounting factors; indirect expenses rate (as result of the internal bank processes in the workout units); specific conservatism to cover possible estimation inaccuracies; general conservatism taking account of a potential worsening of the economic cycle; an adjustment factor applied for calibration purposes; downturn factor. With regard to the procedure for estimating the recovery rate of collateral, this has been obtained on the basis of a historical sample and calculated differently for the following main collateral types with possible consideration of additional segmentation criteria: residential real estate; commercial real estate; other real estate; financial collateral; life assurance policies; receivables; other physical collateral. Concerning securities, an internal model for own volatility estimates has been implemented. 155

156 I With regard to the procedure for estimating the unsecured part, on the other hand, this has been carried out separately for eight local categories primarily based on customer segments (the three main categories are private individuals, small business and corporate) in addition to applied groupwide models (especially for Sovereigns, Banks and Multinational corporate). Furthermore for private individuals and small business a further drill-down into exposure class was introduced. Furthermore for the defaulted portfolio the best estimate LGD with a further drill-down by time-buckets for all eight local customer segments is in use. The validation unit has examined the structure of the model, its conformity with the definition of PD, the effect of the economic cycle, the methodology for discounting recovery flows and the allocation of costs. The design of the model has also been evaluated through targeted discussions with experts in the sector. From the quantitative point of view, performance and calibration analyses have been carried out for all important sub-portfolios not evidencing any matter of concerns. Local Austrian EAD model The EAD model determines the expected exposure on a transaction at the time of default. It is estimated for each individual transaction by using the following informations: effective exposure at the time of the estimation; amount of guarantees/commitments issued by the bank to the counterparty; allocated maximum credit limit. The estimated parameters are as follows: CEQ (Credit Equivalent Factor): this is the credit conversion factor for the credit, and represents the portion of the commitment/guarantee issued by the bank that will be used; LEQ (Limit Equivalent Factor): this is the percentage of the amount unused 12 months before default that is expected to be used at the time of default; LOF (Limit Overdraft Factor): estimates the expected used amount at the time of default that will exceed the allocated maximum limit (overdraft amount); COF (Correction Overdraft Factor): this parameter is important only if the client s exposure was already above the allocated maximum limit 12 months before default and is calculated as the ratio between the overdraft amount at the time of default and the overdraft amount 12 months earlier. The parameters have been estimated by calculating averages for each segment. The segmentation is based on the product categories. The validation unit checked on an on-going basis the calibration, performance, and stability of the model, with general stable and good results. BASEL 2 THIRD PILLAR AS AT JUNE 30,

157 >> Basel 2 Third Pillar Table 7 Local Model, Central and Eastern Europe With reference to the Group perimeter in the Central and Eastern Europe (CEE) area, during 2011 the Group was authorized to use the F-IRB approach for measuring the capital requirements for credit risk in Czech Republic, Bulgaria, Slovenia and Hungary. Prevailing asset class Type Rating system Legal entity Central governments and central banks Sovereign (PD) Institutions subjected to supervision Groupwide Banks (PD) Multinational (PD) Corporate Global Project Finance (PD) Mid Corporate (PD) UCB Czech Republic Institutions subjected to supervision, Corporate Local IPRE (PD, LGD, EAD) Other minor rating systems - Public Sector Entities, Municipalities, Religious Companies, Leasing (PD) Institutions subjected to supervision Corporate Groupwide Local Banks (PD) Multinational (PD) Mid Corporate (PD) IPRE Slotting Criteria UCB Bulgaria Institutions subjected to supervision Corporate Groupwide Local Banks (PD), Security Industries (PD) Multinational (PD) Mid Corporate (PD) UCB Slovenia Institutions subjected to supervision Corporate Groupwide Local Banks (PD) (*) Multinational (PD) Mid Corporate (PD) UCB Hungary (*) This country is authorized by Local Regulator to adopt Groupwide model Financial Institution & Banks only for Commercial Bank segment with the exclusion of Securities Industry segment These rating systems can currently be used for IRB-Foundation approach and consequently only for internal PD usage in Pillar I regulatory reporting. In addition, a similar approval by Bank of Italy is expected during the second-half of 2012 for UniCredit Tiriac Bank S.A and UniCredit Bank of Slovakia a.s, following the issuing of the IRB-Foundation application during the 2011 with regards to the following asset classes: Central governments and Central Banks, Supervised Institutions and Corporates by means of the adoption of both Groupwide and local rating systems. 157

158 I All main local rating models that have been authorized are based, generally, on a common framework which has been developed by Bank Austria 15 (with the exception of the Mid-Corporate model of UniCredit Bank Czech Republic which was significantly changed during 2011 in order to consider the specific peculiarities of the local portfolio): Mid-corporate rating models are based on the development from Bank Austria dated in 2001, and revised in 2004, leveraging on: o five countries pooled data; o the estimation of a financial module and a qualitative component; o the definition of a warning signals set and an override system as well. IPRE rating model is similar to the one implemented in Bank Austria and estimates customer rating on the basis of two components, the transaction one and the counterparty one. Moreover, country adjustments have been included in the calibration phase in order to consider the specific nature of each country. (rif. Table 7, Local Models, Austria) Specific details about main revisions of the models that have been required in order to both prepare the foundation approach application and to meet the resulting recommendations are provided below. Unicredit Bank Czech Republic During 2009, the Bank went through a partial review of the Mid-Corporate rating model with internal data, refreshing quantitative factors weights. Afterwards, in 2010, the PD estimates were recalibrated increasing the target default rate in order to make it consistent with the specific portfolio risk level. During 2011, additional improvements were implemented in order to fulfill recommendations from both regulators, Czech National Bank and Bank of Italy, and internal validation units: revision of the financial module factors, now consisting in seven variables (five new); refinement of the qualitative module with more detailed specification of answers and new weights; development of a new behavioral module; update of the calibration; development of a statistical modules combination function implementation of a new complex qualitative questionnaire for the purpose of data collection being the prerequisite for the re-development of the qualitative module in 2012 Starting from January 2011, also real estate portfolio has been authorized to be evaluated with foundation approach using the same Income Producing Real Estate (IPRE) rating model currently authorized in Bank Austria since During 2010 specific improvements were implemented by a new recalibration and a review of the scenarios. Unicredit Bank Bulgaria As for Czech Republic and Slovenia, also the Bulgarian Mid corporate rating model required a recalibration of the PD estimates whose implementation was completed during The improvements have been defined following both regulators and internal validation units recommendations and included: higher target default rate, based on 7 years of local data; the introduction of a margin of conservativism for the PD estimation. 15 For GW models please refer to the specific paragraph. BASEL 2 THIRD PILLAR AS AT JUNE 30,

159 >> Basel 2 Third Pillar Table 7 Despite that, the 2011 ongoing validation activities highlighted a decrease in model performances and the necessity of a model personalization which is currently under finalization. In January 2011, UniCredit Bulbank was authorized to estimate specialized landing exposures using the supervisory slotting criteria. This simplified model is to be used by UniCredit Bulbank only as a temporary solution until the authorization of the IPRE rating model. The model calculates the score of each specialized lending exposures on the basis of 15 questions related to the following investigation areas: financial strength; assets characteristics; strength of sponsor/developer; security package. Each of the questions is answered with only one answer to be chosen between Strong, Good, Satisfactory and Weak : a specific score is identified by each question-answer combination; the weighted average of all the 15 scores defines the regulatory slot of the exposure; depending on regulatory slot and exposure maturity, final risk weight and corresponding expected loss are identified. Unicredit Bank Slovenia During 2010, the Slovenian Mid corporate rating model went through a re-calibration of the PD estimations in order to ensure its consistency with Basel II default definition, local regulation and Group guidelines in general. All the above mentioned development activities have been evaluated from, and, often driven by, both local and central validation units within the constant monitoring process aimed to ensure continuous improvement of models estimation power. Unicredit Bank Hungary After the only development activity performed on the Mid corporate rating model during 2009 focusing on a new calibration of the model based on country-specific data, a new model change has been recently applied and a joint-validation activity between the local and the Holding validation functions has been carried out. Such model revision is focused on a new personalization of the risk-weight factors and it should led to improve the overall model discriminatory power. The implementation is planned for the next months. 159

160 I Retail exposures (exposures secured by residential property; qualifying revolving retail exposures; other retail exposures) Local Model, Italian Legal Entities Italian Small Business Rating model The Integrated Small Business Rating (RISB) provides a rating for the counterparties of UniCredit S.p.A. with revenues (or total assets if revenue information is not available) up to 5 million, according to the segmentation used by the constitution of UniCredit S.p.A. The model has been structured in order to optimize the aggregation of different informative sources, both internal (qualitative, financial, customer data and behavioral) and external (Bank of Italy s Centrale dei Rischi data flows and other private providers), differentiating lending between new or existent customers and on a corporate segmentation that reflects the company size and seniority within the market. The modules developed are the following: customer data; external behavioral module (CE.RI./SIA); financial module; credit bureau modules (Experian and Crif) qualitative module; internal behavioural module. During 2011, Credit Models Italy Development developed a new model of balance for the Small Business counterparts operating in Real Estate sector. In particular, the development team focused on the estimation of a financial module specifically for real estate companies while the remaining components of the model were taken from the Real Estate RISB. With respect to this intervention, a validation activity that expressed a substantial share of the choices made in the estimation phase was carried out. Therefore, this model was introduced starting from June 2012 for regulatory purposes. In the first half of 2012, the entire system RISB was recalibrated with the aim of implementing the amendment made to the existing regulation relating to the time limit necessary for the determination of the past due (thus using a definition of overdraft to 90 days) and to extend the time series data for most recent default. This calibration, in line with the new structure of the model, was distinguished for counterparties operating in No Real Estate and Real Estate. In this regard, the validation function has evaluated the new calibration parameters, expressing a positive opinion about the capacity of the model to assign to counterpart the expected risk values in line with those observed. Furthermore, the specific application of the estimated PD against adverse events was deemed positive. Italian Small Business LGD model In reference to the LGD model for the small business segment, see the description under "Local Italian Corporate LGD Models". BASEL 2 THIRD PILLAR AS AT JUNE 30,

161 >> Basel 2 Third Pillar Table 7 Private individuals Rating model Mortgages The target portfolio of the Integrated Individual Rating (RIP) model, which is based on a pool approach, consists of all categories of mortgages handled at UniCredit S.p.A. which are used for the purchase, construction and re-modelling of residential properties by individual customers and for the purchase of properties for business purposes carried out by individuals included in the Family Firm sector. As regards the Group s installment products, the incorporation of specific characteristics of an individual product in order to determine its pool has resulted in the assignment of a potentially different probability of default to each relationship of the same counterparty, although the customer s characteristics are within the main drivers used to identify pools. As other individuals rating systems of the Group, the development of the RIP model was also broken down into two separate phases. The first phase consists in identifying pools related to the portfolio in the loan approval phase, and the second consists in identifying pools related to the existing portfolio. Using statistical techniques, pools covering the entire portfolio were identified. Following this process, tree structures were created in which the leaves correspond to the pools identified. The associated PD of each pool is then estimated using the default rate observed for the exposure attributed to it. In the probability of default assignment process, the assessment made during the initial approval process is maintained for the first subsequent six months unless an overdraft of over a month is identified, while starting from the seventh month, the transaction s allocation to the corresponding pool is recalculated using the tree established for the existing portfolio. Behavioral components gain greater significance indeed with the age of the mortgage. After the specific characteristics connected with different origins of the portfolio exposures coming from ex UniCredit Banca, ex UniCredit Banca per la Casa and ex Abbey National, the rating model had some customizations, since its origin, above all with reference to the portfolio acquired through ex Abbey National channel. In the analyses of ex Banca per la Casa complete portfolio four segmentation trees had been defined, whose initial discriminating variable is the mortgage maturity (the number of months from lending greater or less than 6) and the place of origin for mortgages with a longer maturity. As a result of revisions implemented in recent years, the model adopts a default definition more consistent with supervisory regulation, a specific grid for mortgages granted to immigrants, an extension of IRB advanced methods to the residential mortgages previously included in ex Capitalia portfolios, as well a new rating module for mortgages granted to UniCredit group employees. During 2010 e 2011 a significant revision of the RIP mortgages model was performed, through the redevelopment of the application and behavioral modules aimed at increasing the representativeness and the performances of the PD estimates, and also at overcoming findings identified by control functions. In March 2012 the communication for the review and the extension of RIP-Mortgage system (PD and EAD) was sent to the Bank of Italy for approval. The changes made to the rating system consist in the entire redevelopment of the PD model estimation following the previous recommendations suggested both by the Supervisory Authority and internal control functions. 161

162 I Moreover, together with the review of the system, it is also provided for its extension to the residual mortgages portfolio, mainly originated from the past merged companies, for which is currently applied the standardized methods for capital requirements calculation. These changes will be implemented for the regulatory report as of September Based on the results obtained from the activity of the initial validation of the PD RIP model - Mortgage Loans, the internal validation function believes that the new model, which has structurally changed from the previous, is a significant improvement in risk assessment in the particularly important phase of delivery, overcoming the major findings issued from previous validation work on the estimates currently in use. Under the quantitative aspect, the new model, both in the two phases of delivery and behavioral, presents good results in terms of performance, stability and representativeness. Only calibration analyses have shown an overestimation of the default rate during the delivery phase. Overdraft and Credit Cards The Integrated Individual Rating (RIP) for Overdraft and Credit Cards is aimed at estimating credit worthiness of private individuals with in Current Account facilities (overdraft, guarantee/endorsement loan, credit cards) and it derives from the integration of several basic score modules that use internal information (balance sheet, behavioral and customer data information) and external information ( Bank of Italy s Centrale Rischi and CRIF credit bureau). The integration of the basic modules is different for each following five under-segments of private customers: new clients applying for a credit facility; clients previously operating on an active bases, applying for a credit facility; old clients with loans already granted; old clients with overdraft but never granted; UniCredit group employees. The integration of the different modules produces an underwriting score, used to estimate the credit worthiness both in granting and in renewal phase, and a monitoring score, used to evaluate the stock of this kind of exposures. The information underlying the financial/customer score module collected during the underwriting process and rarely updated during the life-cycle of the loan are progressively underweighted in the model. On the contrary, the behavioral variables, potentially absent in the underwriting phase, are definitely explicative and used during the monitoring activities. In the post-delivery monitoring phase, 2 other variables are also monthly updated that are not included in the modules and that are separately integrated: the RISB rating class to which there are one or more holders possibly connected (the worst is used in case of multiple values in the same month), and the last three months average value of cash assets (securities, insurance, or indirect) in the hands of all owners and their connected. With reference to update frequency, the behavioral information coming from CRIF bureau are quarterly updated, while the ones coming from internal source or Ce.Ri. are monthly updated. The PD model has been estimated exclusively on UniCredit Banca customers data but has been calibrated considering the default rate of the customers coming from UniCredit and Capitalia groups. The default definition adopted in the model development is a managerial definition while the one used to calibrate the model is fully compliant with Basel II requirements, considering as bad all the counterparts classified sofferenza, incaglio and past due (90 days). BASEL 2 THIRD PILLAR AS AT JUNE 30,

163 >> Basel 2 Third Pillar Table 7 The validation function verified the model design during initial validation phase, the usage of the entire available information sources, the performance of the model in terms of rank ordering, calibration and stability of the population over the time. Additionally particular attention has been placed on identified submodels analysis. On-going validation activities weren t performed on the model, since it will be subjected to specific revisions before its practical use for regulatory reporting purposes. Personal Loans The PD rating system for personal loans is composed by different models according to the purpose of use (underwriting or monitoring), the underwriting channel and the application portfolio, in order to identify the peculiarities of the different segments in terms of business management, risk and statistical properties. The developed models are the following: underwriting canale banca strategic portfolio 16 ; underwriting canale banca not strategic portfolio 17 ; underwriting canale non banca 18 ; behavioural. This structure is the one that optimizes the use of the main sources of information without introducing excessive complexity in the model. Concerning the underwriting models, which aim to assign a probability of default for each exposure at the moment a personal loan application is submitted, the development methodology used is the logistic regression and the development samples consist of all lended personal loans until July Concerning the behavioural module, developed through a logistic regression, the discriminant variables used refer to internal behavioural information and to information related to the customer personal data. The application and behavioural scores have been then standardized and 14 rating classes have been created, defining also 4 additional classes for employees, for the unrated portfolio (for which underwriting score models are not used), for the loans lended with evidence of a refusal policy and the defaulted loans, respectively. The definition of default adopted during the score estimation is of a business typology, characterized by a 18-month performance period and by the identification of default based on a sofferenza status or on a number of past due installments greater or equal to Also for Personal Loans, as highlighted for the other retail segments in Italy, specific activities started in order to completely revise the model. During initial validation phase, the validation function verified the model design, the use of information sources and the model performances in terms of rank ordering and calibration. Moreover, a specific analysis was performed during the first quarter of 2010 in order to verify the possibility to extend the estimates to Capitalia customers. On-going validation activities weren t performed on the model, since it will be subjected to specific revisions before its practical use for regulatory reporting purposes. 16 Personal Loans lended by UCB agencies for which the applicant or the co-obligor (if any) were born, according to what derived from the tax code, in the following countries: Italy, Austria, Belgium, Denmark, Finland, France, Germany, UK and Northern Ireland, Greece, Ireland, Luxembourg, Norway, Netherlands, Portugal, Monaco, San Marino, Spain, Switzerland, Sweden, Città del Vaticano, UNITED States of America, Canada, Australia, New Zealand. 17 Personal Loans not belonging to the Strategic Portfolio. 18 Personal Loans not distributed by the UCB agencies. 19 The counterparty is considered good in case of past due installments less or equal to 2 and indeterminate with 3 or 4 past due installments. 163

164 I Local Italian retail LGD model The Retail segment LGD models for Italian portfolios have been developed according to the logic and methodology used for the Corporate segment, to which refer for more detailed information. The only difference is related to Personal Loans products for which the estimation approach adopted is based on the WOE (Weight of Evidence) associated with different attributes values, available during application phase. As for Corporate segment LGD models during 2009 the retail LGD parameters were updated based on new estimate samples that include for the module sofferenze the transactions closed between 2001 and 2007 and some since 1997, and for the module incagli the transactions closed between 2003 and The year 2009 was also marked by the introduction of new models to calculate LGD for overdrafts/credit cards and personal loans. The two new models for retail exposures have a similar structure to other LGD Italian models: they are workout based and are structured in different modules for each client status (sofferenza, incaglio and past-due). These blocks are then combined together using two different parameters: the composition of the first default entry date (the probability that given the default, it occurs as past due, incaglio or sofferenza), and the transition probabilities between different default status. In addition, as far as Mortgages are concerned, the revision of danger rate incorporated the default definition agreed with Bank of Italy. The estimation perimeter, previously limited to mortgages coming from Banca per la casa, has been extended to all the transactions of retail division. As for corporate segment, also in this case, the Danger Rate component is annually recalibrated with the last year default data. Subsequently, since 2008, the analysis has focused both on the initial validation of the new LGD models (overdrafts / credit cards, personal loans) and the qualitative validation of all the revisions performed, besides on the reliability of the changes made in the recent context of recession and on monitoring performances and calibration of authorized models, focused on estimations adequacy of the defaulted transactions. Finally, following what was done on the corporate portfolios, the latest revision performed in retail segments, involved the upgrade of the danger rate including defaults incurred up to Recent ongoing validation activities on mortgages have highlighted a good performance of the model for impaired loans and past due components, while they showed non-conservative results for non performing ones, that will be exceeded with the completion of the model revision recently started. Local Italian EAD model Together with the adoption of the new Overdraft/Credit Cards and Personal Loans rating systems, exposure at default (EAD) model has been developed. Moreover, in the first half of 2010 a new EAD internal model for Mortgages was added to the rating systems for private individuals in Italy (RIP) and was authorized by the Italian Regulator in December The approach used for EAD estimation consists of a methodology "within 12 months", that start from the analysis of all the exposures performing in a given date (e.g. 31/12/t) that are classified as defaulted over the next 12 months. BASEL 2 THIRD PILLAR AS AT JUNE 30,

165 >> Basel 2 Third Pillar Table 7 With regard to overdraft and credit card, the EAD estimation is differentiated according to product types (overdraft, credit cards, receivable and endorsement loans). The EAD for overdraft differs if there s an unutilized portion of the credit line (margin) or not in the instant of observation; in particular, where this margin is present an equivalent credit (CCF) is calculated while in the absence of it only an indicator of the current usage (K) is calculated. Additionally, overdraft and credit card are managed jointly given the fact that the credit card payments are charged monthly on the current account without details on single movements. As for the endorsement loans, through which the bank accepts or guarantees a customer s obligation (transferring to itself the default risk of the customer) the EAD model assesses the endorsement loan value at the time of default which represent a potential risk for the bank (the actual risk, or the risk that the endorsement loan becomes cash exposures, is evaluated in the LGD model). Regarding the estimation of EAD on receivables, the development function decided to calculate only the coefficient K, depending on the current exposure. For self-liquidating products, in fact, the margins are not directly available, but provided only upon presentation of effects and it is the relationship between uses on default and uses in reference date that highlights a possible increased risk and the percentage of expected exposure at default. With regards to personal loans, however, the analysis carried out showed that exposure at the time of default is always less than 100% of the exposure at the observation date for all the segments defined in all portfolios. For this reason it was decided not to implement the model developed and conservatively assign to each exposure an EAD equal to 100% for regulatory purposes. Contemporary to the redevolpment of the specific Rating System, however activities aiming at a redevelopment of EAD model will be carried out. Finally, with regard to EAD model for mortgages, the approach is quite similar to that used for personal loans. In this case some sub-portfolios with an average EAD above 100% have been identified, particularly if an overdue was present at the time of observation. In coherence with the current regulation, each relation with an EAD less than 100% of current exposure, it is forced to that value. In March 2012 approval for the communication of the review and extension of the RIP-mortgages (PD and EAD) was sent to the Bank of Italy. The changes made to the rating system consist, regarding the EAD, in the revision of the estimation model, following the recommendations suggested by the Regulator and internal control functions. The validation activity of EAD mortgages model expressed a substantially positive evaluation. The proposed model, in fact, more than being simple and intuitive, it is particularly suitable for a product, such as mortgages, which does not have margins and on which is especially relevant discriminate cluster population that exceed the regulatory floor of 100% compared to rest of the portfolio which remains below threshold. Moreover, the quantitative tests show adequate performance and estimates aligned to the values observed. 165

166 I Local Model, German Legal Entities Small Business rating model The UCB AG SBC rating model covers small and medium-sized German companies and individuals with residence in Germany whose income is mainly from freelance activities, independent work or income from a small or medium-sized business in which they are major shareholders or owners. As mentioned for the Mid-corporate rating model, the target portfolio of application for the small business rating model was amended in April 2011, in order to reflect the adjusted customer segmentation with One4C. Currently the upper boundary to German Middle Market is 5 million of net income for companies preparing financial statements (previously it was up to 3 million in net income while, specifically for business partnerships with unlimited personal liability, the net income was up to 15 million). The UCB AG SBC rating model is structured into four different sub-models, which are applied on the basis of the credit process phase and the approved limit amount exposure: Scoring GK scorecard (composed by two scorecards: GK1 for entity with full private liability and GK2 for entity without full private liability) is applied during the application phase to customers with exposure greater than and annually, on review, for partners with an approval limit greater than ; Behaviour Scoring (composed by four different scorecards, based on product segmentation) is used both as an automatic rating on a monthly bases for existing partner into the Small Business portfolio (for partners with an approval limit lower than ) and as an input factor of the Scoring GK; the behaviour score is calculated automatically every month. Small Credit Line scorecard is applied only during the loan booking phase and to clients with a limited approval limit (lower than ) and without available customer risk rating (BKL). Is not used for annual re-rating. Rating for Start Ups is newly developed and went live mid December The rating might be adjusted upon the occurrence of a predefined event (a set of events are defined that require a downgrading or upgrading of the counterparty) on the basis of an expert assessment. Overrides are closely monitored by the internal validation function. The override process is only allowed for customer within the risk relevant business. The last local validation activity confirmed that performance results can be generally considered satisfactory; nevertheless, this activity showed the requirement to recalibrate the Small Credit Line model because of significant underestimation of the observed default rate, model change already implemented since October In June 2012, a communication of the extension of the Small Business rating system to the start-up companies was submitted to the regulators, with December 2012 the expected regulatory reporting. The new sub-model is going to be used for Start Up Companies in the first period after incorporation, until meaningful balance sheet figures are available and the IRB Small Business model could be applied. Behaviour Scoring for Small Business Customers with a separate calibration will be used for Start Ups in the second year of life. The Small Business rating system (Scoring GK and Behaviour Scoring) is applied, as described above also in UniCredit Bank Luxembourg SA and is part of the application package which was submitted to the regulators in June With reference to LGD model see as described in paragraph LGD local model on German portfolios. 20 This limit was raised from to coherent with the limit set or the monthly updating of the Behavior Scoring, put in place in October BASEL 2 THIRD PILLAR AS AT JUNE 30,

167 >> Basel 2 Third Pillar Table 7 Private Individual rating model The UCB AG private individuals rating model covers all individuals excluding self-employed customers. Individuals with high property lease income are also excluded. They are considered part of the Commercial Real Estate portfolio and assessed using the appropriate rating system. The main rating model for individuals called "Product Scoring" consists of 9 scorecards: 5 application scorecards (differentiated by product type) and 4 behavior scorecards. Both scores are combined on account level, or one of the two scores is used depending on the time period since account opening. All assessments available on a customer (in the event the customer has more than one relationship with the bank) are combined based on a model developed by expert knowledge in order to obtain an overall probability of default for the individual customer. First, this approach calls for determining a relationship PD for each transaction. All relationship PDs for the same product category are then combined (using a weighted average for exposure) into a product PD. Finally, all product PDs contribute to the determination of a customer PD based on exposure, the information weighting (that summarizes how, and how far in advance, each product contributes information on the future default of the customer) and the risk factor for the product combination (that specifies the different contribution of each product combination to the projected rate of default). In addition to the above described Product Scoring there are separate scorecards in place for wealthy customers and customers within the risk relevant business (exposure above 500,000). These are content of model "Rating for private and wealthy customers". The last validation for UCB AG private individuals showed a very good selectivity for model "Product Scoring" and sufficient results for the model "Rating for private and wealthy customers" due to the low numerousness of the relevant populations. The tests for calibration generally showed an overestimation of risk for both models, hence re-calibrations were carried out and implemented for both the Rating for private and wealthy customers in the first half of 2012 for the "Product Scoring", thus reducing the overestimation. Generally speaking, the validation unit checked the design of the model and its reliability in terms of performance and calibration. In addition, it analyzed the performance of the various underlying modules and their calibration, and also separately reviewed the different possible combinations of products used by the same customer. Moreover specific validation activities were carried out on non-resident clients in order support the request of extension. In June 2012, a communication of the extension of the Private Individual rating system to non-german resident customers was submitted to the regulators, with December 2012 the expected regulatory reporting. The extension was carried out only by means of a technical change to the systems, without any methodological changes to the underlying scorecards or weights of the existing models, namely the behavioural Product Scoring and the Rating for Private and Wealthy Customers. The Private Individual rating system for Wealthy Private is applied, as described above, also in UniCredit Bank Luxembourg SA and is part of the application package which was submitted to the regulators in June With reference to LGD model see as described on paragraph Local German LGD model. 167

168 I Local Model, Austrian Legal Entities Small Business rating model This rating model is applicable to Austrian small business clients included non-profit organizations (up to 1.5 million annual turnover or to clients using cash based accounting). The general design of the model consists of an application module and a behaviour module. The application module is applied principally in the following cases: new client; the customer requests a further line of credit for which the total exposure exceeds 50,000 or there is no behaviour score (irrespective of the amount of the exposure); updated balance sheet information is available; warning signals have been modified/have arisen. The application module contains qualitative and quantitative information about the counterparty. Depending on the accounting regime, the quantitative risk factors cover at least 3 of the following areas of analysis: profitability; debt coverage; debt ratio; earnings. The qualitative risk factors cover the areas of analysis relating to: industrial sector / line of business; default history; experience of management; protection against risk; cash collection management. If the customer s transaction is older than 6 months and the counterparty s exposure is not above 1 million, the behaviour module is calculated automatically on a monthly basis. For counterparties with exposure exceeding 1 million only the application module is used, but extended with the possibility for underwriters to overrule the calculated rating. The two modules (application and behaviour) are combined using different weights according to the exposure and the age of the application score in order to obtain a combined PD, which, once mapped to the master scale, determines the calculated rating. The final valid rating is obtained by modifying the calculated rating on the basis of any available negative information or of warning signals in general. The Small Business rating model has been subject to an ongoing monitoring process, verifying the appropriateness of the design of the model. Quantitative analyses were carried out to evaluate the discriminatory power of the model and its components highlighting satisfactory outcomes in terms of discriminatory power, calibration and stability for the final combined customer rating. As highlighted in previous financial years, the qualitative scoring remains the weak point in the Small Business architecture. Regarding to LGD model see as described in paragraph Local Austrian LGD model. BASEL 2 THIRD PILLAR AS AT JUNE 30,

169 >> Basel 2 Third Pillar Table 7 Private Individuals rating model The Private Individuals rating model is applicable to all individuals other than self-employed professionals and freelancers. The updated version of BA Private Individuals rating comprises four statistically derived models: one generic application score and three behavioural models, possibly combined with an integrative logic. The whole system was estimated through logistic regressions on a transactional level. In particular, a score is assigned to each transaction through one of the 4 scoring models. In case of a new credit request, the application score for the relevant product is used at the time of origination. For individuals without a behaviour scoring this application score is valid for the following 6 months. At this point in time, the relevant behavioural score is calculated and kept updated monthly. For individuals which are behaviour scored the application score is only relevant for granting and pricing of the new loan, but after 6 months when the new transaction is behaviour scored, it is not taken into consideration any longer. For customers with more than one transaction, an integrative logic was developed that combines all the available application and/or behavioural scores into a final standardized transaction score. In a next step the calibration of the transaction scores to 12 months probability of default has been performed through an exponential function. The central tendency has been defined leveraging on the 12 months cumulative default rate taken from vintage analyses. The last step of the rating process combines all the final standardized transaction scores into a customer specific PD. The resulting PD is finally mapped to a Master Scale consisting of 28 distinct rating notches. In case of negative characteristics collected from the external Credit Bureau KSV or of automatic warning signals, the customer PD can be downgraded through a judgemental approach. A specific separate calibration of the FX loans was carried out in 2011, due to the worsening evidence showed by the validation on this model in this specific segment, both in terms of calibration and performance. These results were mainly driven by the so call technical default arisen in this period of high volatility of exchange rate. During validation activity also the segmentation criteria were more clearly specified within the target portfolio therefore a specific analysis was performed to verify the impact of the new segment definition on the performances of the rating system. Regarding to LGD model see as described in paragraph Local Austrian LGD model. 169

170 I Asset Backed Commercial Paper (Securitization) Local model, German Legal Entities Asset Backed Commercial Paper rating model The model, developed by replicating the approach of the rating agencies, assigns a rating to UCB AG s securitisation positions in vehicles that issue Asset-Backed Commercial Papers. This rating system comprises different models which are applied according to the type of exposure underlying the securitization operation. In particular, there are 8 models: trade receivables; mortgage warehousing (to cover the residential mortgages segment); single rated securities; commercial mortgages (to cover the commercial mortgages segment); loans and leases; credit cards; rated securities and corporate loans; conduits. The model is able to rate the programme-wide as well as the transaction-specific exposures due to the implemented two-step approach. The two-step approach means that each of the underlying transactions is first rated with one of the asset-specific models (no. 1 to 7) to arrive at the general virtual tranching of the transaction. In the same first step, the transaction-specific facilities obtain an IAA rating. In the second step, the remaining programme-wide exposure (transaction volume less transactionspecific tranches) of all transactions is combined and rated with the conduit model (no. 8). In this step, programme-wide facilities obtain an IAA rating. All of the above models consist of a quantitative module which supplies a virtual tranching and a qualitative module whose results influence the quantitative module through the upward or downward movements of notches. With regard to the quantitative module, two principal methodologies are used according to the type of underlying exposure and the residual life of the underlying assets: Reserve Based approach: typically used for assets with a short residual life (typically less than 6 months) For this type of transactions, a point in time valuation is carried out in order to determine, in a static manner, the reserves required to cover the losses. Cash Flow Based approach: used for assets with a longer residual life. The evolution of the assets is based on modelling the expected cash flows to determine the loss at the end of the transaction's life. The qualitative modules have been developed on the basis of feedback from experts in the sector. During 2011 an annual validation was performed, which confirmed that, in general, the rating system maintains satisfactory performances. BASEL 2 THIRD PILLAR AS AT JUNE 30,

171 >> Basel 2 Third Pillar Table 7 Quantitative disclosure IRB Approach - risk assets AMOUNTS AS AT AMOUNTS AS AT ( '000) FOUNDATION IRB APPROACH ADVANCED IRB APPROACH FOUNDATION IRB APPROACH ADVANCED IRB APPROACH PORTAFOLIOS EXPOSURE AMOUNT EXPOSURE WEIGHTED AMOUNT EXPOSURE AMOUNT EXPOSURE WEIGHTED AMOUNT EXPOSURE AMOUNT EXPOSURE WEIGHTED AMOUNT EXPOSURE AMOUNT EXPOSURE WEIGHTED AMOUNT Exposures with or secured by central administrations and central banks 3,615, ,023 4,748, ,527 2,212, ,225 5,233, ,709 Exposures with or secured by supervised institutions, public and territorial entities and other entities: 12,159,551 1,099,444 72,110,616 14,813,764 9,937, ,699 74,751,454 16,762,418 - Supervised institutions 12,083,022 1,099,066 70,951,937 14,387,072 9,898, ,436 73,538,120 16,392,194 - Public and territorial entities 76, , ,476 38,827 1, , ,306 - Others ,583 24, ,122 44,918 Exposures with or secured by corporates: 12,448,103 10,053, ,870, ,828,273 12,443,026 10,058, ,938, ,556,290 - Specialized lendings 1,840,636 1,251,951 14,810,147 5,029,650 1,940,023 1,287,307 14,704,309 4,425,641 - Small/Medium enterprises (SME) 5,391,182 4,535,136 74,607,623 37,662,241 5,297,708 4,634,067 76,985,801 40,976,168 - Other corporates 5,216,285 4,266, ,453,172 72,136,382 5,205,295 4,136, ,248,337 76,154,481 Retail exposures: ,323,888 27,377, ,418,626 30,338,752 - Exposures secured by residential real estate property: SME - - 2,236, , ,341, ,596 - Exposures secured by residential real estate property: individuals ,898,431 11,750, ,771,356 13,058,260 - Qualified revolving reatil exposures - - 5,186, , ,444, ,680 - Other retail exposures: SME ,811,016 9,633, ,236,395 10,475,931 - Other retail exposures: individuals ,192,051 4,793, ,624,852 5,340,285 Purchased receivables: dilution risk Other assets ,060, ,366,722 Specialized lending - slotting criteria 615, , , , Alternative treatment of mortgages Settlement risk: Exposures connected to non DVP transactions (Delivery Versus Payment) with supervisory weighting factors - - 1,262 1, ,069 18,069 Total on-balance-sheet risk assets 15,053,423 9,883, ,699, ,918,006 13,821,439 9,571, ,367, ,248,482 Total guarantees given and committed lines 2,254,570 1,532,209 52,210,794 19,062,342 2,320,184 1,581,472 52,775,625 20,199,775 Total derivatives contracts 525, ,148 34,534,037 12,624, , ,703 36,939,008 14,379,935 Totale SFT transactions and long settlement transactions 11,004, ,063 13,389, ,914 8,350,573 32,015 14,071, ,172 From contractual cross product netting - - 1,221, , ,205, ,596 Total 28,838,351 11,858, ,055, ,279,356 25,024,203 11,546, ,360, ,383,

172 IRB Approach - Advanced 2012 ( '000) EXPOSURE CLASS RATING CLASS EXPOSURE VALUE TOTAL EAD AVERAGE RISK WEIGHT (%) WEIGHTED AVERAGE LGD (%) REVOCABLE AND IRREVOCABLE MARGINS WEIGHTED AVERAGE EAD % Exposures to or secured by governments and central banks Exposures to or secured by supervised institutions, regional governments and local authorities and others Exposures to or secured by corporates Equity exposures: PD/LGD approach Class 01 - from 0,00% to 0,0036% 310, , % 0.45% 23, % Class 02 - from 0,0037% to 0,0208% 3,580,901 3,639, % 1.50% % Class 03 - from 0,0209% to 0,1185% 3,880,421 3,863, % 42.21% 89, % Class 04 - from 0,1186% to 0,5824% 99,878 95, % 45.02% 5, % Class 05 - from 0,5825% to 1,3693% 493, , % 3.10% 31, % Class 06 - from 1,3694% to 3,2198% 100,952 43, % 41.92% 57, % Class 07 - from 3,2199% to 7,571% 5, % 41.49% 5, % Class 08 - from 7,5711% to 17,8023% 17,312 13, % 43.92% 4, % Class 09 - from 17,8024% to 99,99% % 9.69% % Class % 21,165 21, % 39.78% % Total 8,511,076 8,427, % % 216, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 3,304, , % 41.03% 947, % Class 03 - from 0,0209% to 0,1185% 68,892,367 47,904, % 33.06% 4,616, % Class 04 - from 0,1186% to 0,5824% 15,762,726 10,523, % 32.84% 2,464, % Class 05 - from 0,5825% to 1,3693% 8,116,740 4,722, % 38.34% 2,453, % Class 06 - from 1,3694% to 3,2198% 1,004, , % 43.08% 481, % Class 07 - from 3,2199% to 7,571% 145,904 60, % 43.22% 70, % Class 08 - from 7,5711% to 17,8023% 264, , % 52.81% 96, % Class 09 - from 17,8024% to 99,99% 849, , % 11.46% 118, % Class % 271, , % 78.06% 105, % Total 98,612,186 65,123, % % 11,353, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 2,150, , % 33.63% 1,159, % Class 03 - from 0,0209% to 0,1185% 80,904,523 43,984, % 34.94% 38,325, % Class 04 - from 0,1186% to 0,5824% 109,300,760 68,801, % 31.33% 41,502, % Class 05 - from 0,5825% to 1,3693% 56,391,482 40,893, % 32.49% 16,109, % Class 06 - from 1,3694% to 3,2198% 47,014,604 33,899, % 34.50% 13,388, % Class 07 - from 3,2199% to 7,571% 19,277,355 15,912, % 32.32% 3,385, % Class 08 - from 7,5711% to 17,8023% 12,158,163 10,793, % 26.88% 1,323, % Class 09 - from 17,8024% to 99,99% 6,934,775 5,983, % 32.03% 942, % Class % 33,116,132 30,548, % 43.85% 2,760, % Total 367,248, ,650, % % 118,897, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% % 0.00% % Class 03 - from 0,0209% to 0,1185% % 0.00% % Class 04 - from 0,1186% to 0,5824% 92,686 92, % 89.98% % Class 05 - from 0,5825% to 1,3693% 53,125 53, % 89.90% % Class 06 - from 1,3694% to 3,2198% 13,647 13, % 88.63% % Class 07 - from 3,2199% to 7,571% % 65.00% % Class 08 - from 7,5711% to 17,8023% 3,848 3, % 90.00% % Class 09 - from 17,8024% to 99,99% % 65.00% % Class % 1,276 1, % 65.53% % Total 165, , % % % Equity exposures: simple risk weight approach N.A. 333, , % 0.00% % Totals 333, , % 0.00% % The "exposure amount" is fed through the nominal value related to off-balance sheet component - in line with both the nominal value of the margins and weighted average EAD on margins - instead of being fed through the equivalent value, which is however indicated in any other table containing the exposure amount. In order to have consistency between internal and external reporting and to maintain a sufficient breakdown between PD categories to allow a significant differentiation of credit risk, the Group Master Scale which consists of different cut-offs compared to the previous rating scale has been used for the filling of these tables. Possible migrations of exposures among classes, compared to the previous Pillar III publications, is not due to a worsening/improving of portfolio riskiness but only to the change in the rating scale itself. BASEL 2 THIRD PILLAR AS AT JUNE 30,

173 >> Basel 2 Third Pillar Table 7 IRB Approach - Advanced - Retail exposures 2012 ( '000) EXPOSURE CLASS RATING CLASS EXPOSURE VALUE TOTAL EAD AVERAGE RISK WEIGHT (%) WEIGHTED AVERAGE LGD (%) REVOCABLE AND IRREVOCABLE MARGINS WEIGHTED AVERAGE EAD % Exposure secured by residential property: SME Exposure secured by residential property: Retail Qualifying revolving retail exposures Other retail exposures: SME Other retail exposures: Retail Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 1,865 1, % 10.81% % Class 03 - from 0,0209% to 0,1185% 31,053 29, % 16.08% % Class 04 - from 0,1186% to 0,5824% 313, , % 13.49% 9, % Class 05 - from 0,5825% to 1,3693% 589, , % 12.22% 23, % Class 06 - from 1,3694% to 3,2198% 540, , % 9.80% 16, % Class 07 - from 3,2199% to 7,571% 204, , % 9.31% 3, % Class 08 - from 7,5711% to 17,8023% 118, , % 8.51% 1, % Class 09 - from 17,8024% to 99,99% 103,627 98, % 15.62% % Class % 397, , % 29.91% % Total 2,301,218 2,236, % % 55, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 54,588 54, % 21.09% % Class 03 - from 0,0209% to 0,1185% 954, , % 17.10% 19, % Class 04 - from 0,1186% to 0,5824% 48,331,890 48,291, % 11.46% 275, % Class 05 - from 0,5825% to 1,3693% 15,993,113 15,828, % 12.63% 282, % Class 06 - from 1,3694% to 3,2198% 6,602,892 6,540, % 15.23% 111, % Class 07 - from 3,2199% to 7,571% 2,037,239 2,022, % 12.70% 30, % Class 08 - from 7,5711% to 17,8023% 2,340,883 2,331, % 11.53% 18, % Class 09 - from 17,8024% to 99,99% 2,596,447 2,598, % 11.93% 2, % Class % 6,457,021 6,452, % 21.26% 6, % Total 85,368,707 85,060, % % 746, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 357, , % 74.28% 352, % Class 03 - from 0,0209% to 0,1185% 3,184,839 1,721, % 62.31% 3,123, % Class 04 - from 0,1186% to 0,5824% 3,074,572 1,670, % 56.61% 2,806, % Class 05 - from 0,5825% to 1,3693% 1,022, , % 51.84% 697, % Class 06 - from 1,3694% to 3,2198% 517, , % 49.19% 239, % Class 07 - from 3,2199% to 7,571% 213, , % 50.05% 78, % Class 08 - from 7,5711% to 17,8023% 131, , % 49.97% 41, % Class 09 - from 17,8024% to 99,99% 53,200 48, % 50.77% 11, % Class % 136, , % 83.17% 4, % Total 8,690,121 5,186, % % 7,356, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 2,674 2, % 42.40% % Class 03 - from 0,0209% to 0,1185% 4,980,859 1,925, % 36.43% 3,064, % Class 04 - from 0,1186% to 0,5824% 11,894,797 6,713, % 36.65% 5,308, % Class 05 - from 0,5825% to 1,3693% 11,351,794 7,736, % 37.12% 3,768, % Class 06 - from 1,3694% to 3,2198% 4,008,509 3,062, % 38.18% 1,032, % Class 07 - from 3,2199% to 7,571% 2,799,151 2,258, % 37.71% 570, % Class 08 - from 7,5711% to 17,8023% 1,540,223 1,296, % 37.98% 255, % Class 09 - from 17,8024% to 99,99% 2,202,779 1,906, % 37.26% 294, % Class % 12,039,552 11,910, % 61.00% 127, % Total 50,820,338 36,811, % % 14,421, % Class 01 - from 0,00% to 0,0036% % 0.00% % Class 02 - from 0,0037% to 0,0208% 83,963 72, % 56.89% 9, % Class 03 - from 0,0209% to 0,1185% 1,056, , % 52.73% 100, % Class 04 - from 0,1186% to 0,5824% 4,034,604 3,835, % 33.41% 330, % Class 05 - from 0,5825% to 1,3693% 2,740,283 2,572, % 41.57% 303, % Class 06 - from 1,3694% to 3,2198% 2,098,043 2,008, % 48.02% 172, % Class 07 - from 3,2199% to 7,571% 818, , % 51.29% 43, % Class 08 - from 7,5711% to 17,8023% 677, , % 46.60% 31, % Class 09 - from 17,8024% to 99,99% 446, , % 27.83% 3, % Class % 1,832,052 1,823, % 56.46% 10, % Total 13,788,173 13,201, % % 1,005, % The "exposure amount" is fed through the nominal value related to off-balance sheet component - in line with both the nominal value of the margins and weighted average EAD on margins - instead of being fed through the equivalent value, which is however indicated in any other table containing the exposure amount. 173

174 In order to have consistency between internal and external reporting and to maintain a sufficient breakdown between PD categories to allow a significant differentiation of credit risk, the Group Master Scale which consists of different cut-offs compared to the previous rating scale - has been used for the filling of these tables. Possible migrations of exposures among classes, compared to the previous Pillar III publications, is not due to a worsening/improving of portfolio riskiness but only to the change in the rating scale itself. Comparison of Predictions and Actual Outturns The evaluation of the performance of foreign Entities rating systems is annually carried out through specific local validation activities on each single parameter and the subsequent Holding Company revalidation, while it is run by UniCredit directly for the Italian local models and for the Group Wide ones, in accordance with the process mentioned in the Qualitative Disclosure. In the latter the specific evidences of last validation activities and the results arisen are reported with details for each model. In Italy, internal tests on the systems ability to predict default rates showed that Probabilities of Default and empirical data are generally in line. This positive result is driven by the recent recalibrations performed in order to implement the regulation change for reporting (regarding the time period for past due classification) and by the introduction of new rating models (Real Estate). The clear discrepancies observed on Austrian private clients due to FX loans caused by the high volatility of exchange rate, in particular Euro versus Swiss Franc, have also been overcome with the identification and deleting of technical defaults and with the subsequent recalibration. In Germany, instead, the analyses show PD on average aligned to observed default rates or higher, in particular on Private Individuals segment for which it has been recently carried out a new recalibration. Regarding LGD estimates in both Germany and Austria, the inclusion of most recent defaults during models reparameterization led to an alignment with observed loss rates. In Italy an underestimation on Non Performing models is still detected, although this is offset by the downturn factor in production on both Corporate and Small Business perimeters. Anyway it is currently in progress the complete redevelopment of the LGD model for every segments, which will bring a greater alignment of the estimates also for mortgage loans to Private Individuals. EAD models resulted calibrated even with an over-conservative tendency due to the regulatory requirement which does not allow accounting for reductions in the outstanding between the time of observation and the time of default. Within the CEE area, back-testing activities conducted on IRB systems highlighted an overall satisfactory discriminatory power, showing nonetheless few cases for which remedial actions were needed and have then been activated. More in details, UniCredit Bulbank Mid-Corporate model denoted a decrease in its ranking capability both at overall and financial module levels. Similarly, UniCredit Bank Hungary experienced a worsening of its underlying performances. Both sites, however, have refined the estimates in the last months. With reference to calibration quality, validation activities did not pointed out any misalignment between estimates and empirical data at overall level, although reporting some weaknesses on specific sub-segments. Finally, concerning the Group-Wide perimeter, validation activities performed show the overall adequacy of the models, relating to the risk parameters. Anyway, the comparison between the PD calculated by the internal model referred to the Multinational Corporates and the Banks and the ones provided by the external agencies for the same counterparties shows that calibration in PD estimations has to be revised, in some cases. Relating to the first counterparties typology, this activity has been planned by the end of the year; for the second one, the recalibration activity will be performed within the revision of the rating model, during BASEL 2 THIRD PILLAR AS AT JUNE 30,

175 175 >> Basel 2 Third Pillar Table 7

176 BASEL 2 THIRD PILLAR AS AT JUNE 30,

177 Table 8 Risk mitigation techniques (CRM) Qualitative disclosure >> Basel 2 Third Pillar Table 8 UniCredit group, in compliance with the Revised Framework of International Convergence of Capital Measures and Rules (Basel II), is firmly committed to satisfy the requirements for recognition of Credit Risk Mitigation (hereafter CRM ) techniques for regulatory capital purposes, according to the different approaches adopted (Standardized, F-IRB or A-IRB). In this regard, specific projects have been completed and actions have been carried out for implementing the Group s internal regulations and for bringing processes and IT systems into compliance. Considering the Group s presence in different countries, implementation measures have been taken in accordance with local regulations and the requirements of the oversight authorities in the countries to which the individual entities belong. The Group has acknowledged the regulatory requirement with specific internal Guidelines issued by the Holding Company, in compliance with the Basel Committee document International Convergence of Capital Measurement and Capital Standards, Directive 2006/48/EC and 2006/49/CE of the European Parliament and of the Council, and Nuove disposizioni di vigilanza prudenziale per le banche (Bank of Italy circular letter No. 263) and following updates. Such Guidelines pursue several objectives: to encourage collateral and guarantees optimal management; to maximize the mitigating effect of collateral and guarantees on defaulted loans; to attain positive effect on Group capital requirements, ensuring that local CRM practices meet minimum Basel II requirements; to define general rules for eligibility, valuation, monitoring and management of collateral (funded protection) and guarantees (unfunded protection) and to detail special rules and requirements for specific collateral/guarantees. Collateral/guarantee is accepted only to support loans and they cannot serve as a substitute for the borrower s ability to meet obligations. For this reason they have to be evaluated in the credit application along with the assessment of the creditworthiness and the repayment capacity of the borrower. In the credit risk mitigation technique assessment, UniCredit group emphasizes the importance of the legal certainty requirement for all collaterals and guarantees, as well as their suitability. Legal Entities put in place all necessary actions in order to: fulfill the respect of any contractual and legal requirements, and take all steps necessary to ensure the enforceability of the collateral/guarantee arrangements under the applicable law; conduct sufficient legal review confirming the enforceability of the collateral/guarantee arrangements on all parties and in all relevant jurisdictions. Legal Entities conduct such review as necessary to ensure enforceability for the whole life of the underlying collateralized credit exposure. On the other hand, suitability has always to be granted. Any collateral/guarantee can be considered adequate if it is consistent with the underlying credit exposure and, for guarantees, when there are no relevant risks towards the protection provider. 177

178 I In general, operative instructions and related processes are particularly severe, aiming at granting the formal perfection of each collateral/guarantee acquired. Collateral management assessments and Credit Risk Mitigation compliance verifications are performed by the Legal Entities, specifically as part of the wider process of internal validation on rating systems and of IRB methods roll-out activities. Policies and processes for, and an indication of the extent to which the Group makes use of, on- and off-balance sheet netting In general, netting agreements on balance sheet of reciprocal credit exposures between the Bank and its counterparty are deemed eligible if they are legally effective and enforceable in all relevant jurisdictions, including in the event of insolvency or bankruptcy of counterparty, and if they meet the following operational conditions: provide for the netting of gains and losses on transactions cleared under the master agreement so that a single net amount is owed by one party to the other; fulfil the minimum requirements for recognition of financial collateral (valuation requirements and monitoring). In general Group Entities can use netting agreement only if they are able to determine at any time the position netting value (assets and liabilities with the same counterparty that are subject to the netting), monitoring and controlling debts, credit and netting value. The Group makes use of netting instruments mainly with OTC derivatives, repos and securities lending transactions where the counterparties are generally Financial Institutions. The primary objective of the bank is to cover with netting agreements as many transactions as possible in order to reduce utilization of credit lines and to release the amount of required regulatory capital. In this regard, a special policy ( Collateral Management for OTC derivatives and Repo and securities lending business") has been issued aiming at defining an efficient and comprehensive framework for collateral management in order to safeguard the bank from avoidable risk-taking. The effectiveness of a collateral agreement of each individual counterparty relationship depends on the selection of appropriate assets qualifying as eligible collateral. Certain collateral types may present inherent risks related to the price volatility, the liquidity and the settlement of the asset. In addition, the collateral assets must be assessed in the context of the collateral providing counterparty (double default risk). The mentioned policy details the eligibility criteria for both OTC derivatives and Repo/securities Lending Transactions, and defines the requirements in terms of documentations, requiring on a general base market standard agreements such as ISDA Master Agreement, Global Master Repurchase Agreement or European Master Agreement. BASEL 2 THIRD PILLAR AS AT JUNE 30,

179 >> Basel 2 Third Pillar Table 8 Policies and processes for collateral evaluation and management UniCredit group has implemented a clear and robust system for managing the credit risk mitigation techniques, governing the entire process for evaluation, monitoring and management of collaterals. The assessment of the collateral value is based on the current market price or the estimated amount which the underlying asset could reasonably be liquidated for (i.e. pledged financial instrument or mortgaged real estate fair value). In detail, for financial instruments, valuation methods are different depending on their type: securities listed on a recognized stock exchange, are evaluated according to the market price (the price of the most recent trading session); securities not listed on a recognized stock exchange, have to be based on pricing models based on market data; undertakings for Collective Investments and mutual funds are based on the price for the units that are publicly quoted daily. Market price of pledged securities is adjusted by applying haircuts for market price and foreign exchange volatility according to regulatory requirements. In case of currency mismatch between the credit facility and the collateral, an additional haircut is applied. Possible mismatches between the maturity of the exposure and that of the collateral are also considered in the adjusted collateral value. The current models in place within the Group are based both on pre-defined prudential haircuts and internally estimated haircuts. The methodological approach provides that the hedging value is estimated for each financial instrument on the basis of its market value (so-called mark-to-market) adjusted with an haircut that has to consider the intrinsic riskiness according to the different factors (price risk, time of ownership and liquidity risk). The main Entities of the Group are also provided with tools for the automatic evaluation of the mark to market of the pledged securities, ensuring the constant monitoring of the financial collateral values. For the valuation of real estate collateral, specific processes and procedures ensure that the property is evaluated by an independent expert at or less than the market value. For the Legal Entities operating in Austria, Germany and Italy, systems for the periodic monitoring and revaluation of the real estate serving as collateral, based on statistical methods, adopting internal databases or provided by external infoproviders, are in place. During evaluation, the other types of collateral (such as a pledge of movable assets) are subject to specific prudential haircuts. Monitoring activities strictly depend on the collateral characteristics. In general pledges on goods are treated with caution. 179

180 I Description of the main types of collateral taken by the Group Entities The collateral accepted in support of credit lines granted by the Group s Legal Entities primarily includes real estate, both residential and commercial (around 76% of the stock) and financial instruments collateral (around 5%), (including debt securities, equities, and units of Undertakings for Collective Investment in Transferable Securities (UCITS)). The remaining part includes pledges on other assets (e.g. pledged goods) and other collaterals (e.g. movable properties). However, in order to be deemed eligible for risk mitigation, the general regulatory requirements must be met, along with the specific requirements for the approach adopted for the purposes of calculating regulatory capital for the individual counterparty/exposure (Standardized, F-IRB, A-IRB), in accordance with the legal framework of the country in question. The Parent Company provides specific guidelines for the eligibility of all kind of collaterals and each Legal Entity defines the list of eligible collaterals, according to uniform Group methods and procedures and in compliance with all domestic legal and supervisory requirements and local peculiarities. Main types of guarantors and credit derivative counterparties and their creditworthiness Personal guarantees can be accepted as elements complementary and accessory to the granting of loans, for which the risk mitigation element is the additional security for repayment. Their use is widespread within the Group, though their characteristics differ among the different local markets. Within the Italian market, personal guarantees provided by one or more individuals are very common, even if they are not considered eligible for credit risk mitigation purpose. Less frequently, the risk of insolvency is covered by personal guarantees provided by other legal entities (usually the holding company or other companies belonging to the same economic group as the borrower), or by financial institutions and insurance companies. At consolidated level, personal guarantees are provided by banks (20% of the stock), government / central banks (around 15%) and other subjects (65%). The last category includes the personal guarantees provided by natural persons, whose eligibility for CRM depends on the approach used by the different Legal Entities. Credit derivative protection providers are nearly only banks and institutional counterparties. The list of eligible protection providers depends on the specific approach adopted by each single Legal Entity. Specifically, under the Standardized approach, eligible protection providers pertain to a restricted list of counterparts, such as Central Government and Central Banks, public sector entities and regional and local authorities, multilateral development banks, supervised institutions and corporate entities that have a credit assessment by an eligible ECAI associated with credit quality step 2 or above. Legal Entities adopting IRB-A may recognize guarantees provided that the relevant minimum requirements are satisfied and, particularly, provided that the Legal Entity can evaluate the protection provider risk profile at the time that the guarantee is established and over its entire duration. Before a personal guarantee is acquired, the protection provider (or the protection seller in case of credit default swap) has to be assessed in order to measure his/her solvency and risk profile. The hedging effect of guarantees/credit derivatives for the purpose of credit protection depends basically on the protector s creditworthiness, and, during the underwriting phase, the economic capabilities of the protection provider has to be evaluated. BASEL 2 THIRD PILLAR AS AT JUNE 30,

181 >> Basel 2 Third Pillar Table 8 Information about market or credit risk concentrations under the credit risk mitigation instruments used There is concentration risk when the majority of Group-wide collateral financial assets (at portfolio level) are represented by a small number of collateral types, protection instruments, or specific providers of collaterals or sectors or when there is lack of proportion in the volume of collaterals taken. Such concentration is monitored and controlled by the following processes/mechanisms: In case of personal guarantees/credit derivatives, a contingent liability (indirect risk) is charged to the protection provider. In the evaluation of the credit application, a secondary commitment is added to the guarantor and it is reflected in the guarantor s total credit exposure as deemed competent and approved in accordance with the bank s system of authority; In case the protection provider, directly or indirectly, is a Central Bank or a Sovereign country, a specific credit limit has to be set and, if the guarantor is a foreign subject, a country limit must be obtained, if necessary. 181

182 I Quantitative disclosure Credit risk mitigation techniques: standardized approach AMOUNTS AS AT AMOUNTS AS AT ( '000) EXPOSURES WITH COLLATERALS GUARANTEES GUARANTEES AND CREDIT DERIVATIVES COLLATERALS GUARANTEES GUARANTEES AND CREDIT DERIVATIVES Central governments and central banks 683,543-5,433, ,511-4,636,895 Supervised institutions 57,023,577 19, ,865 32,707,492 87, ,543 Regional administrations and local authorities 82,051-3,544,735 76,490-3,720,595 Administrative bodies and non-commercial undertakings 171,598-3,361, ,129-3,679,175 Multilateral development banks International organizations Corporate and other entities 4,927, ,181 2,096,513 6,019, ,896 2,547,470 Retail exposures 5,614,948 2, ,515 6,766,841 2, ,214 Corporate (short term exposures) 9,037-1, ,078 Collective Investment Undertakings (CIU) 42, , Exposures secured with real estate property 3,181,815-29,033 3,384,241-17,598 Exposures in the form of guaranteed bank bonds (covered bond) 1-2, ,274 Past due exposures 105,701 1,194 9, , ,893 High risk exposures Other exposures 2-12, ,701 Total 71,842, ,747 15,237,719 51,014, ,307 15,306,436 BASEL 2 THIRD PILLAR AS AT JUNE 30,

183 >> Basel 2 Third Pillar Table 8 Risk mitigation techniques (IRB Foundation Approach only) ( '000) AMOUNTS AS AT AMOUNTS AS AT COLLATERAL GUARANTEES GUARANTEES AND CREDIT DERIVATIVES COLLATERAL GUARANTEES GUARANTEES AND CREDIT DERIVATIVES Central governments and central banks 1,657, ,213, Exposures with or secured by supervised institutions, public and territorial entities and other entities: Supervised institutions 9,021,650 24, ,152 7,152,865 9,924 98,724 Regional administrations and local authorities 74, , Others Exposures with or secured by corporate: Corporates and specialized lendings - Specialized lendings 6, ,945-1,038 SME 141, , , ,208 Corporates and specialized lendings - Others 59, ,924 58, ,673 Retail exposures: Exposures secured with residential real estate property: SME Exposures secured with residential real estate property: Individual Qualified revolving retail exposures Other retail exposures: SMI Other retail exposures: Individual Purchased receivables: dilution risk Others assets Specialized lending - slotting criteria , Alternative treatment of mortgages Settlement risk: Exposures connected to non DVP transactions (Delivery Versus Payment) with supervisory weighting factors Capital instruments exposures: PD/LGD method: risk assets Simple risk weight approach: risk assets IRB: risk assets Total 10,960,511 24,802 1,102,605 8,598,803 10, ,

184 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

185 Table 9 Counterparty risk >> Basel 2 Third Pillar Table 9 Qualitative disclosure Counterparty credit risk arises for UniCredit group when it participates in over-the-counter derivatives, securities financing transactions, money market transactions or long settlement transactions and from listed derivatives where the Bank acts as Broker/General Clearing Member in relation to the exchange. Counterparty credit risk reflects the possibility that the counterparty to an OTC derivative or repo-style transaction will default prior to the expiration of the contract and will not make all the payments required by the contract. An economic loss would occur if the transaction or portfolio of transactions with the counterparty has a positive economic value at the time of default. Risk management and monitoring Counterparty risk relating to derivatives is subject to prior specific credit approval which sets exposure limits for intra-group and external counterparties. Limits for counterparty credit risk exposures are assigned within the overall credit process for distinct customer limit approval at the respective legal entity. Non-binding credit opinion (NBCO) is provided by the Holding in case the limits go beyond a certain threshold. The credit analysis process is a comprehensive and structured risk assessment, according to the principles of the credit policies, that values both the creditworthiness and the risks relating to the product type or transaction. Several policies, regulations and strategy documents (Special Credit Policy "Credit Business with Financial institutions, Banks and Sovereigns", Special Policy "Collateral Management for OTC and Repo&Securities Lending Transactions", etc.) define the process of credit assessment, limit setting and exposure monitoring. Counterparty credit exposure is defined as Potential Future Exposure (PFE) and includes also the Current exposure. Current Mark to Market (MtM) exposure is the replacement cost of a portfolio of contracts with a counterparty based upon those contracts' current market values. PFE is the estimated potential future mark-to-market based on assumed market scenarios. UniCredit uses a combination of simulation techniques and "conversion factors" that are applied, for credit and counterparty risk managerial purposes, to determine the counterparty credit exposure for each transaction based on product, tenor and level of collateralization 21. Internal limits are used for monitoring the following risks: Pre-settlement the cost of replacing all contracts with a counterparty that defaults before the contract's settlement date. Settlement - the maximum intraday exposure arising from timing differences in payments (e.g. of principle), primarily caused by time zone differences in currency transactions. Money Market Short term limits for cash borrowing and lending purposes, mainly to manage the short term liquidity mismatches 21 In UniCredit S.p.A. exposures are modeled (and limits are set to be monitored) based on the credit equivalent of the exposure. The weighting applied to the notional takes the specific riskiness of the product into account. 185

186 I Group-wide governance for counterparty credit risks management is provided by "Group Trading Risks" department in UniCredit S.p.A. (the Holding company). This is done through "Trading Credit Risk Management" team in terms of procedures and "Market Risk Policies, Methodologies & Architecture unit - in terms of policies and methodologies. The respective structures in the legal entities of the Group functionally report to the Head of Group Trading Risks department. Across UniCredit group counterparty credit risks are managed on a daily basis by an independent Risk Management Unit. In UniCredit Bank AG and UniCredit Bank Austria AG, this daily credit control process is managed by dedicated counterparty credit risk control teams and this functionality is now established in UniCredit S.p.A. The core of the limit control process is the workflow of overdrafts handling. The process, covering both overdrafts identified during the overnight exposure calculation and intraday overdrafts, based on intraday exposure approximation, is subject of internal regulations that define the roles, actors (risk controllers, business units, credit officers responsible for the counterparty credit assessment) and escalation paths. A Group-wide project is in place that aims to enhance the credit control practices in all legal entities, by establishing an Internal Model Method (IMM) compliant group-wide framework for counterparty credit risks management. Monitoring of the counterparty risk is also established on a country level for the following products (presettlement, derivatives, SFTs, money market and securities). Reports are regularly provided to Group Credit and Cross-Border Risks Committee that approves also the Group Country Strategies and Limits. Counterparties exposures and information relating to the use of credit lines for the transactions is real time made available in the central treasury system. Risk mitigation Credit risk from derivatives is mitigated, where possible, through netting agreements whereby derivatives with the same counterparty can be offset. A group wide policy requires that all netting arrangements are documented in legally binding master agreements. The enforcement and enforceability of these netting agreements is monitored by the legal team in charge on a recurring basis. The credit risk exposure (including the recognition of netting and collateral agreements, where appropriate) is calculated on legal entity basis. The monitoring of this credit exposure is done by the respective legal entity. Where counterparties have an aggregated credit exposure requiring holding company approval, the credit exposure for this monitoring process is the aggregated amount of all group wide legal entities. There is no additional netting taking place on Legal Entities level as it is not permitted by law and would additionally not be covered by the underlying bilateral master agreements. Collateral agreements (if legally enforceable in the jurisdiction) might be required, depending on the creditworthiness of the counterparty and the nature of the transaction. Non-cash collateral accepted in respect of OTC trading exposures is adequately assessed and selected and it is subject to a "haircut", which is largely based on liquidity and price volatility of the underlying security and reflects the fact that collateral may fall in value between the date the collateral was called and the date of liquidation or enforcement. BASEL 2 THIRD PILLAR AS AT JUNE 30,

187 >> Basel 2 Third Pillar Table 9 The creditworthiness of counterparties providing guarantees is subject of the same full credit assessment and approval process as described above. Risk appetite for explicit guarantees provided by a given counterparty is defined through "Secondary risk" limits. An independent collateral management function manages the collateral process, which includes pledging and receiving collateral and investigating disputed margin calls and non-receipts. Special Policy "Collateral Management for OTC and Repo & Securities Lending Transactions" is in place. It defines the roles and responsibilities of the involved parties both on Holding Company and Legal Entity level. As a rule, FX derivatives, interest rate derivatives, equity derivatives, credit derivatives, commodity derivatives, EU-emissions-allowance transactions, weather derivatives and other important OTC derivative transactions shall be collateralized by a collateral agreement. The collateral management policy defines the eligibility criteria for the acceptable collaterals, which ensures collateral agreed to be taken exhibits characteristics such as price transparency, liquidity, enforceability, independence and eligibility for regulatory purposes and sets parameters for correlation and concentration risks. Differentiation between the eligibility for OTC derivative and Reverse Repo/Securities lending transactions is evident, based on the principle that collateral for OTC derivative transactions is required to be of higher credit quality, given the potential longer nature of transaction and inability to change eligibility criteria under a signed CSA agreement while collateral under Reverse Repo/Equity finance can be wider in range, given the normal shorter tenor of transactions. There are pre-approved collateral types, collateral types requiring approval and non-eligible collaterals. All collateral needs are part of both the short term and long term funding strategy of the Bank (both on a legal entity level and on a group wide basis). Intraday collateral requirements above a specific threshold are additionally reported to the short term funding desk with immediate effect. 187

188 I Wrong way risk Wrong-way risk arises when the risk factors driving the derivative exposure to a counterparty are positively correlated with the creditworthiness of that counterparty so that the mark-to-market exposure ( MtM ) increases at the same time as the riskiness of the counterparty increases. There are various types of wrong way risk as portrayed by the following examples: General FX Wrong Way Risk: a counterparty domiciled in an emerging market enters into a transaction that requires it to deliver hard currency at a future date. Devaluation of the currency (driving our exposure higher) is likely to occur when operating conditions in the country are difficult and hence might be affecting the credit quality of our counterparty simultaneously. Specific Wrong Way risk: correlation: o the trade involves the purchase of an equity put option from a counterparty whose shares are the underlying instrument of the option; o the purchase of credit protection from a counterparty that is closely related with the reference entity of the CDS or Total Return Swap. Induced Wrong Way Risk: arises when the transaction itself has caused a correlation between the market rates and the creditworthiness of the counterparty. For example, buying insurance from monolines induces correlation between the monoline and underlying. UniCredit uses a range of procedures to control and monitor wrong-way risk, including requiring entities to obtain prior approval before undertaking wrong-way risk transactions. As part of the afore mentioned project, dedicated group wide policies and procedures are being put in place to manage wrong way risk. Wrong-way risk is also addressed in the collateral management policy and Derivatives Strategy of the Group. The policy states that securities issued by the counterparty or closely associated entities must not be accepted as collateral and additionally a market value increase of a derivative must not be correlated with a market value decrease of the collateral. According to the adopted Strategy, pre-trade approval by Risk Management function must be requested before wrong way transactions are entered into, irrespective of the availability of approved credit limits. This applies for counterparties domiciled in countries which have country limits in place. Besides this, indirect controls exist through Country/Cross-Border limits. Additionally, Market Risk sets VaR limits for currencies and carries out quarterly stress tests to measure exposure effects from currency and interest rate changes. The same approach applies for Loan Equivalent Derivatives where specific pre-approval should be requested before these transactions are entered into. BASEL 2 THIRD PILLAR AS AT JUNE 30,

189 >> Basel 2 Third Pillar Table 9 Downgrading impacts Monthly reporting is conducted to measure the impact in terms of additionally required collateral that the bank may be required to provide given a downgrade of its own credit rating. All relevant rating agencies are considered. The testing is done on a legal entity level. Consolidated reporting is available for being able to see the impact on group wide basis. Following product group and special transactions have the highest impact: specially designated funding vehicles, term transactions, OTC derivative transactions with rating based independent amounts and threshold amounts, and special loan transactions (both with commercial counterparties and (supra-)national counterparties). Likewise, procedures are in place to monitor client downgrades so that the bank can take action with respect to termination event in documentation that might be triggered. 189

190 I Quantitative disclosure Counterparty risk - collaterals ( '000) COUNTERPARTY RISK - COLLATERALS EAD AMOUNT AS AT EAD AMOUNT AS AT Standardized approach - derivatives contracts 159, ,600 - SFT transactions and long settlement transactions 62,912,481 41,088,017 Counterparty risk COUNTERPARTY RISK Standardized approach - derivatives contracts - SFT transactions and long settlement transactions - contractual cross product netting IRB approaches - derivatives contracts - SFT transactions and long settlement transactions - contractual cross product netting ( '000) EAD AMOUNT AS AT WEIGHTED AMOUNT AS AT EAD AMOUNT AS AT WEIGHTED AMOUNT AS AT ,061,025 2,531,862 10,116,366 2,951,936 4,767,249 1,005,745 8,335, , , , ,152 88,090 35,059,905 12,960,108 37,471,015 14,741,638 24,393, ,977 22,422, ,187 1,221, ,134 1,205, ,596 Regulatory trading portfolio: end of period notional amounts AMOUNTS AS AT AMOUNTS AS AT ( '000) DERIVATIVE INSTRUMENT TYPES/UNDERLYINGS OVER THE COUNTER CLEARING HOUSE OVER THE COUNTER CLEARING HOUSE 1. Debt securities and interest rate indexes 2,828,463, ,420,465 2,788,920, ,818,988 a) Options 422,182,577 42,437, ,235,976 59,935,000 b) Swap 2,119,143,758-2,130,239, ,034 c) Forward 95,865,134-76,225,278 - d) Futures 34,312 66,982,865 34,393 69,721,954 e) Others 191,237,728-97,185, Equity instruments and stock indexes 87,590,583 38,378,955 77,502,727 37,880,312 a) Options 75,999,640 34,905,288 64,749,878 32,188,310 b) Swap 10,500,000-11,931,000 - c) Forward 276,186-8,292 - d) Futures 38,497 3,473,473 54,095 5,691,854 e) Others 776, , Gold and currencies 561,470,102 86, ,716, ,702 a) Options 70,487, ,846,192 - b) Swap 222,739, ,136,546 - c) Forward 268,242, ,733,620 - d) Futures - 86, ,702 e) Others Commodities 2,775, ,000 3,697,013 1,147, Other underlyings 1,859,799-2,524,207 - Total 3,482,159, ,633,190 3,456,360, ,949,180 BASEL 2 THIRD PILLAR AS AT JUNE 30,

191 >> Basel 2 Third Pillar Table 9 Banking portfolio: end of period notional amounts - Hedging derivatives AMOUNTS AS AT AMOUNTS AS AT ( '000) DERIVATIVE INSTRUMENT TYPES/UNDERLYINGS OVER THE COUNTER CLEARING HOUSE OVER THE COUNTER CLEARING HOUSE 1. Debt securities and interest rate indexes 42,831, ,000 38,562,372 3,178,000 a) Options 977,500-1,371,500 - b) Swap 41,750,183-37,015,036 - c) Forward 104, ,836 - d) Futures - 898,000-3,178,000 e) Others Equity instruments and stock indexes 2,096,248-1,928,000 - a) Options 3,248-3,000 - b) Swap ,000 - c) Forward d) Futures e) Others 2,093,000-1,802, Gold and currency 8,093,126-6,839,125 - a) Options 452, ,000 - b) Swap 3,903,712-3,388,577 - c) Forward 3,737,414-3,237,548 - d) Futures e) Others Commodities Other underlyings Total 53,021, ,000 47,329,497 3,178,000 Banking book: end of period notional amounts- Other derivatives AMOUNTS AS AT AMOUNTS AS AT ( '000) DERIVATIVE INSTRUMENT TYPES/UNDERLYINGS OVER THE COUNTER CLEARING HOUSE OVER THE COUNTER CLEARING HOUSE 1. Debt securities and interest rate indexes 21,424,264-21,228,795 - a) Options 6,086, ,799 - b) Swap 15,337,293-21,036,996 - c) Forward d) Futures e) Others Equity instruments and stock indexes 8,275,107-8,979,383 - a) Options 8,275,107-8,979,383 - b) Swap c) Forward d) Futures e) Others Gold and currency 3,661,879-6,245,029 - a) Options 11,616-72,863 - b) Swap 777, ,734 - c) Forward 2,872,445-5,585,336 - d) Futures e) Others Commodities Other underlyings Total 33,361,250-36,453,

192 I Financial derivatives: gross positive fair value - breakdown by product POSITIVE FAIR VALUE ( '000) AMOUNTS AS AT AMOUNTS AS AT TRANSACTION TYPES/UNDERLYINGS OVER THE COUNTER CLEARING HOUSE OVER THE COUNTER CLEARING HOUSE A. Regulatory trading portfolio 118,775,711 2,321, ,040,377 2,196,581 a) Options 13,852,587 2,243,066 14,632,791 2,148,689 b) Interest rate swaps 95,863,148 76,845 87,204,973 47,545 c) Cross currency swap 4,824,285-5,622,256 - d) Equity swaps 149, ,000 - e) Forward 3,928,844-5,221,299 - f) Futures 42,609 1,521 47, g) Others 115,238-1,120,663 1 B. Banking portfolio - Hedging derivatives 731, ,611 - a) Options 8,000-23,000 - b) Interest rate swaps 475, ,615 - c) Cross currency swap 83,087-87,247 - d) Equity swaps - - 6,000 - e) Forward 65,879-42,749 - f) Futures g) Others 99, ,000 - C. Banking portfolio - other derivatives 1,180, , a) Options 67,559-1,712 - b) Interest rate swaps 1,073,949-89,689 - c) Cross currency swap 1, d) Equity swaps e) Forward 37, ,336 - f) Futures g) Others Total 120,687,829 2,321, ,975,727 2,196,632 BASEL 2 THIRD PILLAR AS AT JUNE 30,

193 >> Basel 2 Third Pillar Table 9 Financial derivatives: gross negative fair value breakdown by product NEGATIVE FAIR VALUE ( '000) AMOUNTS AS AT AMOUNTS AS AT PORTFOLIOS/DERIVATIVE INSTRUMENT TYPES OVER THE COUNTER CLEARING HOUSE OVER THE COUNTER CLEARING HOUSE A. Regulatory trading portfolio 115,395,743 2,986, ,744,518 3,044,488 a) Options 12,807,101 2,986,066 13,653,592 3,043,367 b) Interest rate swaps 92,588,968-83,456,185 1,116 c) Cross currency swap 5,628,114-6,392,730 - d) Equity swaps 271, ,000 - e) Forward 3,958,918-5,752,376 - f) Futures 42, ,376 2 g) Others 99,033-1,204,259 3 B. Banking portfolio - Hedging derivatives 1,906,480 3,798 1,957,592 1,355 a) Options 61,000-66,000 - b) Interest rate swaps 1,594,149-1,561, c) Cross currency swap 212, ,686 - d) Equity swaps - 3, e) Forward 38,577-94,202 - f) Futures g) Others C. Banking portfolio - Other derivatives 1,508, ,136 - a) Options 156, ,571 - b) Interest rate swaps 1,314,565-89,840 - c) Cross currency swap 16,371-11,827 - d) Equity swaps e) Forward 20, ,898 - f) Futures g) Others Total 118,810,438 2,989, ,142,246 3,045,

194 I OTC Financial derivatives: regulatory trading portfolio - notional amounts, positive and negative gross fair value by counterparty - contracts not included in netting agreements AMOUNTS AS AT ( '000) CONTRACTS NOT INCLUDED IN NETTING AGREEMENT 1) Debt securities and interest rate indexes GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES BANKS COMPANIES INSURANCE COMPANIES NON- COMPANIES ENTITIES - notional amount 60,683 40,614,474 67,576, ,393,034 22,997,644 57,758,390 1,589,187 - positive fair value 271 2,822,987 1,703,429 4,134, ,699 3,273,051 63,729 - negative fair value - 1,625,427 2,083,123 4,655,366 64, ,108 24,780 - future exposure , ,380 1,523,162 11, ,215 21,313 2) Equity instruments and stock indexes - notional amount 12, ,000 32,135,975 1,019, , , ,246 - positive fair value ,000 69,310 8,732 1, ,662 26,743 - negative fair value - 16,000 9,416 14,465 3,151 64,025 34,122 - future exposure - 18,000 2,046,346 77,825 27,549 42,268 22,478 3) Gold and currencies - notional amount 1,543,841 1,767,589 61,533,874 5,667, ,917 17,775,991 1,654,808 - positive fair value 10,022 11, , , ,882 52,318 - negative fair value 9, , , , ,914 21,030 - future exposure 14,110 71, , ,381 1, ,427 42,081 4) Other instruments - notional amount 109,093 40,000 1,262, , ,870 17,541 - positive fair value 18,246-7,223 3,000-48, negative fair value - 1,000 38,013 24,000-19, future exposure - 4, ,314 44,000-48, BASEL 2 THIRD PILLAR AS AT JUNE 30,

195 >> Basel 2 Third Pillar Table 9 OTC Financial Derivatives: Regualatory trading portfolio - notional amounts, positive and negative gross fair value by counterparty - contracts included in netting agreements AMOUNTS AS AT ( 000) CONTRACTS INCLUDED IN NETTING AGREEMENT 1) Debt securities and interest rate indexes GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES BANKS COMPANIES INSURANCE COMPANIES NON- COMPANIES ENTITIES - notional amount 490, ,893 1,685,396, ,573,779 3,533,368 39,495, ,000 - positive fair value 28,380 71,700 70,199,760 22,983,547 65,311 1,605,627 40,000 - negative fair value 18,444 3,828 71,234,656 22,151, , ,507 1,000 2) Equity instruments and stock indexes - notional amount ,237,000 14,428, , , positive fair value - - 1,433, ,000 1, negative fair value - - 1,648, ,000 17,000 1,000-3) Gold and currencies - notional amount 74,516 45, ,404,196 31,096, ,000 38,815, ,000 - positive fair value 14,681 10,861 5,823, ,817 23,000 1,470,690 45,000 - negative fair value 1, ,531, ,635 2, ,825 2,000 4) Other instruments - notional amount ,000 88,000-1,372, positive fair value ,000 9,000-61, negative fair value ,000 3,000-40,

196 I OTC Financial derivatives: banking portfolio - notional amounts, positive s and negative gross fair value by counterparty - contracts not included in netting agreements AMOUNTS AS AT ( 000) CONTRACTS NOT INCLUDED IN NETTING AGREEMENT 1) Debt securities and interest rate indexes GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES BANKS COMPANIES INSURANCE COMPANIES NON- COMPANIES ENTITIES - notional amount - 3,000,000 19,206,572 14,962,561-99, ,414 - positive fair value - 986, , ,669-1,000 5,208 - negative fair value - - 1,581, , ,548 - future exposure - 45, ,964 86,629-1,000 4,368 2) Equity instruments and stock indexes - notional amount - - 2,315,433 51, ,841 7,900,914 - positive fair value , negative fair value , ,489 - future exposure ,345 4,079-3, ,709 3) Gold and currencies - notional amount - - 8,702,278 14, ,636 11,616 - positive fair value , , negative fair value , ,311 1,588 - future exposure , , ) Other instruments - notional amount positive fair value negative fair value future exposure OTC Financial derivatives: banking portfolio - notional amounts, positive and negative gross fair value by counterparty - contracts included in netting agreements ( '000) AMOUNTS AS AT CONTRACTS INCLUDED IN NETTING AGREEMENT 1) Debt securities and interest rate indexes GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES BANKS COMPANIES INSURANCE COMPANIES NON- COMPANIES ENTITIES - notional amount ,928, positive fair value negative fair value - - 1,079, ) Equity instruments and stock indexes - notional amount positive fair value negative fair value ) Gold and currencies - notional amount - - 2,138, positive fair value negative fair value ) Other instruments - notional amount positive fair value negative fair value BASEL 2 THIRD PILLAR AS AT JUNE 30,

197 >> Basel 2 Third Pillar Table 9 Credit derivatives: end of period notional amounts ( '000) REGULATORY TRADING PORTFOLIO BANKING PORTFOLIO TRANSACTION CATEGORIES 1. Protection buyer's contracts WITH A SINGLE COUNTERPARTY WITH MORE THAN ONE COUNTERPARTY (BASKET) WITH A SINGLE COUNTERPARTY WITH MORE THAN ONE COUNTERPARTY (BASKET) a) Credit default products b) Credit spread products c) Total rate of return swap d) Other Amounts as at Amounts as at Protection seller's contracts a) Credit default products b) Credit spread products c) Total rate of return swap d) Other Amounts as at Amounts as at Credit derivatives: gross positive fair value - breakdown by product POSITIVE FAIR VALUE AMOUNTS AS AT ( '000) AMOUNTS AS AT PORTFOLIOS/DERIVATIVE INSTRUMENT TYPES A. Regulatory trading portfolio 3,153,313 5,095,539 a) Credit default products 3,009,321 4,934,254 b) Credit spread products 992 1,285 c) Total rate of return swap - - d) Others 143, ,000 B. Banking portfolio 17,000 73,000 a) Credit default products 17,000 73,000 b) Credit spread products - - c) Total rate of return swap - - d) Others - - Total 3,170,313 5,168,

198 I Credit derivatives: gross negative fair value - breakdown by product NEGATIVE FAIR VALUE AMOUNTS AS AT ( '000) AMOUNTS AS AT PORTFOLIOS/DERIVATIVE INSTRUMENT TYPES A. Regulatory trading portfolio 3,136,639 5,370,012 a) Credit default products 3,099,073 5,290,295 b) Credit spread products 3,566 4,717 c) Total rate of return swap 3,000 2,000 d) Others 31,000 73,000 B. Banking portfolio 15,194 68,293 a) Credit default products 15,000 68,000 b) Credit spread products - - c) Total rate of return swap - - d) Others Total 3,151,833 5,438,305 BASEL 2 THIRD PILLAR AS AT JUNE 30,

199 >> Basel 2 Third Pillar Table 9 OTC Credit derivatives: gross FV (positive and negative) by counterparty - contracts not in netting agreements ( 000) CONTRACTS NOT INCLUDED IN NETTING AGREEMENT GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES AMOUNTS AS AT COMPANIES INSURANCE COMPANIES NON- COMPANIES BANKS ENTITIES Regulatory trading portfolio 1) Protection purchase - notional amount - - 2,643,000 3,937,000-5, positive fair value ,768 35,000-2, negative fair value ,060 25, future exposure , , ) Protection sale - notional amount ,126 3,645, positive fair value - - 1,855 6, negative fair value ,878 86, future exposure , , Banking portfolio 1) Protection purchase - notional amount ,000 - positive fair value negative fair value ) Protection sale - notional amount positive fair value negative fair value OTC Credit derivatives: gross FV (positive and negative) by counterparty - contracts in netting agreements CONTRACTS INCLUDED IN NETTING AGREEMENT Regulatory trading portfolio 1) Protection purchase GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES BANKS AMOUNTS AS AT COMPANIES INSURANCE COMPANIES NON- COMPANIES ( '000) ENTITIES - notional amount ,692,000 24,346, positive fair value - - 1,816, , negative fair value , , ) Protection sale - - notional amount ,070,000 28,449,000 1, positive fair value , , negative fair value - - 1,876, , Banking portfolio - 1) Protection purchase - - notional amount ,000 20, positive fair value , negative fair value , ) Protection sale - - notional amount ,000 25, positive fair value negative fair value ,000 4,

200 I OTC Financial and credit derivatives: net fair value and future exposure by counterparty GOVERNMENTS AND CENTRAL BANKS PUBLIC- SECTOR ENTITIES AMOUNTS AS AT BANKS COMPANIES INSURANCE COMPANIES NON- COMPANIES ( '000) ENTITIES 1) Netting agreements related to Financial Derivatives - positive fair value 37,350 78,668 2,875, ,919 19, , negative fair value - - 3,653, , , future exposure 3,402 5,439 5,394, ,404 2, , net counterparty risk 40,752 84,107 8,180, ,323 21, ,276-2) Netting agreements related to Credit Derivatives - positive fair value negative fair value future exposure net counterparty risk ) Cross Product netting agreements - positive fair value ,118,962 2,574,138 43,599 2,029, ,306 - negative fair value 13,631 4,689 12,942,850 1,814, , , future exposure ,927,471 4,530,695 21, ,928 17,227 - net counterparty risk ,910,306 5,224,777 41,357 2,801, ,764 BASEL 2 THIRD PILLAR AS AT JUNE 30,

201 201 >> Basel 2 Third Pillar Table 9

202 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

203 >> Basel 2 Third Pillar Table 10 Table 10 Securitization transactions Qualitative disclosure The Group acts as originator and sponsor of securitizations as well as investor, as defined by Basel II and transposed by Bank of Italy s Circular 263 New Supervisory Instructions for Banks dated December 27, The Group as originator The Group s origination consists in the sale of on-balance sheet receivables portfolios to vehicles set up as securitization companies under Law 130/99 or similar non-italian legislation. The buyer finances the purchase of the receivables portfolios by issuing bonds of varying seniority and transfers its issue proceeds to the Group. The yield and maturity of the bonds issued by the buyer therefore mainly depend on the cash flow expected from the assets being sold. As a further form of security to bondholders, these transactions may include special types of credit enhancement, e.g. subordinated loans, financial guarantees, standby letters of credit or overcollateralization. The Group s objectives when carrying out these transactions are usually the following: to originate securities that can be used to secure repos with Bank of Italy and the ECB (counterbalancing capacity); to reduce funding costs given the opportunity to issue higher-rated bonds with lower interest rates than ordinary senior bonds; to free up economic and regulatory capital by carrying out transactions that reduce capital requirements under current rules by reducing credit risk. The Group carries out both traditional securitizations, whereby the receivables portfolio is sold to the SPV, and synthetic securitizations, which use credit default swaps to purchase protection over all or part of the underlying risk of the portfolio. 203

204 I Use of this type of transaction is limited. The amount of loans securitized 22, net of transactions in which the Group has purchased all liabilities issued by the vehicles (so-called self-securitizations), accounts for 2.54% of the Group s total loan portfolio as at June 30, Self-securitizations account for 3.85% of the loan portfolio. A Covered Bond (OBG Obb!igazioni Bancarie Garantite) Program was launched in 2008 under the provisions of Italian Law 130/99. The underlying residential mortgage loans were transferred to an SPE set up for this purpose and included in the banking group. Fourteen OBG tranches totalling 10,731 million were issued, of which 1,500 million were retained in the Group. It should also be noted that, in order to create counterbalancing capacity, at the end of January 2012 UniCredit S.p.A. initiated a new Covered Bonds (OBG or Obbligazioni Bancarie Garantite) program ("New OBG Program"), without specific ratings and having residential mortgage loans, commercial mortgage loans and loans to or guaranteed by public administrations as underlyings. The contractual and supervisory structure and the counterparties of this program are modeled on the pre-existing program, with the exception of references to Ratings Agencies and the use of a new Special Purpose Vehicle, UniCredit OBG S.r.l. Under this new OBG Program, in the first half of 2012 sales of residential mortgages to private individuals and fourteen related issues of covered bonds for a total of 15,390 million took place, totally retained in the Group. As at June 30, 2012 similar covered bonds under German and Austrian law (Pfandbriefe) amounted to 35,243 million, of which 22,580 million were backed by mortgage loans and 12,663 million by loans to the public sector. Accounting Policies - Derecognition According to IAS 39, derecognition is the removal of a previously recognized financial asset from an entity s balance sheet. An entity shall derecognise a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the contractual rights to receive the cash flows of the financial asset to a non-group counterparty. Rights to cash flow are considered to be transferred even if contractual rights to receive the asset s cash flow are retained but there is an obligation to pay this cash flow to one or more entities and all the following conditions are fulfilled (pass-through agreement): there is no obligation on the Group to pay amounts not received from the original asset; sale or pledge of the original asset is not allowed, unless it secures the obligation to pay cash flow; the Group is obliged to transfer forthwith all cash flows received and may not invest them, except for liquidity invested for the short period between the date of receipt and that of payment, provided that the interest accrued in that period is paid on. 22 We refer to loans sold, also synthetically, but not derecognized from the balance sheet. BASEL 2 THIRD PILLAR AS AT JUNE 30,

205 >> Basel 2 Third Pillar Table 10 Derecognition is also subject to verification of actual transfer of all the risks and rewards of ownership of the financial asset. If the entity transfers substantially all the risks and rewards of ownership of the financial asset, the entity shall derecognise the asset (or group of assets) and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. Conversely, if the entity substantially retains all the risks and rewards of ownership of the asset (or group of assets), the entity shall continue to recognise the transferred asset(s). In this case it is necessary to recognise a liability corresponding to the amount received under the transfer and subsequently recognise all income accruing on the asset or expense accruing on the liability. The main transactions that do not permit, under the above rules, total derecognition of a financial asset are securitizations, repurchase transactions (buy-ins) and security lending. Under traditional securitizations the Group keeps the first loss in the form of junior bonds or similar exposure and in some cases provides further credit enhancement as described above. This enables the Group to benefit from the portion of the sold receivables yield in excess of the yield due to the senior and mezzanine tranches. Retention by the Group of the first loss risk and the corresponding yield means that most of the risk and return on the portfolio is retained. Consequently these transactions are recognized in the accounts as financings and no profits arising out of the transfer of the assets are recognized and the sold receivables are not derecognized. Synthetic securitizations also entail retention of the receivables subject to credit default protection on the balance sheet. The swap is recognized in the accounts, as well as any other retained interest. Exceptions to this rule are those transactions that the Group while retaining most of the risk and return of the underlying portfolio has derecognized as being prior to January 1, On first adoption of IFRS we exercised the option provided for by IFRS 1 of not re-recognizing assets sold before January 1, 2004, regardless of the extent of the risk and return that had been retained. 205

206 I The tables below show both the traditional and synthetic securitizations and, separately, the selfsecuritizations originated by Group companies as at June 30, ORIGINATOR: UniCredit S.p.A. NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of reference portfolio : Issue guarantees by the Bank: Issued guarantees bythird parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: UNIONFIDI Tranche Covered UniCredit S.p.A. Capital Relief and risk transfer for concentration risks Highly diversified and granular pool of UniCredit's loans to corporates. Performing 07/15/ ,310,504 - cash collateral Unionfidi ORIGINATOR: UniCredit S.p.A. (ex Capitalia S.p.A., ex Banca di Roma S.p.A.) NAME TREVI FINANCE TREVI FINANCE 2 Type of securitisation: Originator: Target transaction : Type of asset: Quality of asset: non performing special purpose loan non performing special purpose loan Closing date: Nominal Value of disposal portfolio : 2,689,000,000 94,000,000 2,425,000,000 98,000,000 Guarantees issued by the Bank: Guarantees issued by Third Parties : Traditional Traditional Banca di Roma S.p.A Banca di Roma SpA 89%, Mediocredito di Roma SpA 11% Funding ordinary loans mortgage loans ordinary loans mortgage loans 07/21/ /20/2000 Redemption of mezzanine securities C1 and C2 in issue - Funding Redemption of mezzanine securities in issue - Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : - - BASEL 2 THIRD PILLAR AS AT JUNE 30,

207 >> Basel 2 Third Pillar Table 10 ORIGINATOR: UniCredit S.p.A. (ex Capitalia S.p.A., ex Banca di Roma S.p.A.) NAME Type of securitisation: Originator: TREVI FINANCE 3 Traditional Banca di Roma SpA 92.2%, Mediocredito Centrale SpA 5.2% Leasing Roma SpA 2.6% ENTASI Traditional Banca di Roma S.p.A Target transaction : Type of asset: Quality of asset: non performing special purpose loan Closing date: Funding ordinary loans mortgage loans Nominal Value of disposal portfolio : 2,745,000, ,000,000 Guarantees issued by the Bank: Redemption of mezzanine securities in issue Funding Collateralised bond obligation Trevi Finance 3 classes C1 and C2 securities 05/25/ /28/ ,000,000 Commitment of UniCredit S.p.A. (formerly Capitalia S.p.A.) in case of events entitling to early redemption of securities in issue or to the repurchase of Trevi Finance 3 notes at a price sufficient to redeem Entasi securities. The same commitment applies if Trevi Finance 3 exercises the early redemption option of C1 securities. Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : - - As shown in the table, the assets underlying the Entasi securitization are the class C1 and class C2 securities of Trevi Finance 3 securitization. The assets underlying this transaction, as well as those underlying Trevi Finance and Trevi Finance 2, consist of impaired assets derecognized from the financial statements of the originators because, on first adoption of IFRS, we exercised the option provided for by IFRS 1 of not re-recognizing assets sold before January 1, 2004, regardless of the extent of the risk and return that had been retained. ORIGINATOR: UniCredit S.p.A. (ex Capitalia S.p.A., ex Banca di Roma S.p.A.) NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : CAESAR FINANCE Traditional Banca di Roma S.p.A. Funding Collateralised bond obligation performing 5/11/ ,329,

208 I ORIGINATOR: UniCredit S.p.A. (ex UniCredit Family Financing Bank S.p.A.) NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: Cordusio RMBS UCFin - Serie 2006 (ex Cordusio RMBS 3 - UBCasa 1) Traditional UniCredit Banca per la Casa S.p.A. Funding / Counterbalancing capacity Private Mortgage Loans performing 11/20/2006 2,495,969, UniCredit S.p.A. has granted SPV a subordinated loan of million euro, at the end of accounting period amount of tranche capital is equal to million euro. ORIGINATOR: UniCredit S.p.A. (ex UniCredit Family Financing Bank S.p.A., ex Unicredit Banca S.p.A.) Cordusio RMBS Securitisation - Serie 2006 NAME Cordusio RMBS Securitisation - Serie 2007 (ex Cordusio RMBS 2) Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: UniCredit S.p.A. has granted SPV a subordinated loan of million euro. At the end of accounting period that amount si fully reimboursed. performing 3,908,102,838 2,544,388,351 2,990,089, UniCredit S.p.A. has granted SPV a subordinated loan of million euro. At the end of accounting period that amount is fully reimboursed. Cordusio RMBS Traditional Traditional Traditional UniCredit Banca S.p.A. UniCredit Banca S.p.A. Unicredit Banca S.p.A. Funding / Counterbalancing capacity Funding / Counterbalancing capacity Funding / Counterbalancing capacity Private Mortgage Loans Private Mortgage Loans Private Mortgage Loans performing performing 05/24/ /10/ /06/2005 UniCredit S.p.A. has granted SPV a subordinated loan of million euro. At the end of accounting period tha amount is fully reimboursed. ORIGINATOR: UniCredit S.p.A. (ex UniCredit Family Financing Bank S.p.A., ex Banca di Roma S.p.A.) NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: CAPITAL MORTGAGE Traditional Banca di Roma S.p.A. Funding / Counterbalancing capacity Private Mortgage Loans performing 05/16/2007 2,183,087, UniCredit S.p.A. has granted SPV a subordinated loan of million euro (as Equity). BASEL 2 THIRD PILLAR AS AT JUNE 30,

209 >> Basel 2 Third Pillar Table 10 ORIGINATOR: UniCredit S.p.A. (ex UniCredit Family Financing Bank S.p.A., ex FinecoBank S.p.A.) NAME F-E Mortgages 2005 F-E Mortgages Series Heliconus Type of securitisation: Originator: Traditional Traditional Traditional FinecoBank S.p.A. FinecoBank S.p.A. FinecoBank S.p.A. Target transaction: Funding / Counterbalancing capacity Funding / Counterbalancing capacity Funding / Counterbalancing capacity Type of asset: Quality of Asset: Closing date: Private Mortgage Loans Private Mortgage Loans Private Mortgage Loans in bonis in bonis in bonis 04/08/ /28/ /08/2002 Nominal Value of disposal portfolio: 1,028,683, ,630, ,790,215 Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: UniCredit S.p.A. for 20 million (jointly w ith The Royal Bank UniCredit S.p.A. for million. - of Scotland Milan Branch). Third Parties Lines of Credit: Other Credit Enhancements: - UniCredit S.p.A. has granted SPV a subordinated loan of million euro (as Equity) ORIGINATOR: UniCredit Leasing S.p.A (ex Locat S.p.A.) NAME Locat SV - Serie 2006 Locat SV - Serie 2005 (ex Locat Securitisation Vehicle 3) Locat Securitisation Vehicle 2 S.r.l. Type of securitisation: Originator: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Traditional Traditional Traditional Locat S.p.A. Locat S.p.A. Locat S.p.A. Leasing loans bearing car, capital goods and real estate. Leasing loans bearing car, capital goods and real estate. Leasing loans bearing car, capital goods and real estate. performing performing performing 11/14/ /14/ /29/2004 1,972,909,866 2,000,000,136 2,525,254, Other Credit Enhancements: ORIGINATOR: Fineco Leasing S.p.A. NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: F-E Gold Traditional Fineco Leasing S.p.A. Funding Loans relating to leases of property (65.9%), motor vehicles (26.7%) and business assets (7.4%) performing F-E Green Traditional Fineco Leasing S.p.A. Funding Loans relating to leases of property (63.84%), motor vehicles (27.04%) and business assets (9.12%) performing Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: 05/31/ /09/2004 1,019,029,516 1,450,061, European Investment Found guarantee on tranche B for million Fineco Leasing S.p.A. granted the SPV a subordinated loan of 31.6 million (as Equity). At the end of accounting period the amount of capital tranche is equal to 15.3 million euro. Fineco Leasing S.p.A. granted the SPV a subordinated loan of 45.7 million (as Equity). At the end of accounting period the amount of capital tranche is equal to 10.9 million euro. 209

210 I ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Geldilux-TS-2011 Traditional UniCredit Bank AG Capital Relief / Funding EURO Loans Performing 12/20/ ,500, Other Credit Enhancements : - ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : Geldilux-PP-2011 Traditional UniCredit Bank AG Funding EURO Loans Performing 12/16/2011 1,136,400, ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : Geldilux-TS-2010 Traditional UniCredit Bank AG Capital Relief / Funding EURO Loans Performing 09/30/ ,900, BASEL 2 THIRD PILLAR AS AT JUNE 30,

211 >> Basel 2 Third Pillar Table 10 ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : Building Comfort 2008 Synthetic Bayerische Hypo-und Vereinsbank AG Capital Relief Private Mortgage Loans Performing 09/30/2008 3,497,962, Synthetic Excess Spread ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Issuer: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: Provide-A Synthetic Bayerische Hypo-und Vereinsbank AG Provide-A GmbH Capital Relief and Economic Risk Transfer Residential Mortgage Loans Performing 12/21/2006 2,902,936,108 - KfW Guarantee/Junior Guarantee

212 I ORIGINATOR: UniCredit Bank AG - UniCredit Bank Austria AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : EuroConnect SME 2008 Synthetic Bayerische Hypo- und Vereinsbank AG (67,9%), UniCredit Bank Austria AG (32,1%) Capital Relief / Funding and risk transfer for concentration risks Corporate SME Loans Performing 09/30/2008 2,488,493, Synthetic Excess Spread + Reserve Ledger ORIGINATOR: UniCredit Bank AG - UniCredit Bank Austria AG NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: EuroConnect Issuer SME 2007 Synthetic Bayerische Hypo- und Vereinsbank AG (66,09%) - Bank Austria Creditanstalt AG (33,91%) Capital Relief / Funding and risk transfer for concentration risks Corporate SME loans Performing Promise XXS Synthetic Bayerische Hypo-und Vereinsbank AG (77 %) / Bank Austria Creditanstalt AG (23 %) Capital Relief and increase in ROE Corporate Loans Performing Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: 12/28/ /20/2006 3,089,092,361 4,492,354, KfW Guarantee Other Credit Enhancements: Synthetic Excess Spread + Reserve Ledger - BASEL 2 THIRD PILLAR AS AT JUNE 30,

213 >> Basel 2 Third Pillar Table 10 ORIGINATOR: UniCredit Bank AG - UniCredit Bank Austria AG - UniCredit S.p.A. (ex UniCredit Corporate Banking S.p.A.) NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: EuroConnect Issuer LC Synthetic Bayerische Hypo- und Vereinsbank AG (45,04%) - Bank Austria Creditanstalt AG (37,78%) - UBI (17,18%) Capital Relief / Funding and risk transfer for concentration risks Secured and unsecured exposures to large corporates Performing 08/20/2007 6,206,611,098 - Guarantee for the Super Senior Sw ap w ith an institutional investor

214 I SELF-SECURITIZATIONS ORIGINATOR: UniCredit S.p.A. NAME: Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of reference portfolio : Issue guarantees by the Bank: Issued guarantees bythird parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: IMPRESA ONE Traditional UniCredit S.p.A. Funding / Counterbalancing capacity CLO SME Performing 09/01/2011 9,290,300, UniCredit S.p.A. - London Branch has granted the SPV, w ith respect to this transaction, tw o subordinated loans amounting to million and 190 million. ORIGINATOR: UniCredit S.p.A. NAME: Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of reference portfolio : Issue guarantees by the Bank: Issued guarantees bythird parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: CONSUMER ONE Traditional UniCredit S.p.A. Funding / Counterbalancing capacity Consumer Loans Performing 08/01/2011 4,193,357, UniCredit S.p.A. - London Branch has granted the SPV, w ith respect to this transaction, tw o subordinated loans amounting to 420 million (at the end of 2011 the principal amount repaid w as million) and 5 million (at the end of 2011 the principal amount repaid w as 280 thousand). BASEL 2 THIRD PILLAR AS AT JUNE 30,

215 >> Basel 2 Third Pillar Table 10 ORIGINATOR : UniCredit S.p.A. (ex UniCredit Family Financing Bank S.p.A., ex BIPOP - Carire S.p.A.) NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: BIPCA Cordusio rmbs Traditional Bipop - Carire S.p.A. Funding / Counterbalancing capacity Private Mortgage Loans performing 12/19/ ,664, UniCredit S.p.A. has granted SPV a subordinated loan of million euro. At the end of accounting period the amount of capital tranche is equal to million euro. ORIGINATOR: UniCredit Leasing S.p.A (ex Locat S.p.A.) NAME: Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of reference portfolio : Issue guarantees by the Bank: Issued guarantees bythird parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: Locat SV - Serie 2011 Traditional UniCredit Leasing S.p.A. (ex Locat S.p.A.) Funding / Counterbalancing capacity Leasing loans bearing car, capital goods and real estate. in bonis 02/11/2011 5,150,822, UniCredit S.p.A. has granted SPV a subordinated loan of 252 million euro. 215

216 I ORIGINATOR: Fineco Leasing S.p.A. NAME Type of securitisation: Originator: Target transaction: Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio: Guarantees issued by the Bank: Guarantees issued by Third Parties: Bank Lines of Credit: Third Parties Lines of Credit: Other Credit Enhancements: F-E RED Tradizionale Fineco Leasing S.p.A. Funding Leasing loans bearing car, capital goods, real estate and crafts. performing 03/06/2009 1,705,231, At closing date Fineco Leasing SpA granted the SPV a subordinated loan of 161 million euro (as equity). Such subordinated loan has been increased during 2011 and its overall amount at the end of the year is equal to million euro. ORIGINATOR: UniCredit Bank AG NAME Type of securitisation: Originator: Target transaction : Type of asset: Quality of Asset: Closing date: Nominal Value of disposal portfolio : Guarantees issued by the Bank: Guarantees issued by Third Parties : Bank Lines of Credit : Third Parties Lines of Credit : Other Credit Enhancements : Rosenkavalier 2008 Traditional Bayerische Hypo-und Vereinsbank AG Liquidity large Corporate and SME corporate loans and mortgage loans Performing 12/12/2008 8,244,562, of w hich already securitised in synthetic transaction : BUILDING COMFORT ,279, EUROCONNECT LC ,229, EUROCONNECT SME ,252, EUROCONNECT SME ,931, PROMISE XXS ,549, PROVIDE-A ,283, PROVIDE-A ,912, BASEL 2 THIRD PILLAR AS AT JUNE 30,

217 >> Basel 2 Third Pillar Table 10 The Group as sponsor The Group is also a sponsor of asset-backed commercial paper conduits (i.e., SPVs issuing commercial paper) set up as multi-seller customer conduits to give clients access to the securitization market. These SPVs are not part of the banking group, but have been consolidated since December Customer conduits require the formation and management of a bankruptcy-remote company (i.e., one that would be immune from any financial difficulties of the originator) which directly or indirectly buys receivables portfolios created by companies outside the Group. The receivables underlying these transactions are not bought directly by the conduit set up by the Group, but by a purchase company which in turn is wholly funded by the conduit by means of commercial papers or Medium Term Notes (MTN). The main purpose of these transactions is to give corporate clients access to the securitization market and thus to lower funding costs than those that would be borne with direct funding. Arbitrage conduits, shut down during 2011, require the formation and management of an SPV that buys highly rated corporate bonds, asset-backed securities and loans. The conduits purchase of assets is financed by short-term commercial papers and medium-term notes (MTN). Payment of interest and redemption of the securities issued by the conduit therefore depend on cash flow from the receivables purchased (credit risk) and the ability of the conduit to roll over its market funding on maturity (liquidity risk). Since the second half of 2007, investor demand for the securities issued by these conduits has declined significantly. As a consequence, the Group has directly purchased all their outstanding commercial paper. This trend, that reached its peak in December 2008 with a balance sheet exposure of 5,268 million, was 1,235 million as at June 30, Due to the activity performed, the Group bears most of the risk and receives most of the return on conduit business and also has control of the conduits. Consequently, as required by IAS 27 and SIC 12, the above-listed SPVs have been consolidated. The ABCP conduits and some of the second-level vehicles that meet IFRS consolidation standards are included in the scope of consolidation. 217

218 I According to the line-by-line consolidation method, the following items are recognized in the Consolidated Accounts: assets held by consolidated vehicles in place of the loans provided to them or the liabilities subscribed by Group companies, now eliminated on consolidation; loans to purchase companies, with reference to non-consolidated subordinated vehicles. With respect to non-consolidated purchase companies, the Consolidated Accounts, while not including the assets recorded in their books, do show the maximum amount of the risk borne by the Group which, with respect to purchase companies wholly financed by the consolidated conduits, corresponds to the value of the assets of these purchase companies. Conduit Program As at June 30, 2012 the UniCredit Group Conduit Program comprised two Customer Conduits: Arabella Finance Ltd and Salome Funding Plc. The latter, and its purchase companies, are currently in wind down. The only Arbitrage Conduit included in the Group Program - Bavaria Universal Funding Corporation (BUFCO) - was closed in May Arabella and Salome were restructured at the end of 2011 in line with the new requirements of Capital Requirement Directive (CRD III). The new structures were presented to Bank of Italy in December 2011 and have been in place since year end According to the new structures, Arabella will continue to issue ABCP to finance the purchase of clients assets by the Purchase Companies of subordinated level and make inter-company loans to each of the purchase companies on a continuous basis. UCB AG grants individual full support facilities directly to each purchase company amounting to at least 102% of the underlying asset purchase commitment, covering both liquidity and credit risk. From a regulatory perspective, Risk Weighted Assets for Arabella and Salome are quantified through the application of the Internal Assessment Approach (IAA). 1. Arabella Finance Ltd Arabella is a multi-seller customer conduit with two separate Legal Entities: Arabella Finance Ltd Dublin in Europe and Arabella Finance LLC Delaware in the US. In addition, since July 2009 Black Forest Funding LLC Conduit has been moved as second level vehicle into Arabella. Only client-related business is allowed in Arabella. As at June 30, 2012 the underlying portfolio of Arabella mainly consisted of Car Leases (42.9%), Car Loans (18.3%), Trade receivables (35%) and a small portion of Equipment Lease (3.9%) which are purchased by the Purchase Companies of subordinated level to which the specific full support liquidity lines are addressed. The majority of Assets are concentrated in Germany (52.8%) and Italy (18%). As at June 2012 the total portfolio amounted to 1,998 million. As at June 2012, outstanding CPs were 2,047 million, of which approximately 40% were placed externally. The Full Support Liquidity Facilities for the overall program amounted to 2,351 million as at June BASEL 2 THIRD PILLAR AS AT JUNE 30,

219 >> Basel 2 Third Pillar Table Salome Funding plc Since June 2012 Salome Funding Plc and its Purchase Companies have been in wind down. The full support liquidity facility amounts provided to each Purchase Company according to the current conduit structure have been ceased and Salome terminated any issuing of commercial paper. The underlying assets of some Purchase Companies have been already transferred to UCB AG balance sheet (Cosima Purchase No. 13 and Cosima Purchase No. 63) while a residual loan is still granted to Cosima Purchase No. 14 and No. 15. The Group as investor The Group is also an investor in structured credit instruments issued by vehicles which are not consolidated, as the portion of these instruments does not represent the majority of the risks and rewards related to the operations carried out by SPVs. These exposures are mainly held on the books of the Corporate and Investment Banking Division (CIB) and UniCredit Bank Ireland. This business was particularly affected by the difficult situation on the financial markets, which began in 2007 and brought about a transformation of the structured credit product market into an illiquid market. Against this background, in 2008 the Group ring-fenced these products in a specific Global ABS Portfolio subject to monitoring and reporting of both credit risk and market risk. This strategy has been reflected in the accounts through the reclassification of most of these positions in the item loans and receivables to customers, carried out for the most part in the second half of 2008 and, for the remaining, in the first half of In order to improve the quality of this portfolio, in the second half of 2010 the Group bought selected structured credit products with the aim of improving the overall portfolio quality in terms of expected risk/return profile. These acquisitions were executed in line with the derisking/deleveraging plan defined at end-2008 through the disposal of similar positions already in the portfolio which have been deemed less appealing in prospective terms. 219

220 I The Methods of Calculation of the Weighted Exposures Used by the Bank for Securitizations Bank of Italy Circular 263 specifies that for prudential purposes securitizations transactions are meant as transactions involving one or more assets subject to tranching of the credit risk profile into two or more tranches with differing levels of subordination to the risk of losses on the securitized assets. Securitizations affect banks balance sheets, whether they are sellers of assets or risks, or acquire the securities issued by the vehicle or of the credit risk. The originator may - subject to certain conditions listed in the regulations - exclude securitized assets from capital requirements and, if it is a bank using IRB methods, the expected losses as well. There are various ways of calculating the weighted value of positions due for securitization; they depend on the approach (standard or IRB) that the bank would have followed to determine the capital requirement corresponding to the credit risk of the securitized assets. If the bank uses the standard approach to calculate capital requirements for the credit risk of securitized assets included in securitization positions, the weighted risk amount is calculated using a method which normally attributes a weight to securitization positions which depends on the rating given by an ECAI. If the bank uses the basic or advanced IRB approach to calculate capital requirements for credit risk, the weighted risk amount of securitization positions is calculated using one of the following methods: 1. rating based approach, RBA: weights are based on external ratings, the number of securitized assets and the seniority of the position. 2. calculation of the capital requirement for an individual tranche of securitization where there is no external or inferred rating: by using a set regulatory formula (SFA). The Internal Assessment Approach (IAA) is used for securitizations where the vehicle issues assetbacked commercial paper (ABCP). If the capital requirements for securitized assets are calculated partly using the standard approach and partly under the IRB approach, the weighted risk amount for the securitization positions is calculated using the approach used for the majority portion in the securitized portfolio. BASEL 2 THIRD PILLAR AS AT JUNE 30,

221 >> Basel 2 Third Pillar Table 10 As far as the regulatory treatment of the securitization transactions originated by the Group (excluding self-securitization) is concerned, on a quarterly basis the Group performs the calculation of the risk weighted amount of the exposure towards securitizations transactions according to the aforementioned methods and it compares it to the risk weighted value of the securitized assets as if they had never been subject to securitization (cap). The lower between the two amounts represents the actual absorption of each securitization transaction. If necessary, at Holding Company level an adjustment of the regulatory requirements is performed with respect to the ones reported by the Group Entities that retain exposures towards the same securitization transactions at individual basis. It is worth underlying that, as at June 30, 2012, only 3 transactions still had benefit in terms of regulatory capital: 2 of them are evaluated according to the Rating based approach, the other one applying the Supervisory Formula Approach. Such transactions are: Euroconnect SME 2008 and Promise XXS originated by UniCredit Bank AG and UniCredit Bank Austria AG; Unionfidi Piemonte originated by UniCredit S.p.A. It should also be noted that on December 31, 2010 the new calculation method for the determination of the significant credit risk transfer based on the RWA of mezzanine notes was adopted, in compliance with the new indications defined within the Circolare 263/2006, 6th Amendment, Title II, Chapter 2, Part Second, Section II, paragraph 4. As a result, all the transactions outstanding at that date were subjected to new test: those who did not meet the new requirement were not considered eligible to provide regulatory capital benefits. In order to support the evidence arising from the comparison of regulatory requirements related to securitization transactions, Group Risk Management structured a process of analysis, monitoring and control of the abovementioned transactions in order to verify the compliance with the qualitative and quantitative requirements set by the Regulator (Title II, Chapter 2, Part 2 Securitization of Circular 263/2006 e related amendments). In particular, the transactions are analyzed by a dedicated Group structure in order to verify that: - There is no interests misalignment between the Group and the final investor, through the commitment of the seller (or developer) to retain a share of risk in the transaction; - The overall structure of the securitization does not neutralize the effect of maintaining this level of risk; - The commitment to retain a share of risk is applied to all transactions subject to the rules on securitization; - Internal risk measures support the regulatory evidences. The securitization transactions originated by the Group have been included within the Group portfolios in order to calculate the internal risk measures (for credit risk, market risk, interest rate and liquidity). 221

222 I As regards the securitization transactions for which the Group acts as investor, the Group calculates the regulatory absorption according to the rating based approach. Since December 2011, as regards the net positions allocated in the regulatory trading portfolio, calculated in accordance with the provisions on preventive compensation, the specific risk capital requirement has been equal to 8% of risk-weighted exposures. For these purposes, the weighted exposures are determined applying the prudential rules of applied to the banking portfolio (standardized method or rating based methods). As regards the abovementioned portfolio, the Group operates a continuous monitoring of both the fair value and the economic value. To this end, with reference to structured credit products portfolios purchased by the Group and related to third parties operations, a uniform IPV process applying to all legal entities within UniCredit Group on a monthly basis was approved in March 2008 under the coordination of the Risk Management function. The IPV process aims at classifying securities into 9 classes according to progressive levels of reliability of the observed market prices. Starting from instruments with multiple brokers quotations and counterparties, the process then defines less immediate liquidity classes including estimates derived from proxy assets until getting to assumptions of mark-to-model in case prices are particularly opaque. These valuation models are inherently complex and the underlying assumptions, estimates and valuations often take into account uncertain and unpredictable data such as the expected cash flows, the solvency of the borrower, the appreciation or depreciation of assets, and may need to be updated to reflect changes in market conditions or trends. This type of activity is the one that has suffered most from the current crisis that started in 2007 and caused, among other things, transformation of the market for credit structured products to an illiquid market. Against this backdrop, in 2008 the Group centralized these products in a specific portfolio (Global ABS portfolio) managed in order to maintain the positions also taking into account the good fundamentals of the underlying portfolio. This portfolio is subject to monitoring and reporting both for credit risk and market risk. The described strategy has been reflected in the accounts through the reclassification of most of these positions in the category "loans to customers", applied during the second half of 2008 and, to a lesser extent, in the first half of As at June 30, 2012 ABS reclassified instruments had a book value of 4.2 billion, compared with a fair value of 3.5 billion. BASEL 2 THIRD PILLAR AS AT JUNE 30,

223 >> Basel 2 Third Pillar Table 10 Indication of the methods that the Group applies to securitization activity for the management of liquidity risk. As regards the management of impacts on Group liquidity generated by transactions that are relevant for these purposes (hence the traditional securitization and self-securitizations for which the Group acts as originator), it should be noted that the Group: - Includes and monitors the impacts of these positions on the basis of mapping rules defined by internal regulations: - Verifies the eligibility of senior positions granted by the European Central Bank and includes the same in Counterbalancing Capacity according to the price provided by Banque de France and their haircuts; - Monitors and estimates the effects on the Group liquidity deriving from possible rating downgrade of the notes themselves, or of the Group (originator). Indication of the methods that the Group applies to securitization activity for the management of interest rate risk. As regards the management of interest rate risk of securitization transactions originated by the Group, implied by the structure of interest rate swaps, the Group retains the interest rate profile of the securitized portfolio. The Group holds, calculates and monitors this risk as if the portfolio had not been securitized. As for the management of interest rate risk of the positions for which the Group is investor or sponsor, they are usually included in the reference portfolio and managed according to standard Group procedures. 223

224 I List of the ECAI (External Credit Assessment Institution) and ECA (Export Credit Agency) used in the standardized, advanced approach and of the credit portfolios on which the ratings supplied by these entities are applied. Securitizations Porfolios Position on securitizations with short term rating Position on securitizations different from those with short term rating ECA/ECAI - Fitch Ratings - Moody's Investor Services - Standard and Poor's Rating Services - DBRS BASEL 2 THIRD PILLAR AS AT JUNE 30,

225 >> Basel 2 Third Pillar Table 10 Quantitative disclosure The following tables give a breakdown of the Group s non-derecognized securitized loans by region and asset quality, and by traditional and synthetic securitizations. Traditional securitizations are disclosed net of self-securitizations in which the Group has purchased all liabilities issued by the vehicles. Securitized assets broken down by geographical area Amounts as at Italy Germany Austria Other EU Countries Others European Countries (NON EU) America Asia Rest of the w orld Total Assets sold but not derecognized - Residential mortgage loans 6,865, ,865,770 - Leasing 1,767, ,767,306 - SME loans Corporate loans 2,500 2,151,566 1,800 4,481 7, ,168,120 - Others Total 8,635,576 2,151,566 1,800 4,481 7, ,801,196 Securitized assets broken down by geographical area Amounts as at Italy Germany Austria Other EU Countries Others European Countries (NON EU) America Asia Rest of the w orld Total Synthetic transactions - Residential mortgage loans - 1,653, ,653,256 - Commercial mortgage loans - 554, ,092 - SME loans 37,875 1,956, ,121 3, ,718,223 - Corporate loans - 68, ,674 6, ,044 - Others - 247,015 5, ,165 Total 37,875 4,479, ,946 9, ,492,780 Securitized assets broken down by asset quality Amounts as at Other assets (performing) Impaired assets Total Assets sold but not derecognized - Residential mortgage loans 6,538, ,050 6,865,770 - Leasing 1,441, ,840 1,767,306 - SME loans Corporate loans 2,167,007 1,113 2,168,120 - Others Total 10,147, ,004 10,801,196 Securitized assets broken down by asset quality Amounts as at Other assets (performing) Impaired assets Total Synthetic transactions - Residential mortgage loans 1,618,324 34,932 1,653,256 - Commercial mortgage loans 540,021 14, ,092 - SME loans 2,516, ,127 2,718,223 - Corporate loans 314, ,044 - Others 235,908 16, ,165 Total 5,225, ,509 5,492,

226 I As noted, the traditional securitization tables give the amount of the assets sold but not derecognized due to retention by the Group of most of the related risk and rewards. In first half of 2012 these assets were written down by 5,720 thousand. Alongside these there are further exposures totaling 917,153 thousand, of which 669,984 are impaired assets and 247,169 are performing assets derecognized as being prior to 1 January 2002, as detailed in the previous qualitative disclosure. The total amount of the exposures securitized by the Group by means of traditional securitization is 11,718,349 thousand. Besides the mentioned exposures, the Group has originated other traditional securitizations of performing loans, in which it has purchased all liabilities issued by the vehicles (self-securitizations) whose underlying assets totaled 24,705,828 thousand. Traditional securitizations originated by the Group have as underlyings residential mortgages originated in Italy, loans to the corporate segment originated in Germany and leasing transactions originated in Italy. Synthetic securitization structures have mainly German residential mortgages, loans to Small Medium Entities originated in Germany and Austria and commercial mortgages originated in Germany as underlyings. Cash exposures not derecognized increased to 3,758 million as at 30 June 2012 from 3,222 million as at 31 December 2011 due to an increase in the retained risk, also as a consequence of the transfer of the Account Bank role to external counterparties following the downgrade of the Group, only partially offset by the completion of the Geldilux-TS-2007 transaction and the changes in portfolio holdings. Moreover, the decrease in cash exposures concerning synthetic transactions from 4,770 million in December 2011 to 4,140 million in June 2012 was due to the development of the transactions. Performing loans account for 93.95% of the underlying portfolio of traditional securitizations, and 95.13% of synthetic securitizations. The Group is not an originator of securitizations having US prime, subprime or Alt-A residential mortgages as underlyings. The following tables give, broken down by banking book and trading book respectively, the amounts of inhouse and others securitizations divided according to the Group s role and the type of exposure. BASEL 2 THIRD PILLAR AS AT JUNE 30,

227 >> Basel 2 Third Pillar Table 10 Exposure in Asset Backed Securities broken down by seniority - banking book ( thousands) Amounts as at Type of exposure Senior Mezzanine Junior Total Total Investments in own ABS transactions (Originator) Amounts as at Assets sold totally derecognized 116, , , ,785 1,031,777 - CLO/CBO 116,696-51, , ,332 - CLO / CBO Others 116,696-51, , ,332 - Others - 571, , , ,445 Guarantees given Credit facilities Assets sold but not derecognized 1,336, ,168 2,144,893 3,725,939 3,115,512 - RMBS 947,579 56,264 1,482,026 2,485,869 1,553,263 - Prime 947,579 56,264 1,482,026 2,485,869 1,553,263 - CLO/CBO 235, , , , ,820 - CLO / CBO Other 235, , , , ,820 - Leasing 154,016 60, , , ,428 Guarantees given Credit facilities ,220 30,220 30,220 Synthetic transactions 3,517, ,600 8,766 4,125,344 4,760,489 - RMBS 1,308, ,900-1,610,488 1,799,320 - Prime 1,308, ,900-1,610,488 1,799,320 - CLO/CBO 2,209, ,700 8,766 2,514,855 2,961,169 - CLO SME 2,209, ,692 8,766 2,499,847 2,949,870 - CLO / CBO Other - 15,008-15,008 11,299 Guarantees given Credit facilities Consolidated conduits (Sponsor) Balance sheet exposure ABCP Guarantees given Credit facilities 1,116, ,116, ,056 Investments in third party securitization (Investor) Balance sheet exposure 4,587,826 1,466,840 99,248 6,153,914 6,128,643 - RMBS 2,370, ,949-2,816,440 2,925,235 - Prime 2,165, ,528-2,488,778 2,594,722 - Subprime 2, ,050 3,905 - Nonconforming 202, , , ,608 - CMBS 990, ,250-1,282,588 1,081,054 - CDO 142,749 73, , ,682 - CDO di ABS / CDO di CDO 1,248 20, ,728 22,501 - CDO Balance Sheet 123, , ,464 - CDO Market Value CDO Preferred Stock - 49,560-49,560 57,773 - CDO Synthetic Arbitrage CRE CDO 12,139 3,398-15,537 19,139 - CDO Others 5, ,736 23,805 - CLO/CBO 548, ,796 28,617 1,055,945 1,152,423 - CLO SME 42,438 31,198 1,420 75,056 93,134 - CLO arbitrage/balance sheet 258, ,169 2, , ,015 - CLO / CBO Others 247, ,429 25, , ,274 - Consumer loans 170,613 64, , ,200 - Credit Cards Student loans 76,515 59,476 2, , ,028 - Leasing 51,449 32,976-84, ,221 - Others 13,391 18,728 3,145 35,264 65,137 - Loans 223,748-64, , ,663 Guarantees given Credit facilities 20, ,296 17,

228 I Exposure in Asset Backed Securities broken down by seniority - trading book ( thousands) Amounts as at Type of exposure Senior Mezzanine Junior Total Total Investments in own ABS transactions (Originator) Amounts as at Assets sold but not derecognized 27,957 4,596-32, ,137 - RMBS 9, ,521 10,030 - Prime 9, ,521 10,030 - CLO/CBO ,883 - CLO / CBO Other ,883 - Leasing 18,436 4,596-23,032 29,224 Synthetic transactions - 14,701-14,701 9,795 - RMBS Prime CLO/CBO - 14,701-14,701 9,795 - CLO SME CLO / CBO Other - 14,701-14,701 9,795 Consolidated conduits (Sponsor) Balance sheet exposure 1,234, ,234,888 3,136,484 - ABCP 1,234, ,234,888 3,136,484 Investments in third party securitization (Investor) Balance sheet exposure 385,644 51, , ,698 - RMBS 11,302 24,946-36,248 72,837 - Prime 11,302 24,946-36,248 72,837 - Subprime Nonconforming CMBS 76,966 13,174-90,140 94,173 - CDO CDO di ABS / CDO di CDO CDO Balance Sheet CDO Market Value CDO Preferred Stock CDO Synthetic Arbitrage CRE CDO CDO Others CLO/CBO 269,599 13, , ,665 - CLO SME 36,600 4,899-41,499 41,058 - CLO arbitrage/balance sheet 27,611 4,565-32,176 29,601 - CLO / CBO Others 205,388 3, , ,006 - Consumer loans 27, , Credit Cards Student loans Leasing Others Loans Guarantees given Credit facilities Positions classified in the banking book include the positions reclassified in H and H for accounting and regulatory purposes following the amendment to IAS 39 transposed by the European Commission into regulation 1004/2008. The Group has reclassified almost all its structured credit products from HfT financial assets and AfS available for sale assets to Loans and receivables with customers, which has made it possible to align their class with the manner in which they are managed. On June 30, 2012 reclassified ABS had a carrying value of 4,234,159 thousand against a fair value at the same date of 3,478,180 thousand. BASEL 2 THIRD PILLAR AS AT JUNE 30,

229 >> Basel 2 Third Pillar Table 10 Following Circular n. 263 issued by Bank of Italy on December 27, 2006 (and subsequent amendments), the tables below show the total amount of in house and third party securitizations, detailed by weighting factors. Standardized approach: securitisation positions ( '000) AMOUNTS AS AT ON-BALANCE-SHEET RISK ASSETS OFF-BALANCE-SHEET RISK ASSETS PRE-PAYMENT CLAUSES WEIGHTING FACTORS "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTOR "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTOR "IN HOUSE" SECURITISATIONS ORIGINATOR SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC Weighting 20% 46,280-5, Weighting 40% Weighting 50% , Weighting 100% 18,808-64, Weighting 225% Weighting 350% - - 6, Weighting 650% Weighting 1250% - with rating 4, Weighting 1250% - without di rating Look-through - second loss in ABCP Look-through - other - 2, Total as at ,847 2, , Total as at , ,

230 I Standardized approach: re-securitisation positions ( '000) AMOUNTS AS AT ON-BALANCE-SHEET RISK ASSETS OFF-BALANCE-SHEET RISK ASSETS PRE-PAYMENT CLAUSES WEIGHTING FACTORS "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTOR "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTOR "IN HOUSE" SECURITISATIONS ORIGINATOR SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE SECURITISATION TYPE TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC Weighting 20% Weighting 40% Weighting 50% Weighting 100% Weighting 225% Weighting 350% Weighting 650% Weighting 1250% - with rating Weighting 1250% - without di rating Look-through - second loss in ABCP Look-through - other Total as at Total as at IRB approach: securitisation positions ( '000) AMOUNTS AS AT ON-BALANCE-SHEET RISK ASSETS OFF-BALANCE-SHEET RISK ASSETS PRE-PAYMENT CLAUSES WEIGHTING FACTORS "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTITORE "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTITORE "IN HOUSE" SECURITISATIONS ORIGINATOR SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC Weighting 7-10% Weighting 12-18% Weighting 20-35% Weighting 40-75% Weighting 100% Weighting 150% Weighting 200% Weighting 225% Weighting 250% Weighting 300% Weighting 350% Weighting 425% Weighting 500% Weighting 650% Weighting 750% Weighting 850% Weighting 1250% - with rating Weighting 1250% - without rating Nc Total as at Total as at BASEL 2 THIRD PILLAR AS AT JUNE 30,

231 >> Basel 2 Third Pillar Table 10 IRB approach: resecuritisation positions ( '000) AMOUNTS AS AT ON-BALANCE-SHEET RISK ASSETS OFF-BALANCE-SHEET RISK ASSETS PRE-PAYMENT CLAUSES WEIGHTING FACTORS "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTITORE "IN HOUSE" SECURITISATIONS ORIGINATOR THIRD PARTY SECURITISATIONS INVESTITORE "IN HOUSE" SECURITISATIONS ORIGINATOR SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE SICURITISATION TYPE TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC TRADITIONAL SYNTHETIC Weighting 7-10% Weighting 12-18% Weighting 20-35% Weighting 40-75% Weighting 100% Weighting 150% Weighting 200% Weighting 225% Weighting 250% Weighting 300% Weighting 350% Weighting 425% Weighting 500% Weighting 650% Weighting 750% Weighting 850% Weighting 1250% - with rating Weighting 1250% - without rating Nc Total as at Total as at Securitized assets totaling 570,083 thousand have been deducted from regulatory capital. 231

232 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

233 >> Basel 2 Third Pillar Table 11 Table 11 Market risks: disclosures for banks using the internal models approach (IMA) for position risk, foreign exchange risk and commodity risk Qualitative e quantitative disclosure Internal Model for Price, Interest Rate and Exchange Rate Risk of the Regulatory Trading Book The policy implemented by the UniCredit group within the scope of market risk management is aimed at the gradual adoption and use of common principles, rules and processes in terms of appetite for risk, ceiling calculations, model development, pricing and risk model scrutiny. Group Trading Risks is required to ensure that principles, rules and processes are in line with industry best practice and consistent with standards and uses in the various countries in which they are applied. The Directive 2010/76/EU (CRD III) introduced several improvements to the capital regime for trading book positions fully receiving the proposal from the Basel Committee. CRD III enhances the current value-at-risk (VaR) based framework with other risk measures: an incremental risk capital charge (IRC), a comprehensive risk measure (CRM) specific to the correlation trading portfolio (CTP), a stressed value-atrisk (svar). Incremental risk capital charge captures default risk as well as migration risk for unsecuritised credit products, while comprehensive risk measure covers credit risk (i.e. default, migration and credit spread) for trading positions in the correlation trading portfolio. Additional capital charge for securitizations and credit products not covered by either IRC or CRM is evaluated through the standardized approach. The additional stressed VaR requirement is expected to help reduce the pro-cyclicality of the minimum capital requirements for market risk. UniCredit group calculates both VaR and svar for market risk on trading positions using the historical simulation method. The historical simulation method revaluates daily positions on the basis of trends in market prices over an appropriate observation period. The empirical distribution of profits/losses deriving therefrom is analyzed to determine the effect of extreme market movements on the portfolios. For a given portfolio, probability and time horizon, VaR is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon not exceeding this value (assuming normal markets and no trading in the portfolio) has the given confidence level. The parameters used to calculate the VaR are as follows: 99% confidence level; 1 day time horizon; daily update of time series; observation period of 500 days. Use of a 1-day time-horizon makes it possible to make an immediate comparison with profits/losses realized. Analogously stressed VaR is calculated with 99% confidence level and 1 day time horizon on a weekly basis, but over a stressed observation period of 250 days. 233

234 I The chosen historical period identifies the 1-year observation period which produces the highest resulting measure for the current portfolio. Over the first half of 2012 the so-called Lehman crisis period (from 15/04/2008 to 30/03/2009) has been the stressed observation period chosen by UCBA. This same period has been used by UCB AG for the first quarter while the period from 17/01/2011 to 31/12/2011 (sovereign debt crisis) has been used for the second quarter. On the other hand UCI Spa used the sovereign debt crisis for the first quarter and the Lehman crisis period for the second. For regulatory capital calculation the 1-day VaR and svar are properly scaled to a 10-days time horizon while the 1-day measures are actively used for market risk management. UniCredit group calculates IRC over a one-year capital horizon at 99.9% confidence level using a multivariate version of a Merton-type model (i.e. Moody's KMV) in which both migration and default events are accounted for. Default is indeed seen as a particular migration to an absorbing state. Migration events are simulated on the capital horizon, taking into account the liquidity horizon of individual positions. However, in 2011 a conservative liquidity horizon of one year was applied to all positions. Since the CRM measure should cover all price risk on the CTP perimeter, UniCredit group implemented a two components measure in order to catch all the required risk facets. Therefore CRM is obtained as the sum of two partially overlapping components. More specifically: CRM.IRC: the IRC component simulates migrations and defaults, extending the IRC framework to account for stochastic recovery rates and the effect of multiple defaults. This part of the measure embeds a credit spread dynamics that has a jump component to it; it indeed simulates changes in spread levels as a result of rating migrations occurring in a through-the-cycle realworld probabilistic set up. CRM.VaR: the VaR component of the measure accounts for the credit spread risk and for the implied correlation one. Spread dynamics is specified both at individual issuer level and at index level. Credit spreads are evolved by means of a diffusive mean-reverting stochastic process calibrated to CDS spread series and is hence closer to a risk neutral perspective. Base correlations are simulated by means of a mean reverting diffusive multivariate process evolving the standard capital structure of two major indices. Implied correlation basis between standard tranches and bespoke ones is not explicitly simulated. Base correlation for standard tranches is calibrated from available market quotes and used to generate scenarios for both standard and bespoke CDOs. The confidence level at which the CRM charge is calculated is 99.9% over the Capital Horizon of one year. Liquidity Horizon is set equal to the Capital Horizon for both the IRC-like and the VaR-like components. This basically embraces the constant position assumption suggested in the IRC guidelines. Both the measure s components include a spread-risk element. IRC needs to meet soundness standard comparable to IRB. The charge was indeed compared to the IRB requirement for a subset of the top 50 issuers resulting into a 20% higher number (i.e. IRC=1.2IRB). As for the CRM, no real benchmark is specified. Robustness was assessed - among others - via a stress scenario that showed that level of capitalization implied by the model would account for the simultaneous sudden default of the top 50 names in the portfolio. BASEL 2 THIRD PILLAR AS AT JUNE 30,

235 >> Basel 2 Third Pillar Table 11 Group Internal Validation performed its analyses in order to evaluate the conceptual soundness of the IRC and CRM models, to supplement the available analyses on that topic and to ensure the compliance of the resulting risk management environment with all the relevant regulatory requirements and internal standards. As already remarked by the regulation, traditional back testing procedures, regarding the 99.9% one-year soundness standard for IRC, are simply not applicable. Consequently, while validation of the IRC and CRM model relied heavily on indirect methods (including stress tests, sensitivity analysis and scenario analysis) in order to assess the qualitative and quantitative reasonableness of the model, special focus has indeed been given to the specific situation of the UniCredit portfolios. Group Internal Validation kept the scope of their analysis as wide as possible in order to comprise the many diverse issues that are acting concurrently in such a model (general model design, regulatory compliance, numerical implementation, outcomes explanation). In particular, among the topics Group Internal Validation addressed, we should mention model parameterization (such as credit migration matrices and their regularization to liquidity horizon shorter than one year, dependence structure, sensitivities analysis with regard to the most relevant model parameters, stability analysis with regard to potentially hard-to-estimate model inputs), model design, model replication, portfolio structure, processes and model outputs. During 2011 Bank of Italy authorized UniCredit group to the use of internal models for the calculation of capital requirements for market risk. In details both UCB AG and BA AG are then allowed to calculate their regulatory capital by means of internal models for VaR, stressed VaR and IRC; the additional CRM capital charge is relevant for UCB AG only. As of the end of 2011 UCI, UCI Ireland and Bank Pekao are still using the standardized approach for calculating capital requirements related to trading positions. As part of the progressive extension of the internal models approach to all Group companies, however, the VaR is already used for the management of market risk in these latter companies. The standardized measurement method is also applied to the calculation of capital covering the risk of holding banking book exposure in foreign currencies for the subsidiaries that do not perform trading activities. In order to validate the coherence of VaR internal models used in calculating capital requirements on market risks, backtesting is performed by comparing the internal model risk estimates with the hypothetical portfolio profit and loss, in order to check if the 99% of the trading outcomes is covered by the 99th percentile of the risk measures. The test is based on the last twelve months data (i.e. 250 daily observations). In case that the number of exceptions in the previous year exceeds what forecasted by the confidence level assumed, a careful revision of model parameters and assumptions is initiated. Trading portfolios are subject to Stress tests according to a wide range of scenarios for managerial reporting, which are described in dedicated paragraph below. According to national regulations, some relevant scenarios are also a matter of regulatory reporting on a quarterly basis. Moreover, substitute risk measures, i.e. sensitivities, defined stress scenarios or the indication of nominal amounts, are considered and included in the regulatory reporting for the estimation of risks that are not covered by the VaR simulation of UCB AG internal model. As for internal scenario analysis policies and procedures (i.e. stress testing ), these procedures have been entrusted to the individual legal entities. Overall, however, a set of scenarios common to the Group as a whole, is applied to all positions in order to check on a monthly basis the potential impact that their occurrence could have on the global trading portfolio. 235

236 I Procedures and methodologies for Valuation of Trading Book positions UniCredit group ensures that the value applied to each trading book position appropriately reflects the current fair (market) value, i.e. the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. The fair value of each financial instrument is based on, or derived from, observable market prices or inputs. The availability of observable prices or inputs differs by product and market, and might change over time. In case observable prices or parameters are readily and regularly available (i.e. satisfying adequate liquidity requirements), they are directly employed in the determination of fair value (mark-to-market) without any subjective component (e.g. liquid securities or equities, exchange traded derivatives). This includes instruments whose fair value is derived from valuation models which represent industry standard and whose inputs are directly observable (e.g. plain vanilla swap and a number of option contracts). In non-active markets or for certain instruments, for which observable prices or inputs are not available, fair value is calculated leveraging on valuation techniques appropriate for the specific instrument (markto-model). This approach involves estimation and expert judgment and, therefore, might require valuation adjustments which take into account bid-ask spreads, liquidity and counterparty risk, besides the employed pricing model. In addition, each pricing model used for fair value calculation need to be validated by a dedicated function independent from business units. According to Group Market Risk Governance Guidelines, in order to ensure the adequate separation between functions in charge of development activities and functions in charge of validation, all pricing models developed by Legal Entities front office functions are centrally and independently tested and validated by the Holding Company Market Risk functions. Model validation is also carried out centrally for any novel system or analysis framework whose utilization has a potential impact on the bank s economic results. In addition to daily marking to market or marking to model, Independent Price Verification (IPV) shall be performed. This is the process by which market prices or model inputs are regularly verified for accuracy and independence. While daily marking to market may be performed by dealers, verification of market prices and model inputs has to be performed by a function independent of the trading floor, at least monthly (or more frequently, depending on the nature of the market/trading activity). Where independent pricing sources are not available or pricing sources are too subjective, appropriate prudent measures such as fair valuation adjustments are set (FVA). BASEL 2 THIRD PILLAR AS AT JUNE 30,

237 >> Basel 2 Third Pillar Table 11 Information on pricing models used for fair value calculation The following paragraphs detail the methodologies used for fair value calculation, focusing on those instruments whose prices are not immediately observable or regularly available. Fixed Income Securities Fixed Income Securities are priced in a two tier process depending on the liquidity in the respective market. Liquid instruments in active markets are marked to market and consequently positions in these instruments are disclosed in reference to Fair Value Hierarchy under Level 1. Instruments not traded in active markets are marked to model based on implied credit spread curves derived from the former Level 1 instruments. The model maximizes the use of observable input and minimizes the use of unobservable inputs. In this respect, depending on the proximity of the credit spread curve applied, the bonds are disclosed as Level 2 or Level 3 respectively; Level 3 is applied in case a significant unobservable credit spread is used. Under fair value accounting, fair value adjustments for liquidity and model deficiencies compensate for the lack of market observables for the Level 2 and Level 3 positions. In the global bond IPV process, market prices of Level 1 bonds are regularly verified for accuracy. OTC derivatives Market value of OTC derivatives is calculated through pricing models, whose input parameters need to be regularly assessed through the monitoring process described above. Pricing models used for OTC derivatives marking-to-market include Black and Scholes (European Options, Commodity Vanilla products), Stochastic Volatility and Stochastic Volatility with embedded local volatility (path dependent single asset products), Stochastic Volatility incorporating jumps and large downward jumps (path dependent single-asset products with dependency to forward skew), Stochastic Volatility incorporating asset-asset correlations (Path dependent multi-asset products), two-factor Stochastic-EQ/Stochastic-IR model (Convertible Bonds), Equity/IR hybrid model (CPPI). In order to determine the fair value, mark-to-market need to be adjusted by Credit Value Adjustment (CVA) in order to take into account the probability of the counterparty to default and its rating migration. Structured Credit Products Back in 2009, UniCredit Group approved the Structured Credit Bonds Valuation Group Policy centred on two pillars: extension and implementation across all the Group s Legal Entities of the new Independent Price Verification (IPV) process suited to the changed market conditions for Structured Credit Bonds; integration of current Fair Value Adjustments Policy. The core assumption of the IPV process is that the quality of a price is assessed by the availability of several quotes of independent market players for identical assets. For this reason, the process relies in the first instance on MarkIt as the most reliable collector and distributor of market quotes. As a second step fallback prices are assessed by matrix pricing, i.e. by benchmarking each security to a pool of similar securities with available market quotes. An alternative approach relies on getting to the evaluation by means of a mathematical pricing model, applicable whenever the information about market participants assumptions concerning the model inputs are reasonably available without undue cost and effort. 237

238 I The IPV represents the theoretical foundation of the FVA approach: FVA is regarded as a reserve against Model Risk and is calculated assuming that one-notch price downgrade might be taken as a measure of uncertainty. CDO CDO are currently priced with a stochastic recovery Gaussian copula model. The recovery rate is determined as a function of the common systemic factor that drives all underlying names. Pricing of tranches is semi-analytic and uses some approximations to speed up quadratures. BASEL 2 THIRD PILLAR AS AT JUNE 30,

239 >> Basel 2 Third Pillar Table 11 Risk measures VaR data Shown below are the VaR data on the overall market risk for the trading book. Being a single metric, VaR quantifies overall market risk, which means that breaking it down into interest rate risk, price risk and exchange rate risk components is unnecessary. In aggregating the various risk profiles of the different risk taking units of the Group, the diversification arising from positions taken by different group companies has conservatively been disregarded when calculating the overall risk. Risk on trading book End of June 2012 Daily VaR on Trading Book ( million) End of June 2012 AVERAGE MAX MIN AVERAGE *UniCredit Spa *UCI - Irlanda *Fineco Bank *Bank Pekao SA BA Group UCB AG UniCredit Group Total (1) (1) Total Var is computed as simply the sum of the different components, w ithout taking into account differentiation effect among the various Entitles. * For managerial purpose only SVaR data Shown below are the SVaR data on the overall market risk for the trading book within the Internal Model perimeter. In aggregating the various risk profiles of the different risk taking units of the Group, the diversification arising from positions taken by different group companies has conservatively been disregarded when calculating the overall risk. Risk on trading book End of June 2012 SVaR on Trading Book ( million) End of June 2012 AVERAGE MAX MIN AVERAGE BA Group UCB AG UniCredit Group Total (1) (1) Total SVaR is computed as simply the sum of the different components, w ithout taking into account differentiation effect among the various Entities. 239

240 I IRC data Shown below are the IRC data on the overall market risk for the trading book within the Internal Model perimeter. In aggregating the various risk profiles of the different risk taking units of the Group, the diversification arising from positions taken by different group companies has conservatively been disregarded when calculating the overall risk. Risk on trading book End of June 2012 IRC on Trading Book ( million) End of June 2012 AVERAGE MAX MIN AVERAGE BA Group UCB AG UniCredit Group Total (1) (1) Total IRCis computed as simply the sum of the different components, w ithout taking into account differentiation effect among the various Entities. CRM data Shown below are the CRM data on the CTP perimeter. Strong reduction in UCB AG CRM figure with respect to end of 2011 is mostly due to the unwinding of several CDOs but also to the move of illiquid positions out of the CTP portfolio. Risk on trading book End of June 2012 CRM on Correlation Trading Portfolio ( million) End of June 2012 AVERAGE MAX MIN AVERAGE UCB AG BASEL 2 THIRD PILLAR AS AT JUNE 30,

241 >> Basel 2 Third Pillar Table 11 VaR backtesting In the first six months of 2012, UniCredit Group s market risk remained relatively stable, although some volatility of credit spreads occurred which still represent the principal risk factor characterizing overall exposure. Volatility also affected other risk factors (interest rate risk, share prices and exchange rate risk). At the same time the strategy of gradual reduction of exposure to non-core businesses has proceeded in line with set targets. The following graphs analyze the back-testing results referred to the market risk on the trading book, in which VaR results for the last twelve months are compared to the hypothetical profit and loss results for each main risk taker unit: UCB AG In UCB AG no negative overdrafts were recorded in the first six months of

242 I UCBA AG UCBA AG no negative overdrafts were recorded in the first half of VaR reduction in mid-november 2011 was due to the move of Own Credit Spread (OCS) portfolio from trading to banking book. BASEL 2 THIRD PILLAR AS AT JUNE 30,

243 >> Basel 2 Third Pillar Table 11 Interest Rate Risk Regulatory trading book General information Interest rate risk arises from financial positions taken by Group specialist centres holding assigned market risk limits within certain levels of discretion. Apart from use of internal models in calculating capital requirements on market risks, risk positions in the Group are monitored and subject to limits assigned to the portfolios on the base of managerial responsibilities and not purely on regulatory criteria. Risk Management Processes and Measurement Methods For both a description of internal processes for monitoring and managing risk and an illustration of the methodologies used to analyse exposure, please refer also to introduction on internal models. The Group conducts sensitivity analysis weekly to determine the effect on the income statement of changes in the value of individual risk factors or several risk factors of the same type. The analysis covers the CIB division s entire portfolio (both trading and banking book), since it includes the most significant portion of regulatory trading book and might be subject to the largest changes over time. Results are reported to top management on a weekly basis. In addition to the sensitivity of financial instruments to changes in the underlying risk factor, it also calculated sensitivity to the volatility of interest rates assuming a positive shift of 50% or negative change of 30% in volatility curves or matrixes. Interest-Rate Sensitivity Sensitivity to changes in interest rates is determined using both parallel shifts of interest-rate curves, and changes in the curve itself. The curves are analyzed using parallel shifts of ±1bp/±10bps and ±100bps. For each 1bp shift, sensitivity is calculated for a series of time-buckets. Sensitivity for changes in the steepness of the rate curve is analyzed by clockwise turning (Turn CW ), i.e. an increase in short-term rates and a simultaneous fall in long-term rates, and by counter-clockwise turning (Turn CCW ), whereby short-term rates fall and long-term rates rise. Currently, clockwise and counter-clockwise turning use the following increases/decreases: +50bps/-50bps for the one-day bucket; 0bps for the one-year bucket; -50bps/+50bps for the 30-year plus bucket; for each of the above buckets, the change to be set is found by linear interpolation. 243

244 I Price Risk Regulatory trading book General information As described above, price risk relating to equities, commodities, investment funds and related derivative products included in the trading book, originates from positions taken by Group specialist centers holding assigned market risk limits within certain levels of discretion. Price risk deriving from own trading of these instruments is managed using both directional and relative value strategies via direct sale and purchase of securities, regulated derivatives and OTCs and recourse to security lending. Volatility trading strategies are implemented using options and complex derivatives. Risk Management Processes and Measurement Methods For both a description of internal processes for monitoring and managing risk and an illustration of the methodologies used to analyse exposure, please refer to introduction on internal models. The sensitivity analysis covers the CIB division s entire portfolio (both trading and banking book), since it includes the most significant portion of regulatory trading book and might be subject to the largest changes over time. Price Risk Sensitivity Share-price sensitivity is expressed in two ways: as a Delta cash-equivalent, i.e. the euro equivalent of the quantity of the underlying that would expose the bank to the same risk arising from its actual portfolio; as the economic result of a rise or fall in spot prices of 1%, 5%, 10% and 20%. The Delta cash-equivalent and the Delta 1% (i.e. the economic impact of a 1% rise in spot prices) are calculated both for each geographical region (assuming that all stock markets in the region are perfectly correlated) and on the total (assuming therefore that all stock markets are perfectly correlated). The sensitivity arising from changes of 5%, 10% and 20% is calculated solely on the total. The Group also calculates sensitivity to the volatility of equities assuming a positive shift of 50% or negative change of 30% in volatility curves or matrixes. In addition, sensitivity to commodity price changes is calculated according to the above criteria. Given its secondary importance as compared to other risk exposures, this is calculated as a single class. BASEL 2 THIRD PILLAR AS AT JUNE 30,

245 >> Basel 2 Third Pillar Table 11 Price Risk Banking Book General Aspects, Price Risk Management Processes And Measurement Methods Banking book price risk primarily originates from equity interests held by the Parent Company and its subsidiaries as a stable investment, as well as units in mutual investment funds not included in the trading book as they are also held as a stable investment. In the whole banking book portfolio assessment this kind of risk is also considered. Exchange Rate Risk - Regulatory trading book General Information, Risk Management Processes and Measurement Methods As described above, risk relating to exchange rates and related derivative products included in the trading book, originates from positions taken by Group specialist centers holding assigned market risk limits within certain levels of discretion. Risk deriving from own trading of these instruments is managed using both directional and relative value strategies via direct sale and purchase of securities, regulated derivatives and OTC. Volatility trading strategies are implemented using options. For both a description of internal processes for monitoring and managing risk and an illustration of the methodologies used to analyze exposure, please refer to introduction on internal models. The sensitivity analysis covers the CIB division s entire portfolio (both trading and banking book), since it includes the most significant portion of regulatory trading book and might be subject to the largest changes over time. Exchange-Rate Sensitivity Exchange-Rate Sensitivity assesses the economic impact of the appreciation or depreciation by 1%, 5% and 10% of each currency against all the others. Exposure to the various currencies is expressed as the Delta cash equivalent in euros: this is the euro equivalent of the currency amount which would expose the bank to the same exchange-rate risk arising in its actual portfolio. The Group also calculates sensitivity to the volatility of exchange rates assuming a positive shift of 50% or negative change of 30% in volatility curves or matrixes. 245

246 I Exchange Rate Risk - Banking Book General Aspects, Exchange Rate Risk Management Processes and Measurement Methods Exchange rate risk originates both from banks in the Group operating in currency areas other than the Eurozone and from positions taken by specialist centres holding the Group's market risk within the limits assigned. In the latter case, exchange risk originates from currency trading activities performed through the negotiation of the various market instruments and is constantly monitored and measured by using internal models developed by group companies. These models are, in addition, used to calculate capital requirements on market risks due to the exposure to such risk. Hedging Exchange Rate Risk The Group adopts hedge strategies for profits and dividends arising from its subsidiaries not belonging to the euro zone. The hedging strategies takes into account market circumstances. Credit Spread Risk - Regulatory trading book General Information As described above, risk relating to credit spreads and related credit derivative products included in trading book originates from positions taken by Group specialist centers holding assigned market risk limits within certain levels of discretion. Risk deriving from own trading of these instruments is managed using both directional and relative value strategies via direct sale and purchase of securities, regulated derivatives and OTC. Risk Management Processes and Measurement Methods For both a description of internal processes for monitoring and managing risk and an illustration of the methodologies used to analyze exposure, please refer to introduction on internal models. The sensitivity analysis covers the CIB division s entire portfolio (both trading and banking book), since it includes the most significant portion of regulatory trading book and might be subject to the largest changes over time. BASEL 2 THIRD PILLAR AS AT JUNE 30,

247 >> Basel 2 Third Pillar Table 11 Credit Spread Sensitivity Credit spread sensitivity is calculated by assuming a worsening of creditworthiness seen in a parallel shift of +1bp/+10bps/+100bps in the credit spread curves. These sensitivities are calculated both inclusively, assuming a parallel shift of all the credit spread curves, and in respect of specific rating classes and economic sectors. In addition to the foregoing, the sensitivity resulting from a deterioration of creditworthiness (i.e. a change of relative +50%) and from an improvement (i.e. a change of relative -50%) is calculated; in this case, the shape of the credit spread curves is also changed, since the change in bps of higher spreads will be greater than that of lower spreads. Stress testing Stress tests complement the sensitivity analysis and VaR results in order to assess the potential risks in a different way. A stress test performs the evaluation of a portfolio under both simple scenarios (assuming change to single risk factors) and complex scenarios (assuming simultaneous changes in a number of risk factors). What follows contains the description of complex scenarios, which combine changes in interest rate, price, exchange-rate and credit spread risk factors. For the description of simple scenarios, please refer to the previous paragraphs. As far as complex scenarios are concerned, so far, different scenarios have been applied to the whole CIB portfolio on a monthly basis and reported to top management. In addition, a number of new scenarios have been defined as part of the firm-wide stress test exercise and are applied to the whole trading book. Sovereign Debt Tension Scenario In this scenario, introduced in June 2010 and updated in December 2011, we envisage the occurrence of an escalation of the sovereign debt crisis, with no systemic contagion. This is motivated by the fact that, while the setup of the European Financial Stabilization Fund and the liquidity injection by the ECB seem to have ruled out the possibility of an outright default, market tensions still persist. Such tensions may create a challenging environment at a time in which many European countries are consolidating their public finances. In such a scenario, the EMU sovereign debt crisis would have spillover effects on the US economy as well and the flight-to-quality would lead to a further bond rally on both sides of the Atlantic. In terms of financial market variables, this scenario assumes: credit spreads: higher risk aversion would imply a tightening of core issuers versus swap. Periphery would be under pressure: Italy spreads would widen further while Spanish bonds would be less under pressure; all credit spreads, in the corporate bond universe, would come under pressure; world stock markets to plunge (fall); this would combine with an increase in equity volatilities; USD and EUR interest rate curve are expected to flatten. In this scenario, an increase in interest rate volatilities is also assumed; USD is expected to appreciate, mostly against EUR; depreciation of CEE currencies against EUR. 247

248 I Widespread Contagion Scenario This scenario, introduced in December 2010 and updated in December 2011, assumes an escalation of the debt crisis towards a systemic level, with severe contagion spreading to Spain and Italy. Large-scale ECB government bond buying is not able to stop the widening of sovereign spreads, with the market increasingly focusing on the weakest points of the two countries in Spain, the banking sector and the contingent liabilities for the government, in Italy the high level of the debt-to-gdp ratio in a context of modest potential growth. This would lead to severe disruption in the eurozone financial markets and a consequent massive tightening in financial conditions area-wide. Due to the important trade linkages between eurozone countries, the financial shock would be amplified and cause a deeper recession than the one envisaged under the risk scenario labeled as Sovereign Tensions. This scenario assumes, for the market variables, the following changes: ECB reacts lowering the refi rate by 50bp and EUR/USD mid/long term rates fall (flight-toquality), thus determining a curve flattening, in response to the deteriorated growth and inflation outlook. GBP curve is expected to steepen, reflecting a negative perception by investors on the capabilities to achieve further consolidation in the fiscal side; on the FX front, the EUR-USD would be hit hard by the loss of confidence in the EMU, and the CHF would gain vs. most currencies as in times of risk aversion, the Swiss currency is always a popular asset. The Yen would similarly appreciate given the repricing in risk preferences; EUR- GBP may suffer as sterling may be perceived as a EMU hedge; increasing risk aversion would be a penalizing factor for risky assets, weighing on the performance of major Equity indices which would also experience higher level of volatility; as for Credit spreads, sovereigns experience a dramatic widening (especially PIIGS) with the exception of Germany and US (flight-to-quality); spreads of financials and corporates would widen accordingly. Emerging Markets Slowdown This scenario, introduced in June 2011, covers the period 2011, 2012 and It assumes a shock coming from the real economy, namely a sharp slowdown in the growth rate of emerging economies starting in 2011 and intensifying during This would negatively affect EMU GDP growth and, to a lesser extent, the US, where the weight of the manufacturing sector and trade openness is lower. As a result of weaker economic activity and lower oil prices, inflation would slow down. The combination of weaker GDP growth and lower inflation would lead to a considerable slowdown in the normalization of monetary policy rates. In terms of macro-economic variables, this scenario assumes: credit spreads: as for European sovereign spreads the deterioration is not severe compared to the Sovereign Tensions scenario because the shock would affect credit-risk premium only indirectly. The shock would reflect more on oil companies which are not included in the itraxx main. The widening of the itraxx Financial Senior and Sub is also important; the shock has no impact on the Japanese yield curve. The impact on the US, EU and UK curves is that of a fall in yields which will bull flatten as the time bucket increases. This reflects the worsening growth outlook and the resulting more positive inflation outlook. The Euribor curve is the most reactive of the three as the risk aversion gives further support to Bunds; the performance of stock markets will lower and equity volatilities will increase; the EUR is expected to depreciate against the Us Dollar, Japanese Yen and Swiss Franc (because of the demand for safe-havens) and to appreciate versus the other European currencies and Turkish Lira. BASEL 2 THIRD PILLAR AS AT JUNE 30,

249 249 >> Basel 2 Third Pillar Table 11

250 I BASEL 2 THIRD PILLAR AS AT JUNE 30,

251 Table 12 Operational risk >> Basel 2 Third Pillar Table 12 Qualitative disclosure Description of the risk measurement methodology (AMA) UniCredit group developed an internal model for measuring the capital requirements. The system for measuring operational risk is based on internal loss data, external loss data (consortium and public data) scenario loss data and risk indicators. Capital requirement is calculated at Group level, considering the Basel 1 st level event types as risk classes. For each risk class, severity and frequency of loss data are separately estimated to obtain the annual loss distribution. The severity distribution is estimated on internal, external and scenario data, while the frequency distribution is determined using only the internal data. Severity distribution is modeled estimating separately the body with a parametric distribution (Weibull, log-normal or log-logistic), and the tail through the generalized Pareto distribution (GPD) on the basis of extreme value theory technique (EVT). Body of severity distribution is estimated on internal data, whereas the tail is based on internal, external and scenario data exceeding the body-tail threshold. With respect to body of severity distribution, Weibull is currently used for internal frauds and log-normal for all other event types. The severity distribution for body is selected for each risk class according statistical tests (e.g. Kolmogorov-Smirnov and Anderson-Darling) and graphical analysis (e.g. quantile-quantile plot). Frequency of loss data is modeled by a Poisson distribution. For each risk class, the annual loss distribution is obtained from severity and frequency through Monte Carlo simulation, considering also insurance coverage. An adjustment for key operational risk indicators is applied to the annual loss distribution estimated for each risk class. Annual loss distributions of risk classes are aggregated considering correlation among event types. Correlation is estimated through a Student-t copula function and the overall annual loss distribution is obtained though Monte Carlo simulation. Group AMA capital requirement is calculated at a confidence level of 99.9% on the overall loss distribution for regulatory purposes and at a confidence level of 99.97% for economic capital purposes. Deduction for expected loss is calculated as the minimum between median of overall loss distribution and available specific provisions. Through an allocation mechanism, the individual legal entities capital requirements are identified, reflecting the entities risk exposure. The allocation mechanism is based on: the legal entity capital requirement calculated through the standardized approach (TSA); the legal entity stand-alone capital requirement calculated applying the internal model to the legal entity perimeter; the back-testing of allocated capital requirement (on the basis of TSA and stand-alone) considering the losses suffered by the legal entity. The AMA approach has been formally approved by the Supervisory Authority and is being rolled out to all the relevant Group entities. The entities not yet authorized to use the advanced methods contribute to the consolidated capital requirement on the basis of the standard (TSA) or basic (BIA) model. The weight of the different methods, expressed in terms of contribution to the total relevant indicator of the Group (three-year average of gross income), is as follows: AMA 84%, TSA 8%, BIA 8%. 251

252 I The Group is also working on the following improvements of internal model: adoption of an external database with an international framework and an operational loss structure more in line with the specific features of the Group; re-examination of the criteria for the extraction of the calculation data set, reducing the existing difference between the losses accounted in the income statement and the ones actually used in the estimate of the capital requirement; increasing, where necessary, the granularity of the model currently based on the seven regulatory event types in order to better control the operational risk drivers; application of differentiated thresholds for loss collection and for the tail assessment based on the related risk profile; usage of different severity distributions for those risk classes where the statistical tests suggest alternative distributions with a better fitting; with respect to correlation between risk classes, usage of different aggregation criteria in order to better estimate copula parameters; change of criterion for the deduction of the expected losses, in order to ensure a closer correspondence, for every single risk class, between the amount of the expected loss in the model and the related available funds; review of criteria and methodology for generating the scenario analyses and for their incorporation in the calculation model so as to increase their contribution to the capital requirement. Sources of operational risk Detailed below is the percentage composition, by type of event, of operational risk sources as defined by the New Basel Capital Accord and acknowledged by the New Regulations for the Prudential Supervision of Banks issued by the Bank of Italy in December 2006 (Circular No. 263/2006 as amended). The major categories are as follows: internal fraud: losses owing to unauthorized activity, fraud, embezzlement or violation of laws, regulations or business directives that involve at least one internal member of the bank; external fraud: losses owing to fraud, embezzlement or violation of laws by subjects external to the bank; employment practices and workplace safety: losses arising from actions in breach of employment, health and workplace safety laws or agreements, from personal injury compensation payments or from cases of discrimination or failure to apply equal treatment; clients, products and professional practices: losses arising from non-fulfillment of professional obligations towards clients or from the nature or characteristics of the products or services provided; damage from external events: losses arising from external events, including natural disasters, acts of terrorism and vandalism; business disruption and system failures: losses owing to business disruption and system failures or interruptions; process management, execution and delivery: losses owing to operational or process management shortfalls, as well as losses arising from transactions with commercial counterparties, sellers and suppliers. BASEL 2 THIRD PILLAR AS AT JUNE 30,

253 >> Basel 2 Third Pillar Table 12 In the first half of 2012, the main source of operational risk was the "Clients, product and business practices" category, which includes losses arising from the non-fulfillment of professional obligation towards clients or from the nature or characteristics of the products or services provided, as well as any sanctions for violating existing regulations. The second largest contribution to losses came from errors in "Execution, delivery and process management" due to operational or process administration shortfalls. An upward trend has been observed in losses from Internal and External fraud; whereas, the residual risk categories, including employment practices, damage to physical assets and IT systems showed decreasing amounts. 253