The reconciliations have been subject to a Special Purpose Audit Report carried out by

Transcription

1

2 INTRODUCTION The consolidated and individual company reports (Banca Carige Group and Banca Carige) have been prepared in compliance with International Financial Reporting Standards and International Accounting Standards (hereafter collectively IFRS) and related Bank of Italy pronouncements (circular no. 262 of 22 nd December 2005 Format and rules to be followed by banks in their financial reporting and the General Manager s letter of 22 nd December 2005). The annual reports of the following subsidiaries, as decided by the Parent Company Banca Carige SpA, have also been prepared under IFRS: Cassa di Risparmio di Savona SpA, Cassa di Risparmio di Carrara SpA, Banca del Monte di Lucca SpA, Banca Cesare Ponti SpA and Carige Asset Management SpA, having decided Banca Carige SpA both for itself and on behalf of the above-mentioned subsidiaries to take advantage of the provisions of article 4, paragraph 2 of Legislative decree 38/2005. The standards applied will be those issued by the International Accounting Standards Board and endorsed (or where there is reasonable expectation of endorsement) by the European Union at the moment of the approval of these statements. In all respects, this is also expected to be in accordance with IFRS, including the interpretations issued by the International Financial Reporting Interpretations Committee (IFRS) as applicable to the Banca Carige Group. The change in accounting standards will have a significant impact on presentation, valuation of assets and liabilities, in addition to the structure of annual and interim reports. Valuation and measuring criteria are based on the principle of substance over form. Consequently, assets and liabilities are recorded or written down exclusively to illustrate the actual transfer of a benefit or risk. The application of fair value rather than historical valuation impacts in particular financial assets (securities, loans and advances, derivatives, equity investments) and actuarial assessments of staff benefits, such as severance pay and supplementary pension schemes. With regards to the area of consolidation, the Group s two insurance companies Carige Assicurazioni SpA and Carige Vita Nuova SpA are now accounted for using the acquisition method, previously not foreseen under Italian GAAP. The Annual Reports of Banca Carige and the Banca Carige Group at 31 st December 2005 are made up by the following: - Board of Directors Report; - Balance sheet; - Income statement; - Cash flow statement; - Changes to Total Shareholders Equity; - Explanatory notes. The Directors Reports provide all details required regarding the financial and economic situation in addition to a description of risk exposure and the containment and management approaches adopted. Banca Carige has decided to apply IAS 32 and IAS 39 (financial instruments) and IFRS 4 from 1 st January Consequently, comparison cannot be made to figures relating to financial instruments as at 31 st December 2004 (non restated valuations under Italian GAAP). The absence of 2004 comparatives for financial instruments for the reasons given above impacts also the statements of the Group s banks and manager trust. The Banks and the Asset Management Company of the Group have received the same instructions. However, in order to provide some form of comparison with 2004, certain pro forma restatements under IAS 32 and IAS 39 of balance sheet and income statement captions have been made. Information regarding regulatory capital and related prudential filters both at consolidated and single-company level is in compliance with the Bank of Italy s letter no of 1 st December 2005 ( Prudential Filters ). Consolidated reporting requirements relating to regulatory capital are regularly updated in accordance with Bank of Italy indications (13 th update of 25 th January 2006 and letter no of 30 th January 2006). 2

3 The attachment First Time Adoption of International Financial Reporting Standards (IFRS) contains detailed reconciliations relating to Banca Carige and the Banca Carige Group in accordance with IFRS 1 (paragraphs 38,39 and 40) and CONSOB s deliberation no of 14 th April A basis of preparation accompanies the FTA report and provides details of the impact of IFRS on balance sheet lines and the subsequent variation in total shareholders equity. The reconciliations have been subject to a Special Purpose Audit Report carried out by Deloitte & Touche SpA, in accordance with the decision of the Board of Directors of Banca Carige taken during the meeting of 9 th May 2005 and pursuant to CONSOB s communication DEM no of 15 th April These Annual Reports for the Banca Carige Group and the Parent Company have been audited by Deloitte & Touche SpA, in accordance with the decision (article 159 of Legislative decree 58/1998) of the Ordinary Shareholders Meeting of Banca Carige held on 31 st March 2003 for the years

4 BANCA CARIGE GROUP BALANCE SHEET AT 31 TH DECEMBER 2005 CONTENTS NOTICE OF MEETING 6 BASIS OF CONSOLIDATION 7 DIRECTORS, STATUTORY AUDITORS, MANAGEMENT AND AUDIT FIRM OF BANCA CARIGE 8 POWERS OF THE ADMINISTRATIVE BODIES AND THEIR DELEGATED AUTHORITY 9 DIRECTORS, STATUTORY AUDITORS, MANAGEMENT AND AUDIT FIRM FOR THE YEARS 2006, 2007 AND CONSOLIDATED FINANCIAL HIGHLIGHTS 11 CONSOLIDATED BOARD OF DIRECTORS ' REPORT 12 - The year in Italy and abroad 13 - Strategy 15 - Key events for the Banca Carige Group during Financial intermediation activities 20 - Economic results 32 - Insurance business 37 - Marketing, services and customer protection 37 - Public relations and the promotion of cultural, scientific and social activities 39 - Distribution channels and resource management 40 - Tangible and intangible assets, investments in subsidiaries and associates 42 - Corporate governance 43 - Share ownership structure and relations with the Cassa di Risparmio di Genova e Imperia Foundation 43 - Banca Carige share performance Total shareholders' equity 44 - Carige Group Companies 46 - Prospects and conclusions 55 CONSOLIDATED FINANCIAL STATEMENTS 56 - Consolidated Balance Sheet 57 - Income Statement 59 - Statement of changes in stockholders equity 60 - Cash flow statement 62 EXPLANATORY NOTES 64 Part A - Accounting policies 65 A 1 - Introduction 66 Section 1 - Conformity with International Financial Reporting Standards 66 Section 2 Banca Carige Group s general accounting policies 67 Section 3 - Area and method of consolidation 68 Section 4 - Events after 31 th December Section 5 - Other aspects 75 A 2 - Part related to the main balance agregates 76 Part B - Balance sheet 85 Part C - Income statement 143 Part D - Segment reporting 170 Part E - Information on risks and risk hedging policies 173 Part F - Information on consolidated shareholders' equity 222 Part G - Business combinations concerning companies or business branches 229 Part H - Transactions with related parties 232 REPORT OF THE BOARD OF STATUTORY AUDITORS 236 REPORT OF THE INDEPENDENT AUDITORS 245 APPENDIX: ADOPTION OF THE INTERNATIONAL ACCOUNTING STANDARDS (IAS) 248 REMARKS In the charts of the Annual Report the following conventional signs are used: - when data are nought when data are not significant 4

5 BANCA CARIGE SPA BALANCE SHEET AT 31 th DECEMBER 2005 CONTENTS FINANCIAL HIGHLIGHTS 267 BOARD OF DIRECTORS' REPORT Financial intermediation activities Economic results Distribution channels and resource management Property, plant and equipment, intangible assets, equity investments in subsidiaries and associates Shareholders' equity Relations with subsidiaries and related parties Shares owned by Directors, Statutory Auditors and General Manager Prospects and conclusions 297 FINANCIAL STATEMENTS Balance sheet Income statement Statement of changes in stockholders equity Cash flow statement 305 EXPLANATORY NOTES 307 Part A - Accounting policies 308 A 1 - Introduction 309 Section 1 Conformity with International Financial Reporting Standards 309 Section 2 Banca Carige s general accounting policies 310 Section 3 - Events after 31 th December Section 4 - Other aspects 314 A 2 - Part related to the main balance aggregates 315 Part B Balance sheet 322 Part C Income statement 369 Part D - Segment reporting 389 Part E - Information on risks and risk hedging policies 391 Part F - Information on shareholders' equity 427 Part G - Business combinations concerning companies or business branches 433 Part H - Transactions with related parties 435 PROPOSED RESOLUTION 441 REPORT OF THE BOARD OF STATUTORY AUDITORS 443 REPORT OF THE INDEPENDENT AUDITORS 454 APPENDIX: ADOPTION OF THE INTERNATIONAL ACCOUNTING STANDARDS (IAS) 457 ATTACHMENTS 475 REMARKS In the charts of the Annual Report the following conventional signs are used: - when data are nought when data are not significant 5

6 NOTICE OF MEETING The shareholders of Banca Carige SpA are called to an ordinary general meeting to be held at the Bank s headquarters in Genoa (Via David Chiossone, 3) on 20 th April 2006 at am and, if necessary, by adjournment at the same place on 21 st April 2006 at am to discuss and to resolve the following: AGENDA 1. Examination of the financial statements as at 31 st December 2005, together with the reports of the Board of Directors and Statutory Auditors: related resolutions 2. Examination of the consolidated financial statements of the Banca Carige Group as at 31 st December 2005; 3. Appointment of a new Board of Directors subject to the fixing of the number of Board members pursuant to article 2363, Italian Civil Code; 4. Directors remuneration; 5. Appointment of independent auditors for the auditing of the annual (Legislative decree 58/98) and interim financial statements; 6. Deliberation regarding the acquisition of own shares pursuant to article 2357 and following of the Italian Civil Code and to article 132 od Legilative Decree no. 58 of 24 th February Shareholders will be entitled to attend the meeting, in accordance with current legislation and the Company s by-laws, on whose behalf an authorised intermediary has communicated the intention to attend at least two days prior to the date fixed for the meeting as prescribed by articles 33 and 34 of the CONSOB ruling no of 23 rd December 1998 and subsequent modifications. Documentation relating to the above agenda, as required by current legislation, will be deposited not less than 15 days before the date of the meeting at the Bank s head office (in Genoa at 15 Via Cassa di Risparmio, General Secretary relations with members) and at the body that runs the stock market, Borsa Italiana SpA in Milan (Piazza degli Affari 6), for inspection by shareholders who will have an opportunity to make copies for their own use. The documentation specified above will also be available at With reference to point 3, in accordance with the provisions of article 18 of the Bank s By-laws, the list of candidates for the Board of Directors must be deposited along with the required supporting documentation by those shareholders having the right of proposal at the Bank s head offices (Via Cassa di Risparmio, 15, Genoa General Secretary relations with members) no less than 10 days before the date of the meeting. The presentation in question must be made from Monday to Friday between the hours of 8.30 am to 1.30 pm and 2.30 pm and 4.30 pm. Genoa, 21 st March 2006 The Chairman of the Board of Directors (Giovanni Berneschi) Notice of Meeting published in Il Sole 24 Ore of 21/3/06. 6

7 BASIS OF CONSOLIDATION Fondazione Cassa di Risparmio di Genova e Imperia (1) CNCE (1) WestLB (1) (2) Others (1) 43.37% 11.02% 5.84% 39.77% BANCA CARIGE SpA FULL CONSOLIDATION CONSOLIDATION CARRIED OUT WITH THE EQUITY METHOD CONSOLIDATION CARRIED OUT WITH THE COST METHOD BANKING ACTIVITIES BANKING ACTIVITIES Banca del Monte di Lucca SpA (54.00%) Frankfurter Bankgesellschaft AG (47.50%) Cassa di Risparmio di Savona SpA (95.90%) Cassa di Risparmio di Carrara SpA (90.00%) Banca Cesare Ponti SpA (3) (51.09%) INSURANCE ACTIVITIES Carige Assicurazioni SpA (6) (98.24%) 37.50% Carige Vita Nuova SpA (100.00%) 22.50% Assi90 Srl (7) INSURANCE ACTIVITIES FINANCIAL ACTIVITIES AG Srl (7) % Savona 2000 Srl (7) 80.00% Argo Finance One Srl (60.00%) 0.50% Priamar Finance Srl (60.00%) Argo Mortgage Srl (8) (5.00%) Argo Mortgage 2 Srl (8) (5.00%) Carige Asset Management SGR SpA (99.50%) INSTRUMENTAL ACTIVITIES Galeazzo Srl (4) (100.00%) Columbus Carige Immobiliare SpA (99.99%) Immobiliare Ettore Vernazza SpA (5) (90.00%) Immobiliare Carisa Srl % Dafne Immobiliare Srl % Portorotondo Gardens Srl % TRUSTEE ACTIVITIES OTHER ACTIVITIES Centro Fiduciario SpA (76.93%) 20.00% 4.00% Autostrada dei Fiori SpA (16.62%) Banca Carige's share holding is shown in brackets. (1) Quota calculated on the basis of ordinary shares only. (2) Direct holding of 4.989% and indirect holding of 2.480% via subsidiary WestLB (Italy) Finanziaria SpA. (3) Carige holds rights to vote on 58.75% of the capital. (4) The company has a 0.01% holding in Columbus Carige Immobiliare SpA. (5) The company holds 10% of its own shares. (6) The company holds 1.25% of its own shares. (7) Insurance instrumental companies (insurance agencies). (8) This company is going to be included in the Banking Group. 7

8 DIRECTORS, STATUTORY AUDITORS, MANAGEMENT AND AUDIT FIRM OF BANCA CARIGE BOARD OF GENERAL MANAGEMENT BOARD OF DIRECTORS STATUTORY AUDITORS CHAIRMAN GENERAL MANAGER CHAIRMAN Giovanni Berneschi* Alfredo Sanguinetto Antonio Semeria DEPUTY CHAIRMAN DEPUTY GENERAL AUDITORS Alessandro Scajola * MANAGER (Commercial) Massimo Scotton Andrea Traverso DIRECTORS Carlo Arzani DEPUTY AUDITORS Adalberto Alberici DEPUTY GENERAL Piergiorgio Alberti * ** MANAGER Adriano Lunardi Andrea Baldini* (Administration) Luigi Sardano Giorgio Binda Jean-Jacques Bonnaud Giovanni Poggio AUDIT FIRM Luca Bonsignore Mario Capelli (1) DEPUTY GENERAL Deloitte & Remo Angelo Checconi * MANAGER (Credit and Touche SpA Maurizio Fazzari Wealth Management) Pietro Isnardi Ferdinando Menconi Achille Tori Nicolas Mérindol (2) Paolo Cesare Odone * Vincenzo Roppo * Enrico Maria Scerni Francesco Taranto *Member of Executive Committee **Senior Director (1) Died on 15/3/2006. (2) In office from 10/10/2005. The Board of Directors was appointed by the Ordinary Shareholders Meeting for the business years 2003, 2004 and During the course of its business, the Ordinary Shareholders Meeting of 25 th January 2006 approved the appointment of Mr Nicolas Mérindol to the Board of Directors. Mr Merindol, whose term of office expires at the same time as the other Board members, was previously co-opted to the Board of 10 th October 2005 with effect 1 st October 2005 in replacement for the outgoing Mr Oliviero Tarolli. The Executive Committee was appointed by the Board of Directors on 18 th October 2004, as from 1 st November 2004 until the adoption of the balance sheet During the meeting of 20 th June 2005 the Board of Directors appointed Andrea Baldini as member of the Executive Committee in place of the resigning Ferdinando Menconi. The Bank's structural and organizational order was approved by the Board of Directors on 2 nd August 2004, as from 1 st October The Board of Statutory Auditors was appointed by the Ordinary Shareholders Meeting of 28 th April 2005 for the business years 2005, 2006 and The external auditors were appointed by the Ordinary Shareholders Meeting of 31 st March 2003 for the business years 2003, 2004 and

9 POWERS OF THE ADMINISTRATIVE BODIES AND THEIR DELEGATED AUTHORITY As required by directive no of CONSOB dated 20 th February 1997 shown below are the powers and delegated authority belonging to the Directors and Management. Chairman of the Board of Directors According to article 24 of the By-laws the Chairman of the Board of Directors is the legal representative of the Bank vis-à-vis third parties and in court proceedings. He presides at shareholders meetings, convenes and presides at meetings of the Board of Directors of which he is an ex officio member. In a case of compelling urgency not admitting of delay, the Chairman himself may, on a proposal of the Managing Director or General Manager, take decisions falling within the competence of the Board of Directors or the Executive Committee where it is impossible for their members to meet. Decisions so made are to be brought to the notice of the relevant body at its next meeting. The Chairman has no specific delegated powers but has the authority to: a) represent Banca Carige at the shareholders meetings of the Group or associated companies and indicate where necessary the guidelines to be followed by the Bank s representatives on the boards of the same companies; b) attribute the right of proposal regarding relations between the companies of the Group, of which the Bank is parent company; c) confer management or proposal powers on matters concerning human resources and the optimisation thereof. Executive Committee Article 25 of the By-laws provides for the appointment of the Executive Committee by the members of the Board of Directors, which is to fix the number of members, their term of office and their functions. The Executive Committee is made up of the Chairman and Deputy Chairman, who are ex officio members, and between three and five other members. The five members of the executive committee now in office were appointed on 18 th October 2004 by the Board of Directors, who confirmed the number of five elective members, whose duration in office was fixed until the Meeting called for the approval of the Annual report 2005, therefore until 30/4/2006. The Board of Directors in conformity with article 21 of the By-laws has delegated to the Executive Committee within defined limits its powers in regard to: a) the grant, renewal, increase, reduction, confirmation, cancellation and suspension of advances and facilities and general credit operations of every description in all branches as well as the treasury and tax-collection payment functions; b) general decision making powers in matters relating to expenditure (or loss or, anyway, lack of receipts for the Bank), or about profits, without sum limit, but in the observance of the general budget deliberated by the Board of Directors, in every subject with administrative and operational management nature, agreed that the Board of Directors has exclusive competence on the points specified in the article 20 of the By-laws; c) power to determine a range of matters including the management of human resources (excluding the Board of Directors competences as article 20 of the By-laws and the adoption of any initiatives in conformity with the articles of the Civil Code no (Withdrawal from the open-end contract) and 2119 (Withdrawal from lawful case) towards the members of the General Management), management of the treasury and of the Bank s investment portfolio, the use of derivatives and foreign exchange operations, the management of equity investments including decisions relating to the exercise (or not) of pre-emption or option rights on shares or shareholdings in subsidiaries as well as in matters of day-to-day management not involving strategic issues, decisions relating to the entering into litigation affecting the Bank, without limits as to the costs estimated or undetermined, decisions regarding the opening, closing, transfer or reorganisation of the Bank s branches consistent with the Bank s branch policy document deliberated by the Board of Directors. Managing Director - General Manager In accordance with article 27 of the By-laws, a Managing Director or General Manager is appointed by the Board of Directors. The former, if appointed, will also perform the duties of General Manager. Either will exercise those powers belonging to him within the scope of the By-laws and the powers granted to him by the Board of Directors. The General Manager is the head of the Bank s staff and is responsible for the management and coordination of human resources. The Managing Director in office was appointed on 14 th April 2003 and has the following decision-making powers delegated to him: a) with respect to the grant, renewal, increase, reduction, confirmation, cancellation and suspension of advances and facilities and general credit operations of every description in all branches as well as treasury and tax-collection, and payment functions; he can also give guidelines on the above to the banking subsidiaries of the Banca Carige Group as foreseen by current legislation; b) generally with respect to matters relating to expenditure (or loss or, anyway, lack of receipts for the Bank),, or about profits; c) in regard to a range of matters relating to the finances of the Bank, and payment functions; d) with the Chairman s consent, he has the right to represent the Bank at general meetings of subsidiary and associated companies and to decide the Bank s policy as he may think fit; e) matters of day-to-day management not involving strategic issues; f) represent the Bank in litigation in full respect of the powers assigned to the Chairman of the Board of Directors or, in his absence, the Deputy Chairman; g) confer proxy and powers of signature to documents relating to all aspects of the Bank s ordinary activities. 9

10 DIRECTORS, STATUTORY AUDITORS, MANAGEMENT ANDAUDIT FIRM OF BANCA CARIGE FOR THE BUSINESS YEARS 2006, 2007 AND 2008 BOARD OF GENERAL MANAGEMENT BOARD OF DIRECTORS STATUTORY AUDITORS CHAIRMAN GENERAL MANAGER CHAIRMAN Giovanni Berneschi* Alfredo Sanguinetto Antonio Semeria DEPUTY CHAIRMAN DEPUTY GENERAL AUDITORS Alessandro Scajola * MANAGER (Commercial) Massimo Scotton Andrea Traverso DIRECTORS Carlo Arzani DEPUTY AUDITORS Andrea Baldini * DEPUTY GENERAL Giorgio Binda MANAGER Adriano Lunardi Jean-Jacques Bonnaud (Administration) Luigi Sardano Luca Bonsignore Remo Angelo Checconi * Giovanni Poggio AUDIT FIRM Maurizio Fazzari Pietro Isnardi DEPUTY GENERAL Deloitte & Raffaele Lauro MANAGER (Credit and Touche SpA Ferdinando Menconi ** Wealth Management) Nicolas Mérindol Paolo Cesare Odone * Achille Tori Renata Oliveri * Jean-Marie Paintendre Flavio Repetto Vincenzo Roppo * Francesco Taranto *Member of Executive Committee **Senior Director The Board of Directors was appointed by the Ordinary Shareholders Meeting of 20 th April 2006 for the business years 2006, 2007 and The Executive Committee was appointed by the Board of Directors on 8 th May 2006 for the business years 2006, 2007 and The Bank's structural and organizational order was approved by the Board of Directors on 2 nd August 2004, as from 1 st October The Board of Statutory Auditors was appointed by the Ordinary Shareholders Meeting of 28 th April 2005 for the business years 2005, 2006 and The external auditors were appointed by the Ordinary Shareholders Meeting of 20 th April 2006 for the business years 2006, 2007, 2008, 2009, 2010 and

11 CONSOLIDATED FINANCIAL HIGHLIGHTS Change % 31/12/05 30/9/05 31/12/04 31/12/04 12/05 12/05 (2) pro forma (1) 9/05 12/04 p.f. BALANCE SHEET (3) Total assets 23,066,391 22,875,356 20,786,316 22,139, Funding 16,121,278 16,262,775 15,247,225 15,971, Customer Deposits (a) 15,009,329 14,707,403 14,265,399 14,989, * Amounts owed to customers 8,657,736 8,301,384 8,365,078 8,317, * Debt securities in issue 6,351,593 6,406,019 5,900,321 6,671, Deposits from banks 1,111,949 1,555, , , Other Financial Intermediation Activities (OFIA) (b) 18,105,200 17,945,723 16,615,838 16,615, Assets under management 9,743,308 9,446,816 8,406,719 8,406, Assets in custody 8,361,892 8,498,907 8,209,119 8,209, Total Financial Intermediation Activities (TFIA) (a+b) 33,114,529 32,653,126 30,881,237 31,605, Lending (4) 19,924,055 19,690,250 17,787,545 19,059, Loans to customers (4) 14,004,899 13,309,713 11,609,693 12,378, Loans to banks (4) 856, ,387 1,576,866 1,576, Financial assets (4) 5,062,768 5,556,150 4,600,986 5,104, Shareholders' equity 2,136,595 2,134,301 1,734,456 2,115, Change % 31/12/05 30/9/05 31/12/04 12/05 12/05 (2) 9/04 12/04 INCOME STATEMENT (3) Gross operating income 778, , , Net income from financial and insurance management 733, , , Operating income from ordinary activities before taxation 216, , , Net income 131, , , RESOURCES (5) Number of branches Number of employees 4,736 4,759 4, FINANCIAL RATIOS Operating costs /Gross operating income (8) 66.35% 59.95% 67.91% Operating income from ordinary activities before taxation / Shareholders' equity 10.15% 8.82% 9.45% 0.00% ROE 6.15% 5.21% 6.41% 0.00% ROAE (6) 6.18% 5.23% 5.77% SOLVENCY RATIOS (7) Risk-Weighted Assets (3) 15,295,275 13,663,836 12,439, Tier1 % of RWA 6.48% 6.84% 7.38% Total capital % of RWA 8.33% 9.50% 9.64% (1) Amounts calculated on the basis of IAS/IFRS, including IAS 32, 39 and IFRS 4. (2) Amounts calculated on the basis of IAS/IFRS, excluding IAS 32, 39 and IFRS 4. (3) Thousands of euros. (4) Gross of value adjustments. (5) Statistics of the end of period. (6) Net income on average shareholders' equity (Return On Average Equity). (7) Risk-Weighted Assets calculated on the basis of current supervision principles and considering, to calculate the core capital at 31/12/2005, the increase in share capital as free of 164,8 milions, decided by the Extraordinary Meeting of 25/1/2006. (8) Net of provisions for risks and charges. The 2004 value includes the extraordinary components. 11

12 CONSOLIDATED BOARD OF DIRECTORS' REPORT 12

13 THE YEAR IN ITALY AND ABROAD The world s economy continued to record levels of sustained growth during 2005, with GDP only slightly lower than the previous year s figure: 4.5 per cent in comparison to 4.8 per cent for The economies of China and India maintained strong levels of expansion as did albeit to a lesser extent the United States and the European Union. Positive results were for the most part due to investment levels and foreign trade. In the United States, the economy grew by 3.5 per cent, down on the previous year s figure of 4.2 per cent, but with an upturn recorded in the second half of the year in consumption and investments, the latter particularly in the real estate sector. Exports outstripped imports thanks to a weak dollar and strong demand especially from Asian countries. US inflation rate was 3.5 per cent (2004: 2,7 per cent) and unemployment was 5.1 per cent (2004: 5.5 per cent). Economic growth for the European Union area was contained, actually falling from 1.8 per cent in 2004 to 1.4 per cent. This limited vitality is due to weak internal consumption which is reflected by rises in private consumption of 1.3 per cent and in public consumption of 0.9 per cent; gross fixed investment increased by 2.1 per cent and, common to all Member States, there was slight expansion in foreign trade. Inflation was subdued at 2.2 per cent in line with previous year s levels. There was little change also in the Union s unemployment rate in comparison to 2004: 8.6 per cent. There were however some significant differences between individual countries. In Germany, GDP rose slightly in comparison to the previous year by 0.9 per cent, with domestic demand substantially flat (+0.1 per cent) and a positive trend of exports (+0.9 per cent). Inflation increased from 1.8 per cent in 2004 to 2 per cent, whilst unemployment was unchanged at 9.5 per cent. The French economy rose by 1.7 per cent in 2005 (+2 per cent the previous year) thanks to a 2.3 per cent increase in domestic consumption which, though lower than the previous year s figure of 3.2 per cent, managed to offset a 0.7 drop in net exports. Inflation was down from 2.3 per cent in 2004 to 2 per cent and unemployment stayed at around 9.5 per cent, as in In Spain, the economy continued to be one of the Union s most vibrant: the country s GDP rose in 2005 by 3.4 per cent in comparison to 3.1 per cent in Domestic consumption expanded by 5.6 per cent (2004: +5 per cent) and net exports fell to -2.2 per cent. The most significant growth was in gross fixed investments, especially in machinery and equipment (+6.3 per cent). Private consumption levels also rose, by 1 per cent. Inflation was the highest in the EU, at 3.4 per cent. There continued to be improvements on the labour market, evidenced by a fall in the unemployment rate from 11 per cent in 2004 to 9.2 per cent. Outside the European Monetary Union, the United Kingdom s economy was marked by a slowing down in consumption levels. The country s GDP rose by 1.8 per cent, just under half the level recorded in Domestic consumption rose by 1.8 (2004: +3.8 per cent), but the net exports result was negative at -0.3 per cent. The inflation rate was 2.1 per cent (2004: 1.3 per cent) and unemployment was 4.5 per cent (2004: 4.8 per cent). Asian economies continued to grow at significant levels, particularly China and India. The overall growth of these two economies was by 8.9 per cent, similar to previous year s levels, and boosted particularly by strong domestic demand. After years of negative growth, Japan s economy continued the rise begun 2004 (+2.3 per cent) to record expansion in GDP for 2005 of 2.5 per cent. This figure was the result of domestic consumption (+0.4 per cent), investments in machinery, equipment and buildings (+1.6 per cent). The contribution of foreign trade (+0.2 per cent) was modest due to a fall in imports and a small growth in exports. Inflation remained negative at 0.3 per cent and the unemployment rate fell from 4.7 per cent to 4.4 per cent. The other economies of the Asian Pacific area overall expanded by 4.6 per cent (2004: +5.8 per cent), above all due to exports. Latin American economies, after the recent crises in Argentina, Venezuela and Brazil, consolidated recovery in the area with a growth 13

14 in GDP around 3.7 per cent. Political uncertainty however remains high. The performances of other emerging economies - Central Europe, Russia and non- Mediterranean Africa - maintained growth levels recorded in 2004: 4.7, 5.6 and 5.4 per cent, respectively. In Italy, after a weak first half of the year, there was an upturn in the second half, which could not however lift economic growth above zero percent. The previous year s figure of +1.1 per cent was due to growth in investments in machinery, equipment and vehicles, which in 2005 fell by 2.1 per cent (+1.1 per cent in 2004). Consumption (+0.3 per cent) was little changed from the modest growth recorded in the previous year, whilst investments in the building sector registered a slowing down (2004: +3%; 2005: +0,6%). The increase in exports (2004: +3 per cent; 2005: +7.6 per cent) and imports (2004:+2.5 per cent; 2005: +8.9 per cent) reflects the health of world trade despite a worsening national balance of trade. In spite of price rises in oil and other commodities, inflationary pressure remained subdued: the annual inflation rate was 1.7 per cent, slightly lower than the previous year s figure of 2 per cent. On the basis of annual figures from September 2004 to September 2005, the country s employment rate rose by 0.3 per cent. The number of employees in work rose at a rate of 2.7 per cent, whilst there was a 5.9 per cent fall in the number of self-employed. By sector, there was an 8 per cent fall in jobs in agriculture, but rises of 0.9 per cent and 0.6 per cent in industry and services, respectively. The unemployment rate dropped from 2004 s figure of 7.4 per cent to 7.1 per cent. However, there was no substantial narrowing of the yawning gap in unemployment levels that exists between the north and the south of the country. The Italian State s PSBR rose from Euros 44 to around Euros 60 billion. On the basis of initial estimates, the state sector deficit accounted for 4.1 per cent of GDP, up from 3.2 per cent in The Italian State s Debt/GDP ratio rose, for the first time after several years, from per cent to per cent. On the monetary policy front. The European Central Bank (ECB) raised its discount rate by 25 basis points from 2 per cent to 2.25 per cent; the first hike since 9 th June Money market rates rose by between 30 and 40 bps, whilst those on Italian government stock rose by around 20 bps, with the biggest rises being recorded on treasury bills (BOT), which rose by as much as 48 bps. Currency market recorded a gradual depreciation of Euro in comparison to Dollar: the exchange rate, down from 1,355 to 1,185, was on average about 1,245, as in On share markets, the rises in places since 2003 after several years of sharp falls continued. The Milan MIBTEL general share index rose by 13.8 per cent and the banking index by 30.7 per cent. Total balances deposited in Italian bank deposits rose by 8.6 per cent over the previous year s figure of 6.1 per cent. Customer deposits rose by 6.6 per cent and bonds by 11.1 per cent, similar to Savings under management recorded an overall increase of around 10.5 per cent (2004: 7.4 per cent). Increases varied in extent from segment to segment with bancassurance balances increasing by 14.9 per cent (2004: 15 per cent), asset management by 12.2 per cent (2004: 7.3 per cent), and mutual funds by 9.3 per cent (2004: 2.8 per cent). Lending to customers rose by 7.1 per cent in comparison to 5.5 per cent in The medium/long-term component rose by 11.5 per cent, whilst short-term credits increased by only 0.4 per cent. There was a significant improvement in the quality of credit: the annual rise in bad loans in 2005 of 3.4 per cent was significantly down on 2004 s figure of 6 per cent. The systems bad loans:total lending ration improved considerably, dropping from 5.1 per cent in 2004 to 2.3 per cent. Commercial banking rates progressively rose during 2005, inverting the trend recorded in There was however little substantial change in interest rate spreads in comparison to 2004: the average lending rate was 5.3 per cent and the borrowing rate of 0.9 per cent (average margin of 4.4 per cent). 14

15 STRATEGY The mission of the Banca Carige Group ( Carige Group or the Group ) is to create long-term value for its shareholders and other stakeholders. We intend to pursue this objective by consolidating our role as a conglomerate equipped to offer banking, finance and insurance products throughout Italy, whilst at the same time maintaining strong ties with local operating areas. The Group also seeks to achieve competitive advantages in terms of service quality via the Group s multi-channel distribution system, human resources and branch facilities. This mission lies at the heart of the Group s three-year Strategic Plan approved by the Board of Directors of the Group Leader Banca Carige in May 2004 and subsequently revised in November 2005 in the light of the adoption of the International Financial Reporting Standards and International Accounting Standards ( IFRS ). The Plan defines three overarching strategic objectives that are consistent with the Group s mission: - improved operating efficiencies and increased productivity, - expansion in operating capacities through increased productivity; - containment of Group risk profiles. The following priority measures have been identified as the vehicles for realising these objectives: a) increasing profitability of different business areas, by optimising the product chain and consolidating ties with our foreign partners, particularly in the areas of wealth management, payment systems, structured funds and project financing. During 2005 the following measures were carried out across various business lines: - credit solutions for the family. An organic approach was adopted which saw reviews of the delivery and management processes an a renewal of both product and sales effectiveness; - credit solutions to businesses. Particular attention was placed on project financing, carried out in collaboration with Banca Carige, and principally on the small and mediumsized enterprise (SME) segment. In this area, scoring and rating procedures are being developed which not only satisfy the regulatory requirements of Basel 2 (New Agreement on Capital stock), but are also a part of wider review of the credit process aimed at providing significant economic and financial (capital absorption) benefits; - wealth management. During the year there was a progressive shift towards products with higher levels of returns and risk, with increased focus and operating responsibility on the Group s asset management company, Carige Asset Management SGR. By the end of 2005, delivery to the Group s banks of a Personal Financial Planning (PFP) system and related Retail Risk Management (RRM) backup was being completed. The system will allow for the effective monitoring for compatibility between investment choice and customer risk profile as well as the identifying of correctives where necessary. The system will represent the conduit through which Head Office Wealth Management can transmit strategic and operational decisions relating to investment and financial consultancy services. The service will available throughout the Group s distribution network during the first half of 2006; - payment systems. Measures aimed at increasing profitability and reducing the cost income ratio were followed during the year by assigning greater responsibility to specific business units created during the second half of 2005 in addition to heightened coordination with the Group s ITC arm; - life and non-life insurance. The promotion of insurance/banking product packages continued during the year. Within the non life segment, realignment of the Group s product portfolio away from third-party motor insurance 15

16 towards non marine insurance continued. Life insurance saw increased focus on high demand supplementary pension solutions; b) increasing the economic contribution of the Group s companies by continuing the process of integration underway between Banca Carige, the Group s banks and insurance companies. This integration, whilst safeguarding the specificity of each company, will allow for the unitary management of production, distribution and support. Important progress in this direction was represented by the signing of new administrative service contracts between the Banca Carige and its banking subsidiaries; c) increasing the amounts intermediated by each employee by focusing on cross selling and retention in our traditional heartland of Liguria, and in other regions by utilising financial penetration via the exploitation of operating synergies with insurance agents. Action was taken in the following three areas: - the Ligurian network, during the second half of 2005, saw a review of our commercial model which foresees the gradual move away from a nondifferentiated management of relations by operating units to the personalised management of customer profiles assigned to consultants with backup provided by dedicated commercial programmes and innovative sales solutions. With this in mind, specialisation capabilities of the network were strengthened by the creation of an additional two segments: Affluent, within the private costumers, and Small Business, within the corporate customers. Priority was given in the startup phase to our traditional operating area of Liguria, where the Carige Group has market leadership and where the acquisition of new customers and retention of existing account holders is required. During the second half of the year new professional profiles were created to coordinate and supervise the work of wealth managers and advisors working in each customer or client segment. These coordinators have responsibilities to the Commercial Support and Project Innovation Division; - outside Liguria during the year there was the continuing extension of the Commercial Strengthening Project started in The Project aims to acquire new customers and develop the commercial opportunities present in existing customer relations. In addition to achieving significant returns in both volumes and earnings, the Project has enabled the introduction and assimilation of new, more effective working practices throughout the network. At head office level a centralised intelligence based method has been developed which defines and manages objectives and tailors them to the characteristics of single branches in the form of clearly-defined commercial action and constant monitoring of results. At branch level a more proactive approach has been adopted which places greater emphasis on sales activities and which in turn provides branches with clear policy and target guidelines. We believe this to be particularly important as the distribution network expands; - integration between the Group s banking and insurance networks continued with the Insieme di Più Project, aimed at increasing cross selling opportunities between customers of the Group s banks (around one million) and those of the insurance companies (more than 700,000) between which minimal overlaps exist. A constant and systematic exchange of information between the banking and insurance networks allows for the development and delivery of banking products and financial instruments from the Group s banks to customers of the Group s insurance companies and vice versa of insurance products to bank customers (bancassurance); d) review of management processes with the objective of reducing administrative costs and at the same time improving the quality of services offered. Three steps were taken in this area: - the review of acquisition processes and cost management activities, started in 2004, has achieved significant reductions in general costs as well as improving the effectiveness of monitoring activities; 16

17 - centralisation of back office treasury activities (payment and collection services, preparation and management of statements for the public body on whose behalf the service is provided). During the last quarter of 2005, the back office treasury activities of the Group s banks were centralised to a hub at Cassa di Risparmio di Carrara, with a subsequent exploitation of cost synergies and the recovery of human resources for commercial activities; - heightened process efficiencies achieved at the micro-organisational level of single operating units and via the identification of decisional priorities in terms of backup and governance, their analysis, and the definition of policies for the allocation of strategic resources, both human and IT; e) containment of the economic risk stemming from credit, market, liquidity and operational risks by integrating the risk management activities of the Group s banks and insurance companies in addition to maintaining appropriate adequacy levels in terms of capital and liquidity. In this area the following measures were enacted: - reduction of credit risk costs via the firsttime adoption of Basel 2 principles (internal rating and pricing) and the use of credit management solutions in order to optimise relations with SME and small business segments; - awareness and understanding of the impact of operating risks by avoiding management errors, preventing and containing crime (robbery, fraud, etc,), and respecting the correct procedures in the accounting of complex financial instruments. In this area the Group put into place steps to adopt Business continuity and Disaster recovery plans able to guarantee the prompt returns to normal activities in the event of crisis, also technological. KEY EVENTS FOR THE BANCA CARIGE GROUP DURING 2005 Banca Carige The Board of Directors of Banca Carige ( the Bank or the Company ) in their meeting of 21 st February approved the new Group Regulatory Document, which contains regulatory guidelines concerning the Parent Company s powers (policy design and implementation, coordination) with regards to its subsidiaries. The same meeting approved the Group s new branch plan On 24 th February a subordinated loan issue (Tier 3) of Euros 80 million (maturity: 24/8/2007) was completed. The Bank of Italy in its communication no of 18 th February 2005 authorised the inclusion of the issue as part of regulatory capital destined to cover market risk in the calculation of the Company s total capital ratio, with a subsequent rise in the ratio from per cent at 31/12/04 to per cent. Following CONSOB authorisation of the prospectus, on 2 nd March 2005 trading of debt securities related to Carige s loan issue began ( Banca Carige 1.50 per cent, subordinated hybrid with premium at maturity convertible into shares ). On 18 th April, the company s Board of Directors deliberated the purchase of 10 per cent of share capital in Banca Federiciana SpA. The bank, whose registered office is in Andria (Apulia), received Bank of Italy authorisation to carry out banking business on 27 th February The Annual General Meeting of Banca Carige held on 28 th April in addition to approving the Directors Report for 2005 also renewed the Board of Statutory Auditors of the Bank for the period On the same date, the Extraordinary Meeting of the Company s savings shareholders was held, during which Mr Giancarlo Bach was reappointed as representative of the savings shareholders. On 30 th May, the Spanish shareholder Monte de Pietad y Caja de Ahorro de Huelva y Sevilla informed Banca Carige of its reduced holding in the bank under a threshold of 2 per cent. The Italian securities market watchdog CONSOB was subsequently informed on 2 nd June. On 31 st May Mr Ferdinando Menconi resigned as a member of the Executive Committee. The Board of Directors of Banca Carige during its 17

18 meeting of 20 th June appointed in his place Mr Andrea Baldini. Banca Carige s Executive Committee in its meting held on 14 th June deliberated a 7 per cent equity holding (Euros 350,000) in Infrastrutture Lavori Italia Autostrade SpA. The company was set up on 20 th June; its chairman is Mr Giovanni Berneschi and Carige s representative on the Board of Directors is Mr Enrico Scerni. Carige s Board in its meeting of 20 th June deliberated the approval of a paid-up share capital increase of the subsidiary Banca del Monte di Lucca (BML). The Lucca bank s share capital rose from Euros 13 million to Euros 15.6 million via the issue of 5,000,000 new shares with a nominal value of Euros 0.52 each to be offered to shareholders at Euros 1, inclusive of a premium of Euros 0.48, on the basis of one new share for every five shares owned. The share capital increase was fully subscribed on 14 th December: Euros 2.7 million (of which Euros million in the form of issue premium) by Banca Carige; the remaining amount was subscribed by the BML Foundation. During the same meeting of 20 th June, modifications to the subsidiary s by laws were approved as agreed upon by Banca Carige and the BML Foundation. During the same meeting, the document Regulations concerning transactions with related parties was approved. The Executive Committee of Banca Carige in its meeting of 12 th July deliberated the purchase of a 15 per cent holding, subject to Bank of Italy authorisation, in the share capital (total share capital: Euros 1 million) of a new investment management firm promoted by Cofid SpA for the creation and management of closed funds. On 18 th July, Banca Carige took part together with other leading national and international counterparties in Unipol Assicurazioni s offer for Banca Nazionale del Lavoro, at the same time signing related shareholders agreements. In February 2006 following the Bank of Italy s decision not to authorise Unipol s bid and the subsequent cancellation of the shareholders agreement previously signed with Unipol, Carige exercised its option to sell the Unipol shares in its possession previously granted by Unipol and later ceded by the latter to Ariete, FIN.AD (Coop Adriatica), Nova Coop, Talea (Coop Liguria) and Coop Estense. On 20 th September Banca Carige signed individual service contracts with C.R. Carrara and Banca Cesare Ponti by which the Bank will carry out a range of its subsidiaries administrative duties from its head office in Genoa. The Board of Directors in its meeting of 10 th October co-opted Mr Nicholas Mérindol onto the Board following the resignation of Mr Oliviero Tarolli. The Executive Committee s Meeting of 25 th October approved the subscription either directly or indirectly via the Bank s subsidiaries Banca del Monte di Lucca and C.R. Carrara to a maximum of 13,850 shares as part of an equity raising operation in Fidi Toscana SpA for a maximum holding of per cent. The same Committee on 3 rd November agreed to a participate in the share capital of the newlyformed Rapallo Centro Congressi di Tigullio Srl with a holding of 15 per cent, equivalent to Euros 40,000. The company s head offices are in Rapallo. The Board of Directors during the meeting of 28 th November approved changes to the service contract between Banca Carige and C.R. Savona for the three-year period During the same Meeting, in the light of Bank of Italy inspections carried out at the banking subsidiary C.R. Carrara from 25 th May 2005 to 19 th August 2005 and the subsequent explanations by the board of C.R. Carrara, the Board of Directors of Banca Carige approved the document Observations by the Parent Company Banca Carige Spa following the Bank of Italy s inspection carried out at its subsidiary C.R. Carrara. The document was subsequently transmitted to the Bank of Italy. With regards to Carige s distribution network, there were new branches openings in the westernmost Ligurian province of Imperia (Camporosso), in Asti and Ancona (Branch 1), following the transferof the branches flowers market of Sanremo, in central Piedmont (Novi Ligure, Branch 1), and in the Sicilian capital of Palermo (Branch 10). On 15 th June, the bank s business finance consultancy service was extended to the central Italian regions of Latium, Umbria and Marches, with 5 new teams made up each by one adviser and one assistant. On 4 th July a specific consultancy service for the affluent client segment in Liguria was launched available at 93 of the Bank s branches in Liguria. Carige s small business consultancy service also began during 2005 with by the end of the year a small business advisor present in 200 Ligurian branches. 18

19 Cassa di Risparmio di Savona The Board of Directors of C.R. Savona in its meeting of 28th February 2005, following the resignation of Mr Fulvio Rosina as chairman of the bank s Board of Statutory Auditors, approved the appointments of Mr Semeria as Chairman and Mr Traverso as board member pursuant to article 2401 Italian Civil Code. The Annual Meeting held on 15 th April confirmed the above-mentioned appointments in addition to appointing Ms Fabrizia Garibaldi as acting statutory board member in Mr Traverso s absence. On 19 th December the bank opened a branch in Borghetto Santo Spirito. Banca del Monte di Lucca BML s Annual Meeting held on 22nd February appointed Mr Traverso as chairman of the Board of Statutory Auditors, along with Mr Scotton as board member and Mr Semeria as his substitute. Mr Baldini was reappointed as the other board member. On 14 th December the share capital increase from 13 to 15,6 millions, deliberated by the Extraordinary Shareholders Meeting of 26 th September 2005, was fully subscribed. Cassa di Risparmio di Carrara On 1st July an agreement was signed between Banca Carige and trade unions regulating the reorganisation of C.R. Carrara in addition to the transfer to Carrara of the back office treasury activities of Banca Carige and C.R. Savona. Banca Cesare Ponti The Bank of Italy in its letter of 2 nd March 2005 communicated the revised area of consolidation of the Banca Carige Group, which from 29 th December 2004 includes Banca Ponti. On 26 th April the Annual Meeting of Banca Ponti, following the resignation of Prof. Michele Bonaduce as statutory board member, appointed Mr Andrea Rittatore Vonwiller as replacement. On 14 th October the Board of Directors approved a subordinated bond issue of Euros 8 million, which was fully subscribed to by Banca Carige. On 24 th October Bank of Italy authorisation for the inclusion of the issue in the bank s tier 2 capital was requested and subsequently granted on 3 rd January Carige Asset Management SGR The Group s wealth management firm Carige Asset Management SGR during its Annual Meeting of 28 th February appointed its Board of Statutory Auditors. Mr Rosina was appointed Chairman, with Mr Paintendre as his Deputy; Mr Scotton is board member and Mr Stefano Ferrari and Ms Garibaldi acting board members. 19

20 FINANCIAL INTERMEDIATION ACTIVITIES Comparison between results at 31 st December 2004 and 31 st December 2005 are made on the basis of IFRS compliant (including IAS 32, IAS 39 and IFRS 4) pro forma figures. At 31st December 2005, Total Financial Intermediation Activities (TFIA) made up by direct and indirect deposits recorded increases of 4.8 per cent over 31 st December 2004 and 1.4 per cent over 30 th September 2005 to reach Euros 33,114.6 million. This figure includes liabilities of Euros million following the sale of assets not derecognised from the balance sheet relating to the securitisation of performing credits carried out by Banca Carige in June Direct deposits or customer deposits balances - Euros 15,009.3 million - were substantially unchanged over December 2004, though 2.1 per cent higher than at 30 th September Indirect deposits or other financial intermediation activities amounted to Euros 18,105.2 million; an increase of 9 per cent over twelve months, above all due to robust growth in wealth management. This aggregate now accounts for 54.7 per cent of TFIA (December 2004: 52.6 per cent). Wealth management now accounts for 29.4 per cent of TFIA and 53.8 per cent of indirect deposits.(+3 per cent). TOTAL FINANCIAL INTERMEDIATION ACTIVITIES (thousands of Euros) Change % 31/12/05 30/9/05 31/12/04 31/12/04 12/05 12/05 (2) pro forma (1) 9/05 12/04 p.f. Total (A+B) 33,114,529 32,653,126 30,881,237 31,605, Direct deposits (A) 15,009,329 14,707,403 14,265,399 14,989, % Total 45.3% 45.0% 46.2% 47.4% Indirect deposits (OFIA) (B) 18,105,200 17,945,723 16,615,838 16,615, % Total 54.7% 55.0% 53.8% 52.6% - Assets under management 9,743,308 9,446,816 8,406,719 8,406, % Total 29.4% 28.9% 27.2% 26.6% % OFIA 53.8% 52.6% 50.6% 50.6% - Assets in custody 8,361,892 8,498,907 8,209,119 8,209, % Total 25.3% 26.0% 26.6% 26.0% % OFIA 46.2% 47.4% 49.4% 49.4% (1) Amounts calculated on the basis of IAS/IFRS, including IAS 32, 39 and IFRS 4. (2) Amounts calculated on the basis of IAS/IFRS, excluding IAS 32, 39 and IFRS 4. Total funds at 31/12/05, which include customer deposits (Euros 15,009.3 million) and bank deposits (Euros 1,111.9 million) amounted to Euros 16,121.3 million, up 0.9 per cent over twelve months, but down 0.9 per cent over the last quarter. The customer deposits aggregate was basically unchanged (+0.1 per cent), whilst bank deposits rose 13.3 per cent, a result affected during the period by the maturity of a tranche of Carige s Euro Medium Term Note loan issue amounting to Euros 300 million. 20