Reports and Financial Statements. of Banca Popolare di Milano and the BPM Group

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1 2012 Reports and Financial Statements of Banca Popolare di Milano and the BPM Group

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4 Report and Financial statements of Banca Popolare di Milano and the BPM Group Approved by the Supervisory Board on 4 April 2013 Co-operative Bank founded in 1865 Parent Company of the BPM - Banca Popolare di Milano - Banking Group Share capital at : Euro 2,865,708, Milan Companies Register no Enrolled on the National Register of Co-operative Companies No. A Registered Office and General Management: Piazza F. Meda, 4 - Milan Member of the Interbank Guarantee Fund Registered Bank and Parent Company of the BPM - Banca Popolare di Milano - Registered Banking Group 2012 This English version is not an official translation and is not a substitute for the original Italian document. It is for informational purposes only and has been prepared solely for the convenience of international readers.

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6 Contents Directors and Officers, General Management and Independent Auditors 9 Notice of Ordinary Members Meeting Financial statements of Banca Popolare di Milano 17 Key figures and ratios of Banca Popolare di Milano 19 Reclassified financial statements: general aspects 21 Reclassified balance sheet 22 Balance sheet - quarter by quarter 23 Reclassified income statement 24 Reclassified income statement - quarter by quarter 25 Key figures 26 Key ratios 27 Reclassified income statement, net of non-recurring transactions 28 Report on operations 31 The macroeconomic scenario and the banking system 33 Significant events for Banca Popolare di Milano and the BPM Group 38 Distribution network and human resources 44 Principal balance sheet aggregates 47 Income statement 58 Statement of cash flows 66 Report on Corporate Governance and Ownership Structure as per art. 123-bis, CFA. Cross-reference 67 Banca Popolare di Milano shareholders, stock price and ratings 67 Report on the criteria followed in the management of the company to achieve the mutual aim under art of the Civil Code 72 Related party transactions 76 Subsequent events 79 Risks and uncertainties and outlook 79 Proposal of loss coverage 80 Separate financial statements 81 Balance sheet 82 Income statement 84 Statement of comprehensive income 85 Statement of changes in shareholders' equity 86 Statement of cash flows 88 5

7 Explanatory notes 89 Part A Accounting policies 91 Part B Information on the balance sheet 135 Part C Information on the income statement 213 Part D Comprehensive income 241 Part E Information on risks and related hedging policies 245 Part F Information on capital 337 Part G Business combinations 349 Part H Related party transactions 353 Part I Share-based payments 361 Part L Segment reporting 365 Certification of the separate financial statements pursuant to art. 81-ter of Consob Regulation no dated 14 May 1999 and subsequent additions and amendments 369 Attachments to the financial statements 371 Reconciliation between the balance sheet and the reclassified balance sheet 373 Reconciliation between the income statement and the reclassified income statement 374 Reclassified income statement net of non-recurring transactions-quarter by quarter 376 List of IAS/IFRS endorsed by the European Commission at 31 December List of EC Regulations of the European Commission 380 Disclosure of amounts paid for the audit and other services in accordance with the Issuers' Regulations and Consob art. 149-duodecies 381 List of property owned by the Bank with indication of revaluations 382 Report of the Independent Auditors 407 Report and consolidated financial statements of the BPM - Banca Popolare di Milano Group Year Key figures and ratios of the BPM Group 413 Structure of the BPM Group 414 Consolidated reclassified financial statements: general aspects 415 Consolidated reclassified balance sheet 416 Consolidated reclassified balance sheet-quarter by quarter 417 Consolidated reclassified income statement 418 Consolidated reclassified income statement-quarter by quarter 419 Key figures 420 Key ratios 421 Consolidated reclassified income statement, net of non-recurring transactions 422 Report on operations of the BPM Group 425 Significant events for the BPM Group 426 Distribution network and human resources 441 The BPM Group's scope of consolidation 447 Principal balance sheet aggregates 449 Income statement 465 Statement of cash flows 477 Information on the main Group companies 478 BPM Group companies consolidated line-by-line 492 BPM Group companies carried at equity 495 Related party transactions Contents

8 Reconciliation of the Parent Company's shareholders' equity and the consolidated shareholders' equity 498 Subsequent events 499 Risks and uncertainties and outlook 499 Consolidated financial statements 501 Consolidated balance sheet 502 Consolidated income statement 504 Statement of consolidated comprehensive income 505 Statement of changes in consolidated shareholders' equity 506 Consolidated statement of cash flows 508 Consolidated explanatory notes 509 Part A Accounting policies 511 Part B Information on the consolidated balance sheet 559 Part C Information on the consolidated income statement 637 Part D Consolidated comprehensive income 665 Part E Information on risks and related hedging policies 669 Part F Information on consolidated capital 771 Part G Business combinations 783 Part H Related party transactions 787 Part I Share-based payments 793 Part L Segment reporting 797 Certification of the consolidated financial statements pursuant to art. 81-ter of Consob Regulation no dated 14 May 1999 and subsequent additions and amendments 803 Attachments to the consolidated financial statements 805 Reconciliation between the consolidated balance sheet and the consolidated reclassified balance sheet 807 Reconciliation between the consolidated income statement and the consolidated reclassified income statement 808 Consolidated reclassified income statement net of non-recurring transactions -- quarter by quarter 810 Disclosure of amounts paid for the audit and other services in accordance with the Issuers' Regulations and Consob art. 149-duodecies 812 List of significant shareholdings in unlisted companies pursuant to article 126 of CONSOB Regulation of 14 May Report of the Independent Auditors on the consolidated financial statements 815 Report of the Supervisory Board 819 Item 2 on the agenda for the Ordinary General Meeting of Members 829 Item 3 on the agenda for the Ordinary General Meeting of Members 875 Item 4 on the agenda for the Ordinary General Meeting of Members 879 Item 5 on the agenda for the Ordinary General Meeting of Members 883 Resolutions 889 Branch network of the BPM Group 891 Contents 7

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10 Directors and Officers, General Management and Independent Auditors Supervisory Board Chairman Filippo Annunziata Deputy Chairmen Umberto Bocchino Giuseppe Coppini Directors Alberto Balestreri Giovanni Bianchini Ruggiero Cafari Panico Enrico Castoldi Maurizio Cavallari Federico Fornaro Piero Lonardi Mario Benito Mazzoleni Maria Luisa Mosconi Mauro Paoloni Cesare Piovene Porto Godi Anna Maria Pontiggia Marcello Priori Jean-Jacques Tamburini Michele Zefferino Management Board Chairman Andrea C. Bonomi Managing Director and CEO Piero Luigi Montani Directors Davide Croff Alessandro Foti Dante Razzano General Management Deputy General Manager Roberto Frigerio (*) Arbitration Committee Italo Ciancia Guido Mina Anna Maria Sanchirico Independent Auditors Reconta Ernst & Young S.p.A. (*) Financial Reporting Manager Directors and Officers 9

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12 Notice of Ordinary Members' meeting The Members of Banca Popolare di Milano Scrl are called to the Ordinary General Meeting, which will be held at first calling on 26 April 2013, at 9.00 a.m., at the head office in Piazza Filippo Meda 4, Milan, to discuss the following agenda 1. Presentation to the Members of the separate and consolidated financial statements at 31/12/2012, pursuant to art. 26 of the Articles of Association. Related resolutions. 2. Examination of and resolutions relating to the remuneration policies 3. Appointment of a Director to integrate the Supervisory Board pursuant to art. 48 of the Articles of Association. Related resolutions. 4. Appointment of an Arbitrator and of an Alternate Arbitrator to integrate the Arbitration Committee pursuant to art. 56 of the Articles of Association. Related resolutions. 5. Proposals to amend the Regulations for General Meetings. Related resolutions. ******** Please note that because of the cooperative nature of the Company, each Member is entitled to one vote regardless of the number of shares that they hold (the one-manone-vote rule); the Bank's share capital is variable and at 31/12/2012 it amounts to Euro 2,865,708, fully represented by 3,229,621,379 ordinary shares with no par value. At the date of this notice, the Bank holds 1,395,574 of its own shares ( treasury shares ). Members eligible to attend the Meeting and to exercise their voting right are those: who have been included in the Register of Members for at least ninety days before the day of the General Meeting at first calling, and therefore before 26 January 2013: As of this date, there were 55,669 voting rights (which, considering the one-man-one-vote rule, reflects the number of Members); for whom the Bank has received the related certificate issued by an intermediary belonging to the centralised stock management system (Monte Titoli SpA), pursuant to art. 83-sexies of Legislative Decree 58/98 (and subsequent amendments). Members who wish to attend the General Meeting will therefore have to ask the intermediaries with whom their shares are registered to send the Bank the required communication. Members whose shares are already lodged with the Bank for safe custody and administration must nonetheless request the required certification in writing from the Bank's branches where the shares are deposited. Alternatively, they can go in person to the Members' Secretariat in Piazza Filippo Meda 4, Milan, between 9.00 a.m. and 1.30 p.m., where they can ask for and immediately pick up the document (the so-called Attestation of Communication ) to be presented at the Meeting to facilitate registration procedures at the entrance. Without prejudice to art. 83-sexies pf Legislative Decree 58/98 (and subsequent amendments), note that these Attestations of Communication can be requested from 22 March 2013 to 23 April 2013 (inclusive). Members holding shares which are still in printed form must deliver the shares to an intermediary in time for them to be input into the centralised electronic administration system in accordance with current regulations. If there are not enough members to form a quorum at the first Meeting called for 26 April 2013 in accordance with art. 30 of the Articles of Association, the Meeting will be held at Notice of Ordinary Members' meeting 11

13 second calling on 27 April 2013, at 9.00 a.m., at MiCo Milano Congressi Fieramilanocity Entrance Gate 14 Via Gattamelata 5, Milan with the same agenda. ******** Each Member is entitled to one vote, regardless of the number of shares that they own; postal voting is not allowed. Every Member entitled to attend meetings can ask by means of a written proxy to be represented by another Member, who can act as proxy for not more five other Members; proxies cannot be given to persons who are not allowed to be proxy-holders under the applicable regulations There is a proxy form at the bottom of each Member's Attestation of Communication ; otherwise, copies can be found at the Bank's head office and branches and on its website ( Proxies cannot be given with the name of the representative left blank and the signature of the person delegating has to be authenticated by an officer at the Bank's head office or one of its branches, or by the intermediary who issued the communication for the Member to attend the General Meeting, or by a public official. Legal entities, with the exception of Italian and foreign Undertakings for Collective Investment in Transferable Securities (UCITS), as well as foreign collective entities and legal entities, can only attend meetings in the person of their legal representative; alternatively, the legal representative can give a proxy to another member in accordance with the above. For attendance purposes, only the certifications and proxies handed over by each participant when registering for the first time that they enter the meeting will be considered valid. ******** With reference to item 3 on the agenda, having to provide pursuant to art. 48 of the Articles of Association for the replacement of a member of the Supervisory Board elected by a minority list by the General Meeting of 22 October 2011, note that the Meeting is called upon to decide by a simple majority without any list requirement. In this regard it should be noted that pursuant to art. 21 paragraph 4 of the existing Regulations for General Meetings each candidate has to be presented by at least 300 Members or by Members representing in total at least 0.5% of the share capital, who have been included in the Register of Members for at least ninety days from the date of the General Meeting at first calling, who can prove their right to attend and to vote at General Meetings in accordance with current regulations. UCITS can also present candidatures, providing they hold at least 0.5% of the share capital and can document their possession at the time of presentation of the candidatures in the prescribed manner. Each Member or UCITS can present a maximum of one candidate; if this rule is not complied with, their signature will not be taken into account for any candidature. Pursuant to the current legislation governing listed companies, the proposed candidatures, signed by those presenting them, have to be filed at the Bank's head office at least 25 days prior to the date of the General Meeting at first calling, accompanied by: 1) the list of presenters, including their signatures and information on their identity, with a declaration of the total number of BPM shares held that are eligible for the purpose of proposing a candidate. In this regard, it should be noted that ownership of the shares and the right to propose a candidate have to be certified (either at the time the proposals are submitted or subsequently, providing it is prior to the deadline for publishing the candidatures, which the Bank will do by 5 April 2013) by sending 12 Notice of Ordinary Members' meeting

14 to the Bank the communications/certifications envisaged in art. 83-quinquies of Legislative Decree 58/98 and art. 23 of the Regulations governing centralised security management and clearing services, underwriting systems and related management companies adopted by the Bank of Italy and Consob on 22 February 2008, as subsequently amended; 2) each candidate's curriculum vitae, containing detailed information about their personal and professional characteristics; the text should also be sent in electronic format to the certified address (PEC) for compliance with the reporting requirements; 3) the declarations by which they individually accept their candidature and confirm, under their own responsibility, that there are no reasons for ineligibility or incompatibility, and that all or some of the Directors meet the requirements prescribed by law or by the Articles of Association for holding office. Nominations to integrate the Supervisory Board must be filed along with the associated documentation required by law and the Articles of Association by Monday, 1 April 2013 in one the following ways: filing them at the head office of the Bank (Chairman's Secretariat, Piazza Filippo Meda 4, Milan) from 9.00 a.m. to 5.00 p.m., and therefore by Friday, 29 March 2013, or sending them by certified (PEC) to emittentebpm@pec.gruppobipiemme.it by Monday, 1 April 2013 (in this case, it is recommended that you send the original paperwork to the Bank no later than the day prior to the General Meeting at first calling). ******** The document on the composition of the Supervisory Board envisaged in the Bank of Italy's Note of 11 January 2012 entitled Application of the Supervisory Instructions regarding the Organization and Corporate Governance of Banks has to be made available to Members in time for the submission of these candidatures. With reference to item 4 of the agenda, given that nominations have to be made to integrate the Arbitration Committee pursuant to art. 56 of the Articles of Association following the resignation of an Arbitrator, note that each Member can present a maximum of one candidate for the office of Arbitrator and one candidate for the office of Alternate Arbitrator; if this rule is not complied with, their signature will not be taken into account for any of the candidatures. We would also inform Members that in accordance with art. 21 of the current Regulations for General Meetings, the proposed appointment as Arbitrator or Alternate Arbitrator, signed by those presenting them, must be received at head office (in the ways explained below) at least thirteen days prior to the date of the Meeting at first calling, accompanied by the candidates' curriculum vitae, their declaration of acceptance of the candidature and an attestation that they satisfy the requirements to hold office. Notice of Ordinary Members' meeting 13

15 Proposals for the appointment of Arbitrator have to be accompanied by the list complete with signatures and the information on their identity of at least three hundred sponsoring Members, registered in the Members' Register for at least ninety days prior to the date of the meeting at first calling, establishing their right to attend and vote at the Meeting, as well as the communications/certifications envisaged in art. 83-quinquies of Legislative Decree 58/98 and art. 25 of the Regulations governing centralised security management and clearing services, underwriting systems and related management companies adopted by the Bank of Italy and Consob on 22 February 2008, as subsequently amended. The nominations to integrate the Arbitration Committee have to be filed together with the documents referred to above by Saturday, 13 April 2013 in one of the following ways: filing them at the head office of the Bank (Chairman's Secretariat, Piazza Filippo Meda 4, Milan) from 9.00 a.m. to 5.00 p.m., and therefore by Friday, 12 April 2013, or sending them by certified (PEC) to by Saturday, 13 April 2013 (in this case, it is recommended that you send the original paperwork to the Bank by the day prior to the General Meeting at first calling). ******** With reference to the above nominations for office, the various forms and instructions for the presentation of candidatures can be found on the Bank's website ( ******** Note that pursuant to art. 126-bis of Legislative Decree 58/98, Members who represent at least one fortieth of the total number of Members can, within ten days of this notice being published, ask for other matters to be added to the agenda for discussion, in addition to those listed in the notice of calling, stating in the request the additional matters being proposed or proposing motions on topics that are already on the agenda; adding topics to the agenda is not allowed for matters on which the Meeting is being asked to vote, in accordance with the law, on the proposal of the administrative body or on the basis of a project or a report prepared by it, other than those indicated in art. 125-ter, paragraph 1, of Legislative Decree 58/98. Requests must be made in writing, and in accordance with the provisions of art. 126-bis of Legislative Decree 58/98, to the Bank (Chairman's Secretariat, Piazza Filippo Meda 4, Milan) or by certified (PEC) to emittentebpm@pec.gruppobipiemme.it. Detailed information about the terms and conditions to be observed for adding topics to the agenda are available on the Bank s website ( Any additions to the agenda or the submission of further motions on topics on the agenda will be announced, pursuant to the law, at least ten days prior to the date of the Meeting. ******** Members are reminded that before they can exercise these rights, the Bank must be allowed within the terms and in the manner provided for in specific legislation to verify that they are entitled to exercise them (in particular by performing certain formalities vis-à-vis the Bank, as appropriate and where applicable, in accordance with arts. 83-quinquies and 83-sexies of Legislative Decree 58/98 and subsequent amendments). 14 Notice of Ordinary Members' meeting

16 Please note that: ******** the reports explaining the topics mentioned in paragraphs 3, 4 and 5 of the agenda will be made available, in accordance with current regulations, at the Bank's head office in Piazza Filippo Meda 4, Milan, and on its website ( from 27 March 2013; the documentation relating to the other items on the agenda as well as the Report on Corporate Governance and Ownership Structure of the Bank for 2012, prepared in accordance with art. 123-bis of Legislative Decree 58/98 (and subsequent amendments) will be made available, in accordance with current regulations, at the Bank's head office in Piazza Filippo Meda 4, Milan and on the Bank's website ( from 5 April 2013; the candidatures for office of a member of the Supervisory Board as mentioned in point 3 of the agenda for the General Meeting together with the accompanying documentation will be announced on 5 April 2013 at the Bank's head office and on its website ( the candidatures for office of Arbitrator and Alternate Arbitrator as mentioned in point 4 of the agenda for the General Meeting together with the accompanying documentation will be announced on 16 April 2013 at the Bank's head office and on its website ( the documentation referred to in art. 77, paragraph 2-bis of Consob's Issuers' Regulations 11971/99 and subsequent amendments, will be made available to the general public at the Bank's head office in Piazza Filippo Meda 4, Milan from 11 April ******** Members will be able to obtain a copy of the documentation made available at the Bank's head office at their own expense. This notice, which is also for the purposes of art. 84, para. 1, of Consob Regulation 11971/1999 (and subsequent amendments), is available pursuant to art. 125-bis of Legislative Decree 58/98 on the Bank's website ( and was published on Thursday, 21 March 2013 in the daily newspapers Il Sole 24 Ore and MF. ******** Information concerning the procedures for attending the meeting can be requested from the Bank s Members' Secretariat in Piazza Filippo Meda 4, Milan by telephoning the free-phone number on weekdays between 9.00 a.m. and 5.00 p.m. Milan, 21 March 2013 For the Management Board The Chairman Andrea C. Bonomi Notice of Ordinary Members' meeting 15

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18 Financial Statements of Banca Popolare di Milano

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20 Key figures and ratios of Banca Popolare di Milano 19

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22 Reclassified financial statements: general aspects To give readers a more immediate understanding of the results for the period, a summary reclassified balance sheet and income statement have been prepared, in which line items have been aggregated and reclassified in keeping with market practice in such a way as to provide a clearer picture of performance. To allow the items in the reclassified statements to be easily reconciled with those in the official statements based on the Bank of Italy's Circular 262/05, schedules are included in the attachments that provide details of the various reclassifications and aggregations. The following aggregations have been made in the reclassified balance sheet: 1. Financial assets designated at fair value and hedging derivative include the following line items: 20. Financial assets held for trading, 30. Financial assets designated at fair value through profit and loss, 40. Financial assets available for sale, 50. Investments held to maturity, 80. Hedging derivatives and 90. Fair value change of financial assets in hedged portfolios ; 2. Fixed assets include the following line items: 100. Investments in subsidiary companies, companies subject to joint control and associates, 110. Property and equipment and 120. Intangible assets ; 3. Other assets include line items: 130. Tax assets and 150. Other assets ; 4. Financial liabilities and hedging derivatives include line items: 40. Financial liabilities held for trading, 50. Financial liabilities designated at fair value through profit and loss, 60. Hedging derivatives and 70. Fair value change of financial liabilities in hedged portfolios ; 5. Other liabilities include line items: 80. Tax liabilities and 100. Other liabilities ; 6. Provisions for specific use comprise line items: 110. Employee termination indemnities and 120. Allowances for risks and charges ; 7. Capital and reserves include line items: 130. Valuation reserves, 140. Redeemable shares, 150. Equity instruments, 160. Reserves, 170. Share premium reserve, 180. Share capital and 190. Treasury shares. The income statement line items have been reclassified and represented as follows: 1. dividends from equity investments have been split out of Dividend and similar income and included in Operating income in the reclassified income statement, with the exception of dividends from equity investments in liquidation that have been reclassified to "Profits (losses) from equity and other investments and adjustments to goodwill and intangible assets ; 2. "Net income from banking activities" includes line item 70. Dividend and similar income, 80. Profits (losses) on trading, 90. Fair value adjustments in hedge accounting, 100. Profits (losses) on disposal/repurchase, 110. Profits (losses) on financial assets and liabilities designated at fair value and 130. b) Net losses/recoveries on impairment of financial assets available for sale. Line item 100. a) Profits (losses) on disposal/repurchase of loans" has been split out of this aggregate; 3. Other operating charges/income (line item 190) booked to Operating expenses on the accounting schedule have been reduced by the recovered portion of indirect taxes and duties and increased by the depreciation of leasehold improvements. Other operating charges/income, reclassified in this way, have been included in Operating income in the reclassified income statement; 4. Other administrative expenses (line item 150. b) in the reclassified income statement have been reduced by the recovered portion of indirect taxes and duties discussed in point 3 above; 5. Net adjustments to property and equipment and intangible assets (line items 170 and 180) in the reclassified income statement have been increased by the depreciation of leasehold improvements discussed in point 3 above and decreased by the writedown quota of core deposits; 6. Net adjustments for impairment of loans and other activities reported after Operating profit in the reclassified income statement, include line item 130, net of the sub-item 130.b) Net losses/recoveries on impairment of financial assets held for sale (reclassified under Net income from banking activities ) and line item 100. a) Profits (losses) on disposal/repurchase of loans (removed from Net income from banking activities ); 7. Profits (losses) from equity and other investments and adjustments to goodwill and intangible assets in the reclassified income statement include the dividends discussed in point 1 above and the writedown quota of core deposits discussed in point 5 above. Key figures and ratios of Banca Popolare di Milano 21

23 Banca Popolare di Milano Reclassified balance sheet (Euro/000) Assets Change A B Change A C A B C amount % amount % Cash and cash equivalents 214, , ,733 59, , Financial assets designated at fair value and hedging derivatives: 8,992,772 9,009,041 7,572,236 16, ,420, Financial assets held for trading 232, , ,130 53, , Financial assets designated at fair value through profit and loss 259, , ,530 29, , Financial assets available for sale 8,362,463 8,303,094 6,738,892 59, ,623, Hedging derivatives 124, ,752 67,290 11, , Fair value change of financial assets in hedged portfolios 14,412 18,558 15,394 4, Due from banks 1,361,910 1,351,337 2,163,454 10, , Loans to customers 28,986,977 29,095,473 29,347, , , Fixed assets 2,089,236 2,123,925 2,447,524 34, , Other assets 1,271,991 1,132,327 1,269, , , Total assets 42,917,231 42,867,355 42,979,636 49, , Liabilities and shareholders' equity Change A B Change A C A B C amount % amount % Due to banks 6,893,982 8,473,887 9,663,258 1,579, ,769, Due to customers 19,633,571 18,062,198 16,241,680 1,571, ,391, Securities issued 10,064,867 9,897,040 10,797, , , Financial liabilities and hedging derivatives: 887, ,916 1,092,997 93, , Financial liabilities held for trading 209, , ,121 49, , Financial liabilities designated at fair value through profit and loss 612, , ,963 38, , Hedging derivatives 34,460 37,651 25,114 3, , Fair value change of financial liabilities in hedged portfolios 30,942 32,917 38,798 1, , Other liabilities 968, , ,460 13, , Provisions for specific use 539, , , , , Capital and reserves 4,402,835 4,289,112 4,518, , , Net income (loss) for the year (+/ ) 473, , , , , Total liabilities and shareholders' equity 42,917,231 42,867,355 42,979,636 49, , Key figures and ratios of Banca Popolare di Milano