1 PROSPECTUS UniCredito Italiano S.p.A. (incorporated as a Società per Azioni in the Republic of Italy under registered number ) and UBMUniCredit Banca Mobiliare S.p.A. (incorporated with limited liability under the laws of the Republic of Italy) Warrant and Certificate Programme Under the terms of the Warrant and Certificate Programme described in this Prospectus (the Programme), UniCredito Italiano S.p.A. (UniCredito) and UniCredit Banca Mobiliare S.p.A. (UBM and UniCredito, each an Issuer and together the Issuers) may from time to time issue warrants (Warrants) or certificates (Certificates and, together with the Warrants, Securities) of any kind including, but not limited to, Warrants or Certificates relating to a specified index or a basket of indices (respectively the Index Warrants or Index Certificates and, together with the Index Warrants, Index Securities), a specified share or a basket of shares (respectively the Share Warrants or Share Certificates and, together with the Share Warrants, Share Securities ), a specified debt instrument or a basket of debt instruments (respectively the Debt Warrants or Debt Certificates and, together with the Debt Warrants, Debt Securities), a specified currency or a basket of currencies (respectively the Currency Warrants or Currency Certificates and, together with the Currency Warrants, Currency Securities) or a specified commodity or a basket of commodities (respectively the Commodity Warrants or Commodity Certificates and together with the Commodity Warrants, Commodity Securities). Each issue of Warrants will be issued on the terms set out herein which are relevant to such Warrants under "Terms and Conditions of the Warrants" (the Warrant Conditions) and each issue of Certificates will be issued on the terms set out herein which are relevant to such Certificates under "Terms and Conditions of the Certificates" (the Certificate Conditions and together with the Warrant Conditions, the Conditions), as amended and supplemented from time to time, and on such additional terms as will be set out in a final terms document (the Final Terms ) which, with respect to Securities which are to be listed on a stock exchange, will be delivered to such stock exchange on or prior to the date of listing of such Securities. The Issuers have a right of substitution as set out herein.
2 2 A description of the Final Terms (which for the avoidance of doubt may be issued in respect of more than one series of Warrants or Certificates) is set out herein on page 31 and will specify with respect to each issue of Securities to which it relates, inter alia, the relevant Issuer, the specific designation of the Securities, the aggregate number and type of the Securities, the date of issue of the Securities, the issue price, the underlying asset, index or other item(s) to which the Securities relate, the exercise period or date (in the case of Warrants), the redemption date and whether they are interest bearing (in the case of Certificates) and certain other terms relating to the offering and sale of the Securities. Unless the applicable Final Terms specify that Monte Titoli S.p.A. (Monte Titoli) is the relevant clearing system or specify that a clearing system other than Clearstream Banking, société anonyme (Clearstream, Luxembourg), Euroclear Bank S.A./N.V. as operator of the Euroclear System (Euroclear) or Monte Titoli is applicable, the Final Terms relating to each issue of Securities will be attached to, or endorsed upon, the Global Security (as defined below). The Final Terms supplement the relevant Conditions and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the Conditions, supplement, replace or modify the Conditions. In certain cases the Final Terms may contain, as an annex, a full set of Conditions applicable to the Securities. The Final Terms will be filed with the CSSF (as defined below) if the Securities are to be listed or offered to the public in Luxembourg. The relevant Issuer may issue each issue of Securities to UniCredit Banca Mobiliare S.p.A. or such other or additional entity acting as a manager (the Manager). If applicable, Securities not initially sold by the Manager will be held by the Manager or an Affiliate or Affiliates of the Manager and may be retained or may be sold by the Manager or such Affiliate or Affiliates from time to time in such amounts and at such prices as the Manager or such Affiliate or Affiliates may determine. Offering prices will be at the discretion of the Manager. There is no obligation upon the Manager to sell all of the Securities of any issue. Each issue of Securities will entitle the Holder (as defined below) thereof on due exercise (in the case of Warrants) or on the Redemption Date (in the case of Certificates), and subject, where applicable, to certification as to nonu.s. beneficial ownership, either to receive a cash amount (if any) calculated in accordance with the relevant terms or to receive physical delivery of the underlying assets (against payment of a specified sum in the case of Warrants), all as set forth herein and in the applicable Final Terms. Prospective purchasers of Securities should ensure that they understand the nature of the relevant Securities and the extent of their exposure to risks and that they consider the suitability of the relevant Securities as an investment in the light of their own circumstances and financial condition. Securities involve a high degree of risk, including the risk of their expiring worthless. Potential investors should be prepared to sustain a total loss of the purchase price of their Securities, plus any commission or other transaction charges. See "Risk Factors" on page 13. Application has been made to the Commission de surveillance du secteur financier (the CSSF) of the Grand Duchy of Luxembourg in its capacity as competent authority under the Luxembourg act relating to prospectuses for securities (loi relative aux prospectus pour valeurs mobilières) for the approval of this document as two base prospectuses in accordance with Article 13 of the Prospectus Directive and Article 7 of the Luxembourg Law dated 10 July 2005 on prospectuses for securities. Application has also been made to the Luxembourg Stock Exchange for Securities is sued under the Programme to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Luxembourg Stock Exchange. Application is also made for notification to be given to competent authorities in other Member States of the European Economic Area in order to permit Securities issued under the Programme to be offered to the public and admitted to trading on regulated markets in such other Member States in accordance with the procedures under Article 18 of Directive 2003/71/EC (the Prospectus Directive). The applicable Final Terms will specify whether or not Securities are to be listed
3 3 on the Luxembourg Stock Exchange and/or any other stock exchange(s). The Issuers may also issue unlisted Securities. The Securities will (if applicable) be issued in such nominal amounts as may be agreed between the relevant Issuer and the Manager save that the minimum notional amount of each Security admitted to trading on a European Economic Area exchange or offered to the public in a Memb er State of the European Economic Area in circumstances which require the publication of a prospectus under the Prospectus Directive will be 1,000 (or, if the Securities are denominated in a currency other than euro, the equivalent amount in such currency) or such other higher amount as may be required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant currency. Unless the applicable Final Terms specify that Monte Titoli is the relevant clearing system or specify that a clearing system other than Clearstream, Luxembourg, Euroclear or Monte Titoli is applicable, each issue of Warrants will be represented by a global warrant (each a Global Warrant) and each issue of Certificates will be represented by a global certificate (each a Global Certificate), which will be issued and deposited with a common depositary (the Common Depositary) on behalf of Clearstream, Luxembourg and Euroclear on the date of issue of the relevant Warrants or Certificates. No Warrants or Certificates in definitive form will be issued. If Monte Titoli is specified in the applicable Final Terms as the relevant clearing system, no physical document of title will be issued to represent the Warrants or the Certificates. On issue, the Warrants or Certificates will be registered in the books of Monte Titoli. The issue of any Warrants or Certificates may be cancelled at any time until the Warrants or Certificates are registered in the books of Monte Titoli. Despite of the relevant clearing system, the Warrants or Certificates will be held in bearer form on behalf of the beneficial owners until redemption and cancellation thereof. Each Global Warrant and Global Certificate are each referred to as a Global Security. Dated 28 November 2005 Arranger and Manager UniCredit Banca Mobiliare
4 4 This Prospectus may only be used for the purposes for which it has been published. This document constitutes two base prospectuses: (i) the base prospectus for UniCredito in respect of nonequity securities within in the meaning of Article 22 no. 6 (4) of the Commission Regulation (EC) No. 809/2004 of 29 April 2004 ( NonEquity Securities ), and (ii) the base prospectus for UBM in respect of NonEquity Securities (together, the Prospectus ). Each of the Issuers (the "Responsible Persons") accepts responsibility for the information contained in this Prospectus. To the best of the knowledge of the Responsible Persons, (each having taken all reasonable care to ensure that such is the case), the information contained in this Prospectus is in accordance with the facts and contains no omissions likely to affect its import. The applicable Final Terms will (if applicable) specify the nature of the responsibility taken by the relevant Issuer for the information relating to the underlying asset, index or other item(s) to which the Securities relate which is contained in such Final Terms. No person is or has been authorised by the Issuers to give any information or to make any representation not contained in or not consistent with this Prospectus or any other information supplied in connection with the Programme or the Securities and, if given or made, such information or representation must not be relied upon as having been authorised by any of the Issuers or the Manager. This Prospectus contains industry and customerrelated data as well as calculations taken from industry reports, market research reports, publicly available information and commercial publications. It is hereby confirmed that (a) to the extent that information reproduced herein derives from a third party, such information has been accurately reproduced and (b) in so far as UniCredito is aware and is able to ascertain from information derived from a third party, no facts have been omitted which would render the information reproduced inaccurate or misleading. The following sources of information, among others, have been used: Bank of Italy: Data used for UniCredito s internal estimate of the market shares for loans and direct deposits UniCredito holds in Italy; data on the Italian banking market, in particular the number of active bank branches and financial promoters; Italian association of asset managers (Assogestioni Associazione del Risparmio Gestito): Data used for UniCredito s internal estimates of market shares in mutual funds in Italy; Italian Association of Asset Gatherers (Assoreti): Data used for UniCredito s internal estimates of market shares in asset gathering in Italy. Commercial publications generally state that the information they contain originates from sources assumed to be reliable, but that the accuracy and completeness of such information is not guaranteed, and that the calculations contained therein are based on a series of assumptions. External data have not been independently verified by UniCredito. This document does not constitute, and may not be used for the purposes of, an offer to sell or solicitation of an offer to buy any Securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. The distribution of this Prospectus and the offer or sale of Securities may be restricted by law in certain jurisdictions. The Issuers and the Manager do not represent that this Prospectus may be lawfully distributed, or that any Securities may be lawfully offered, in compliance with any
5 5 applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available there under, or assume any responsibility for facilitating any such distribution or offer. Persons into whose possession this Prospectus comes are required by the Issuers and the Manager to inform themselves about and to observe any such restrictions. In particular, the Securities and, in the case of Physical Delivery Securities, the Entitlement (as defined herein) to be delivered upon the exercise (in the case of Physical Delivery Warrants) or the redemption (in the case of Physical Delivery Certificates) of such Securities have not been, and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act) or any state securities laws and trading in the Securities has not been approved by the Commodity Futures Trading Commission under the United States Commodity Exchange Act, as amended. The Securities are only being offered and sold pursuant to the registration exemption contained in Regulation S under the Securities Act. No Securities of any series, or interests therein, may at any time be offered, sold, resold, traded, pledged, exercised, redeemed, transferred or delivered, directly or indirectly, in the United States or to, or for the account or benefit of, a U.S. person (as defined in Regulation S under the Securities Act) and any offer, sale, resale, trade, pledge, exercise, redemption, transfer or delivery made, directly or indirectly, within the United States or to, or for the account or benefit of, a U.S. person will not be recognised. The Securities may not be legally or beneficially owned at any time by any U.S. person (as defined in the "Offering and Sale" section below) and accordingly are being offered and sold outside the Uni ted States to nonu.s. persons in reliance on Regulation S. For a description of certain further restrictions on offers and sales of the Securities and on the distribution of this Prospectus, see "Offering and Sale" below. This document is to be read and construed in conjunction with supplement hereto, with any Final Terms and with all documents which are deemed to be incorporated herein by reference (see "Documents Incorporated by Reference" below). Warrants create options exercisable by the relevant Hol der or which will be automatically exercised as provided in this document. There is no obligation on the relevant Issuer to pay any amount or deliver any asset to any Holder of a Warrant unless the relevant Holder duly exercises such Warrant or such Warrants are automatically exercised and an Exercise Notice is duly delivered. The Warrants will be exercisable in the manner set forth herein and in the applicable Final Terms. Upon exercise, the Holder of a Warrant may be required to certify inter alia (in accordance with the provisions outlined in "Offering and Sale" below) that it is not a U.S. person or exercising such Warrant on behalf of a U.S. person. Warrants may be issued to one or more Managers on a syndicated basis. Certificates shall be redeemed on the redemption date by payment of the Cash Settlement Amount (in the case of Cash Settled Certificates) and/or by delivery of the Entitlement (in the case of Physical Delivery Certificates). Unless otherwise specified in the applicable Final Terms, in order to receive the Entitlement, the Holder of a Certificate will be required to certify, inter alia, (in accordance with the provisions outlined in Condition 6(B)(1)) that it is not a U.S. person or acting on behalf of a U.S. person. Certificates may be issued to one or more Managers on a syndicated basis. The relevant Issuer shall have complete discretion as to what type of Securities it issues and when. The Securities of each issue may be sold by the relevant Issuer and/or the Manager at such time and at such prices as the relevant Issuer and/or the Manager may select. There is no obligation upon the Issuers or the Manager to sell all of the Securities of any issue. The Securities of any issue may be
6 6 offered or sold from time to time in one or more transactions in the overthecounter market or otherwise at prevailing market prices or in negotiated transactions, at the discretion of the Issuers. The Manager has not separately verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by the Manager as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuers. The Manager accepts no liability in relation to the information contained in this Prospectus or any other information provided by the Issuers in connection with the Programme. Neither this Prospectus nor any other information supplied in connection with the Programme or any Securities (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation by the Issuers or the Manager that any recipient of this Prospectus or any other information supplied in connection with the Programme should purchase any Securities. Each investor contemplating purchasing any Securities should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the relevant Issuer. Neither this Prospectus nor any other information supplied in connection with the Programme constitutes an offer or an invitation by or on behalf of the Issuers or the Manager or any other person to subscribe for or to purchase any Securities. The delivery of this Prospectus does not at any time imply that the information contained herein concerning the Issuers is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the document containing the same. The Manager expressly does not undertake to review the financial condition or affairs of the Issuers during the life of the Programme. Investors should review, inter alia, the most recently published documents incorporated by reference into this Prospectus when deciding whether or not to purchase any Securities. In this Prospectus references to U.S.$ and U.S. dollars are to United States dollars and references to euro, and EUR are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the treaty establishing the European Community, as amended.
7 7 TABLE OF CONTENTS Page CONDITIONS FOR DETERMINING PRICE... 8 SUMMARY... 9 RISK FACTORS...14 DOCUMENTS INCORPORATED BY REFERENCE...27 GENERAL DESCRIPTION OF THE PROGRAMME...30 APPLICABLE FINAL TERMS...31 TERMS AND CONDITIONS OF THE WARRANTS...42 TERMS AND CONDITIONS OF THE CERTIFICATES...80 USE OF PROCEEDS DESCRIPTION OF UNICREDITO AND THE GROUP SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION FOR THE GROUP FINANCIAL INFORMATION ON UBM TAXATION OFFERING AND SALE GENERAL INFORMATION...321
8 8 CONDITIONS FOR DETERMINING PRICE The price and amount of Securities to be issued under the Programme will be determined by the relevant Issuer and the Manager at the time of issue in accordance with prevailing market conditions.
9 9 SUMMARY This summary must be read as an introduction to this Prospectus. Any decision to invest in any Securities should be based on a consideration of this Prospectus as a whole, including the documents incorporated by reference. Following the implementation of the relevant provisions of the Prospectus Directive in each Member State of the European Economic Area, no civil liability will attach to the Responsible Persons in any such Member State in respect of this Summary, including any translation thereof, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus. Where a claim relating to information contained in this Prospectus is brought before a court in a Member State of the European Economic Area, the plaintiff may, under the national legislation of the Member State where the claim is brought, be required to bear the costs of translating the Prospectus before the legal proceedings are initiated. The following Summary is qualified in its entirety by the remainder of this Prospectus. Words and expressions defined in the "Terms and Conditions of the Warrants" and "Terms and Conditions of the Certificates" and in the remainder of this Prospectus shall have the same meanings in this summary. Information relating to the Issuers Issuers UniCredito Italiano S.p.A. UniCredit Banca Mobiliare S.p.A. UniCredito Description: UniCredito was established in Genoa by way of a private deed dated 28 April, 1870 with a duration running until 31 December 2050, is incorporated as a company limited by shares and registered in the Genoa Trade and Companies Register, having its registered office at Via Dante 1, Genoa, and having fiscal code and VAT number UniCredito's principal centre of business is at Piazza Cordusio, n. 1, Milan, telephone number UBM Description: Banking Licence: UniCredito Business: UBM Business: UBM. was incorporated as a limited liability company (società per azioni or S.p.A.) on 14 July 1999 under the laws of Italy. Its registered number is UBM s registered office is at Via Tommaso Grossi 10, Milan, Italy. Both Issuers hold a banking licence under Italian law from the Bank of Italy enabling it to carry on all permitted types of banking business in Italy. UniCredito is a bank corporation organised and existing under the laws of Italy, and is the parent holding company of the UniCredito Group, a fullservice financial services group engaged in a wide range of banking, financial and related activities throughout Italy and eight Eastern and Central European countries (the Group). UBM provides wholesale financial services to institutional investors and distribution intermediaries. It is the leading operator in capital markets
10 10 in Italy. UniCredito Capitalisation: The consolidated capitalisation and consolidated indebtedness of the Group as at 31 March 2005 has been extracted from the unaudited consolidated statutory statements of the Group as at 31 March 2005 and is set out on page 133. UBM Capitalisation: The Capitalisation and Indebtedness Statement of UBM as at 31 Decemb er 2004, has been extracted from the audited nonconsolidated statutory statements of UBM as at 31 December 2004 and is set out on page 148. UniCredito Management Information: UBM Management Information: The Board of Directors of UniCredito is responsible for the ordinary and extraordinary management of UniCredito and the Group. The Board of Directors may delegate its powers to one or more Managing Directors and appoint an Executive Committee, determining its scope and powers. Management of UBM is carried out by the Board of Directors. The business address of each of the directors is Via Tommaso Grossi 10, Milan, Italy. Information relating to the Programme Description: Arranger: Principal Agent: Programme for the issuance of warrants and certificates. UniCredit Banca Mobiliare S.p.A. Kredietbank S.A. Luxembourgeoise. Method of Issue: Syndicated or nonsyndicated basis. The Securities will be issued in Series having one or more issue dates. Each Series may be issued in Tranches (each a Tranche) on the same or different issue dates. Issue Price: Form of Securities: Type of Securities: Securities will be issued at the price determined by the relevant Issuer and the Manager according with the prevailing market conditions. Securities may be issued at their nominal amount or at a discount or premium to their nominal amount. Unless the applicable Final Terms specify that Monte Titoli is the relevant clearing system or specify that a clearing system other than Clearstream, Luxembourg, Euroclear or Monte Titoli is applicable, each issue of Warrants will be represented by a Global Warrant and each issue of Certificates will be represented by a Global Certificate. No Warrants or Certificates in definitive form will be issued. The Issuers may from time to time issue Securities of any kind, including but not limited to Index Securities, Share Securities, Debt Securities, Currency Securities and Commodities Securities. Securities are a form of derivative financial instruments, which derive their value from an underlying instruments.
11 11 Clearing Systems: Currencies: Maturities: Denomination: Interest Periods and Interest Rates: Redemption: Status of Securities: Taxati on: Listing: Monte Titoli, Clearstream, Luxembourg, Euroclear and such other clearing system as may be agreed between the Issuers and the Manager. Euro, U.S. dollars or in any other currency or currencies, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements. The Securities will have such maturities as may be agreed between the Issuers and the Manager, subject to such minimum and maximum maturities as may be required by the relevant laws, regulations and directives. The Securities will (if applicable) be issued in such nominal amounts as may be allowed or required from time to time by the relevant laws or regulations applicable to the relevant currency. Interest periods and the interest rate (if applicable) or its method of calculation may differ from time to time or be constant for any Series. All such information will be set out in the relevant Final Terms. The applicable Final Terms will specify the redemption and settlement terms of the Securities. Securities will constitute direct, unsubordinated and unsecured obligations of the Issuers. All payments made by the Issuers shall be made subject to any such tax, duty, withholding or other payment which may be required to be made, paid, withheld or deducted. See also "Risks Factors EU Savings Directive" and " Taxation" below. Application has been made to the CSSF to approve this document as two base prospectuses. Application has been made to the Luxembourg Stock Exchange for Securities under the Programme to be admitted to trading on the Luxembourg Stock Exchange's regulated market and to be listed on the Luxembourg Stock Exchange. Securities may be listed or admitted to trading, as the case may be, on other or further stock exchanges or markets or unlisted. Selling Restrictions: Governing law: Risk Factors: There are restrictions on the offer, sale and transfer of the Securities. See "Offering and Sale". The Securities are governed by Italian Law or English Law as specified in the applicable Final Terms. There are certain factors that may affect the Issuer s ability to fulfil their obligations under the Securities issued under the Programme. On 12 June, 2005, UniCredito and HVB (as defined below) resolved to
12 12 enter into a business combination agreement setting out the terms of the aggregation of HVB and the Group. Certain adverse consequences for the Group s business and results of operations could result from such aggregation, if it were to be successful. Such adverse effects could result from: (i) UniCredito s ability to foresee its capital requirements, to meet its regulatory capital obligations and to anticipate its Tier I and total capital ratios depend on a number of assumptions (among which the number and allocation of the shares tendered pursuant to the offers and the negotiations of, and market conditions relating to, the capital raising transactions planned by UniCredito for the purpose of funding the offers) which may not prove accurate and deviations from these assumptions could result in regulatory capital results that differ materially from those expected by UniCredito; and (ii) the proposed acquisition of HVB requires the integration and combination of different management, strategies, procedures, products and services, client bases and distribution networks with the aim of streamlining the business structure and operations of the newlyenlarged group and there can be no assurance that the Group will be able to assimilate HVB s structure, management and client base. In addition, during 2004 and the first six months of 2005, UniCredito concluded or negotiated a number of acquisition agreements, including significant acquisitions in Italy and in New Europe countries, and the integration of these acquisitions has and will involve integration challenges, particularly where management information and accounting systems differ materially from those used elsewhere in the Group. There are also significant risks associated with doing business in New Europe: there are significant differences in the nature of these risks from one country to another, but they generally include comparatively volatile economic, foreign exchange and stock market conditions, as well as in many cases, less developed political, financial and legal infrastructures. The results of the Group are affected by general economic, financial and other business conditions. During recessionary periods, there may be less demand for loan products and a greater number of the Group s customers may default on their loans or other obligations. Interest rate rises may also impact the demand for mortgages and other loan products. Fluctuations in interest rates in Europe and in the other markets in which the Group operates influence the Group s performance. Pursuant to European Community Regulation EC 1606/2002, all companies listed on stock exchanges in the European Union, including UniCredito, are required to prepare their financial statements in accordance with IFRS (as defined below), beginning with the accounts for the financial year ended 31 December, UniCredito cannot exclude the possibility that the change to IFRS could have a significant impact on individual line items in its consolidated financial statements and make any comparison with its current financial statements extremely difficult. The Securities. Holders of the Securities issued under the Programme are exposed to several risks in relation to the Securities, for example risks related to
13 13 the structure of a particular Securities, interest rate, foreign exchange, time value and political risks, and market risks associated with investing in a particular basis of reference. These risks are set out in more detail on pages 13 to 22 of this Prospectus. Representation of holders of the Securities: There are provision for representation of Holders of Securities according to Condition 9(D).
14 14 RISK FACTORS Each of the Issuers believes that the following factors may affect its ability to fulfil its obligations under Securities issued under the Programme. All of these factors are contingencies which may or may not occur and the Issuers are not in a position to express a view on the likelihood of any such contingency occurring. In addition, factors which are material for the purpose of assessing the market risks associated with Securities issued under the Programme are also described below. Each of the Issuers believes that the factors described below represent the principal risks inherent in investing in Securities issued under the Programme, but the inability of the Issuers to pay interest, principal or other amounts on or in connection with any Securities may occur for other reasons and the Issuers do not represent that the statement below regarding the risks of holding any Securities are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Prospectus and reach their own views prior to making any investment decision. Factors that may affect UniCredito's ability to fulfil its obligations under Securities issued under the Programme Risks Associated with the Proposed Acquisition of HypoVereinsbank (HVB) On 12 June, 2005, UniCredito and HVB resolved to enter into a business combination agreement setting out the terms of the aggregation (the Business Combination) of HVB and the UniCredito Group. The transaction will consist of three voluntary shareforshare offers by UniCredito for the shares of HVB, Bank Austria and Bank BPH (respectively, the HVB Offer, the Bank Austria Offer, and the BPH Offer, and together, the Tender Offers), which will have to be approved by the competent local authorities. Completion of the Tender Offers will be subject to regulatory approvals (banking supervisory and merger control clearances). Regulatory approval from the competent authorities in Germany, Austria and Italy has been obtained, and the HVB Offer and the Bank Austria Offer were both launched on August 26, 2005 and closed, respectively, on 24 October, 2005 and 31 October, The BPH Offer is expected to be launched following approval of the relevant Polish authorities (banking supervisory and merger control clearances). Certain adverse consequences for the Group s business and results of operations could result from an acquisition of HVB, if it were to be successful. Such adverse effects could result from the following: UniCredito's ability to foreseen its postacquisition regulatory capital obligations are based on assumptions that are subject to change and uncertainty. UniCredito s ability to foresee its capital requirements, to meet its regulatory capital obligations and to anticipate its Tier I and total capital ratios depend on a number of assumptions, among which the number and allocation of the shares tendered pursuant to the Tender Offers and the negotiations of, and market conditions relating to, the capital raising transactions planned by UniCredito for the purpose of funding the Tender Offers. Any or all of these assumptions may not prove accurate and deviations from these assumptions could result in regulatory capital results that differ materially from those expected by UniCredito. As a result, prospective investors should not unduly rely on UniCredito s indications in relation to regulatory capital. UniCredito may not be able to integrate and to centralise HVB into its existing group effectively. The proposed acquisition of HVB requires the integration and combination of different management, strategies, procedures, products and services, client bases and distribution networks with the aim of streamlining the business structure and operations of the newly enlarged group. This process of integration may require significant additional investment and expense. There can
15 15 be no assurance that the Group will be able to assimilate HVB s structure, management and client base into the Group. Failure to so integrate or assimilate the HVB, or the need for significant further investment in order to do so, could have a material adverse effect on the Group s business and results of operations. Unforeseen difficulties in connection with the proposed Business Combination of the Group and the HVB Group may have a material adverse effect on the Combined Group s business (as defined below), financial condition and results of operations. The proposed Business Combination will result in the integration of two large banking groups that were previously managed and operated independently and as competitors. This complex integration poses specific challenges that will expose the group resulting from the successful completion of the Business Combination (the Combined Group) and, by extension, the shareholders of UniCredito to certain risks, including the following: Uncertainties of achieving synergies. Although UniCredito expects the proposed Business Combination to create synergies, the integration of two large banking groups based in different countries, with differing cultural backgrounds, business cultures, operating languages and compensation structures, which are active throughout a large geographical area, presents significant managerial challenges. There can be no assurance that this integration, and the synergies expected to result from the integration, will be achieved as rapidly or to the extent currently anticipated. Complex harmonization of the Group s and the HVB Group s IT systems. Harmonizing the Group s and the HVB Group s information technology ( IT ) systems to create a consistent IT architecture across the Combined Group poses specific challenges and risks to the Combined Group. Complex integration of the Group s and the HVB Group s risk management systems. The Group and the HVB Group currently use different methodologies to measure and manage risks. The integration of the two risk management systems following the proposed Business Combination will likely aggravate the risk of a potential failure or inadequacy of the Combined Group s risk management systems, in particular during the initial integration phase. Diversion of management resources to address integration issues. The integration of the Group and the HVB Group will require significant time and attention of the Combined Group s management. To the extent that integration issues divert attention from management s other responsibilities, the Combined Group s business may be adversely affected. Need to communicate effectively with partners and customers. The Combined Group will need to communicate effectively with its partners and customers so that they understand the expanded range of products and services offered by the Combined Group and the relative strengths of such product and services range. The failure to communicate effectively may result in a failure to exploit opportunities and the loss of existing business and customers. Potential loss of key personnel. The Combined Group will rely on the senior management of the Group and the HVB Group to successfully integrate the two groups and implement the combined strategy. If the Combined Group loses key personnel, it may have more difficulty completing the integration quickly and in a manner that takes advantages of the respective strengths of the Group and the HVB Group. Tax Implications Tax Loss Carry Forwards. HVB and certain of its subsidiaries have substantial tax loss carry forwards. In Germany and Austria, such tax loss carry forwards can be used for an indefinite period of time to offset future positive income, within certain limits. According to German tax law, the use of tax loss carry forwards is disallowed when the company that incurred the losses is not economically
16 16 identical with the company seeking to use the corresponding loss carry forward. In particular, following the acquisition of more than 50% of the HVB shares by UniCredito, the use of the tax loss carry forwards depends on a number of conditions that are subject to conflicting interpretations by the fiscal courts and the tax authorities. Under Austrian law, a loss carry forward may be denied if a substantial change in the shareholder structure, as well as in the organizational and economic structure, takes place. Real Estate Transfer Tax Liability. The transfer of shares in HypoVereinsbank to UniCredito may under certain conditions result in real estate transfer tax liability with respect to German real estate owned by HVB or its subsidiaries. Each of the factors discussed above may have a material adverse effect on the Combined Group s business, financial condition and results of operations. There can be no assurance that the integration process will be successful and that the Combined Group will be operated and managed as efficiently as the Group and the HVB Group, respectively, have been operated and managed in the past. The Gr oup and the HVB Group are, and the Combined Group will be, exposed to credit risks. Through their banking operations, the Group and the HVB Group each are, and the Combined Group will be, exposed to the risk that receivables from third parties owing money, securities or other assets to them will not be collected when due and must be written off (in whole or in part) due to the deterioration of such third parties respective financial standing (counterparty risk). This risk is present in both the traditional onbalance sheet uncollateralized and collateralized lending business and offbalance sheet business, e.g., when extending credit by means of a bank guarantee. Credit risks have historically been aggravated during periods of economic downturn or stagnation, which are typically characterized by higher rates of insolvencies and defaults. As part of their respective businesses, entities of the Group and the HVB Group operate, and entities of the Combined Group will operate, in countries with a generally higher country risk than in their respective home markets ( emerging markets ). Entities of the Group and the HVB Group hold, and entities of the Combined Group will hold, assets located in such countries. While both the Group and the HVB Group monitor credit quality and manage the specific risk of each counterparty and the overall risk of the respective loan portfolios, and the Combined Group will continue to do so, there can be no assurance that such monitoring and risk management will suffice to keep the Combined Group s exposure to credit risk at acceptable levels. Any deterioration of the creditworthiness of significant individual customers or counterparties, or of the performance of loans and other receivables, as well as wrong assessments of creditworthiness or country risks may have a material adverse effect on the Combined Group s business, financial condition and results of operations. Nontraditional banking activities expose the Group and the HVB Group and, in future, will expose the Combined Group to additional credit risks. Many of the business activities of the Group, the HVB Group and, in future, the Combined Group, that go beyond the traditional banking business of lending and deposittaking will expose the Combined Group to additional credit risk. Nontraditional credit risk can, for example, arise from: entering into derivative contracts under which counterparties have obligations to make payments to entities of the Combined Group; executing securities, futures, currency or commodity trades that fail to settle timely due to nondelivery by the counterparty or systems failure by clearing agents, exchanges, clearing houses or other financial intermediaries (including the Combined Group); owning securities of third parties; and extending credit through other arrangements.
17 17 Parties to these transactions, such as trading counterparties or counterparties issuing securities held by entities of the Combined Group, may default on their obligations to entities of the Combined Group due to insolvency, political and economic events, lack of liquidity, operational failure or other reasons. Defaults with respect to a significant number of transactions or one or more transactions that involve significant volumes would have a material adverse effect on the Combined Group s business, financial condition and results of operations. A failure of the Combined Group to fully implement its strategy may have a material adverse effect on the Combined Group s business, financial condition and results of operations. The objective of the Combined Group is to create a new force in European banking with leading positions in its core markets in Italy, Germany, Austria and Central and Eastern Europe as well as a balanced business portfolio and enhanced growth prospects and it has defined a number of strategic goals in order to achieve this objective. There can be no assurance that the Combined Group will be successful in achieving these strategic goals or that achievement thereof is sufficient to achieve the objectives of the Combined Group. Further, there is no guarantee that the Combined Group will be able to realize all the synergies envisaged by UniCredito and HVB in relation to the proposed Business Combination. A number of factors, some of which are outside the control of the Combined Group (such as market declines and unfavourable macroeconomic conditions in the Combined Group s core markets), the failure to establish clear governance rules within the Combined Group and to align the strategies of the Combined Group s entities with the strategy of the Combined Group as a whole, as well as the failure to integrate the businesses of the Combined Group, could result in an inability to implement some or all of the Combined Group s strategic goals or to fully realize expected synergies, all of which could have a material adverse effect on the Combined Group s business, financial condition and results of operations. Risks Associated with the Integration of Recent Acquisitions During 2004 and the first six months of 2005, UniCredito concluded or negotiated a number of acquisition agreements, including significant acquisitions in Italy, in Germany and in New Europe countries. The integration of these acquisitions has and will involve integration challenges, particularly where management information and accounting systems differ materially from those used elsewhere in the Group. Although much progress has been made since 2003, there are also ongoing integration challenges associated with the combination of the activities of the predecessor of UniCredito. Although management believes it has the resources needed to successfully integrate these operations, it is possible that further integration difficulties could arise or that unanticipated problems could be discovered in one or more of the acquired entities. If the Group were to conclude further significant acquisitions in the near future, these risks would be enhanced. The Combined Group s further expansion in Central and Eastern Europe poses challenges. An important element of the Combined Group s strategy is to expand and develop its business in Central and Eastern Europe. The countries of Central and Eastern Europe have undergone rapid political, economic and social change since the end of the 1980s, and this process was accelerated by the accession to the European Union in May 2004 of many of the Central and Eastern European countries in which companies of the Combined Group operate. Economic growth in Central and Eastern Europe may slow in coming years by European Union legal, fiscal and monetary disciplines, which may limit a country s ability to respond to local economic circumstances. Moreover, a delay in, or the disruption of, the accession process with regard to the Central and Eastern European countries that have not yet joined the European Union (Bulgaria, Croatia, Romania and Turkey) may have material adverse consequences for the economies of these countries and the Combined Group s business in these countries. In addition, UniCredito expects that competitive pressures in Central and Eastern Europe will increase, as banking groups already active in the banking markets will seek to expand their presence, and new entrants may also move into these markets.
18 18 Risks Associated with Exposure to New Europe Countries Management believes that there are significant potential opportunities for the Group in New Europe countries. While management believes there are opportunities for the Group to attract significant additional higher margin business from its business activities in these countries at what management considers to be an attractive cost, there are also significant risks associated with doing business in this countries. There are significant differences in the nature of these risks from one country to another, but they generally include comparatively volatile economic, foreign exchange and stock market conditions, as well as in many cases, less developed political, financial and legal infrastructures. There can be no assurance that the Group's financial condition or results of operations will not be materially and adversely affected as a result of one or more of these risks. Fluctuations in Interest Rates May Impact the Group's Results Fluctuations in interest rates in Europe and in the other markets in which the Group operates influence the Group's performance. The results of the Group's banking operations are affected by the Group's management of interest rate sensitivity. Interest rate sensitivity refers to the relationship between changes in market interest rates and changes in net interest income. A mismatch of interestearning assets and interestbearing liabilities in any given period, which tends to accompany changes in interest rates, may have a material effect on the Group's financial condition or results of operations. Continued Economic Sluggishness and Weak Financial Markets and Volatility Can Materially Adversely Affect the Group's Revenues and Profits. The results of the Group are affected by general economic, financial and other business conditions. During recessionary periods, there may be less demand for loan products and a greater number of the Group's customers may default on their loans or other obligations. Interest rate rises may also impact the demand for mortgages and other loan products. The risk arising from the impact of the economy and business climate on the credit quality of the Group's borrowers and counterparties can affect the overall credit quality and the recoverability of loans and amounts due from counterparties. In addition, protracted or steep declines in the stock or bond markets in Italy and elsewhere may adversely impact the Group's investment banking, securities trading and brokerage activities, the Group's asset management and private banking services, as well as the Group's investments in and sales of products linked to financial assets performance. Intense Competition, Especially in the Italian Market, Where the Group has the Vast Majority of its Businesses, Could Have a Material Adverse Effect on the Group's Results of Operations and Financial Condition. Competition is intense in all of the Group's primary business areas in Italy and the other countries in which the Group conducts its business. The Group derives most of its total banking income from its banking activities in Italy, a mature market where competitive pressures have been increasing quickly. If the Group is unable to continue to respond to the competitive environment in Italy with attractive product and service offerings that are profitable for the Group, it may lose market share in important areas of its business or incur losses on some or all of its activities. In addition, downturns in the Italian economy could add to the competitive pressure, through, for example, increased price pressure and lower business volumes for which to compete. The Group's Risk Management Policies May Fail to Provide Adequate Protection. The Group classifies the risk elements in its Italian loan portfolio in accordance with appropriate requirements of the Bank of Italy and Italian law, which may not be as strict as the corresponding
19 19 requirements in certain other countries. The Group has devoted significant resources to developing policies, procedures and assessment methods to manage market, credit, liquidity and operating risk and intends to continue to do so in the future. Nonetheless, the Group's risk management techniques and strategies may not be fully effective in mitigating its risk exposure in all economic market environments or against all types of risks, including risks that the Group fails to identify or anticipate. If existing or potential customers believe that the Group's risk management policies and procedures are inadequate, the Group's reputation as well as its revenues and profits may be negatively affected. The Group, like all financial institutions, is exposed to many types of operational risk, including the risk of fraud by employees and outsiders, unauthorised transactions by employees or operational errors, including errors resulting from faulty computer or telecommunication systems. The Group's systems and processes are designed to ensure that the operational risks associated with the Group's activities are appropriately monitored. Any failure or weakness in these systems, however, could adversely affect the Group's financial performance and business activities. Changes in the Italian and European Regulatory Framework Could Adversely Affect the Group's Business. The Group is subject to extensive regulation and supervision by the Bank of Italy, the Italian Securities and Exchange Commission ("CONSOB"), the European Central Bank and the European System of Central Banks. The banking laws to which the Group is subject govern the activities in which banks and foundations may engage and are designed to maintain the safety and soundness of banks, and limit their exposure to risk. In addition, the Group must comply with financial services laws that govern its marketing and selling practices. Any changes in how such regulations are applied or the implementation of the New Basel Capital Accord ("Basel II") on capital requirements for financial institutions, may have a material effect on the Group's business and operations. As some of the banking laws and regulations affecting the Group have been recently adopted, the manner in which those laws and related regulations are applied to the operations of financial institutions is still evolving. No assurance can be given that laws and regulations will be adopted, enforced or interpreted in a manner that will not have an adverse effect on the business, financial condition, cash flows and results of operations of the Group. Changes from Italian GAAP to IFRS May Make Comparison With the UniCredito's Current Audited Consolidated Financial Statements Impossible. Pursuant to European Community Regulation EC 1606/2002, all companies listed on stock exchanges in the European Union, including UniCredito, are required to prepare their financial statements in accordance with international financial reporting standards ("IFRS"), beginning with the accounts for the financial year ended 31 December The nature and scope of the changes UniCredito will be required to make to its accounting policies and practices are currently unclear. UniCredito cannot exclude the possibility that the change to IFRS could have a significant impact on individual line items in its consolidated financial statements and make any comparison with its current financial statements extremely difficult. Ratings UniCredito is currently rated "A+" by Standard & Poor's, "A+" by Fitch and "Aa2" by Moody's. In determining the rating assigned to the Parent, these rating agencies have considered and will continue to review various indicators of the Group's performance, UniCredito's profitability and its ability to maintain its consolidated capital ratios within certain target levels. If UniCredito fails to achieve or maintain any or a combination of more than one of the indicators, including if UniCredito is unable to maintain its consolidated capital ratios within certain target levels, this may result in a downgrade of UniCredito 's rating by Standard & Poor's, Fitch or Moody's.
20 20 Following the announcement of the proposed Business Combination, Moody s, Standard & Poor s and Fitch have put UniCredito s ratings on credit watch and, as a consequence of the positive outcome of the HVB Offer following the close of the offer period on 24 October 2005, Moody s, Standard & Poor s and Fitch downgraded Unicredito's ratings. Furthermore, HVB has experienced several downgrades of its ratings by Moody s, Standard & Poor s and Fitch in recent years. Following the positive outcome of HVB Offer, HVB has reported its current medium and longterm credit ratings to be A by Standard & Poor s, A by Fitch and A2 by Moody s. While the HVB Group s operating performance has improved in 2004 compared to 2003, there can be no assurance that these improvements will be sustainable. Any rating downgrades of UniCredito or other entities of the Combined Group (including HVB) would increase the refinancing costs of the Combined Group and may limit its access to the financial markets and other sources of liquidity, all of which could have a material adverse effect on its business, financial condition and results of operations. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the relevant rating organization. Factors that may affect UBM's ability to fulfil its obligations under Securities issued under the Programme Like all other banks the UBM is mainly exposed to credit risk and market risk (e.g. interest rate movements and currency movements). These risk factors are addressed by the UBM's own risk management procedures and exposures are constantly measured and supervised. With the exception of the risk factors in this section entitled "Factors that may affect the UBM's ability to fulfil its obligations under Securities issued under the Programme", UBM does not consider there to be any other risk factors relevant to its business. Factors which are material for the purpose of assessing the market risks associated with Securities issued under the Programme The Securities may not be a suitable investment for all investors. Each potential investor in the Securities must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) (ii) (iii) have sufficient knowledge and experience to make a meaningful evaluation of the Securities, the merits and risks of investing in the Securities and the information contained or incorporated by reference in this Prospectus or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Securities and the impact the Securities will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the Securities, including Securities with principal or interest payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor's currency;
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