UGF BANCA 2009 FINANCIAL STATEMENTS
The images in these Accounts are from the UGF Group's advertising campaign Measured up to your tomorrow created by the advertising agency McCann Erickson.
UGF BANCA 2009 FINANCIAL STATEMENTS
Translation from the original Italian text
Contents Company bodies........................................ 9 Highlights............................................. 21 Financial Statements of UGF Banca Management Report..................................... 23 The macroeconomic background............................. 24 The national banking system............................... 25 Your Bank........................................... 26 Comment on the Main Items of the Balance Sheet and Income Statement... 28 Policies and Strategies in 2009.............................. 45 Related Party Transactions................................. 59 Data Protection........................................ 59 Other information...................................... 59 Subsequent events...................................... 60 Business Outlook....................................... 61 Proposal for approving the financial statements and allocating the net profit for the year.................................. 61 Tables of Financial Statements............................... 63 Notes to the Financial Statements............................. 71 Disclosure of Auditor Remuneration........................... 183 Board of Statutory Auditors Report............................ 185 Auditors Report........................................ 195 Consolidated Financial Statements of the UGF Banca Group Management Report..................................... 201 Tables of Consolidated Financial Statements...................... 215 Notes to the Consolidated Financial Statements.................... 223 Statutory Auditors Report on the Consolidated Financial Statements...... 339 Auditors Report on the Consolidated Financial Statements............. 347 3
Shareholders UNIPOL GRUPPO FINANZIARIO S.p.A. 67.744% UGF ASSICURAZIONI S.p.A. 32.256% 5
Company Bodies Board of Directors Chairman Pierluigi STEFANINI Vice Chairman Gilberto COFFARI Members of the Board Maurizio CASTELLINA Carlo Cimbri Piero Collina Franco ELLENA Fabrizio GILLONE Oscar GUIDETTI Claudio LEVORATO Marco PEDRONI Giuseppe POLITI Carlo SALVATORI Marco Giuseppe Venturi Umberto Venturi Carlo zini Secretary to the Board of Directors Stefano DE SANTIS General Manager Luciano COLOMBINI Assistant General Manager Business Area Fabio COLOMBERA Board of Statutory Auditors Chairman Roberto CHIUSOLI Statutory Auditor Giovanni Battista GRAZIOSI Vincenzo URBINI Alternate Auditor Nicola BRUNI Cristiano CERCHIAI Auditors KPMG S.p.A. 7
Distribution Network As at 28 April 2010 1 10 1 34 2 2 13 1 3 1 9 64 34 3 14 8 10 1 40 4 11 11 13 1 1 2 1 299 BANK COUNTERS 28 FINANCIAL COUNTERS 31 1 9
Telebanking Services Our Bank Counters Bologna - Virtual counter www.unipolbanca.it Emilia Romagna BOLOGNA Via Aurelio Saffi, 6 BOLOGNA Via Stalingrado, 59/A BOLOGNA Piazza Adam Mickiewicz, 6 BOLOGNA Via Genuzio Bentini, 31/A int. 2 BOLOGNA Via Giuseppe Mezzofanti, 89 BOLOGNA Via Farini, 28/2 BOLOGNA Via Indipendenza, 8/h BOLOGNA Via Maggia, 6 BOLOGNA Via M.E. Lepido, 110/a ALTEDO (BO) Via Minghetti, 1/A int. 1 BAZZANO (BO) Piazza Garibaldi, 6/A CASALECCHIO DI RENO (BO) Via Guglielmo Marconi, 10 CASTEL SAN PIETRO (BO) Via Giuseppe Mazzini, 204 IMOLA (BO) Via Appia, 86/88 IMOLA (BO) Via Paolo Bentivoglio, 36 MEDICINA (BO) Via L. Fava, 421 SAN GIORGIO DI PIANO (BO) Via Pirotti, 6 SAN GIOVANNI IN PERSICETO (BO) Circonvallazione Liberazione, 7 SAN LAZZARO DI SAVENA (BO) Via Emilia, 1 SASSO MARCONI (BO) Via della Stazione, 33-35 ZOLA PREDOSA Via Risorgimento, 184 FERRARA Via Bologna, 110 FERRARA Largo Castello, 32/34 FORLI (FC) Via Grado, 2/2 FORLI (FC) Via Guglielmo Zuelli, 3 CESENA (FC) Viale Giosuè Carducci, 79 CESENA (FC) Via Savio, 10 ang. Viale Matteotti CESENATICO (FC) Piazza Comandini, 1 a/b SAVIGNANO SUL RUBICONE (FC) Via Fratelli Cairoli, 7-9 MODENA Via Carlo Zucchi, 21/E MODENA Via Nonantolana, 685/B MODENA Strada Vignolese, 439/1 MODENA Viale Trento e Trieste, 15 MODENA Via Pietro Giardini, 465 MODENA Via Giovanni Dalton, 55 CARPI (MO) Via Cantina della Pioppa, 1 CASTELNUOVO RANGONE (MO) Via Zanasi, 37c MIRANDOLA (MO) Via Circonvallazione, 172 SASSUOLO (MO) Via Antonio Gramsci, 14 SASSUOLO (MO) Via Archimede, 9 (C.to Com. PANORAMA) VIGNOLA (MO) Via Bellucci, 2 PARMA Via La Spezia, 75/b PARMA Viale Mentana, 84 RAVENNA Via Faentina, 67-69 RAVENNA Viale Berlinguer, 38 RAVENNA Via Ravegnana, 96 ang. Via B. del Grappa ALFONSINE (RA) Piazza Gramsci, 26 CERVIA (RA) Piazza XXV Aprile, 12 FAENZA (RA) Viale Alfredo Baccarini, 31 LUGO (RA) Via Acquacalda, 37 10
REGGIO EMILIA Via Piave, 35/2 REGGIO EMILIA Via Martiri di Cervarolo, 19 REGGIO EMILIA Via Fratelli Cervi, 5 REGGIO EMILIA Via della Repubblica, 19/e REGGIO EMILIA Via M. Ruini, 8 REGGIO EMILIA Via Augusto Tamburini, 7 CADELBOSCO DI SOPRA (RE) Via Monsignor G. Saccani, 1 CAVRIAGO (RE) Piazza Benderi, 2 CORREGGIO (RE) Via Cesare Battisti, 9 NOVELLARA (RE) Viale Roma, 26 RUBIERA (RE) Via Matteotti, 12/b SCANDIANO (RE) Corso Vallisneri, 17/R RIMINI Via Marecchiese, 52 RICCIONE (RN) Viale Maria Ceccarini, 189 Valle D Aosta AOSTA Corso Battaglione Aosta, 12 Piedmont TURIN Corso Alcide De Gasperi, 20/a TURIN Via Pomaretto, 6/b TURIN Via Duchessa Jolanda, 25 TURIN Corso Filippo Brunelleschi, 18 IVREA (TO) Corso Vercelli, 117 MONCALIERI (TO) Via Camillo Benso di Cavour, 14-16 NOVI LIGURE (AL) Piazza della Repubblica, 6/9 OVADA (AL) Corso Italia, 43 L BIELLA Via Antonio Gramsci, 9/a NOVARA Via Marconi, 3/a Liguria GENOA Via Lungobisagno Dalmazia, 75/R GENOA Via De Marini, 15 GENOA Via Antonio Cantore, 238/240 GENOA Via Napoli, 139/b-r GENOA Via Degli Orefici, 18/R SESTRI LEVANTE (GE) Piazza della Repubblica, 16 LA SPEZIA Via del Prione, 15 SARZANA (SP) Via Brigata Partigiana Muccini, 20 SAVONA Via Paleocapa, 150 r Lombardy MILAN Piazza Michelangelo Buonarroti, 25 MILAN Via A. Traversi ang. Via A. Gazzoletti MILAN Via Luigi Mercantini, 4 MILAN Viale Papiniano, ang. Via Calco, 2 MILAN Via Ambrogio Binda, 56 MILAN Corso di Porta Romana, 89 MILAN Via Vittor Pisani, 19 MILAN Piazza Missori, 2 CINISELLO BALSAMO (MI) Viale Rinascita, 31 ang. Piazza Costa DESIO (MI) Via Milano, 136 ang. Via Turati, 2 MONZA (MI) Via Parravicini, 2 ang. Via Prina SAN DONATO MILANESE (MI) Via della Unione Europea, 3/b SAN GIULIANO MILANESE (MI) Via Enrico De Nicola, 8 11
SENAGO (MI) Piazza Giacomo Matteotti, 13 SESTO SAN GIOVANNI (MI) Via Modena, 53 BERGAMO Via Gabriele Camozzi, 24 COSTA VOLPINO (BG) Via Nazionale, 212/b BRESCIA Corso Martiri della Libertà, 15 BRESCIA Corso Luigi Bazoli, 45 BRESCIA Via Fratelli Lechi, 52 BRESCIA Via XX Settembre, 42-46 DESENZANO DEL GARDA (BS) Via de Andreis, 74 MANERBIO (BS) Via Mazzini, 9 ROVATO (BS) Via Dieci Giornate, 5 CANTU (CO) Via Cavour, 11 CREMONA Piazza Luigi Cadorna, 9 MANTOVA Via Principi Amedeo, 9 SUZZARA (MN) Via Montecchi, 11B MERATE (LC) Via Monsignor Colombo, 1 PAVIA Via San Paolo, 47 VOGHERA (PV) Corso XXVII Marzo, 49 VARESE Via Marcobi, 4 VARESE Viale Milano, 15 GALLARATE (VA) Via San Francesco, 4 Veneto PADUA Via Francesco Rismondo, 2/C PADUA Via Palermo, 9/B CAMPOSAMPIERO (PD) Via Ippolito Nievo, 2 CITTADELLA (PD) Via Borgo Padova, 164 PORTOGRUARO (VE) Viale Luigi Cadorna, 6 ROVIGO Via A. Minelli,1 ang. Corso del Popolo TREVISO Piazza San Leonardo, 5/B ODERZO (TV) Via Giuseppe Verdi, 41 VERONA Via Antonio Pisano, 69 VERONA Stradone Porta Palio, 82 VICENZA Corso Santo Felice e Fortunato, 300 BASSANO DEL GRAPPA (VI) Viale XI Febbraio, 5/A CASSOLA (VI) Via Pio X, 58 Trentino Alto Adige BOLZANO Corso Libertà, 56 TRENT Via Brennero, 194 Friuli Venezia Giulia TRIESTE Piazza Guglielmo Oberdan, 4/b PORDENONE Viale Michelangelo Grigoletti, 94 C UDINE Piazzale D Annunzio, 17 Tuscany FLORENCE Viale Spartaco Lavagnini, 40 FLORENCE Viale Belfiore, 36 FLORENCE Borgo La Croce, 65/r FLORENCE Viale Francesco Talenti, 132-136 EMPOLI (FI) Viale Francesco Petrarca, 4 SCANDICCI (FI) Via Roma, 53/55 SESTO FIORENTINO (FI) Piazza Del Mercato, 24 AREZZO Viale Mecenate, 35 12
SAN GIOVANNI VALDARNO (AR) Corso Italia, 30 GROSSETO Via Svizzera, 229 GROSSETO Via Adige, 68 CASTEL DEL PIANO (GR) Viale Dante Alighieri, 10 FOLLONICA (GR) Viale Albereta, 44 MANCIANO (GR) Largo Massimo D Antona, snc ORBETELLO (GR) Via Mura di Levante, 14 LIVORNO Via Pietro Tacca, 26 CECINA (LI) Via Circonvallazione, 17/19 PIOMBINO (LI) Via Galilei, 3/5 LUCCA Via San Paolino, 14/18 LUCCA Via De Gasperi, 95/U VIAREGGIO (LU) Via Ugo Foscolo, ang. Piazza Shelley MASSA Viale Roma, 105 MASSA Viale Stazione, 40 AULLA (MS) Viale Lunigiana, 3 PISA Via Carlo Matteucci, 85 PISA Piazza S. Antonio, 9 PONTEDERA (PI) Via Enrico Toti, ang. Via Armando Diaz PISTOIA Via Del Villone, 37/41 LARCIANO (PT) Via Dante Alighieri, 1 PRATO Via Agnolo Firenzuola, 8 PRATO Viale Montegrappa, 220 a/f SIENA Viale Giuseppe Mazzini, 105 SIENA Via Vittorio Zani, 3 COLLE DI VAL D ELSA (SI) Via Bilenchi, 10 Umbria PERUGIA Via Fontivegge, 45 PERUGIA - PONTE SAN GIOVANNI Via Quintina, 50 CASTIGLIONE DEL LAGO (PG) Via Bruno Buozzi, 119/a CITTÀ DI CASTELLO (PG) Via Luca della Robbia, 55 FOLIGNO (PG) Via Cesare Battisti, 20 SPOLETO (PG) Piazza Giuseppe Garibaldi, 12 TERNI Via Tre Monumenti, 34 NARNI SCALO (TR) Via Tuderte, 398 Marches ANCONA Via Giannelli 18 JESI (AN) Via XXIV Maggio, 22 OSIMO (AN) Via Marco Polo, 220/C SENIGALLIA (AN) Via Giordano Bruno, 65 MACERATA Via dei Velini, 14 CIVITANOVA MARCHE (MC) Via Silvio Zavatti, 10 RECANATI (MC) Via Ceccaroni, 1 TOLENTINO (MC) Via Matteotti, 29 PESARO (PU) Via Giovanni Giolitti, 155 FANO (PU) Via XXIV Maggio, 11 Abruzzi AVEZZANO (AQ) Via Muzio Febonio, 32 PIANE D ARCHI (CH) Via Nazionale, 45 PESCARA Piazza Garibaldi, 21 GIULIANOVA (TE) Via Filippo Turati, ang. Via San Michele 13
Latium ROME Via Saturnia, 21-21/a ROME Viale di Porta Tiburtina, 46 ROME Via Zenodossio, 33 ROME Via Gasperina, 263 ROME Via dei Crispolti, 15/L ROME Via Gabriello Chiabrera, 53 ROME Piazza Carlo Alberto Scotti, 22 ROME Via Nomentana Nuova, 71 ROME Via Messina, 24 ROME Via Tommaso Arcidiacono, 93/95 ROME Viale America, 107 ROME Via Carlo Francesco Bellingeri, 7/a ROME Via di Tor Bella Monaca, 461/463 ROME Via Roberto Bracco, 42 ROME Largo Arenula, 32 ROME Via Ostiense, 73/h ROME Via delle Cave, 38/d-40 ROME Viale Giulio Agricola, 51 ROME Via di Casalotti, 185/a-b ROME Via Flaminia Nuova, 209 ROME VIa Flavia, 56 ROME Viale Antonio Ciamarra, 274 ROME Via Cavour, 70/72 GUIDONIA (RM) Via Umberto Maddalena, 9/A PALESTRINA (RM) Via Colle Martino, 1 POMEZIA (RM) Via Filippo Re, 52 TIVOLI (RM) Via Tiburtina Valeria, 211/213 FROSINONE Via San Tommaso d'aquino, 3 CASSINO (FR) Via Gaetano Di Biasio, 80 SAN GIOVANNI INCARICO (FR) Via Civita Farnese, 43 STRANGOLAGALLI (FR) Via Madonna di Loreto, 3 SUPINO (FR) Viale Regina Margherita, 35/37 TREVI NEL LAZIO (FR) Via delle Fornaci LATINA Via San Carlo da Sezze, 80 FONDI (LT) Via Fabio Filzi, 78 FORMIA (LT) Via Vitruvio, 408 RIETI Via Fratelli Sebastiani, 201 SPIGNO SATURNIA (LT) Via Martiri d Ungheria, 6/8/10 TERRACINA (LT) Via Tripoli, 2/4/6/8 VITERBO Via Igino Garbini, 84/h Basilicata MELFI (PZ) Via Aldo Moro, 17 Campania NAPLES Corso Vittorio Emanuele, 678 NAPLES Piazzetta Arenella, 12 NAPLES Via Riviera Di Chiaia, 14 NAPLES Via dell Epomeo, 4 NAPLES Via Cardinale G. Sanfelice, 53A CASTELLAMARE DI STABIA (NA) Via Principe Amedeo, 77/79 ISCHIA (NA) Via Foschini, 17 NOLA (NA) Via Anfiteatro Laterizio, 48 SAN GIUSEPPE VESUVIANO (NA) Piazza Garibaldi, 1 CASERTA Traversa Paul Harris c.parto A f.cato A2 SANTA MARIA CAPUA VETERE (CE) Piazza Giuseppe Mazzini, 35 SALERNO Via Lucio Orofino, 6 VALLO DELLA LUCANIA (SA) Via Angelo Rubino 14
Apulia BARI Via Melo da Bari, 103 BARI Via Enrico Pessina, 43 ANDRIA (BA) Via Felice Cavallotti, 2 MOLFETTA (BA) Viale Pio XI, 28 TRANI (BA) Via Napoli, 20 FASANO (BR) Corso Garibaldi, 156 FOGGIA Piazza Caduti sul Lavoro, 7 LECCE Viale della Libertà, 133/c GALLIPOLI (LE) Corso Italia, 27-29 MAGLIE (LE) Corso Cavour, 30 TAURISANO (LE) Via Filippo Lopez y Royo, 42 Sardinia CAGLIARI Via Pasquale Cugia, 40 CAGLIARI Piazza Ichnusa, 21 CAGLIARI Viale Trieste, 38 CAPOTERRA (CA) Via Diaz, 124 ang. Via Mameli IGLESIAS (CA) Via XX Settembre ang. Via Crocifisso NUORO Piazza Italia, 3 ORISTANO Via Giuseppe Mazzini, 32/34 TERRALBA (OR) Viale Sardegna, 27 SASSARI Via Giagu, 27 ALGHERO (SS) Via XX Settembre, 160 OLBIA (SS) Via Roma, 21 Sicily PALERMO Via Roma, 52/54/56 PALERMO Via Emerico Amari, 94 PALERMO Via Agrigento, 8 PALERMO Largo Cavalieri del Lavoro, 62 PALERMO Via Leonardo Da Vinci, 217/219 PALERMO Via Marchese di Villabianca, 78/80 ISOLA DELLE FEMMINE (PA) Via Piano Levante, 2 ang. Via Palermo MONREALE (PA) Via Pietro Novelli, 57 PARTINICO (PA) Viale Calandrino, 24 CATANIA Viale Africa, 126 CATANIA Via Monsignore Domenico Orlando, 1 CATANIA Viale Rapisardi, 509 ACIREALE (CT) Piazza Indirizzo, 10 GIARRE (CT) Via Callipoli, 230/234 MISTERBIANCO - FRAZ. LINERI (CT) Via San Nicolò, 343 ang. Via A. Giuffrida MESSINA Viale della Libertà, 45 - isolato 481 MESSINA Via XXVII Luglio, 38 - isolato 195 CAPO D ORLANDO (ME) Via Piave, 137-145 CASTROREALE (ME) Via Cesare Battisti, 32 MILAZZO (ME) Via Massimiliano Regis NIZZA DI SICILIA (ME) Via Umberto I, 77 SANT AGATA DI MILITELLO (ME) Via Trento, 32 TAORMINA (ME) Corso Umberto I, 159 SIRACUSA Viale Santa Panagia, 109 c/o Tribunale SIRACUSA V.le Teracati, 162a/b ang. Via G. Malfitano, 2/10 LENTINI (SR) Via Eschilo, 12 TRAPANI Corso Italia, 1/a TRAPANI Via degli Iris, 2 MARSALA (TP) Via Salemi, 31/31a MARSALA (TP) Via Pascasino, 9 SALEMI (TP) Via P.F. Clementi, 97/99 15
Our Financial Counters Emilia Romagna BOLOGNA Piazza XX Settembre, 6 BOLOGNA Centro Commerciale Vialarga (Galleria Vialarga, 49) BOLOGNA Via della Barca, 5 BOLOGNA Circolo G. Dozza - Via San Felice, 11 BORGO TOSSIGNANO (BO) Piazza Unità d Italia, 10 CASTELMAGGIORE (BO) Via Lirone, 9 IMOLA (BO) Via Emilia, 23 A/B SAN LAZZARO DI SAVENA (BO) Via Carlo Jussi, 16 ARGENTA (FE) Via Don Minzoni, 5/C MODENA Via Dello Sport, 50/31 (I Portali) FORMIGINE (MO) Via Piave, 2 NONANTOLA (MO) Via Vittorio Veneto, 25/2 CASTELBOLOGNESE (RA) Via Garavini, 13 CONSELICE (RA) Piazza Foresti, 12 Piedmont VERBANIA Via Rosmini, 29 Liguria CHIAVARI (GE) Via della Cittadella, 26/Via Doria, 56 Lombardy SENAGO (MI) Via Cavour, 1 GALLARATE (VA) Via Checchi, 7 Veneto MAROSTICA (VI) Via Montegrappa, 37 Tuscany GROSSETO Via De Barberi, 106/A MASSA MARITTIMA (GR) Via Cappellini, 25 16
PIOMBINO (LI) Via del Fosso, 34 Marches SENIGALLIA (AN) Viale G. Bruno, 26 Campania TELESE (BN) Via Roma, 40/44 Apulia LECCE Viale Aldo Moro, 23 MELENDUGNO (LE) Corso Cavour, 26/A Sardinia NUORO Via Biasi, 10 Sicily BELMONTE MEZZAGNO (PA) Via J.F. Kennedy, 95 17
Ordinary Shareholders Meeting Bologna, 28 April 2010 AGENDA 1) To approve the financial statements for the year ended 31 December 2009; to hear the Management Report and the Reports of the Board of Statutory Auditors and the Auditors; to pass the related and consequent motions. 2) To appoint the Board of Directors; to pass the related and consequent motions. 3) To appoint the Board of Statutory Auditors; to pass the related and consequent motions. 19
2009 Highlights Highlights 2009 2008 2007 Assets and Liabilities ( K) Total assets 11,294,626 10,728,028 10,859,237 Loans to customers 9,218,298 8,480,065 7,433,563 of which: net bad and doubtful loans 194,006 126,992 68,914 Financial assets (HTF and AFS) 88,555 463,891 1,024,893 Investments 122,228 122,228 119,034 Customer deposits and funds 31,238,346 28,878,340 31,447,643 Direct customer deposits 9,538,624 8,731,416 9,082,973 of which: current accounts 7,665,478 7,811,421 8,339,372 debts represented by securities 1,873,146 919,995 743,601 Customer funds 21,699,722 20,146,924 22,364,670 of which: assets under management 1,760,249 1,702,673 2,115,757 funds under custody 19,939,472 18,444,251 20,248,913 Net interbanking balance 553,834 197,601 1,430,951 Equity 1,039,923 827,795 954,784 Income statement ( K) Net interest income 214,540 238,304 200,928 Gross operating income 331,384 314,950 282,941 Net operating income 275,482 102,883 254,225 Balance on ordinary activities 20,227 (116,365) 53,588 Net profit 5,682 (88,523) 36,745 Organisation No. of employees at year-end 2,273 2,215 1,898 No. of bank counters at year-end 299 299 282 No. of financial counters at year-end 28 28 35 No. of financial advisers at year-end 374 386 409 21
MANAGEMENT REPORT
Management Report THE MACROECONOMIC BACKGROUND The macroeconomic background in 2009 was undoubtedly characterised by a high level of uncertainty. Following the crisis that began in the second half of 2007 and the negative performances of all the leading economies in 2008, 2009 was perhaps the year in which the cycle of negativity was broken. Although early figures showed substantial falls in GDP (-4.9% in Germany 1 the worst performance of the post-war years), as from the third quarter the first green shoots of recovery began to appear. This change took place both in the USA, where the 2007 crisis originated, and in the Eurozone. In both areas, after falling for four or five quarters, GDP began to rise, technically putting an end to the recession. In the Eurozone it grew 0.4% quarter on quarter and Italy, one of the main countries in the Eurozone, recorded +0.6% quarter on quarter after five quarters of falls 2. As well as a rise in GDP this stage was also accompanied by a slowdown in the drop in manufacturing orders and a slight increase in retail sales (0.4% higher in October than in September). The retail sales index in Italy also moved in line with GDP, being 0.4% higher in October than in the previous month and 0.1% up on October 2008. After falling in the first few months, inflation started to rise slowly but surely in July and by December was 0.9% higher than it had been in December 2008 3. During 2009 the Euro rose 7.8% against the dollar, from 1.353 (average for December 2008) to 1.458 (average for December 2009) 4. However, this background still did not mean the crisis could be officially declared over. Various indicators were still giving cause for concern, mainly the unemployment rate. After the increase in 2008 (annual average 6.8%) the indicator continued to rise in 2009 to 8% (latest figure available - October 2009) 5. Obviously as long as the numbers in employment continue to fall the risk of repercussions on consumption and therefore on the gross domestic product will continue. Another critical element was the public borrowing situation. The substantial support given by central governments for the economic recovery led to a marked deterioration in public finances: the state sector s cash requirements in 2009 were more than 30bn higher than in 2008 6. Against this background the Central Banks of the main industrialised countries adopted a largely neutral monetary policy, keeping policy rates at their lowest levels ever. At the same time the Banks maintained a high level of liquidity within the system in order not to put too tight a squeeze on credit and 1 Source: Italian Banking Association Monthly Outlook - February 2010. 2 Source: Italian Banking Association Monthly Outlook - February 2010. 3 Source: Italian Banking Association Monthly Outlook - February 2010. 4 Source: Italian Banking Association Monthly Outlook - February 2010. 5 Source: Italian Banking Association Monthly Outlook - February 2010. 6 Source: Italian Banking Association AFO financial outlook - December 2009. 24
Management Report thereby cause negative repercussions within the economy as a whole. In the Eurozone, after reducing policy rates five times during the period December 2008- May 2009, from 3.25% to 1%, the European Central Bank kept rates unchanged for the following seven months. At the same time the ECB pumped cash into the system, the aim being to support the upturn and prevent deflation, even by using non-traditional methods. Thus it extended the deadline for refinancing operations from 6 to 12 months, acted as counterparty for repo operations for the Banks in the Eurozone and discussed the possibility of acquiring covered bonds. These measures enabled the banking system to overcome the liquidity crisis within the Eurozone. Now that the acute stage of the crisis seems to have been overcome and the interbank market has been reactivated, providing the Banks with more opportunity to obtain funds, the ECB is gradually returning to normal. Analysis of interbank rates showed that there was a steady drop in short-term rates in 2009: the 3-month Euribor fell from 3.29% in December 2008 to 0.72% in December 2009 and continued to fall in the first few months of 2010, to under 0.66%. This was the lowest rates had ever been. Against this broad background, in which the outlook was still very uncertain but there were some positive signs, the stock markets performed very badly in the first quarter of 2009 and, after several signs of an upturn in the second quarter, performed well in the second half of the year, making up the losses of the first few months. In December the main share indices recorded the following trends: Standard & Poor s 500 index was up 26.7% year on year, the Nikkei 225 stood at +20.1% and the Dow Jones Euro Stoxx at +23.3%. European stock exchange indices also turned in a positive performance in December: the FTSE Mib (the index of the Milan Stock Exchange) was up 18.6%, the Dax30 +25.6%, the Cag40 +21% and the London FTSE100 +24.7%. THE NATIONAL BANKING SYSTEM Funding activity remained at a sustained level during 2009: direct fundraising by Italian banks (deposits from residents and bonds) grew 9.3% year on year. Analysis of the various elements reveals that customer deposits rose 8.0% and bonds 11.2% 7. However, lending to customers was largely unchanged in 2009: growth in the private sector (excluding interbank) was 1.7% year on year, +0.5% if only individuals and non-financial companies are taken into account. Analysis of the duration in this category reveals that the medium- to long-term segment (more than one year) grew 4.0% whilst the short-term segment (less than one year) fell 7.5% 8. The high level of medium- to long-term lending to customers was mainly accounted for by lending to individuals. This segment, albeit against a background of uncertainty in the national economic and financial system, took advantage of favourable interest rates to use lending to gain access to 7 Source: Italian Banking Association Monthly Outlook - February 2010. 8 Source: Italian Banking Association Monthly Outlook - February 2010. 25
Management Report what Italians recognise as a byword for a safe haven: bricks and mortar. Therefore the flow of new loans for house-purchase grew significantly (+6.0% year on year in November 2009 9 ), in complete contrast to the rest of Europe. On the other hand the consumer credit market was almost at a standstill. This was mainly due to the reduction in demand from individuals who put off investing in consumer goods, cars, motorcycles, furniture, etc. during the credit crunch. However, there was a marked deterioration in the quality of receivables: gross bad and doubtful debts amounted to 59bn in December 2009 (+65.9% compared with December 2008) 10 and accounted for 3.28% of lending to customers compared with 2.35% in December 2008 11. However, analysis of the figures net of write-downs shows that the ratio of net doubtful debts to total lending to customers was 2.02% compared with 1.24% in December 2008 12. The average interest rate applied to direct fund-raising from customers (deposits, bonds and repo contracts, paid to individuals and non-financial companies) was 1.56%, one and a half percentage points less than in December 2008. The drop was well below that of interbank rates, with a consequent decrease in the mark-down. However, the average rate in December 2009 applied to loans to individuals and nonfinancial companies was 3.77% (the lowest ever), 232 basis points lower than in December 2008 13. Thus the spread between the average rate charged on loans and the average rate paid on income from individuals and non-financial companies was 226 basis points in December 2009, more than 80 basis points lower than in December 2008. YOUR BANK Dear Shareholders, On 20 February 2009, Your Bank changed its company name to UGF Banca S.p.A. as part of a UGF Group brand architecture project. Similarly, a number of subsidiaries also underwent a change to their company name: Unipol Merchant - Banca per le Imprese S.p.A. became UGF Merchant - Banca per le Imprese S.p.A., Cooperleasing S.p.A. became UGF Leasing S.p.A. and Unipol Private Equity SGR S.p.A. became UGF Private Equity SGR S.p.A. And the Banking Group of which the Bank is the Parent changed it name to UGF Banca Banking Group. The total number of bank branches in 2009 remained unchanged at 299. The work of reorganising the geographical distribution begun during the year involved closing six sales outlets and simultaneously opening six new branches. Therefore at 31 December 2009 the sales network was made up of 180 branches combined with insurance agencies and 119 traditional sales outlets located close to one or more UGF insurance agencies. 28 finance shops and 1,629 insurance agencies authorised to sell banking 9 Source: Italian Banking Association Monthly Outlook - February 2010. 10 Source: Italian Banking Association Monthly Outlook - February 2010. 11 Source: Italian Banking Association Monthly Outlook - February 2010. 12 Source: Italian Banking Association Monthly Outlook - February 2010. 13 Source: Italian Banking Association Monthly Outlook - February 2010. 26
Management Report products were also still in operation. At 31 December 2009 the network of financial advisers had 374 professionals as well as 128 properly qualified employees. There were 12 fewer financial backers compared with the aggregated figure for 2008 as streamlining of the network continued. Branches Finance Shops Financial Advisers 500 400 386 374 Number 300 200 299 299 100 28 28 0 2008 2009 Gross operating income (+5.2%) was well up on the previous year. This growth was attributable exclusively to the increase in net income from services since, despite the considerable increase in funds, the huge fall in market rates led to an inevitable drop in net interest income. Net income from services rose very significantly (+52.4%) thanks to the increase in net charges (+51.1%), part of which was from new products (Credit Protection and Personal Loan Cover), and to the work of managing the Bank s own portfolio (+57.6%). Costs were up by 16.4% in 2009. This increase related both to staffing costs, which were 17.8% up as a result of the increase in staff in the last few months of 2008 following the start of work on splitting the Bank into divisions with the setting up of the Business Centres, and to other administrative expenses, which were 15.6% up as a result of several extraordinary initiatives. The Bank had the property acquired under mortgage loans to individuals completely revalued during 2009, partly because of the financial crisis. Measures were also taken to strengthen the corporate structure, the main aim being to iron out the anomalies pointed out by the Supervisory Board during its 2008 visit of inspection. Since the Management Report accompanying the Financial Statements for the year ended 31 December 2008 was written some of the initiatives and the work undertaken and/or in progress has been completed whilst other work has required rescheduling as a result of the IT system being replaced in 2010 (see paragraph on Organisation and Systems). Most of these projects will be concluded during the Summer of 2010. As mentioned above the transfer of the IT system finally began with a change of IT outsourcer and involved a lot of preparatory work (pre-migration workshops and staff training). Therefore the increase in administrative expenses was not because of a structural change but a one-off, which will, inter alia, produce visible benefits by next year. 27
Management Report As for value adjustments, after the major review of the quality of assets begun during 2008 under which items deemed to be critical were classified together and appropriate amounts were paid into the valuation reserve, the cost of loans, calculated as value adjustments on receivables as a percentage of total receivables from customers, returned to levels close to the average in the Eurozone in 2009, despite the gloomy macroeconomic situation. The risk was concentrated in the property sector (extended). This portfolio s future performance will be affected by the performance in the property sector over the next few years which, although uncertain, would seem to be showing tentative signs of recovery. In order to consolidate its equity UGF Banca increased its capital by 201m during 2009 and issued 375m of subordinate debt instruments, 300m of it Upper Tier 2 instruments and 75m Lower Tier 2. These measures not only brought about an immediate improvement in equity ratios but laid the groundwork for the growth that the Bank is expected to make over the next few years. Moody s confirmed the individual rating of Baa1, whilst Standard and Poor gave an individual rating of BBB- in the long term and A-3 in the short term. COMMENT ON THE MAIN ITEMS OF THE BALANCE SHEET AND INCOME STATEMENT Direct customer deposits Direct customer deposits are broken down into retail and corporate as follows: 31/12/09 31/12/08 Var. % Retail 4,159 3,579 16.2% Corporate 5,380 5,152 4.4% Total 9,539 8,731 9.2% Amounts in Em 28
Relazione Management sulla gestione Report We would state that retail customers include the assets attributable to the mass market, affluent and small business segments (companies with sales of less than 2.5m) whilst corporate customers include business customers with sales of more than 2.5m beyond the assets attributable to the UGF Group s associates. Direct Customer Deposits by Customer Segment and Technical Type 2,500 2,250 2,000 1,750 1,500 m 1,250 1,000 750 500 250 0 Mass Market Affluent Small Business Corporate Other UGF Group Deposits Bonds and Cert. of Deposit Repos Technical type Segment Direct customer deposits continued to rise. Growth was in both the retail and the corporate segments even though the latter was penalised by a significant reduction (approximately 304m) in the funds attributable to companies in the UGF Group. Net of this amount actual growth in deposits from ordinary customers would have been 17.4% (+16.2% retail and +10.3% corporate). The percentage of deposits by customer segment at 31 December 2009 is represented in the following chart, which shows that retail (individuals and small business) constituted 43% of the entire funds whilst the UGF Group contributed 22%, 6 percentage points less than in 2008. This situation shows that funding activity produced good results in 2009 despite the difficulties in the market and that dependence on the UGF Group is tending to diminish steadily over time. Breakdown of Direct Customer Deposits by Customer Segment 1% 22% 34% 8% 18% 17% Other Corporate UGF Group Small Business Mass Market Affluent 29
Management Report The table below shows the situation from the point of view of the various technical types of deposit. Direct customer deposits 31/12/09 31/12/08 Var. % Current accounts 6,040 5,886 2.6% Savings deposits 157 145 8.0% Certificates of deposit 18 10 82.6% Bonds issued 1,855 910 103.8% Securitisation notes 883 1,147-23.0% Repos 430 476-9.6% Other 155 157-1.1% Total 9,539 8,731 9.2% Amounts in Em The main aim of the increase in funds, which can be seen from the table above, was to consolidate sources: there was a twofold increase in the amount of Bonds issued. The main aim of this consolidation was to improve the ratio between income and medium- to long-term lending to customers in addition to extending the deadline for payables to customers, albeit at a higher marginal cost. Lending The amount at the end of 2009 was 9.2bn. This is an increase of 8.7% compared with the amount at the end of 2008. In terms of the way lending is broken down by customer segment, the situation at 31 December 2009 is illustrated in the following table. The classification criteria are the same as those used and reported with regard to direct customer deposits. 31/12/09 31/12/08 Var. % Retail 3,928 3,692 6.4% Corporate 5,290 4,788 10.5% Total 9,218 8,480 8.7% Amounts in Em As a result of the launch of the Business Centres growth was mainly in corporate business whilst it was lower in retail as a result of both fewer mortgage loans being granted and the introduction of Compass personal loans in the second half of the year to replace direct loans. The percentage (see chart below) shows that the loan portfolio was fairly equally distributed between corporate and retail customers. Breakdown of Lending by Customer Segment 43% 56% 1% Corporate UGF Group Retail 30
Management Report However, analysis of lending to customers according to technical type shows that growth was concentrated in medium- to long-term lending. In fact 961.6m of new loans were granted during 2009 ( 590.7m individual and 370.9m corporate). In 2008, when the market had been more favourable, a total of 1,485m new loans had been recorded. However, short-term lending fell as a result of a substantial reduction in financial exposures. Lending to customers is broken down according to technical type as follows: 31/12/09 31/12/08 Var. % Credit facilities on current accounts 2,805 2,471 13.5% Cross-border credit facilities 181 115 57.5% Discount 2 3-34.0% Financial portfolio 3,292 3,367-2.2% Securitised loans and cash 2,915 2,500 16.6% Other 24 24 0.6% Total 9,218 8,480 8.7% Amounts in Em Credit facilities on current accounts include both unsecured technical types of loan (commercial or financial) and mortgage loans. The table shows that the percentage of short-term lending (current account lending, foreign lending and discounting) grew much more than medium- to long-term (loans, credit facilities and securitised loans). These loans were mainly commercial: only 14% were financial technical types such as hot money, standby or current account loans aimed at confirming the Bank s specific desire to concentrate on lending for commercial and financial activities. The proportion of total lending to businesses operating in the construction and public works sector was 20.6% compared with 28.5% in December 2009. Lending by Duration and Customer Segment m 3,750 3,500 3,250 3.000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0 Call Loans Investment Portfolio Retail Corporate UGF Group 31
Management Report Bad and doubtful loans, substandard loans and non-performing loans 5,898 customers had doubtful and doubtful loans to 31 December 2009. They related to 8,656 agreements and totalled 389,421,719 in principal, charges and interest accrued on that date. These amounts did not include doubtful loans on receivables assigned under the securitisation schemes carried out after 31 December 2003, which still counted as assets since the Bank had retained all the risks and benefits by virtue of holding the junior notes issued by the vehicle companies. The bad and doubtful loans relating to receivables sold, all made up of mortgage loans, totalled 27,840,386 at 31 December 2009. The gross bad and doubtful loans at 31 December 2009, including the outstanding debts sold and not derecognised and interest accrued, therefore amounted to 417,262,105. Analysis of the individual bad and doubtful items at 31 December 2009 indicated that it was prudent to increase net accruals to valuation provisions by 63.3m (including the impairment loss on interest accrued and recorded at 31/12/2009). Discounting the net recoverable value under IAS 39 led to a further impairment loss of 3.3m chargeable to the year which, added to the level of the fund at the end of 2008, brought total amounts set aside for discounting to 21.4m on 31 December 2009. The table below shows the situation as regards bad and doubtful loans: Variations in the composition of the portfolio and the levels of cover for provisions, excluding the financial effects 31/12/09 31/12/08 Var. % Gross bad and doubtful loans 417.3 283.6 47.2% Provisions 223.2 156.6 42.6% Net bad and doubtful loans 194.1 127.0 52.8% % Cover for bad and doubtful loans 53.49% 55.21% -1.72% % Net bad & doubtful loans/lending to customers 2.11% 1.50% 0.61% Amounts in Em of discounting and securitised loans, are shown in the following table: UGF Banca S.p.A. bad and doubtful loans excluding securitisations and the discounting effect - IAS 39 Bad and doubtful loans % total bad and Book Funds % Net doubtful loans balance written down cover credit 31/12/2008 Loans backed by liens on property 52.80% 139,752 35,666 25.52% 104,086 Unsecured loans 47.20% 124,926 100,972 80.83% 23,954 Total 264,678 136,638 51.62% 128,040 31/12/2009 Loans backed by liens on property 49.22% 191,669 42,756 22.31% 148,913 Unsecured loans 50.78% 197,753 153,779 77.76% 43,974 Total 389,422 196,535 50.47% 192,887 Variations Loans backed by liens on property -3.58% 51,917 7,090-3.21% 44,827 Unsecured loans 3.58% 72,827 52,807-3.06% 20,020 Total variations 47.13% 124,744 59,897-1.16% 64,847 Amounts in Em 32
Management Report The percentage cover for bad and doubtful debts fell slightly, but analysis of existing loan guarantees shows that the percentage of operations with a lien on property increased and that if they were included cover for gross bad and doubtful debts would rise to 89%. Gross bad and % of Funds Liens on Total % doubtful loans total written property comprehensive down cover Loans backed 191,669 49 42,756 148,913 191,669 100% by liens on property Unsecured loans 197,753 51 153,779-153,779 78% Total 389,422 - - - 345,448 89% Amounts in Em The ratio of net bad and doubtful debts to total lending to customers, including discounting and receivables assigned but not deleted, rose from 1.50% to 2.11%. Exposure to substandard loans and the relative accruals to provisions are shown in the following table. 31/12/09 31/12/08 Var. % Gross substandard loans 607.4 446.8 35.9% Provisions 91.0 121.3-25.0% Net substandard loans 516.4 325.6 58.6% % Cover for substandard loans 14.98% 27.14% -12.16% % Net substandard loans/lending to customers 5.60% 3.84% 1.76% Amounts in Em Substandard items totalled 567.2m in capital, charges and interest accrued at 31 December 2009. Analysis of the individual substandard items at 31 December 2009 indicated that it was prudent to increase net These amounts did not include accruals for valuation provisions by substandard receivables assigned under the securitisation schemes carried out after 31 December 2003, which still counted as assets since the Bank had retained all the risks and benefits by virtue of holding the junior notes issued by the vehicle company. The bad and doubtful loans relating to receivables sold, all made up of mortgage loans, totalled 40.2m at 31 December 2009. The gross bad and doubtful loans at 31 15.7m. Taking account of transfers to other categories of deteriorated loan and loans used for transactions, it was possible to write down a total of 81.9m on substandard loans at 31 December 2009, plus 8.0m for discounting the net recoverable value in accordance with IAS 39 and worth 90.0m. The 35.93% increase since 31 December 2008 in items classified as substandard was less than in the previous year when December 2009, including the it had been 283.83% compared with outstanding debts sold and not 2007, although the circumstances had derecognised and interest accrued, therefore amounted to 607.4m. been very unusual. The increase in substandard loans during 2009, which 33
Management Report despite being down was still significant, continued to reflect the critical macroeconomic situation and the general crisis in the markets, particularly the property market. Substandard loans on operations in property continued to increase, rising from 225.4m on 31 December 2008 to 361.0m on 31 December 2009, an increase of 60.15%, but this trend was also down in view of the fact that the increase between 2007 and 2008 had been 325.3%. All of this helps to explain why the provision for substandard loans fell (-12.19%) despite the rise in substandard loans (+35.93%). There were in fact two reasons for this: the transfer from the category of substandard loans to bad and doubtful loans or completed transactions of debts, mainly unsecured loans, that were particularly critical and had been consistently written down, which involved reclassifying a total of 31.5m of funds to be written down as doubtful debts and using 9.7m of the provision for transactions in substandard loans; new substandard loans, approximately 70% being large debts for operations in property, where the valuation of the property mortgaged as security gave rise to the assumption that the loan would be repaid in full. The breakdown of the substandard portfolio at 31 December 2009, excluding amounts for discounting and securitised loans, is summarised in the following table: % Gross Unconsolidated % Net total amount valuation cover credit reserve Mortgage loans 63.64% 361,016 20,599 5.71% 340,417 Unsecured loans 36.36% 206,222 61,294 29.72% 144,928 Total 567,238 81,893 14.44% 485,345 Amounts in Em Concentration risk In the balance sheet at 31 December 2009 receivables from customers included two major types of exposure, the level of concentration of the risk and the sector of activity, almost all being property. They mainly related to 13 economic groups with a total exposure of 705m, largely classified as under observation, substandard or restructured debts and covered by 26m of provisions. In view of the size and type of these loans (largely mortgages), a unit was set up during the year with the help of external consultants specifically to manage them: its work focused on negotiating to reschedule debts and on identifying professional operators wishing to buy the property on which loans were outstanding in order to help customers to divest and at the same time reduce the debt to the bank. This work produced its initial positive results towards the end of the year, with approximately 4m of recoveries from one group and agreements to reschedule and/or plans to restructure items representing approximately 348m being finalised. This work continued during the first few months of 2010, with documents being drafted prior to further plans for restructuring and/or rescheduling for two more of the 13 groups, totalling 147m, as well as approximately 1m of further receipts. Agreements for renegotiating a total of 37m of one group s debts were also signed. 34
Management Report Customer deposits and funds 2009 represented a transition year after the crisis in 2008. The first few months saw markets continue to fall sharply and only from April did the market begin to show signs of an upturn. This nervousness in the markets meant negative results for this type of business in 2009 too: asset management made a net loss of 180.9m. Detailed analysis showed that financial advisers did better (- 3.6m): after negative balances in the first four months, as from May the net balance remained positive. However, owing to the sale of Bank bonds and Class I Life policies that offered customers a guaranteed yield branches recorded a larger negative balance of 177.4m. Yet this result contrasts with an excellent result in Life business premiums ( 193.5m), which were 38.4% up on the previous year. Unipol Fondi s equity, generated by the Bank s sales activities, was therefore down 27.7% in 2009, from 408m to 296m. However, the equity of noncontrolling interests grew 22%, from 159m in 2008 to 195m in 2009. This performance was mainly due to a radical review of the range of products offered: in fact the range of third-party funds was rationalised. As well as unit trusts managed by Unipol Fondi several leading counterparties were selected to enable the range of products offered to customers to be expanded and at the same time to enable support services to be offered to the sales network, especially specific training. UGF Banca recorded a great improvement in the sale of Life policies during 2009 compared with 2008: Life premiums were more than 193m, an increase of more than 38% over the previous year. UGF Banca had a total of 1.76bn in assets under management on 31 December 2009, 50.1% of which were Life products, 37.8% Group Accounts and Funds and the remaining 11.1% Third Party Assets under Management. The following charts illustrate the entire managed portfolio broken down according to type of product and customer segment. Breakdown of Assets under Management m 425,000 400,000 375,000 350,000 325,000 300,000 275,000 250,000 225,000 200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 0 Mass Market Affluent Small Business Corporate UGF Group Life Policies Unipol Funds SPM Third Party Funds FPM 35
Management Report Breakdown of Assets under Management by Customer Segment 20% 2% 35% 3% 40% Affluent UGF Group Mass market Small business Corporate At the end of 2009 assets under administration amounted to 19.9bn, an increase of 8.1% compared with the previous year. The large increase in funds since the end of 2008 was mainly attributable to the UGF Group where deposits were up 9.2% both because of the upturn in the markets but also because of an increase in investments as a result of excellent Life income. As for ordinary customers, there was an increase of 6.9% in corporate customers funds whilst retail customers fell 13.5% because of savings being reinvested in alternative products such as Banking Bonds and Life Policies. The breakdown of these amounts is shown in the following chart. Breakdown of Funds under Custody 3% 5% 92% UGF Group Corporate Retail Financial assets At 31 December 2009 the closing figures for the portfolio amounted to approximately 661m ( 1,021m in 2008), just under 1m of which was recorded as held-for-trading assets (item 20 of the assets on the balance sheet), 87.8m of which was recorded as available-for-sale assets (item 40 of the assets on the balance sheet) and ca. 573m classified in the Financing and receivables category (item 60 and 70 of the assets on the balance sheet). 36
Management Report Held-for-trading financial assets These consisted of investments in financial instruments linked to trading operations. The portfolio was just below 1m at the end of the year, down 175.5m since the previous year owing to both the cessation of operations in derivatives on behalf of customers and a general policy of reducing the risk linked to held-for-trading assets as a result of nervousness in the financial markets. Available-for-sale financial assets These consisted mainly of leading issuers debt securities. The overall balance at 31 December 2009 was approximately 87,8m, a decrease of 199.8m compared with the previous year. As for the effect of the impairment losses on equity instruments classified as Available-for-sale assets, it should be mentioned that on 3 March 2010, under the agreement to collaborate on applying international accounting standards (IAS/ IFRS), and following the communication of 6 February 2009 and publication of the July 2009 Update of the IFRIC document, Banca d Italia, CONSOB and ISVAP published a Joint Document 2009 and 2010 - Information to be provided in financial reports on monitoring reductions in value of assets (impairment testing), on contractual terms for financial payables, on rescheduling debts and on ranking fair value, in order to reaffirm the need for financial reports to represent clearly, comprehensively and in timely fashion the risks and uncertainties to which companies are exposed, the equity they have available to face up to them and their ability to generate income. The document identified areas where companies must provide a higher level of transparency: valuing goodwill (impairment testing), other intangible assets with an indefinite useful life and investments; valuing equity securities classified as available for sale ; classifying financial liabilities when the contractual terms that stipulate that benefits will be lost if contracts are not allowed to run until their expiry date are not observed. The Joint Document also gives details of the information to be provided on rescheduling debts and calls for new duties of disclosure relating to fair value ranking. In particular, as regards point (ii) businesses were invited to adopt impairment-testing procedures for equity instruments in line with IFRIC s observations in the July 2009 document which, albeit not containing a specific Interpretation of para. 58 et seq. of IAS 39, provided instructions on applying it. In particular, in the wake of these IFRIC guidelines, the Joint Document drew Directors attention to the fact that, once significant and prolonged have been defined, even only one of these thresholds being crossed is objective evidence of the reduction in value of equity securities classified as availablefor-sale assets (AFS) and therefore it is not possible to submit the value to further qualitative checks such as analytical valuation methods. The result is that, once one of the two thresholds of significant or prolonged has been crossed, impairment losses of equity securities classified as available for sale 37
Management Report must be recorded in the income statement, irrespective of any further consideration of their value. The Bank adjusted its previous impairment-testing policy to these criteria, eliminating qualitative valuations, and applied the quantitative thresholds of significant (in the case of the Bank, a fall in value of more than 20%) and prolonged (in the case of the Bank, the market price below the initial subscription value for the previous 36 months) objectively and separately. Application of these objective criteria revealed that 923K of impairment losses (gross of the tax effect) had to be transferred from the Provision on available-for-sale assets to the income statement, but equity was not affected. Treasury shares The Bank held no treasury shares at the end of the year, nor had it bought or sold any during the year. Investments Investments remained at 122.2m in 2009 as was the case at the end of 2008. No movement was recorded in this equity item. At 31 December 2009 the subsidiaries of UGF Banca are as follows: Subsidiary Share capital % investment Book value UGF Merchant S.p.A. 105,468,007 86.18% 101,603,578 Unipol Fondi Ltd 125,001 100% 1,550,000 UGF Leasing S.p.A. 6,000,000 100% 15,321,258 Unicard S.p.A. 2,080,000 51% 1,583,077 Unipol Private Equity SGR S.p.A. 2,000,000 100% 2,000,000 Nettuno Fiduciaria S.r.l. 250,000 100% 170,030 Details of the principal figures for the main subsidiaries for 2009 are as follows: UGF MERCHANT - Banca per le Imprese S.p.A. UGF Merchant ended the year with a gross operating income of 15.5m, 10.4% more than the previous year. Adjustments carried out on receivables (- 33.4m) and investments and securities (- 6.9m), partly as a result of the unfavourable economic climate, led to an operating loss of 25.1m. UGF Merchant granted 65m net in corporate loans and 20m in renewals in 2009, reaching 561m in receivables from customers ( 117m in repayments and redemptions). The principal merchant banking activities were: Assisting Unipol Gruppo Finanziario to acquire the majority of the ARCA Insurance Group; Acting as Nominated Adviser for the operation to get the Italian investment company IKF listed on Borsa Italiana s AIM market; Acting as Global Coordinator for 38
Management Report Cogeme Set s capital increase operation; Assisting Virare S.r.l. to acquire shares in Vittorio Gilardoni S.p.A.; Assisting Hera S.p.A. to acquire 25% of Aimag; Assisting Cortesi S.r.l. to sell to the Ginoli Group; Assisting Unipol Gruppo Finanziario to make a public offer for callable notes and to issue a senior bonded loan; Assisting UGF Banca with a securitisation operation and an operation to issue subordinate liabilities and hybrid equity instruments; Acting as Coarranger for Equinox Two S.c.a. and Mittel S.p.A. s pool financing operation for a public offer for Sorin; Providing the new company Diana S.p.A. with financing for delisting RGI S.p.A. As well as being a Borsa Italiana Equity Markets Plus Partner, UGF Merchant obtained authorisation in 2009 to act as Nominated Adviser (Nomad) on the AIM Italia market, opening the way for the bank to offer new services of this type to listed companies. UNIPOL FONDI LTD The net profit earned for 2009 amounted to 1.4m, down on the previous year, which had recorded a profit of 2.6m. The reduction in profit was due to the decline in the assets under management, which fell from 406m in 2008 to 296m in 2009. UGF LEASING S.p.A. In 2009 the company increased its business by entering into 538 new contracts for a total value of 61.4m, slightly down on 2008 (-3%). The main influence on business was the negative business cycle, with a marked reduction in investments affecting the whole sector and a drop of approximately 33% at national level. Receivables amounted to 118.7m at the end of the year compared with 91.1m the previous year. The Company had 12 employees at 31 December 2009 plus seven seconded from other companies in the Group. The 2009 financial statements closed with a net profit of 15K, thanks to extraordinary income from the sale of property. Core business was still affected by significant provisions for receivables and a further increase in administrative expenses, which, for the reasons already mentioned, were not offset by the expected growth. UNICARD S.p.A. The company operates in credit cards and monetics in general. Work continued during 2009 on company reorganisation and creating new products, most of which were launched in the first few months of 2010. Turnover from new cards (Acquiring) was 440m, broadly in line with 2008, whilst the number of cards issued was 42,812 by the end of the year, 14% more than at 31 December 2008. The company ended the year with a loss of approximately 874K, mainly owing to the costs of internal reorganisation and new technology. As a result of the operating loss there was a 39
Management Report shortfall in equity for supervisory purposes of approximately 300K, but immediate measures were to be taken to tackle it. Taking into account the increase that manifested itself as early as the final quarter of 2009 it is possible to envisage that 2010 will see a return to a small net operating profit. UGF PRIVATE EQUITY - Società di Gestione del Risparmio S.p.A. The company, which was set up on 10 January 2008 to provide group savings management, changed its name from Unipol Private Equity SGR S.p.A. to UGF Private Equity SGR S.p.A. in November 2009 as part of the Parent UGF Banca s brand architecture project. The Banca d Italia authorisation procedure was completed during 2009: on 27 May the Company was registered in accordance with Article 35, para. 1, of Legislative Decree 58/1998 to provide a group management service; on 12 October it was approved to run the Preludio closed-end unit trust. Therefore it formally began to receive the subscriptions (units) making up this Fund. Thus SGR activity in 2009 was mainly focused on organisational and procedural matters and therefore the accounts had yet to reflect full operation. The 2009 financial statements closed with a net loss of 240K. Income statement Net interest income fell by 10.0% to 214.5m. The drop was mainly due to two factors: firstly the huge fall in interbank rates in 2009 and secondly the new regulations abolishing the maximum overdraft charge as from July. The sharp drop in rates led to a reduction in both average debit rates applied to customers and average credit rates, but the latter did not fall so far since many contracts had already reached the minimum threshold for the remuneration forecast. The following chart shows the breakdown of net interest income according to category of investment. Comparison with the previous year clearly shows that the proportion of net interest income from customers rose substantially, from 79% to 88%, whereas the proportion from other banks fell from 10% in 2008 to 1% in 2009. Breakdown of Net Interest Income 10% 1% 88% 1% Customers Securities Banks Other 40
Management Report Net non-interest income rose by 51.1% to 91.1m: there was a marked increase of 36.3% in commission income in 2009 and a simultaneous reduction in commission expense (- 10.3%). All the items that made up the commissions increased: receipts and payments were up 7.6% as a result of a continuous increase in business, account and overdraft charges were 39.2% up, mainly thanks to the introduction of a fee for providing a certificate of creditworthiness (net of which it would have risen by 6.5%), income from managed and administered savings rose 148% as a result of the increase in net charges for safe custody of and buying and selling securities but in particular because of the increase in new Life business and the introduction of Credit Protection policies sold in conjunction with loans and credit facilities. Finally, commissions on the sale of third party financial products were well up: this item included commission income from selling Compass personal loans. The diagrams show the breakdown of fees and commissions receivable and payable according to type of service. Breakdown of Fees and Commissions Receivable 28% 52% 3% 6% 11% Management of Deposits and Current Accounts Collections and Payments Funds under Custody Assets under Management Guarantees Breakdown of Fees and Commissions Payable 55% 30% 8% 7% Collections and Payments Management of Deposits and Current Accounts Funds under Custody Assets under Management 41
Management Report The contribution made to the gross operating income by asset management (calculated as the sum of items 70, 80, 90 and 100 of the income statement), which rose from 16.3m in 2008 to 25.7m in 2009, was 7.8%. This figure, although well up compared with the previous year (+58%), reflects a company decision which, in view of the volatility in the financial markets, opted to contain the risks connected with these instruments. Therefore total gross operating income was 331.4m, up 5.2% compared with 2008. Operating expenses, which included depreciation and amounts set aside for risks and charges, amounted to 255.3m, an increase of 16.5% compared with the previous year. In view of this trend in gross operating income the incidence of operating expenses on gross operating income worsened, increasing from 69.6% in 2008 to 77% in 2009. Performance was obviously affected partly by the macroeconomic situation, which penalised gross operating income and especially interest income, and partly by the need to complete several major projects in 2009 in order to resolve several critical situations. As attention to making procedures efficient and to keeping direct operating costs down as a consequence is UGF Banca s constant priority, the situation in 2009 was not a structural situation but an extraordinary event. Therefore as a result of the various measures taken costs will return to normal in 2010. The table below shows the figures in detail. 2009 2008 Amounts % on gross Amounts % on gross % Var. op. income op. income Personnel -133.6-40.3% -113.4-36.0% +17.8% Administrative expenses -122.4-36.9% -105.9-33.6% +15.6% Provisions for risks and charges and -12.5-3.8% -14.6-4.6% -13.9% depreciation on property, plant & equipment and intangible assets Other operating income/charges +13.2 +4.0% +14.6 +4.6% -9.2% Total -255.3-77.0% -219.2-69.6% +16.5% Amounts in Em The number of employees rose from 2,215 at the end of 2008 to 2,273 at 31 December 2009. Of these, 395 were employed at Head Office, some 18.0% of the total (excluding secondments). This indicator showed that a high level of efficiency had been reached, which is unlikely to be exceeded given the way the Bank is currently organised. 42
Management Report Sales Network Detached Head Office 3,000 2,500 2,000 2,215 2,273 Number 1,500 1,000 1,746 1,797 500 0 58 81 411 395 31/12/2008 31/12/2009 The chart shows the incidence of the individual cost aggregates on total operating expenses. Operating Expenses 2009 11% 1% 6% 2% 54% 26% Personnel Goodwill Operating Expenses EDP and Communications Other Income/Charges Indirect Taxes As regards goodwill, recorded on the assets on the balance sheet at 419.2m, the impairment test has been performed in accordance with the requirements of IAS 36. The impairment procedure has been specifically approved by the Board of Directors. Goodwill was recorded in the financial statements of UGF Banca S.p.A. following mergers, concluded in the previous years, the object of which was to acquire bank branches. The impairment test for the goodwill entered in the financial statements at 31 December 2009 has been carried out by specifying the goodwill s usage value and comparing it with the related book value. The goodwill was allocated to UGF Banca s entire banking activity as a cashflow generating unit. For further details on the impairment test, please refer to Section 12 Intangible 43
Management Report Fixed Assets in the Notes to the Financial Statements. This analysis revealed that there were no permanent impairment losses of the goodwill recorded in the financial statements of UGF Banca at 31 December 2009 and there was no indication of any changes that could affect the results of the analysis and lead to the value that can be recovered being less than the book value. A similar valuation was carried out on the goodwill of the principal subsidiary, UGF Merchant S.p.A. After the major review of assets in 2008 adjustments on receivables returned to levels that may be considered normal given the current macroeconomic situation. These adjustments amounted to 55.9m, 53.4m being adjustments on receivables net of several amounts recovered on other financial operations and 2.9m adjustments to the book value of several available-for-sale financial assets, the performance of which meant that in accordance with Group policy their impairment had to be recorded through profit or loss. To this amount must be added 5.3m of accruals to provisions for risks and charges. The cost of the credit risk, calculated by comparing adjustments on receivables (item 130 a) of the income statement) with Receivables from customers (asset item 70), amounted to 58 basis points. Result for the year and comprehensive income The net result for 2009, which was a net profit of 5.7m, showed a clear reversal of the previous year s trend, with company business returning to profit. Analysis of the Statement of comprehensive income drawn up in accordance with IAS 1, which shows overall profitability during the period and, together with the profits, also shows the result of the variations in value of assets recorded as contra-entries in the valuation provisions, reveals that comprehensive income was 11.1m in 2009 compared with a loss of 101m in 2008. In fact as well as the net profit 5.4m of additional income from Available-for-sale financial assets (+ 8m) and cash-flow hedging operations (- 2.5m) was recorded. Items 2008 2009 Gross Profit -116.3 20.2 Taxation 27.8-14.5 Net Profit -88.5 5.7 Comprehensive Income -101 11 Ebitda 14 110.3 88.7 ROE 15-9.5% 0.61% Equity 827.8 1,039.9 Tier1 7.96% 11.01% Total Capital Ratio 11.93% 21.54% Amounts in Em 14 EBITDA: calculated as the algebraic sum of items 120, 150 and 190 of the Income statement. 15 ROE: calculated as follows: net profit/loss (item 290 Income statement) / [(Net equity end of previous year + Net equity end of current year item 290 Income statement/2]. 44
Management Report POLICIES AND STRATEGIES IN 2009 Sales and Marketing After splitting into two divisions in 2008 the Bank was further rationalised during 2009. Retaining the two-division structure (Retail and Corporate), the sales network was organised into six Commercial Areas covering the same geographical areas as those of the associated company UGF Assicurazioni in order for both insurance and banking business to have a maximum presence in each area. As well as coordinating commercial activity in their areas the Commercial Areas represent the first step along the route to real decentralisation: the aim of the area set-up is to facilitate business growth and especially to reduce response times, bringing them into line with the requirements of the sales network. At the same time the work of the Business Centres was refocused on the corporate segment. The experience gained in the first year of operation of the Business Centres showed that Corporate business can be carried out at a distance but requires a high level of professionalism, whilst dealing with small businesses requires a much closer relationship. Therefore the business of dealing with these customers was transferred to the branches (as were the managers concerned) so that by meeting customers requirement for proximity they can expand this type of business. Thus staff most used to dealing with corporate customers remained at the Business Centres: managers now have fewer businesses to deal with (customer portfolio half of what it was on average) but must work to the highest professional standards to fulfil the requirements of customers in this target group. Conversely the branches will be charged with managing and developing business with private customers (mass market and affluent) and expanding SME business. The highlights of the business of selling to customers in 2009 are described below: Customer deposit and fund products 2009 saw major innovations in UGF Banca s products and services offered to retail customers. Personal current accounts were completely redesigned during the year, the aim being to offer a full and up-todate range in order to provide our customers with a high-quality service and tangible advantages: Formula Easy and Formula Premium to fulfil all the requirements of individuals and families; Formula Free for customers who want a free account; Formula Top for those who want to earn interest on their balance; Formula Web for customers who prefer to manage their account online, Formula Due, an account exclusively for UGF Assicurazioni customers that s simple and cheap to run and combines banking services and discounts on their MV TPL policy. Formula Due focuses on synergies between banking and insurance in order to provide customers with integrated and innovative services; Idea Senior, the new current account 45
Management Report exclusively for pensioners, personalised in order to offer the greatest number of advantages combined with ease of operation. 2009 also saw the launch of a line of current accounts (7e24 ENERGY and 7e24 PLUS) and of personal loans (7e24 ST@RT) exclusively for customers who cannot get to one of our branches. The new products are sold by the remote authorised Insurance Agencies which are in areas where there are no branches of UGF Banca, and they are opened by the Virtual Bank Office at Head Office. In 2009 the Group also renewed the national agreements with the leading employers organisations (CGIL, CISL and UIL), organisations for the selfemployed (CNA, Confesercenti and CIA) and cooperatives (Legacoop). UGF Banca took an active part in the agreement for expanding the range with a series of exclusive products and services, the aim being to become the preferred partner for the financial requirements of all members and associates and their family members. Loans and loan protection Corporate customers Work carried out in 2009 was based on creating a product that could follow businesses throughout the whole production cycle. Thus was born the PIU IMPRESA SUBFUND. This is a product exclusively for small and medium enterprises with turnover up to 50m, with short-term credit limits, no constraints on use and repayment made by presenting commercial receivables to be paid in advance. The CO.SVI.G. agreement was also finalised in 2009. The Consorzio Sviluppo delle Garanzie (Consortium for Providing Surety) is a Confesercenti service unit approved by Mediocredito Centrale to conduct investigations and provide surety on behalf of the Fondo Centrale di Garanzia per le PMI (Central Surety Fund for SMEs) under Law 662/96. Retail customers As from 1 July 2009 UGF Banca has offered customers Presto products, Compass S.p.A. s line of non-specific personal loans for purchasing goods and services. Features of these loans are that they are quick, application and approval procedures in fact being accelerated, safe, since they are managed by a leading company in the sector, and designed specifically for employees, the self-employed and pensioners who need support for their personal needs. Since it began to be marketed in October another popular product has been a loan granted against the surrender of a fifth of salary or pension, which is exclusively for pensioners and employees. This loan is convenient, because repayments are made direct by the employer or pension provider in monthly instalments not exceeding a fifth of salary or pension, guaranteed, since it includes life assurance and payment protection, and safe, because UGF Banca has selected a solid and reliable partner, Futuro S.p.A., a company in the Compass Group, to provide it. The following loans on residential property continued to be marketed: GiàCasa, now joined by the new product Tasso Variabile BCE (ECB variable 46
Management Report rate), and LiberaIlMutuo, a full range of solutions for transferring loans from other banks. In view of its increasing commitment to the sections of the community that are not in a strong financial position the Bank continued to market AncheTu loans during the year. They are mainly aimed at young people just starting work and at individuals and families on low incomes and are characterised by having very advantageous terms and being designed specifically to make it easy for applicants to make their monthly repayments. The Bank was prompt to peg the interest rate applied to variable rate loans for main residences, as required by Legislative Decree 185 of 28 November 2008 (known as the Anticrisis Decree), which was converted into law on 28 January 2009. UGF Banca also signed up to the Families Scheme, the initiative set up by the ABI (Associazione Bancaria Italiana Italian Banking Association) and 13 consumer associations to suspend the mortgage repayments during 2010 of individuals who find themselves in difficulty as a result of the financial crisis. Formula Serena was introduced in collaboration with UGF Assicurazioni to meet requirements for family protection. This loan protection policy enables an important event in the life of the family, such as house purchase and the consequent financial commitment, to be faced calmly. In fact Formula Serena meets the need to be sure that one can pay one s debts even in the event of specific difficult situations (admission to hospital, job loss, temporary or permanent disability and death), which is especially important in a period of widespread social and economic uncertainty. Cover can be linked to GiàCasa and LiberaIlMutuo loans and to SuMisura personal loans. As proof of the importance that it places on protecting and respecting the environment, UGF Banca continued to market Nuova energia al futuro (New Energy in the Future), the line of loans intended for purchasing and installing solar panels for generating electricity. Loans are granted to both individuals and businesses and are characterised by favourable and flexible terms and repayment over as long as 20 years. Credit and debit cards The new Unicard personal credit card was launched in 2009 in order to expand electronic banking. The issuer is a singlepurpose company belonging to the UGF Banca Banking Group which specialises in credit cards. Unicard Visa Classic is a convenient and easy-to-use credit card devised for individuals and families. Unicard Visa Gold is the ideal credit card for anyone who wishes to make use of a vast range of high-level specialist services. Both are linked to the international Visa system which guarantees that they will be accepted at millions of sales outlets worldwide. On the payments side the Bank showed its interest in innovation by launching V-Pay, the cash machine that uses chipand-pin technology to ensure maximum levels of security. The new technology 47
Management Report introduced by V-Pay, which prevents forgery and significantly reduces fraud in the international system, makes cash machines safer and more convenient instruments of daily use in Italy and in Europe as a whole. Complaints Management In order to improve the customer complaints management procedure the Bank adopted new internal rules during 2009 that provide guidelines both for dealing properly with complaints and on what customers can do if they are not satisfied with responses to their complaints. In 2009 a total of 495 written complaints were dealt with, of which 472 relate to traditional complaints and 23 relate to investment services compared with 704 registered in 2008. Of the complaints submitted 35% were resolved in favour of the customers, 33% were supplied with clarifications, whilst 32% had a negative outcome. www.ugfbanca.it has a section where complaints can be registered: this method of reporting was very popular with customers since it allowed them to speak to their bank rapidly and efficiently. In accordance with legislation for some time the Bank has been a member of relevant bodies dealing with out-of-court settlement of any disputes between Bank and Customer: Arbitro Bancario Finanziario (Financial Banking Arbitrator) the Banca d Italia body dealing with all disputes on matters that come under Banca d Italia if the refund requested by the customer is below 100K or in all cases in which application is made for a right, a duty or a power to be ascertained (for example failure to provide documentation on transparency or failure to cancel a mortgage after the loan has been paid off); Conciliatore Bancario Finanziario (Financial Banking Conciliator) a body that offers various procedures for tackling and resolving any problems between Customer and Bank. In the event of a dispute the Conciliator (an independent third party) may be used to make it easier for parties to come to an agreement. This procedure is carried out swiftly and does not establish who is 48
Management Report right and who is wrong but makes it possible to reach an agreement that is binding on the parties and may be validated by the Court and is thus enforceable. There is also Arbitration, a set-up in which an expert, the arbitrator, despite not being a normal judge, has the power to decide who is right and who is wrong; Ombudsman Giurì Bancario (Banking Ombudsman), an alternative judge to whom customers can apply without paying if the amount of the refund requested does not exwceed 100,000. In 2009 the Giurì Bancario banking Ombudsman, requested by Customers to make a ruling on responses made by the Complaints Office, made 32 decisions. In 7 cases he declared the claim inadmissible, in 2 case ruled for dismissal, in 9 that the matter in question had been resolved and in 3 he rejected the claim. No unfavourable decisions were made against the Bank. Human Resources The Bank had 2,273 employees on 31 December 2009, subdivided as follows: Unspecified term Fixed term Totals Female Male Total Female Male Total Female Male Total General Management 162 225 387 5 3 8 167 228 395 Commercial Network 593 1,091 1,684 57 56 113 650 1,147 1,797 Other staff (*) 45 36 81 - - - 45 36 81 Totals 800 1,352 2,152 62 59 121 862 1,411 2,273 (*) Relates to personnel on secondment or absent with the right to retain their position. Employees were more highly educated than the average in the banking system, with 45% having a degree (ABI figure for 2008: 30.8%), and at an average age of 39 were younger than the average (ABI figure for 2008: 42 years old). Compared with the 2,215 employees in service at the end of 2008 this was a net increase of 58 or 2.6%, with 192 being taken on and 134 leaving. The 192 new recruits, 90 of whom were on permanent contracts, were appointed on the basis of their professional qualifications and expertise (145 specialists being appointed in 2009) in line with changes in business strategies and market requirements. Of particular note was the high level of education of new employees, 71% of the 192 having a degree. It was also thought desirable to recruit young people in order to give them their first experience in the workplace and 47 were taken on during the year. Professional development courses were run for Human Resources employees in 2009, some of them in-house, which led to a significant number of employees being given new responsibilities. This confirmed the company s commitment to giving priority to existing employees when vacancies arose. A great deal of reorganisation took place in both the sales network and Head Office. In particular steps were taken during the year to ensure that employment levels were efficient and appropriate in both quantitative and 49
Management Report qualitative terms and that productivity was improved. Among the most important business activities were those linked to projects for: reorganising Head Office and the sales network with the creation of six commercial areas; rationalising the geographical areas covered by the branches; reorganising the business centres, which in some cases made it necessary to transfer employees either to other parts of the country or to different jobs in order to fulfil the new organisational requirements. Relations with the unions continued to be based on awareness-raising and involvement by taking every opportunity to negotiate, communicate and check. This system of relationships was based on respecting the various roles and keeping them distinct and included holding a number of meetings with union representatives, which enabled several agreements for coping with the current reorganisation and rationalisation process to be signed. Particular mention should be made of: the understanding that was reached on the need to centralise some of the departments at the Bank s Head Office dealing with insurance: in fact this even laid the basis for transferring employees between offices that apply different Unipol and National Labour Agreements, tempering the need for an improved corporate structure with full safeguards for the remuneration and statutory and professional prerogatives of the employees concerned; agreements that were reached on vocational training, which even made it possible, inter alia, to obtain a considerable amount of funding from the Fondo Banche Assicurazioni. Training continued to be an essential tool for increasing the skills and expertise of employees and to be a good way of providing professional development. 21,072 training days were provided for 2,273 employees in 2009 (average 9 days per person), 18,362 classroom based and 2,710 through distance learning. Several managerial and specialist courses were provided: the second Luiss masters degree (Libera Università Internazionale degli Studi Sociali International Free University for Social Studies), organised by Unipol Gruppo Finanziario and taken by several senior managers with high potential; the Expertise in Action project, which involved all the insurance executives and senior managers at the Bank s main office and provided professional development in managerial skills for the Group s middle management; induction courses for employees new to the Group. The aim of this initiative, known as Welcome to the Group, was to instil a rapid sense of belonging and identity by means of face-to-face meetings between new employees and the highest-profile members in the Company; the Evolution project for Branch Managers aimed at enhancing the special areas of expertise required by the role; 50
Management Report the setting up of an important training course on granting loans and risk management, which will involve approximately 800 staff during 2010 once it is fully operational; training in procedures linked to the change in IT service provider whereby 26 staff provided 9,054 days training for 1,800 branch employees. The quality of the training provided was once again confirmed during 2009 by the Fondo Banche/Assicurazioni (formerly the For.Te fund) providing funding for specific courses. Financial Activity Work on the Bank s portfolio in 2009 was characterised by rather negative expectations for growth in the first quarter and consequently for the share markets and corporate bonds to suffer. Subsequently, in March 2009, there was a sudden reversal in both the share market and the market for raw materials. There was also a reversal in the corporate spread, the main reasons for which were the huge injections of cash made by the main banks worldwide, the Fed s formal commitment to keep the base rate at an exceptionally low level for a extended period of time and government measures to support the economy. Market rates in both the Eurozone and the Dollar area fell in the second half of the year. Rates on long-term government securities in both the USA and the Eurozone rose in the first half of the year and fell in the second half. Yield curves remained very high during 2009 as a result of the substantial injections of cash made by the central banks, which helped to keep short-term rates down. Finally the principal share markets worldwide suffered a marked fall in the first two months of the year. Then in March they began to rise, and this phase lasted until the end of the year. Although the policy continued to be one of keeping the risk down, the Bank s property was managed in such a way that positive yields were obtained. The positive yields achieved by the 14 subfunds were a feature of asset management in 2009. Nevertheless the continuing uncertainty in the economy meant that there was no increase in funds under management during the year. However, the fall in premium income gradually stabilised during the year in line with the trend in retail business at national level. Because of the continuing uncertain economic situation the Bank continued to provide just as much support and advice to both individual customers and businesses as it had in 2008. Those helped were retail and institutional customers (foundations, pension schemes, businesses, individual funds) and private customers. A unit (known as Funds Advisory) was set up for this purpose in the second half year of the year to provide the networks with advice. Operations in OTC derivatives The Bank ceased operating in OTC options on exchange rates and purchase and sale of forward exchange rates with individuals and with businesses deemed to be professional customers. No new operations of this type had been carried out since the end of 2008 and the last of the operations in existence concluded during 2009. 51
Management Report In line with its policy of managing and monitoring risks, during 2009 the Bank entered into plain vanilla types of interest-rate swap operations with a notional value of 224m as cash-flow hedges for its variable rate bonds. Organisation and Systems A great deal of reorganisation took place in 2009 and involved all areas of the Bank s work. Various measures were taken to restructure the Head Office, making it more efficient and effective in its relations with the sales network and bringing it in line with current legislation: the Global Banking Services Department was abolished and at the same time: - a Legal, Corporate and Compliance Department was set up and reports directly to the General Manager; - the Organisation and IT Department was set up and reports direct to the General Manager; - the Human Resources Department was set up and reports direct to the General Manager; - external recruitment, employee development and assessment, managerial training, internal communications and industrial relations were centralised within the Human Resources and Organisation Department of the Parent, UGF; - Procurement and Property were centralised within the holding company, UGF Assicurazioni; the Loans Section was reorganised and the Loans Department was set up and reports direct to the General Manager, the aim being to implement a more efficient and appropriate lending policy. As for sales, six Commercial Areas were created in April 2009. These geographical structures, which mirror those of the holding company, UGF Assicurazioni, represented the first step towards decentralisation in order to facilitate operational flows and reduce decision times. They coordinate sales and have broad decision-making powers, the aim of which is to facilitate business growth in their areas. The reorganisation of the Business Centres in order to make them more efficient at developing business was completed on 15 November. These units, set up in 2008, were reorganised so that they could focus on the corporate segment (businesses with turnover exceeding 2.5m) whilst small businesses (microenterprises and other small businesses) were entrusted to the network of the branches which, being closer to the customer, have been able to establish the sort of relationship that the customer wants that a unit that was physically far away had not managed to develop in line with expectations despite its greater professional expertise. Work began in May on reviewing the relationship with the network of agencies in the Insurance Group, which is a fundamental part of the sales network. All the insurance agencies were segmented and target agencies were selected on the basis of their proximity to the branches and their potential. These were the agencies in which the branches sales effort was concentrated. This 52
Management Report involved rewriting the organisational model governing the relationship between branches and agencies in order to increase synergies and the quality of services offered to customers and laying down fixed service-level agreements (response times). Finally a review of the branch structure was begun in May, the aim being to standardise and improve the image of the sales outlets which, for various reasons, still had different layouts. This project was carried out at the same time as the new signs showing the new brand name were erected and involved making the exterior of all the branches look the same so that there was no doubt about the identity of the brand. Substantial changes were made to the IT system in 2009: the analysis carried out during the year with the help of a leading consultancy in order to identify IT tools suitable for the Bank s requirements and able to guarantee appropriate levels of efficiency led to the decision to adopt a new IT system as from 1 January 2010, to be supplied by one of the market leaders (Cedacri S.p.A.). This would solve the problems caused by the previous system, which had also been picked up by the previous consultant. This decision necessitated strengthening the existing telecommunications network and installing new hardware in the branches and business centres. Therefore in October work was begun on replacing all the pcs, printers (now all laser printers that use normal A4 paper) and cheque scanners (equipment that automatically captures the image of a cheque). Obviously at the same time all staff had to receive training on the new procedures, and this involved 26 different lecturers providing more than 600 days of classroom tuition. Risk Management and Control UGF Banca s Risk Management system is part of the wider internal audit system, which operates on three levels: line checks, entrusted to the operational units; second-level checks whereby the Risk Management, Compliance and Management Control departments monitor risks; third-level checks carried out by Internal Audit. UGF Banca S.p.A. s Risk Management Department (hereinafter referred to as RM Department), which was set up in December 2008 and had six staff on 31 December 2009, reports to the General Manager and to the Risk Management Department of the Parent, UGF. UGF Merchant S.p.A. outsourced risk management to the holding company, UGF Banca, in April 2009. The RM Department is in constant contact with the RM Department of the Parent, UGF, and with the other departments of UGF Banca and UGF Merchant, in order to ensure that they adopt the same risk management policies. During its first year of operation the RM Department concentrated on drawing up procedures and providing itself with the tools needed for implementing the system of second-level checks. To be specific, the RM Department: drew up and updated the internal risk management rules, the main ones 53
Management Report being Lending Policy 16, Liquidity Policy 17 and Credit Rules; implemented measures to quantify risks (for instance the Internal Model for rating and estimating the probability of default, duration mismatch, net interest income sensitivity and the maturity ladder for calculating the liquidity risk); reported on monitoring the exposure to the various risks (for instance the monthly report on the ALM situation, credit risk report, VaR on Market Risk, liquidity gap and contingency capacity for the liquidity risk). The Department provides the Board of Directors with quarterly reports containing the results of the analysis of the Bank s loan portfolio. These reports highlight the levels of concentration of lending to customers of the Banking Group and whether they conform to the operational constraints laid down in the Lending Policy. The RM Department regularly participates in the weekly meetings held to monitor Group liquidity, drawing up and submitting reports on changes in the Bank s income and lending and comparing them with the budget figures, and on the maturity gap compared with contingency capacity. The work of monitoring and drawing up monthly reports on UGF Banca s rate and liquidity risk for the Bank s Finance Committee continued during 2009. 16 Lending Policy governs underwriting and monitoring the credit risk within the companies in the UGF Group in order to ensure that total exposure to the individual counterparty is in line with the risk appetite expressed in the Group s strategic objectives. 17 The Bank s liquidity policy is currently being finalised for approval by the BoD. During 2009 the Risk Management Department also coordinated the integrated treasury project, which involved managing the rate and liquidity risk in the trading portfolio and bank portfolio using the Kondor + software package and the special Kondor Interest Rate and Liquidity Management module. The initial phase of the project to configure the system and integrate the instruments used for the banking, securities and derivatives portfolio concluded at the end of the year. The system will be transferred to the Cedacri system and fully integrated, including exchange rate operations, during the first few months of 2010. The Kondor + KGR module for managing the counterparty risk, calculating the take-up rates of the lines of credit and monitoring the limits was also configured during the last few months of 2009. The Kondor + system and its modules will be used by the Risk Management Department for monitoring the liquidity risk, the market risk and the counterparty risk and for stress testing. The project for managing operational risks included drawing up a procedural framework during the second half of the year for implementing the standardised approach, which, in line with Banca d Italia regulations (Circular 263/06), will enable a Loss Data Collection and Risk Self Assessment system to be developed during 2010. The RM Department helped to overhaul the ICAAP by coordinating the capital adequacy assessment report and to draw up the Business Plan and the disclosure report for the market (Pillar III). 54
Management Report Managing the risk of non-compliance with regulations UGF Banca s Compliance Department, which has been operational since January 2009, is responsible for assessing the suitability of procedures, processes and internal organisation in order to avoid the risk of incurring penalties, loss of equity or damage to the Bank s reputation or image as a result of infringing external regulations (laws, rules, Supervisory Authority rulings) and internal rules (e.g. By-Laws, codes of conduct and codes of corporate governance). The department checks in advance whether new products (banking, insurance and financial) and new projects comply with the relevant regulations and provides assistance and advice to top management on matters where there is a risk of non-compliance. It also identifies requirements for information on and training in compliance and helps to plan training courses in order to encourage the diffusion of a corporate ethos based on honesty, good behaviour and respect for the spirit and letter of the regulations. Given that it was set up only recently the Compliance Department is gradually introducing the measures needed to ensure that resources, procedures, fields of reference and fields of activity comply with the relative legislation. Therefore a new senior employee joined the department in October 2009 (in addition to the other senior employee and a junior employee). During 2009 the department carried out analyses, assessed risks and identified steps to be taken with regard to existing and potential legislation (preliminary activities) and assessed the progress of measures already planned and/or the effectiveness of existing organisational monitoring procedures carried out under legislation already in force or for which appropriate measures had already been taken (final activities). As well as analysing various existing and potential items of legislation issued by Banca d Italia and CONSOB, the department s preliminary activities included providing help and advice, to the best of its ability, for the following new projects to be carried out by the Bank: issuing hybrid equity instruments governed by the New prudent supervisory rules for banks (Banca d Italia circular 263 of 27/12/2006); complying with the Banca d Italia provisions relating to the organisation and corporate governance of banks (Banca d Italia ruling of 4/3/2008); complying with EC legislation SEPA- PSD on payments systems (EC directive 64/2007); complying with the new supervisory provisions on banking transparency. The final activities mainly related to the MiFID Project for making gradual changes so that the Bank would comply with MiFID, particularly providing support and assistance on identifying conflicts of interest, personal account dealing transactions, all aspects of compliance, classifying financial products, illiquid financial products and incentives. Thorough checks were also carried out relating to the Intermediary Regulation, the Issuers Regulation and 55
Management Report the Market Regulation, with the company bodies and the other departments responsible for monitoring being updated accordingly. The Compliance Department also provided advice and assistance to top management on specific aspects of their work (in particular the Management, Organisation and Control Model in accordance with Legislative Decree 231 of 8/6/2001) and helped UGF Banca s organisational structures to respond to the requests that the Supervisory Authorities issued from time to time (requests for information and/or clarification). Internal Audit UGF Banca s Internal Auditing Department is independent of the heads of the operational departments and so reports direct to the Chairman of the Board of Directors, and it also reports to UGF S.p.A. s Auditing Department. The department had 24 employees monitoring the network and auditing the procedures carried out by the Bank and its subsidiaries (internal auditing being outsourced to the Parent) on 31 December 2009. The job of the Auditing Department is to monitor and assess the effectiveness and efficiency of the internal auditing system and the need to make changes, which includes providing the other company departments with support and advice. The work schedule is planned at the beginning of the year, with areas to be audited as a priority being identified, and it is reviewed during the year if any specific auditing requirements arise. As far as the Bank network is concerned the main job of the department is to ensure that internal and external regulations are complied with and to check for any anomalies and/or breaches of procedure. A total of 80 branches, all the Business Centres and 14 financial advisers were inspected during 2009, to which must be added follow-up inspections of financial advisers and a sample of Branches and 60 checks carried out as a result of information received from other units of the Bank or some problems picked up. The procedures carried out by the Bank and its subsidiaries are audited by identifying risks in advance and assessing how effective existing controls are. Eight audits were completed during 2009, as a result of which the Department stipulated a total of 123 corrective actions for the management team to carry out, who was in charge and the timescale. Pending thorough follow-up inspections the Internal Audit Department interviewed staff periodically in order to monitor progress where deadlines had been reached. The relevant Heads of Department, the General Manager of the Bank and/or of the Subsidiary, the Chairman, the Chief Executive Officer and the General Manager of the Parent, Unipol Gruppo Finanziario, were informed promptly of the result of the work. Other work carried out by the Department during the year included drawing up reports for the Supervisory Bodies, the Internal Control Committee and the Boards of Directors of the Bank and its subsidiaries and taking part in working groups and projects on developing and introducing anomaly 56
Management Report indicators and a system of auditing the network at a distance. Organisation and Corporate Governance In June 2009, under the Provisions for supervising the organisation and corporate governance of banks (issued by Banca d Italia on 4/3/2008), the Bank voted to amend the By-Laws accordingly and to adopt the UGF Banca Banking Group Corporate Governance Draft (hereinafter referred to as the Draft). There are criteria and guidelines for remuneration and incentives. The amendments to the By-Laws adopted by the Extraordinary Shareholders Meeting held on 24 June covered: (i) giving the Ordinary Shareholders Meeting sole authority to approve policies for remunerating Boards of Directors, employees or personnel not employed by the Bank and plans involving financial instruments; (ii) the need for at least two members of the Board of Directors to be independent (in accordance with Article 148, para. 3, of Legislative Decree 58 of 24/2/1998); (iii) the limits on the total number of posts that may be held by Directors and Auditors imposed by the corporate bodies themselves; (iv) the introduction of further powers that under the By-Laws may not be delegated (reserved for the Board of Directors); (v) the deletion of the clauses in the By-Laws or of part of them that govern and/or refer to the Executive Committee and the CEOs, since they do not in fact exist. Under these Provisions the Ordinary Shareholders Meeting approved the remuneration policies mentioned in (i) above. The Project was approved by the Board of Directors on 24 June 2009 (with amendments made on 16 December 2009) and consists of four parts: general features of the corporate structure; management; system of controls; remuneration. The aim of the Project was to enable the suitability of organisational and corporate governance solutions to be monitored and it highlighted the need to adopt working protocols that would assess and lay down precise rules for proponents of particular types of corporate governance. Therefore along with the Project the Rules governing the Board of Directors were adopted on 24 June (as were the Rules governing the Board of Statutory Auditors) and, in addition to the rules to be observed for maintaining the efficiency and effectiveness of the body, also contained the rules governing the independence of the executive body, the total number of posts that may be held and the self-assessment process. Independence of the Directors As mentioned above, the Bank inserted a clause into its By-Laws stating that at least two members of the Board of Directors must comply with the requirements for independence laid down for auditors in Article 148, para. 3, 57
Management Report of the Consolidated Finance Act. Among other things the rules governing the Board of Directors approved on 24 June 2009 cover the procedures for ascertaining the independence of the members of the Board, involving both individual members and the whole Board of Directors. This confirmed the Bank s commitment to introducing a further element of proper dialogue within the Board of Directors and thus to creating the conditions in which members are not afraid to express their own opinions. The Board of Directors applied the system described above at its meeting held on 8 August 2009 and ascertained that at least two directors met the requirements for independence, viz. Messrs Oscar Guidetti and Umberto Venturi. Limits on the total number of posts that may be held As indicated the Bank also specified in its By-Laws that the Board of Directors establish its own rule for limits on the total number of posts that its Directors and Auditors may hold in all the companies referred to in book V, part V, chapters V, VI and VII of the Civil Code. The Project and the rules governing the Board of Directors fixed the maximum number of directorships or auditorships deemed to be appropriate for the role of director to be carried out effectively. Different general criteria are identified for each role (chairman, executive director, non-executive director or independent director) depending on the type and size of the companies in which the roles are carried out and whether they belong to the UGF Group. On 16 December 2009 the Board of Directors examined the number and the type of the posts held by each director, in accordance with the classification adopted, and noted that none of the directors exceeded the total number of posts that may be held laid down in the Corporate Governance Project and the Rules. Annual self-assessment The work of assessing the size, composition and work of the Board of Directors and the Internal Control Committee under the Project and the Rules governing the Board of Directors was carried out with the help of a leading consultant and was divided as follows: (i) each Director filled in a questionnaire during individual meetings; (ii) the information and comments that emerged were analysed; (iii) the main results were discussed at the Board meeting held on 24 March 2010. Among the things that emerged from the self-assessment process were: an overall positive opinion in the case of all the areas assessed. The atmosphere and communications within the Board of Directors were graded the highest, the broad consensus being that different opinions could be expressed and communication was transparent within the Board of Directors; members views on the Board of Directors main areas of responsibility were also positive; a substantially positive assessment of 58
Management Report the efficacy and suitability of the composition of the Internal Control Committee; one of the points that emerged was that when the Board of Directors is reappointed it should if possible include members with greater banking and financial expertise and more time should be devoted to the market context, major receivables, lending procedures, applying specific agreements and monitoring performance. RELATED PARTY TRANSACTIONS The Bank is controlled by UGF Gruppo Finanziario S.p.A. which carries out steering and coordination activities. In accordance with the provisions of Legislative Decree 87 of 27 January 1992 and CONSOB recommendations of 27 February 1998, financial and commercial relations between the Bank and the other companies in the Group were the usual types of operation carried out by a group that is split into different companies and as far as banking activity was concerned related to services rendered, deposits or corporate financing. In addition, agreements were entered into for the sale and/or management of banking and financial products and/or services and for the provision of auxiliary banking services in general. The financial effects of these relations were normally governed by the market terms applied to major customers. The limits on loans to UGF Banca representatives, i.e. loans approved and guarantees granted in favour of Directors, Statutory Auditors and other representatives who were authorised and responsible for management and control, were approved in accordance with Art. 136 of Legislative Decree 385/1993. All related party transactions are set out in part H of the Notes to the financial statements, grouped according to type. DATA PROTECTION In accordance with the provisions of Legislative Decree 196/2003 - the Data Protection Code - which came into force on 1 January 2004 and replaced Law 695/1996, the Bank drew up the Data Protection Document. This Document, which is updated once a year, covers the security measures provided for in Appendix B to the Data Protection Act and contains the following information: list of operations involving personal information; list of the duties and responsibilities of the various departments responsible for processing personal information; analysis of the risks affecting information held; existing measures and measures to be adopted in order to guarantee that information is complete and available and that premises are protected; criteria and procedures for restoring information if it is destroyed or damaged; organising training in processing personal information; operations outsourced. OTHER INFORMATION At the end of 2009 the Parent Unipol 59
Management Report Gruppo Finanziario S.p.A. held 100% of UGF Banca S.p.A., either directly or indirectly. Your Bank holds no own shares, either directly or through fiduciaries or intermediaries. Work of administering and coordinating the Bank carried out by the holding company, UGF S.p.A. The Bank is managed and coordinated by Unipol Gruppo Finanziario S.p.A. (also known as UGF) under Articles 2497 et seq. of the Civil Code. In accordance with Article 2497-ter of the Civil Code the Bank: approved the finalising of the agreements for outsourcing the Internal Auditing, Risk Management and Compliance work and Top Management Support to UGF Merchant S.p.A. and other companies in the Group, in compliance with UGF s Guidelines relating to the Internal Control System approved by the Bank s Board of Directors; approved the Lending Guidelines (Lending Policy) with an addendum containing all the rules applying to underwriting and monitoring the credit risk within the various companies in the Group in order to ensure that total exposure to the individual counterparty is in line with the risk appetite expressed in the Group s strategic objectives; updated the Investment Guidelines - Group Investment Policy adopted by UGF S.p.A. This document establishes the criteria on which the financial asset investment policy for all the Companies in the UGF Group is based and also establishes the types of asset that may be invested in and limits on both asset allocation and the financial risk that may be taken; approved the issue of bonds matching capital redemption products issued by the companies in the Group. This work enabled the Bank to obtain cash and at the same time stabilise income, thus reducing the imbalance between the average duration of lending to customers and the average duration of the various forms of income. It also saved the expense of issuing bonds to investors. SUBSEQUENT EVENTS As already mentioned above, the Bank finalised the changeover to the new IT system on 1 January 2010. The new supplier, Cedacri S.p.A., is one of the leading Italian providers of IT services to banks. More than 150 businesses in Italy, with more than 2,700 sales outlets and 30,000 employees, use its package of services. Once the new system is fully operational the Bank will have a partner that will be capable not only of managing the current situation better at a competitive cost but also of helping it to grow over the next few years. The provider of the previous IT system has already announced that as a result of the gradual reduction in the use of its system in 2010 it will apply to the Bank for compensation of 9.2m. The Bank considers that this request for compensation is unfounded for the reasons already mentioned under Organisation and systems. 60
Management Report BUSINESS OUTLOOK The reorganisation begun in November 2009 will be completed during 2010: now that they no longer have to deal with small businesses the Business Centres will be able to make better use of existing relations with companies and develop the reference market, and at the same time, being nearer to customers, the branches will be able to develop SME business. A special department was set up early in 2010 within the retail department to expand the small business segment. The main task of this department is to revise the current product catalogue and support the marketing activities of the network. New products specially designed for individual customers and small businesses in conjunction with the associated company UGF Assicurazioni will be also be introduced. These products will join those introduced in 2009 (Credit Protection), which have proved very popular with customers. PROPOSAL FOR APPROVING THE FINANCIAL STATEMENTS AND ALLOCATING THE NET PROFIT FOR THE YEAR Dear Shareholders, We hereby submit the 2009 financial statements and the Directors Report for your approval and propose that you: (I) approve UGF Banca S.p.A. s financial statements for the year ended 31 December 2009, which are accompanied by the Directors Report and closed with a net profit of 5,681,539; (II) allocate the net profit of 5,681,539 in accordance with Article 27 of the Company s By-Laws, as follows: 10% to the legal to the other provisions the remaining 5,113,385 Bologna, 24 March 2010 BOARD OF DIRECTORS 61
TABLES OF FINANCIAL STATEMENTS
Tables of Financial Statements BALANCE SHEET (in ) Assets 31/12/2009 31/12/2008 Variations 10 Cash and cash equivalents 117,098,499 96,359,052 20,739,447 20 Held-for-trading financial assets 738,792 176,260,027 (175,521,235) 40 Available-for-sale financial assets 87,816,651 287,630,632 (199,813,981) 60 Receivables from banks 974,267,790 890,998,741 83,269,049 70 Receivables from customers 9,218,297,862 8,480,065,242 738,232,620 80 Hedge derivatives - 291,978 (291,978) 100 Investments 122,227,943 122,227,943-110 Property, plant & equipment 24,631,630 23,932,259 699,371 120 Intangible assets 419,674,026 420,003,970 (329,944) of which: - goodwill 419,225,718 419,225,718-130 Tax assets: 91,542,741 95,311,951 (3,769,210) a) current 13,858,924 12,859,685 999,239 b) deferred 77,683,817 82,452,266 (4,768,449) 150 Other assets 238,330,126 134,945,901 103,384,225 Total assets 11,294,626,060 10,728,027,696 566,598,364 64
Tables of Financial Statements BALANCE SHEET (in ) Liabilities 31/12/2009 31/12/2008 Variations 10 Payables to banks 420,434,260 693,398,074 (272,963,814) 20 Payables to customers 7,665,478,196 7,811,421,271 (145,943,075) 30 Securities outstanding 1,873,145,990 919,995,208 953,150,782 40 Held-for-trading financial liabilities - 94,018,039 (94,018,039) 60 Hedge derivatives 3,751,084-3,751,084 80 Tax liabilities: 28,081,699 36,218,061 (8,136,362) a) current 11,759,386 26,813,047 (15,053,661) b) deferred 16,322,313 9,405,014 6,917,299 100 Other liabilities 229,927,510 314,314,118 (84,386,608) 110 Held-for-trading financial liabilities 14,932,441 15,488,694 (556,253) 120 Employees leaving entitlement: 18,952,252 15,379,198 3,573,054 a) pensions and similar liabilities - - - b) other provisions 18,952,252 15,379,198 3,573,054 130 Valuation reserves (5,727,868) (11,173,924) 5,446,056 160 Reserves 12,856,123 (25,507,689) 38,363,812 170 Share premiums 122,612,834 249,500,000 (126,887,166) 180 Share capital 904,500,000 703,500,000 201,000,000 200 Profit (loss) for the period (+/-) 5,681,539 (88,523,354) 94,204,893 Total equity and liabilities 11,294,626,060 10,728,027,696 566,598,364 65
Tables of Financial Statements INCOME STATEMENT (in ) Items 31/12/2009 31/12/2008 Variations 10 Interest receivable and similar income 376,740,494 581,235,007 (204,494,513) 20 Interest payable and similar charges (162,200,956) (342,930,612) 180,729,656 30 Net interest income 214,539,538 238,304,395 (23,764,857) 40 Fees and commissions receivable 108,219,986 79,383,867 28,836,119 50 Fees and commissions payable (17,114,370) (19,072,597) 1,958,227 60 Non-interest income 91,105,616 60,311,270 30,794,346 70 Dividends and similar income 5,386,840 9,978,927 (4,592,087) 80 Net result from trading 1,966,841 (3,826,357) 5,793,198 90 Net result from hedging 144,975 (84,484) 229,459 100 Profit (loss) from sale or repurchase of: 18,240,165 10,266,328 7,973,837 a) loans - (2,029,603) 2,029,603 b) available-for-sale financial assets 3,178,303 10,610,657 (7,432,354) c) held-to-maturity financial assets - - - d) financial liabilities 15,061,862 1,685,274 13,376,588 110 Net result from financial assets and liabilities at fair value - - - 120 Gross operating income 331,383,975 314,950,079 16,433,896 130 Net impairments/reversals of impairments on: (55,902,011) (212,067,274) 156,165,263 a) loans (53,373,361) (207,806,590) 154,433,229 b) available-for-sale financial assets (2,880,365) (3,531,969) 651,604 c) held-to-maturity financial assets - - - d) other financial operations 351,715 (728,715) 1,080,430 140 Net result from asset management 275,481,964 102,882,805 172,599,159 150 Administrative expenses: (256,017,486) (219,282,511) (36,734,975) a) personnel expenses (133,592,357) (113,405,265) (20,187,092) b) other administrative expenses (122,425,129) (105,877,246) (16,547,883) 160 Net provisions for risks and charges (5,323,079) (7,342,631) 2,019,552 170 Net impairments/reversals of impairments on property, (6,855,213) (6,930,455) 75,242 plant & equipment 180 Net impairments/reversals of impairments on intangible assets (361,144) (283,074) (78,070) 190 Other operating income and charges 13,302,314 14,591,394 (1,289,080) 200 Operating expenses (255,254,608) (219,247,277) (36,007,331) 210 Profit (loss) from investments - (186) 186 220 Net result from property, plant & equipment and intangible - - - assets at fair value 230 Impairment on goodwill - - - 240 Profit (loss) from disposal of investments - - - 250 Pre-tax profit (loss) on continuing operations 20,227,356 (116,364,658) 136,592,014 260 Income tax on continuing operations for the year (14,545,817) 27,841,304 (42,387,121) 270 Profit (loss) on continuing operations, net of tax 5,681,539 (88,523,354) 94,204,893 280 Profit (loss) on continuing operations, net of tax - - - 290 Profit (loss) for the period 5,681,539 (88,523,354) 94,204,893 66
Tables of Financial Statements STATEMENT OF COMPREHENSIVE INCOME (in ) Items 31/12/2009 31/12/2008 Variations 10 Profit (loss) for the year 5,681,539 (88,523,354) 94,204,893 Other comprehensive income, net of tax 20 Available-for-sale financial assets 7,985,540 (12,436,424) 20,421,964 30 Property, plant & equipment - - - 40 Intangible assets - - - 50 Overseas investment hedging - - - 60 Cash flow hedging (2,539,484) - (2,539,484) 70 Exchange rate differences - - - 80 Fixed assets in the course of being sold - - - 90 Actuarial profits (losses) on defined benefit schemes - - - 100 Share of valuation reserves for investments valued at equity - - - 110 Total other comprehensive income, net of tax 5,446,056 (12,436,424) 17,882,480 120 Comprehensive income (Item 10+110) 11,127,595 (100,959,778) 112,087,373 67
Tables of Financial Statements STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDING 31 DECEMBER 2009 (in ) Figures at 31.12.2008 Changes in opening balances Figures at 1.1.2009 Allocation of previous year s result Reserves Dividends and other allocations Variations during the year Transactions on equity Share capital: a) ordinary shares 703,500,000-703,500,000 - - - 201,000,000 - - - - - - 904,500,000 b) other shares - - - - - - - - - - - - - - Share premium 249,500,000-249,500,000 (55,802,790) - (71,084,376) - - - - - - - 122,612,834 Reserves: a) accumulated earnings (25,507,689) - (25,507,689) (32,720,564) - 71,084,376 - - - - - - - 12,856,123 b) other reserves - - - - - - - - - - - - - - Valuation reserves: (11,173,924) - (11,173,924) - - - - - - - - - 5,446,056 (5,727,868) Equity instruments - - - - - - - - - - - - - - Own shares - - - - - - - - - - - - - - Profit (loss) for the period (88,523,354) - (88,523,354) 88,523,354 - - - - - - - - 5,681,539 5,681,539 Equity 827,795,033-827,795,033 - - - 201,000,000 - - - - - 11,127,595 1,039,922,628 Variations in reserves Issue of new shares Purchase of own shares Extraordinary distribution of dividends Variation in equity instruments Derivatives on own shares Stock options Comprehensive income at 31.12.2009 Equity at 31.12.2009 68
Tables of Financial Statements STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDING 31 DECEMBER 2008 (in ) Figures at 31.12.2007 Changes in opening balances Figures at 1.1.2008 Allocation of previous year s result Reserves Dividends and other allocations Variations during the year Transactions on equity Share capital: a) ordinary shares 703,500,000-703,500,000 - - - - - - - - - - 703,500,000 b) other shares - - - - - - - - - - - - - - Share premium 249,500,000-249,500,000 - - - - - - - - - - 249,500,00 Reserves: a) accumulated earnings (36,223,313) - (36,223,313) 10,715,624 - - - - - - - - - (25,507,689) b) other reserves - - - - - - - - - - - - - - Valuation reserves: 1,262,500-1,262,500 - - - - - - - - - (12,436,424) (11,173,924) Equity instruments - - - - - - - - - - - - - - Own shares - - - - - - - - - - - - - - Profit (loss) for the period 36,745,123-36,745,123 (10,715,624) (26,029,499) - - - - - - - (88,523,354) (88,523.354) Equity 954,784,310-954,784,310 - (26,029,499) - - - - - - - (100,959,778) 827,795,033 Variations in reserves Issue of new shares Purchase of own shares Extraordinary distribution of dividends Variation in equity instruments Derivatives on own shares Stock options Comprehensive income at 31.12.2008 Equity at 31.12.2008 69
Tables of Financial Statements CASH FLOW STATEMENT (amounts in K) Amount 2009 Amount 2008 A. OPERATING ACTIVITY 1. Operations 74,147,653 104,198,898 - result for the year (+/-) 5,681,539 (88,523,354) - capital gains/losses on financial assets/liabilities held for trading and on assets/liabilities at fair value (-/+) 706,515 5,501,225 - capital gains/losses on hedging assets (-/+) (144,975) 84,483 - net impairments/reversals of impairments (+/-) 60,697,500 214,722,565 - net impairments/reversals of impairments on tangible and intangible fixed assets (+/-) 7,216,357 7,213,529 - net provisions for risks and charges and other costs/income (+/-) 5,863,711 21,646,170 - payable taxes (+) (6,544,558) (46,256,971) - net impairments/reversals of impairments on discontinued operations, net of tax (-/+) - - - other adjustments (+/-) 671,564 (10,188,749) 2. Cash inflows/outflows from financial assets (608,505,305) (18,120,705) - held-for-trading financial assets 174,814,720 740,021,631 - financial assets at fair value - - - available-for-sale financial assets 202,263,369 (204,625,107) - receivables from banks: on demand 116,358,168 (45,041,686) - receivables from banks: other receivables (199,627,216) 688,096,769 - receivables from customers (798,930,121) (1,257,692,830) - other assets (103,384,225) 61,120,518 3. Cash inflows/outflows from financial liabilities 356,659,583 (45,665,252) - payables to banks: on demand 42,845,917 (92,763,670) - payables to banks: other payables (315,809,731) 683,058,713 - payables to customers (145,943,075) (527,950,342) - securities outstanding 957,423,302 175,089,440 - held-for-trading financial liabilities (94,623,312) (277,542,000) - financial liabilities at fair value - - - other liabilities (87,233,518) (5,557,392) Net cash inflows/outflows from operating activity (177,698,069) 40,412,941 B. INVESTMENT ACTIVITY 1. Cash inflows from 5,117,574 9,696,367 - sales of investments - 11,538 - dividends received on investments 5,023,574 9,676,829 - sales of held-to-maturity financial assets - - - sales of property, plant & equipment 94,000 8,000 - sales of intangible assets - - - sales of business branches - - 2. Cash outflows from (7,680,058) (13,818,310) - purchases of investments - (3,376,000) - purchases of held-to-maturity financial assets - - - purchases of property, plant & equipmen (7,648,858) (10,125,310) - purchases of intangible assets (31,200) (317,000) - purchases of business branches - - Net cash inflows/outflows from investment activity (2,562,484) (4,121,943) C. FUNDING ACTIVITY - issue/purchase of own shares 201,000,000 - - issue/purchase of equity instruments - - - distribution of dividends and other purposes - (26,029,499) Net cash inflows/outflows from funding activity 201,000,000 (26,029,499) NET CASH INFLOWS/OUTFLOWS DURING THE YEAR 20,739,447 10,261,499 RECONCILIATION Balance sheet items Amount 2009 Amount 2008 Opening cash and cash equivalents 96,359,052 86,097,553 Total net cash inflows/outflows during the year 20,739,447 10,261,499 Liquid funds: effects of changes in exchange rates - - Closing cash and cash equivalents 117,098,499 96,359,052 70
NOTES TO THE FINANCIAL STATEMENTS
Notes to the Financial Statements Part A - Accounting policies............................ 75 A.1 - GENERAL......................................... 75 Section 1 - Declaration of compliance with international accounting standards.. 75 Section 2 - General principles................................ 75 Section 3 - Events subsequent to the accounting reference date........... 75 Section 4 - Other aspects.................................. 75 A.2 - The principal items in the financial statements........... 77 A.3 - Informaton on fair value........................... 90 Part B - Information on the balance sheet................ 92 ASSETS Section 1 - Cash and cash equivalents.......................... 92 Section 2 - Held-for-trading financial assets....................... 92 Section 3 - Financial assets at fair value.......................... 94 Section 4 - Available-for-sale financial assets....................... 94 Section 5 - Held-to-maturity financial assets....................... 95 Section 6 - Receivables from banks............................ 95 Section 7 - Receivables from customers......................... 96 Section 8 - Hedge derivatives................................ 97 Section 9 - Adjustments in generically hedged financial assets............ 97 Section 10 - Investments................................... 97 Section 11 - Property, plant and equipment........................ 99 Section 12 - Intangible assets................................. 101 Section 13 - Tax assets and tax liabilities.......................... 103 Section 14 - Non-current assets held for sale and discontinued operations and related liabilities.............................. 106 Section 15 - Other assets................................... 106 LIABILITIES Section 1 - Payables to banks................................ 106 Section 2 - Payables to customers............................. 107 Section 3 - Securities outstanding............................. 108 Section 4 - Held-for-trading financial liabilities...................... 109 Section 5 - Financial liabilities at fair value........................ 110 Section 6 - Hedge derivatives................................ 110 Section 7 - Adjustment of generically hedged financial liabilities........... 110 Section 8 - Tax liabilities................................... 111 Section 9 - Liabilities associated with discontinued operations............ 111 Section 10 - Other liabilities................................. 111 Section 11 - Employees leaving entitlement........................ 111 Section 12 - Provisions for risks and charges....................... 112 Section 13 - Redeemable shares............................... 113 Section 14 - Equity attributable to the company..................... 113 OTHER INFORMATION.................................... 115 Part C - Information on the income statement............. 117 Section 1 - Interest...................................... 117 Section 2 - Fees and commissions............................. 118 Section 3 - Dividends and similar income........................ 119 Section 4 - Net result from trading activity........................ 120 73
Section 5 - Net result from hedging activity....................... 120 Section 6 - Profit (loss) from sale/repurchase...................... 121 Section 7 - Net result from financial assets and liabilities at fair value........ 121 Section 8 - Impairments/reversals of impairments................... 122 Section 9 - Administrative expenses............................ 123 Section 10 - Net provisions for risks and charges..................... 124 Section 11 - Adjustments/readjustments on property, plant and equipment.... 125 Section 12 - Adjustments/readjustments on intangible assets............. 125 Section 13 - Other operating income and charges.................... 125 Section 14 - Profits (losses) from investments....................... 126 Section 15 - Net result of recording property, plant & equipment and intangible assets at fair value............................... 126 Section 16 - Adjustments on goodwill........................... 126 Section 17 - Profits (losses) on disposal of investments................. 126 Section 18 - Income tax for the year relating to continuing operations........ 126 Section 19 - Profit (loss) on discontinued operations, net of tax............ 127 Section 20 - Other information................................ 127 Section 21 - Earnings per share............................... 127 Part D - Comprehensive income......................... 128 Part E - Information on risks and related hedging policies... 129 Section 1 - Credit risk.................................... 129 Section 2 - Market risk................................... 149 Section 3 - Liquidity risk................................... 169 Section 4 - Operational risks................................ 176 Part F - Information on equity.......................... 176 Section 1 - Equity...................................... 176 Section 2 - Regulatory banking capital and ratios.................... 179 Part G - Business combinations concerning companies or business branches............................. 180 Part H - Related parties transactions..................... 180 Part I - Payment agreements based on own equity instruments.................................. 183 Part L - Sector information............................ 183 74
Notes to the Financial Statements Part A ACCOUNTING POLICIES A.1 - GENERAL Section 1 - Declaration of compliance with international accounting standards In compliance with Legislative Decree 38 of 28 February 2005, the 2009 financial statements of UGF Banca were drafted in accordance with the International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB), endorsed by the European Commission and published in the Official Journal of the European Union, according to the approval and publication procedure set out in Community Regulation 1606 of 19 July 2002. The financial statements were drawn up in accordance with the instructions issued by Banca d Italia under the authority and powers conferred on it by the Decree. In particular the instructions referred to in Circular 262 of 22 December 2005 as amended, which governs the layout and contents of financial statements to be drawn up in accordance with international accounting principles, were applied. In drafting the financial statements for the year reference has been made to the IAS/IFRS international accounting standards published on 31 December 2009. Recent developments regarding international accounting standards are shown in Section 4 - Other aspects below. Section 2 - General principles The financial statements are made up of the Statement of Assets and Liabilities, the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Cash Flow Statement and the Notes to the Financial Statements. They are also supplemented by the Board of Directors Report on business performance. The company s financial statements have been drawn up clearly and represent the assets and liabilities, financial situation and economic result for the year in a true and correct manner. The measurement criteria are adopted with a view to business continuing, in application of the principles of accruals, relevance and significance of the accounting information and prevalence of the economic substance on the legal form. The assumption of business continuity is considered to be confirmed with reasonable certainty, since it is thought that the Bank, together with the reference group of companies, have adequate resources to guarantee that the business can continue in the foreseeable future. Please see also Section 4 - Other aspects below. The international accounting standards were applied without exception. The currency of account is the Euro. The amounts in the financial statements and in the notes to the financial statements are, unless otherwise stated, expressed in K. The financial statements are shown in comparative format, stating the values for the previous year. The Notes to the financial statements and the Board of Directors Report on business performance supply the information required under applicable legislation, supplemented, where deemed appropriate, by other information which is not compulsory but intended to provide a fuller picture of the Bank s overall situation. Section 3 - Events subsequent to the accounting reference date No significant events occurred after the close of the year likely to affect the results of the financial statements. Section 4 - Other aspects Information on the business s expected continuation as a going concern The joint coordination board between Banca d Italia, CONSOB and ISVAP regarding application of the IAS/IFRS according to document 2 of 6 February 2009 Information to be provided in financial reports on expected continuation as a going concern, financial risks, impairment tests on assets and uncertainty as to the use of estimates, asked the Directors to make particularly accurate evaluations concerning the existence of the assumption of expected continuation as a going concern. The recommendation was in the latest document issued jointly 75
Notes to the Financial Statements by Banca d Italia, CONSOB and ISVAP, no. 4 of 3 March 2010. To be specific paragraphs 25 and 26 of IAS 1 establish, in brief, that the senior executives must assess the company s ability to continue to operate as a functioning entity, taking account of all the information available on at least the twelve months following the end of the year. The level of analysis depends on the specific circumstances of each individual case. Profits from previous years and easy access to finance confirm the presumption that the Company will remain in business, even if no detailed analysis is carried out. In this regard, having examined the risks and uncertainties connected with the current macroeconomic context, it was considered reasonable to expect that the Bank will continue operating in the foreseeable future and, as a result, the consolidated financial statements for 2009 were drawn up on the assumption of business continuing. The uncertainties connected with problems as to risks involving liquidity, credit and income were not considered significant and, at any rate, such as not to generate doubts as to business continuing, considering also the Group s solid equity position and facilitated access to financial resources. Risks and uncertainties connected with the use of estimates As stated in part A.2 of these Notes to the financial statements and as provided for by the accounting standards in force and the reference regulations, estimate processes have been created in support of the book value of applicable items entered in these financial statements. These processes are largely based on estimates as to the future recoverability of the values entered in the financial statements according to the rules laid down by the regulations in force and have been implemented with a view to business continuing, that is, regardless of assumptions of compulsory settlement of the items which are the subject of evaluation. The investigation carried out supports the values entered in the financial statements at 31 December 2009. In particular, summarised below are the main accounting items which, by their nature and composition, are subject to risks and uncertainties connected with the use of estimates: - Held-for-trading financial assets; - Available-for-sale financial assets; - Receivables from customers; - Goodwill; - Provisions for risks and charges; - Net result from trading activity; - Impairments/reversals of impairments on loans; - Impairments/reversals of impairments on available-for-sale financial assets; - Net provisions for risks and charges. Changes to the context of the applicable accounting standards Among the principal changes to the relevant accounting standards and interpretations are the following: IAS 1 - Presentation of financial statements - new version that came into effect on 1 January 2009 introduced the concept of comprehensive income and required the income elements not recorded in the income statement but allocated direct to capital and reserves to be shown. This concerns the variations that took place during the year in the equity valuation provisions which, in accordance with the option adopted by Banca d Italia (one of the two provided for by IAS 1), were included in the new Statement of Comprehensive Income and, together with the Profit (Loss) for the year, made up the Comprehensive Income. IFRS 7 - Financial instruments: Disclosures - amendments and additions to the information to be provided were introduced as from the annual financial statements for 2009. To be specific paragraphs 27A and 27B were added, requiring further information on calculating fair value, ranking fair value and the liquidity risk relating to financial instruments. Financial instruments recorded at fair value are ranked at three different levels, the aim being to provide information on their quality. - Level 1: when the fair value is based on unadjusted prices recorded on an active market in accordance with the definition given in IAS 39; - Level 2: when the fair value is based on valuation methods that use benchmarks that can be seen on the market, other than the prices referred to in Level 1; - Level 3: when the fair value is based on valuation methods that use benchmarks that cannot be seen on the market. 76
Notes to the Financial Statements On 18 November 2009 Banca d Italia updated and reprinted Circular 262 of 22 December 2005 to include all the changes that had been made in the meantime to IAS/IFRS international accounting standards and incorporating clarifications already issued separately Other The financial statements are submitted for auditing by KPMG S.p.A. to whom the Shareholders Meeting entrusted the assignment for the years 2006-2011. A.2 - THE PRINCIPAL ITEMS IN THE FINANCIAL STATEMENTS 1. Held-for-trading financial assets 1.1 Classification criteria A financial asset is classified as held for trading if it meets one of the following conditions: - the asset is acquired principally for the purpose of selling it in the short term; - the asset is part of a portfolio of identified financial instruments which are managed as a unit as part of a strategy aimed at obtaining gain in the short term; - the asset is a derivative contract which differs from derivative hedging contracts. Also included amongst derivative contracts are those incorporated into complex financial instruments (hybrid or combined) which need to be recorded separately if all the following conditions are met: - the economic features and the risks of the incorporated derivative are not strictly correlated with those of the primary contract; - even if recorded separately, the incorporated derivative has features such as to comply with the definition of a derivative contract; - the hybrid instrument which incorporates the derivative is not valued at fair value with the relating changes being recorded in the income statement. The Bank has classified under this item debt securities, equity securities and positive values for derivative contracts held for trading. Excluded from this item are debt securities and equities not managed for trading purposes, as well as hedge derivatives. 1.2 Recognition criteria The initial recognition of the assets held for trading is done on the settlement date for debt securities and equities and on the subscription date for derivatives, for a value equal to the fair value of the financial instrument without taking into consideration directly chargeable transaction costs or income, which are recorded directly in the income statement. 1.3 Measurement criteria After initial recognition, the assets in question are valued at fair value and the changes in value encountered are recorded in the income statement (item 80 - Net profit from trading assets). In the case of financial instruments listed on active markets, the fair value is determined on the basis of the quotations shown on those markets at the reference date for the valuations, without recourse to average period values. In the case of financial instruments not listed on active markets, the fair value is determined on the basis of prices supplied by other qualified operators and/or on internal valuation models generally used in financial negotiations. These models take account of the risk factors inherent in instruments which are the subject of valuation and are based on data observable on the markets: models for discounting expected cash flows, models for determining the price of options, valuation of listed instruments with similar features, values observed in recent market transactions. 1.4 Derecognition criteria A financial asset is derecognised only when the rights under the contract to the cash flows arising out of it expire or when it is assigned to third parties and all the risks and benefits are effectively and substantially transferred. 77
Notes to the Financial Statements 2. Available-for-sale financial assets 2.1 Classification criteria Classified under this item are all the financial assets, other than derivatives, designated as such or not otherwise classified as receivables, held-to-maturity and held-for-trading assets. The Bank has included in this category the following types of financial activity: - debt securities held for the purposes of investment and not intended for short-term trading; - strategic participating interests (shares of less than 20% of equity, of strategic importance from a commercial or corporate point of view); - non-managed participating interests for the purposes of trading and not classifiable as a subsidiary, associate or joint venture. 2.2 Recognition criteria Initial recognition is carried out when the Bank becomes a party to the contractual clauses of the financial instrument, which normally coincides with the settlement date. The initial recognition value is equal to the fair value of the financial instrument, which generally coincides with the related purchase cost, including the directly chargeable transaction costs or income. When recognition is the result of a reclassification of assets originally entered under those held to maturity or those held for trading and at fair value, which in special cases transfers are permitted according to IAS 39, the recognition value is determined at fair value for the instrument on the transfer date. 2.3 Measurement criteria After initial recognition, the assets in question continue to be at fair value. The interest component resulting from application of the cost less depreciation method, where it exists, goes to the income statement, whilst gains and losses from the change in fair value are recorded directly under the equity (item 130 - Valuation reserves). The fair value is determined according to the same criteria as already stated for the assets held for trading. When the asset is derecognised or when reasons arise for recording impairment, gains and losses accumulated due to changes in fair value are recorded in the income statement. The impairment is recorded if there is objective evidence that the recoverable value of the financial instrument is lower than its purchase value less any refunds and depreciation. Any readjustments are allowed only if the reasons that determined the recording of the loss no longer apply, and they are recorded up to an amount such as to attribute to the financial instrument a value no higher than the value it would have had at that time as a result of applying the cost less depreciation method without previous adjustments. The impairments go to the income statement under item 130 sub-item b) - Impairments/reversals of impairments on available-for-sale financial assets. Recorded under the same item are readjustments on debt securities whilst readjustments on equities are recorded under the equity (item 130 - Valuation reserves). Checking for the existence of conditions for recording impairments and subsequent readjustments is done on the reference date for each annual account or infra-annual position. Equity instruments for which it is not possible to determine the related fair value amount reliably manner are valued at cost, except for the recording of impairment reasons for this exist. These impairments must not, however, be reinstated in subsequent years. Impairment policies on available-for-sale financial assets IAS 39, para. 58, stipulates that, at each reference date for the financial statements, companies must check whether there is any objective evidence that a financial asset or group of financial assets has suffered impairment. In order to determine whether a financial asset or group of financial assets has suffered impairment, they need to be prepared for and subjected to a periodical impairment test. Indications of possible impairment are, for example, the issuer experiencing significant financial difficulties, non-payment or missed payments of interest or capital, the possibility that the beneficiary may become subject to 78
Notes to the Financial Statements bankruptcy proceedings or similar such proceedings and the disappearance of an active market for the asset. Under paragraph 61 of IAS 39 a significant or prolonged fall in the fair value of an investment in an instrument representing capital below cost must be considered to be objective evidence of impairment. The impairment policy adopted by the Bank is in line with that adopted by the Parent Unipol Gruppo Finanziario S.p.A. and impairment testing is carried out in close collaboration with and under the leadership of the Group Finance Department. As a result of the publication of Document 4 of 3 March 2010 issued jointly by Banca d Italia, CONSOB and ISVAP on applying IAS/IFRS, and in compliance with the instructions in it drawn up in the wake of the IFRIC document published in July 2009, the Group amended its previous impairment policy as from 2009, eliminating the qualitative valuations that were used in addition to first-level quantitative analysis based on the thresholds of significant and prolonged. Therefore all the equity securities to which at least one of the following conditions applied were impairment-tested: a) the market price had remained below the initial recognition value for the previous 36 months; b) the decrease in value on the accounting reference date was more than 20% of the initial recognition value. This confirmed that these securities were impaired and the total variation in fair value was recorded in the income statement and the AFS provision written off. In the case of debt securities, whenever payment of a coupon or repayment of capital is late or missed and this is confirmed by the deposit bank, the Finance Department immediately notifies the relevant Risk Management Department of the need to carry out any write-downs. 2.4 Derecognition criteria The same criteria apply as already stated for the held-for-trading assets (paragraph 1.4). 3. Held-to-maturity financial assets 3.1 Classification criteria The held-to-maturity financial assets are represented by financial instruments but not by derivatives, with fixed or ascertainable payments and a fixed due date, in respect of which there is the intention and ability to hold onto the assets until they mature. The Bank has not classified any assets under this item. 3.2 Recognition criteria Initial recognition is carried out when the Bank becomes a party to the contractual clauses of the financial instrument, which normally coincides with the settlement date. The initial recognition value is equal to the fair value of the financial instrument, which generally coincides with the related purchase cost, including the directly chargeable transaction costs or income. When recognition is the result of a reclassification of assets originally entered under those available for sale, the recognition value is determined at fair value for the instrument on the transfer date. The Bank has made no reclassifications of the kind described above. 3.3 Measurement criteria After initial recognition, the assets in question are valued at cost less depreciation, using the effective interest method. Gains and losses are recorded in the income statement within the space of the residual life owing to amortisation of the difference between recognition value and redeemable value when they fall due. Gains and losses recorded when these assets are eliminated or undergo impairment also go to the income statement. The held-to-maturity assets are subject to periodical auditing for the existence of losses in value. Should objective evidence of impairment arise, the amount of the loss is measured against the difference in the book value of the asset and the current value of the estimated future 79
Notes to the Financial Statements cash flows, discounted at the financial asset s original effective interest rate. Any readjustments are allowed only if the reasons that determined the recording of the loss no longer apply, and they are recorded up to an amount such as to attribute to the financial instrument a value no higher than the value it would have had at that time as a result of applying the cost less depreciation method without previous adjustments. 3.4 Derecognition criteria The same criteria apply as already stated for the held-for-trading assets (paragraph 1.4). Should a significant amount of assets classified within this category be sold or reclassified during the year, before maturity, any remaining held-to-maturity assets would be reclassified as available for sale and for two successive years it would not be possible to classify any asset within this category. This penalty does not apply if the sales or reclassifications: - are so near to maturity that the fluctuations in the market rates cannot have a significant effect on the fair value of the assets; - occurred after substantially all the original principal for the asset was cashed as a result of ordinary scheduled or early payments; or - are to be attributed to an uncontrollable isolated event, which is not recurrent and cannot therefore be reasonably forecast. 4. Receivables 4.1 Classification criteria Classified within this category are financial assets, other than derivatives, which involve fixed or determinable payments and which are not quoted on an active market. The following assets are excluded from this category: - receivables intended to be sold immediately or in the short term, which must be classified under assets held for trading; - receivables in respect of which it is not possible to recover essentially all the initial investment, due to reasons other than impairment of the receivable, which must be classified under available-for-sale assets; - receivables which may, at the time of being initially recorded, have been described as assets recorded at fair value through profit or loss or as available-for-sale assets. The Bank has classified within this category all the receivables resulting from financing and/or deposit contracts with customers and the banking system. Repo contracts and commercial receivables fall within this category as well. The receivables are shown in the financial statements under items 60 - Receivables from banks and 70 - Receivables from customers, except for receivables of a commercial nature not able to be related to business to customers which are allocated to item 150 Other assets. 4.2 Recognition criteria The initial recognition is carried out when the Bank, as creditor, acquires the right to payment of the sums contractually agreed. This time coincides with the payment date in the case of financing and the settlement date in the case of debt securities. The asset is recorded at fair value, which is generally equal to the amount paid or to the purchase price, inclusive of costs and income directly able to be related to the individual asset and determinable from the start of the transaction even if settled at a later time. Charges to be paid by the debtor and the company s normal internal administrative costs are not included. In the case of financing agreed under conditions other than market ones, the fair value is determined by special valuation techniques and the difference between this value and the amount paid is recorded directly through profit or loss. When recognition is the result of a reclassification of assets originally entered under those held to maturity or those held for trading and at fair value, which in special cases transfers are permitted according to IAS 39, the recognition value is determined at fair value for the instrument on the transfer date. Loans on negotiable securities and repo contracts with the commitment or entitlement to repurchase/resell are entered in the financial statements as receivables and payables and the assets temporarily transferred are not derecognised. In particular, the cash sale and forward 80
Notes to the Financial Statements repurchase agreements are recorded as payables for the amount received in cash, and vice versa the cash purchase and forward resale agreements are recorded as receivables for the amount paid in cash. 4.3 Measurement criteria Following initial recognition, receivables are valued at the amortised cost, which is represented by the value at which they are initially recorded net of repayments, plus or minus any difference between the initial value and the value on maturity because of depreciation calculated in accordance with the criterion of effective interest and less any reduction because of any decrease in value or non-recoverability. Applying the effective interest rate enables the financial effect of a loan transaction to be spread evenly over its expected life, which makes financial sense. In fact the effective interest rate is the rate that discounts back all the future cash flows of the loan and establishes a current value corresponding to the value granted including all the transaction costs and income attributable to it. When the cash flows and the contractual duration of the loan are being estimated, all the contractual terms that can affect the amounts and the maturity dates (for instance, early redemptions and the various options that may be exercised) are taken into account but not the losses expected on the loan. Following initial recognition, for the whole life of the loan the amortised cost is determined by continuing to apply the effective interest rate fixed at the start of the operation (original interest rate). This original interest rate does not vary over time and is also used in the case of any contractual amendments to the interest rate or events which have rendered the loan unproductive (for instance, due to insolvency proceedings having taken place). The cost less depreciation method is applied only to credit arrangements with an original term of at least eighteen months, on the assumption that applying this method for shorter-term arrangements does not involve significant changes in measuring the economic effect. Loans with a duration of less than eighteen months and those that have no fixed maturity date or are revocable are therefore valued at cost. At the reference date for each annual account or infra-annual position, the receivables are audited to identify those which show objective evidence of a loss in value due to events which occurred after they were initially recognised. The valuation procedures differ depending on whether impaired receivables or performing receivables are involved. Impaired receivables are considered to be those to which the status of bad or doubtful, substandard, restructured or overdue for more than 180 days has been attributed, according to current Banca d Italia guidelines. These impaired receivables (except for substandard loans and/ or those due for an insignificant unit amount) are subject to a process of cost valuation which consists of discounting (at the original effective interest rate) the expected cash flows in respect of principal and interest, taking account of any guarantees backing the receivable. The negative difference between the current value of the receivable determined in this way and its book value (cost less depreciation) at the time of the valuation constitutes an adjustment which is entered in the income statement under item 130 sub-item a) - adjustments/ readjustments due to impairment of loans. The original value of the receivables is reinstated in subsequent years only if the reasons which determined the recognition of the relating loss no longer apply. The readjustments are recorded up to an amount such as to attribute to the financial asset a value no higher than the value it would have had at that time as a result of applying the cost less depreciation without previous adjustments. Receivables for which, individually, objective evidence of a loss (generally performing receivables, including those due from counterparties resident in countries at risk, and substandard loans and/or those overdue by more than 180 days for an insignificant unit amount) has not been ascertained are subject to a process of collective valuation carried out by uniform credit risk categories, identified according to a matrix breakdown by customer segment and product type. The value of the latent loss for each uniform category is quantified by applying percentage loss indices inferred from the trend analysis of historical series, for the same category. The adjustments determined according to the collective valuation method are entered in the income statement. In subsequent periods, any additional adjustments or readjustments are determined differentially with reference to the entire portfolio of receivables valued collectively. 4.4 Derecognition criteria The general criteria already stated for the other classification items apply. In particular, receivables are derecognised only if assignment involves the substantial transfer of the risks and benefits attributable to them. If this is not the case receivables continue to be recorded in the financial statements even though ownership of them has been legally transferred. It is assumed that all the risks and benefits were essentially transferred if the assignment involved the transfer of at least 90% of them. Vice 81
Notes to the Financial Statements versa, it is assumed that all the risks and benefits were essentially maintained if the assignment involved the transfer of no more than 10% of them. If the assignment did not essentially involve either the transfer or maintenance of the risks and benefits (in the event of the Bank having retained a risks/benefits ratio of more than 10% but less than 90%), the receivables are derecognised if the Bank does not retain any type of control over them. Otherwise, the existence of control over the assigned receivables determines that they remain in the financial statements in proportion to the extent of the residual involvement. The Bank has still entered in the financial statements under this category all the receivables which are the subject of securitisation schemes carried out after 31 December 2003, regarding which it has essentially retained all the risks and benefits as a result of holding the junior securities issued by the SPVs. For further information on the handling of securitisation schemes, please refer to paragraph 17.2 below. 5. Financial assets at fair value 5.1 Classification criteria Any financial asset may be designated at fair value at the time it is initially recognised (so-called fair value option ), except for instruments representing capital for which active market prices are not recordable and the fair value of which cannot be reliably determined. Excluded from this category are derivatives and the assets which belong to the trading portfolio, in respect of which IAS 39 provides for the obligation to apply the fair value criterion. The Bank has not classified any assets under this item. The recognition, measurement and derecognition criteria are similar to those for held-for-trading financial assets, with recording of gains and losses under the relevant item in the income statement (item 110 - Net result for financial assets and liabilities at fair value). 6. Hedging transactions 6.1 Types of hedging According to IAS 39, hedging relationships can be of three types: a) fair value hedge: the objective is to hedge the exposure to variations of fair value of assets or liabilities, or part of them, attributable to a particular risk, which could affect the income statement; b) cash flow hedge: the objective is to hedge the exposure to the variability of cash flows attributable to a particular risk associated with assets or liabilities which could affect the income statement; c) hedging of a net investment in a foreign operation: the objective is to cover the risks of an investment in a foreign company expressed in currency. Only instruments traded with a counterparty outside the company or group of companies to which the financial statements refer can be considered to be hedging instruments. A relationship is described as hedging and has consistent accounting representation, if and only if all the following conditions are met: - at the beginning of hedging there is the designation and formal documentation of the hedging relationship, the objectives of the company in the management of the risk and the strategy in carrying out the hedging. This documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk and how the company evaluates the effectiveness of the hedging instrument in offsetting the exposure to the variations in fair value of the hedged item or the cash flows attributable to the hedged risk; - the hedge is expected to be highly effective; - as regards the hedging of cash flows, the planned transaction which is the subject of the hedging is highly likely and presents an exposure to the variations of cash flows which could have an effect on the income statement; - the effectiveness of the hedging can be evaluated reliably; - the hedging is assessed on the basis of a criterion of continuity and is considered to be highly effective for all the years for which the hedging is designated. At 31 December 2009 the Bank has exclusively set up cash flow hedging transactions on its own variable rate bond issues. 82
Notes to the Financial Statements 6.2 Measurement criteria Hedging financial derivatives, like all derivatives, are initially recognised and then measured at fair value and are classified in the asset item 80 Hedge derivatives and liability item 60 Hedge derivatives. The effects of the valuation are shown as follows: - in the case of a fair value hedge: the fair value variation of the hedging instrument is recorded through profit or loss and is offset by the fair value variation of the hedged item, for the quota attributable to the hedged risk, which must be entered in the income statement as a contra-entry to the recognition value of the hedged item; - in the case of a cash flow hedge: the variations in fair value of the derivative are allocated to the equity only for the quota of the hedging considered to be effective and are entered in the Income Statement in the year or years in which the hedged cash flows have an effect on profits and losses or if the hedging is not effective; - in the case of hedging a net investment in a foreign operation: the same criteria as laid down for cash flow hedging apply. The effectiveness of the hedge is evaluated continuously on the reference date of each annual and infra-annual financial statements. In particular, the evaluation is done on the basis of prospective and retrospective tests which measure the expected effectiveness of the hedging relationship and the effectiveness actually obtained in the reference period and therefore justify the classification of the instrument as a hedging instrument. Hedging is considered to be effective when the fair value variation of the hedged instrument (or of the expected cash flows) is substantially offset by the variation in the hedging instrument, in a ratio between the two variations which falls within the limits of a fixed interval of 80-125%. The accounting of the hedging is discontinued prospectively in the following cases: - the hedging instrument expires, is sold, terminated or exercised; - the hedge no longer meets the aforementioned criteria for hedge accounting; - the company revokes the designation. If the hedging relationship is no longer effective or comes to an end, the hedging derivative, if it still exists, is classified amongst the heldfor-trading financial instruments and the hedged instrument is evaluated according to the measurement criteria corresponding to its classification in the financial statements. If the hedged instrument is an asset or liability evaluated according to the depreciated cost, the difference between the book value of the hedged item at the moment hedging ceases and what its book value would have been if the hedging had never existed, is depreciated in the income statement for the remaining life of the financial instrument. If the hedged item is sold or reimbursed the fair value quota not depreciated is recorded immediately through profit or loss. If a cash flow hedge terminates or is no longer effective, gains or losses on the hedging instrument already shown in the equity must be transferred to the income statement in the year in which the cash flows originally hedged have an effect on the income statement or in the year in which it emerges that these cash flows are no longer expected. 7. Investments 7.1 Classification criteria The item includes interests in subsidiaries, associates and joint ventures, where they exist. At 31 December 2009 the Bank did not have investments in associates or joint ventures. Companies are considered to be subsidiaries if the Bank, directly or indirectly, can exercise more than half of the voting rights or when, even though it has a lower quota of the voting rights, it has the power to appoint the majority of directors in the company where participating interests are held or to determine the financial and operational policies of that company. 7.2 Recognition criteria The initial recognition of the investment is carried out on the date of settlement, for a value equal to the purchase cost, including costs or income directly attributable to it. 83
Notes to the Financial Statements 7.3 Measurement criteria Investments are valued at cost, adjusted downwards if there is impairment. If there is clear evidence of impairment, the recoverable value of the shareholding is estimated on the basis of the current value of the future cash flows expected from it, including the final disposal value of the investment. If the recoverable value is lower than the book value the entire difference is shown as a loss in the income statement. The original value of the investments is reinstated in subsequent years only if the reasons which determined the recognition of the loss no longer apply. The readjustments are charged to the income statement. 7.4 Derecognition criteria A shareholding can be derecognised only when the contractual rights on the cash flows deriving from it expire or when it is sold to third parties, effectively and substantially transferring all the risks and benefits. 8. Property, plant and equipment 8.1 Classification criteria The item includes property used for corporate business, heating systems, equipment, furniture, fixtures and fittings. It involves assets held for functional purposes, to be used for more than one period in the production and supply of goods and services. The Bank does not have any assets held for investment purposes. 8.2 Recognition criteria Property, plant and equipment are initially recorded at cost, inclusive of all the expenses directly charged to setting up the asset. The non-routine maintenance costs, which include an increase in the future economic benefits, are recorded to increasing the value of the assets, whilst the routine maintenance costs are recorded in the income statement. 8.3 Measurement criteria After initial recognition, property, plant and equipment are entered at cost net of depreciation and impairments. The fixed assets with a limited useful life are systematically depreciated on a straight-line basis over their useful life. However, fixed assets with an unlimited useful life or those whose residual value is equal to or higher than their book value are not depreciated. The Bank does not, therefore, depreciate artistic assets. Should objective evidence of an impairment emerge, the loss is measured as the difference between the book value of the asset and its recovery value, and is recorded in the income statement. The value of the asset must be reinstated if the assumptions which determined the recognition of the loss, for an amount no higher than the value it would have had, net of the calculated depreciation, without impairments, no longer apply. 8.4 Derecognition criteria Property, plant and equipment are derecognised on disposal or when no further future economic benefits are expected from using or disposing of it. 9. Intangible assets 9.1 Classification criteria Intangible assets are non-monetary assets, identifiable even if they have no physical solidity, from which future economic benefits are expected. The intangible assets include goodwill and the other intangible assets governed by IAS 38. 84
Notes to the Financial Statements 9.2 Recognition and measurement criteria for goodwill Goodwill is defined as the difference between the purchase cost and the fair value for the assets and liabilities acquired as part of a business combination which consists of joining together different companies or company operations into a single firm obliged to draft the financial statements. The result of almost all business combinations comes from the fact that only one company, the buyer, obtains control over one or a number of different company operations relating to the purchase. Goodwill is not subject to depreciation, but it is subject to testing for a reduction in value (impairment test) at least once a year, generally when drafting the annual financial statements and in any case on the occurrence of events which lead it to believe that the asset may have undergone a reduction in value. Any adjustments made to the goodwill, even if the reasons which originated it no longer apply in subsequent years, cannot be reinstated. 9.3 Recognition and measurement criteria for other intangible assets Intangible assets other than goodwill are entered in the financial statements at purchase value, inclusive of any direct cost incurred for preparing to use them, net of accumulated amortisation and any impairments. The intangible fixed assets are systematically amortised on a straight-line basis over their useful life, which, for the software, is estimated at three years on average. The Bank holds no intangible fixed assets with an unlimited life. Should objective evidence of an impairment emerge, the loss is measured as the difference between the book value of the asset and its recovery value, and is recorded in the income statement. The value of the asset must be reinstated if the assumptions which determined the recognition of the loss, for an amount no higher than the value it would have had, net of the calculated depreciation, without impairments, no longer apply. 9.4 Derecognition criteria An intangible asset is derecognised on disposal or when no further future economic benefits are expected from using or disposing of it. 10. Non-current assets held for sale and discontinued operations Included under item 140 in the assets and item 90 in the liabilities (Liabilities associated with discontinued assets) are the fixed assets or groups of assets and associated liabilities in respect of which a process of disposal has been undertaken and the sale of which is considered very likely. These are valued at the lesser between their book value and their fair value net of the sale costs. The income and charges, including the effects of the valuations, for these assets/liabilities are recorded under a special item in the income statement, net of the related tax effect. 11. Current and deferred tax Income tax is recorded in the income statement, except that relating to items charged or credited directly to the equity. The financial statements include the effects of the deferred tax assets and liabilities deriving from time differences between book values and taxable values, in order to correctly show on an accrual basis the charges for income tax, irrespective of the actual cash flow. The deferred tax assets are recorded in the financial statements under item 130 b) deferred tax assets, insofar as there is the likelihood of producing sufficient taxable income in future years to enable them to be recovered. The deferred tax liabilities are recorded under item 80 b) deferred tax liabilities. The offsetting between deferred tax assets and liabilities may be carried out exclusively within the context of the individual tax and with reference to that tax year. Offsetting is not carried out unless the year in which the taxes for the changes in taxable income were relevant can be determined with certainty. The deferred tax assets and laibilities have been quantified on the basis of the rates currently in force for future years. The changes in the deferred tax assets and related economic effects are detailed in the relevant sections of the Notes to the financial statements. 85
Notes to the Financial Statements The Bank opted for the Group consolidated taxation system for IRES purposes, pursuant to Art. 117 et seq. of Presidential Decree 917/1986, in its capacity as consolidating company. UGF Merchant S.p.A. chose the same option as a consolidated company. The option is valid for the 2007-2008-2009 years. As a result of the aforementioned option, the tax assets and liabilities shown in the financial statements represent, as far as IRES is concerned, the total position of the participating interests in the consolidated system and the equity items relating to the consolidated company are recorded under receivables from and payables due to banks. 12. Provisions for risks and charges The Bank does not have pension funds and provisions for similar obligations. The other provisions for risks and charges are made up of appropriations relating to current, legal or implicit obligations resulting from a past event and which will probably give rise to the disbursement of economic resources, the amount of which may be reliably estimated. The appropriations are made on the basis of the best possible estimate of the expenses needed to fulfil the obligations. The amount of the estimated expenses is discounted at market rates if the effect of the deferment in time is significant. The provisions are periodically scrutinised and, if necessary, adjusted to reflect the best possible estimate. If, following re-examination, the charge becomes unlikely, the appropriation is reversed. An appropriation is only used in respect of the charges for which it was originally recorded. 13. Payables and securities outstanding 13.1 Classification criteria Under the item Payables to banks, Payables to customers and Securities outstanding are classified the various technical forms of customer and inter-banking system deposits and funds, as well as funds raised by issuing bonds and other securities outstanding, net of those that may be repurchased by the Bank. Also included are the repo contracts and the liabilities matching assets assigned and not derecognised due to the lack of assumptions for derecognition. This involves, in particular, the liabilities associated with the securitisation schemes carried out from 1 January 2004. 13.2 Recognition criteria Initial recognition takes place on the date of settlement based on the fair value for the liabilities, which corresponds to the amount cashed or the issue price, net of the directly attributable transaction costs. The mixed debt instruments connected with equity instruments, foreign currency, credit instruments or indices, are deemed structured instruments and recorded in the financial statements after separation of the incorporated derivative, should the conditions for this apply. The primary contract is attributed a value equal to the difference between the value cashed and the fair value of the derivative. 13.3 Measurement criteria After initial recognition, the medium- or long-term financial liabilities are valued at cost less depreciation based on the effective interest rate criterion. The short-term financial liabilities, on the other hand, remain recorded at the originally cashed value, less any repayments. 13.4 Derecognition criteria Financial liabilities were derecognised when they were paid off. The repurchase of own securities previously issued is assimilated to repayment and leads to the liabilities being derecognised. Any replacement on the market of repurchased own shares is similar to newly issued financial instruments and is recorded in the financial statements on the basis of the new placement price. 86
Notes to the Financial Statements 14. Held-for-trading financial liabilities 14.1 Classification criteria The item may include: a) derivatives which are not recorded as hedging items; b) financial liabilities issued with the intention of repurchasing them in the short term; c) financial liabilities which form part of a portfolio of financial instruments considered as a unit and for which there is evidence of an effective management strategy aimed at obtaining profit in the short term. The Bank has classified under the item only the negative values for derivatives. 14.2 Recognition, measurement and derecognition criteria All the financial liabilities included in this category are at fair value both at the time they are initially recognised and later during the life of the transaction, with the result of the valuation being charged to the income statement. Where not otherwise shown, the criteria for the held-for-trading financial assets apply. 15. Financial liabilities at fair value Following a change to IAS 39, endorsed by European Union Regulation 1864 of 15 November 2005, it is possible to apply the so-called fair value option to financial liabilities as well, that is, to designate the financial liabilities at the time they are initially at fair value. This faculty is permitted providing that the fair value designation makes it possible to eliminate or significantly reduce a lack of uniformity which would otherwise result from valuation using different criteria for assets and liabilities, or if a group of liabilities or financial assets/liabilities were managed at fair value under an investment or risk management strategy documented internally to the Management Boards. The Bank has not classified any liability under this item. The recognition, measurement and derecognition criteria are similar to those for held-for-trading financial liabilities, with recognition of gains and losses in a special item in the income statement (item 110 - Net result from held-for-trading financial assets and liabilities at fair value). 16. Currency transactions 16.1 Recognition criteria The currency transactions are initially recorded by applying the exchange rate current at the date of the transaction. 16.2 Measurement criteria Periodically on closing the financial statements and any infra-annual position, the currency monetary items are valued using the exchange rate current at the date of closing the period, with recognition of gains and losses in the income statement. The non-monetary assets and liabilities at fair value are also converted using the exchange rate at the date of valuation, charging the differences to the income statement if they are held-for-trading assets/liabilities or to the valuation reserve if they are available-for-sale assets/ liabilities. The non-monetary assets and liabilities entered at historic cost are, however, valued at the historic exchange rate. 17. Other information 17.1 Reclassification of financial assets As a result of the amendments to IAS 39 issued by the IASB and validated by the European Commission under EC Regulation 1004 of 15 October 2008, as from 2008 there have been other ways of reclassifying financial assets in addition to those previously allowed, which were limited to transfers between the categories of held-to-maturity financial assets and available-for-sale financial assets. 87
Notes to the Financial Statements The following ways of reclassifying assets are now also allowed. If a financial asset is no longer held for sale or repurchase in the short term (even though it may have been acquired or held mainly for sale or repurchase in the short term), it may be transferred from fair value through profit or loss if the following requirements are met: - the circumstances must be very unusual (para. 50B), or - the asset to be reclassified would have come under loans and receivables (if it had not had to be classified as held for trading when initially recognised) and the entity has the intention and the ability to hold it for the foreseeable future or to maturity (para 50D). A financial asset classified as available for sale that would have come under loans and receivables (if it had not been recognised as available for sale) may be transferred from available for sale to loans and receivables if the entity has the intention and the ability to hold it for the foreseeable future or to maturity (para 50E). If an entity reclassifies a financial asset from fair value through profit or loss or from available for sale it must reclassify it at its fair value on the date of reclassification and the profit or loss already recorded must not be adjusted. The fair value of the financial asset on the date of reclassification becomes its new cost or amortised cost (paras 50C and 50F). In the case of a financial asset transferred from available for sale, the previous profit or loss on the asset recorded in the equity directly must be amortised in the income statement throughout its remaining useful life using the criterion of actual interest. If the entity has reclassified a financial asset from fair value through profit or loss or from available for sale, the following is some of the information that must be provided (IFRS 7): - the amount reclassified from and to each category; - for each year until it is derecognised from the financial statements, the book value and the fair value of all financial assets reclassified during the current and preceding year; - whether a financial asset was reclassified in accordance with paragraph 50B, however unusual the situation, and the facts and circumstances indicating the rarity of the situation; - for the year in which the financial asset was reclassified, the fair value profit or loss; - for each year following reclassification of the financial asset (including the year in which it was reclassified) until it is derecognised from the financial statements, the fair value profit or loss that would have been recognised if it had not been reclassified. Until 1 November 2008 the changes to IAS 39 made it possible to reclassify assets retroactively as from 1 July 2008 by way of exception. Any reclassification carried out after 1 November 2008 takes effect only as from the date on which it is carried out. For information on reclassifications of financial assets carried out by the Bank see Part A.3 - Note on fair value, below. 17.2 Securitisation schemes Since 2002 the Bank has carried out several securitisation schemes under which it has assigned performing loan portfolios to vehicle companies set up for the purpose. None of the securitisation schemes carried out meets the requirements for the assets assigned to be derecognised since the Bank has retained almost all the risks and benefits of the assets assigned. For the schemes completed after 31 December 2003 and before the transition to IAS, including the assignment of the first portfolio of receivables and the issuing of the first series of notes carried out in December 2003 as part of a programme concluded in the first months of 2005, the Bank has reversed the effects of the derecognition carried out by applying national accounting standards and has shown in the financial statements the economic-financial results of the vehicles relating to the managed portfolios, offsetting the junior notes held in the portfolio. In the case of schemes finalised after the transition to IAS, the Bank has not derecognised assets assigned and, as in the preceding case, has recorded the vehicles earned and unearned income/losses on managed portfolios and eliminated the notes held in the portfolio. In the case of securitisation schemes finalised by 31 December 2003 in accordance with the provisions of paragraph 27 of IFRS 1, the Bank had maintained the effects of the derecognition carried out by 31 December 2003 under the national standards applicable at the time. This affected in particular two securitisation schemes that were both redeemed, the first in 2007 and the second in 2008, because the option to repurchase the loans originally assigned was exercised. The receivables repurchased were recorded on the basis of their fair value on the repurchase date. 88
Notes to the Financial Statements 17.3 Own shares Any own shares held are charged to reducing the equity. If they are subsequently resold, the difference between the sale price and the related repurchase value is charged directly to the equity, net of the related tax effect. 17.4 Employees leaving entitlement The employees leaving entitlement is governed by IAS no. 19 Employee benefits. In particular, it falls within the category of benefits subsequent to the employer-employee relationship, which IAS 19 distinguishes as defined benefit plans and defined contribution plans. The reform of the welfare system, governed by Legislative Decree 252/2005, effective as from 1 January 2007, provides that employers in the private sector, with the exclusion of companies with less than 50 employees, must pay all of the maturing employees leaving entitlement, not assigned to supplementary pension schemes, to a Fund called the Fund for granting employees leaving entitlements to employees in the private sector as stated in Article 2120 of the Civil Code, managed by INPS on behalf of the State. This means that the contributions which matured and were due to mature after 31 December 2006 are transferred to external bodies and are entered as a cost at a sum equal to the amount due for each year. The obligation with regard to employees for the quota of employees leaving entitlement matured up to 31 December 2006, entered in the financial statements as a liability, may not be transferred to external bodies, as laid down by the aforementioned Decree, and was therefore quantified using actuarial techniques and updated on the basis of the expected remaining working life of each employee. In the application of this methodology the variables used to take account of the effects produced by the new law have been reviewed. 17.5 Costs for improvements to third party assets The costs of restructuring leased property are capitalised in consideration of the fact that, throughout the term of the leasing contract, the lessee company has control of the assets and draws future economic benefits from them. The aforementioned costs are classified under Other assets in the financial statements and not under Property, plant and equipment on Banca d Italia instructions, since these costs do not in themselves constitute identifiable and separable assets. The capitalised charges of this kind are amortised on the basis of their useful life, estimated over six years equal to the term of the leasing contract. 17.6 Guarantees issued and commitments The guarantees issued and commitments are valued analytically and collectively in a way similar to that used to value the receivables. The appropriations adjusted to the possible disbursements connected with the credit risks are recorded in the financial statements under Other liabilities on Banca d Italia instructions and are offset in item 130.d) of the income statement Net impairments/reversals of impairments on other financial operations. 17.7 Recognition of income and expenditure Income from the sale of goods or the provision of services is recorded on the financial statements at the fair value of the consideration received, subject to compliance with the following terms: - the company has transferred to the purchaser the risks and returns associated with the sale of the goods or provision of services; - the value of the income can be reliably determined; - it is probable that financial returns will be received by the company. Costs and income will be recorded on the financial statements in accordance with accrual accounting principles; in particular: - accrued interest receivable and payable is recorded as earner/incurred, using a time-based criterion which considers the actual rate of return on the assets and liabilities; - commissions are recorded according to when they are earned; - costs are recorded on the profit and loss account for the periods in which the associated income is recorded. The dividends are entered in the income statement in the period in which their distribution is decided. 89
Notes to the Financial Statements A.3 - INFORMATION ON FAIR VALUE A.3.1 Inter-portfolio transfers This paragraph provides the information required by IFRS 7 when financial assets have been reclassified during the current year or previous years, until the asset is recorded as a receivable. As a result of the liquidity crisis in the financial markets in Autumn 2008, the Bank transferred debt securities with a total value of 253,732K from the category of held-for-trading assets with effect from 1 July 2008, 245,506K being reclassified as loans and receivables and 8,226K as available-for-sale assets. The table below shows the book values and the fair value of the securities reclassified and still in the portfolio and the effects on comprehensive income. It should be mentioned that the substantial reduction in the book value of the securities transferred to the loan portfolio was due exclusively to redemptions since none was assigned. A.3.1.1 Reclassified financial assets: book value, fair value and effects on comprehensive income Type Original Destination Book Fair value at Income Income of financial portfolio portfolio value at 31.12.2009 elements elements instrument (1) (2) (3) 31.12.2009 (5) not recorded during (4) transferred the year (pre-tax) (pre-tax) Valuative Other Valuative Other (6) (7) (8) (9) Debt securities Held-for-trading Available-for-sale 2,350 2,350-94 379-94 267 financial financial assets assets Debt securities Held-for-trading Receivables 77,251 76,917-334 5,512-5,824 financial from banks assets Debt securities Held-for-trading Receivables 9,112 9,174 62 494-583 financial from customers assets Amounts in Em The valuation elements in the columns relating to income elements not transferred (pre-tax) include the results of the valuations that would have been recorded in the income statement for the year or in the equity if the transfer had not taken place and the other elements include other types of charge and income relating to the reclassified assets (interest and profits/losses arising from assignment and redemption). The columns relating to income elements recorded during the year (pre-tax) show the income elements that were actually recorded in the income statement or in the equity. A.3.1.2 Reclassified financial assets: effects on comprehensive income before transfer Information not applicable as the Bank has not carried out transfers of financial assets during the year. A.3.1.3 Transfer of held-for-trading financial assets Information not applicable as the Bank has not carried out transfers of financial assets during the year. A.3.1.4 Effective interest rate and financial flows expected from reclassified assets Information not applicable as the Bank has not carried out transfers of financial assets during the year. 90
Notes to the Financial Statements A.3.2 Fair value ranking When the fair value is being determined information must be provided for each class of financial instrument on the methods and, if a method of valuation is used, on the assumptions made to determine the fair value of each individual class of financial asset or liability. If there has been a change in the method of valuation, information must be provided on this change and on the reasons for it. The fair value must be ranked in such a way as to reflect the importance of the data used in making the valuations. The scale of fair values must be made up of the following levels: - prices listed (not adjusted) on active markets for identical assets or liabilities (Level 1); - input data other than the listed prices included in Level 1 that can be seen for each asset or liability, either direct (as in the case of the prices) or indirectly (i.e. derived from the prices) (Level 2); and - input data relating to the asset or liability that are not based on observable market data (data that cannot be seen) (Level 3). The following information must also be provided, inter alia, for each class of financial instrument: - the level of fair value that includes the valuations of fair values in their entirety, the valuations of fair value being subdivided in accordance with the three levels defined above; - all transfers of significant amounts between Level 1 and Level 2 of the scale of fair value and the reasons for the transfers; - in the case of valuations of fair value on Level 3 of the scale of fair value, a reconciliation of the initial and final balances. A.3.2.1 Banking book: breakdown according to fair value levels 2009 2008 Financial assets/liabilities at fair value L1 L2 L3 L1 L2 L3 1. Held-for-trading financial assets 99-640 - - - 2. Financial assets at fair value - - - - - - 3. Available-for-sale financial assets 79,036-8,781 - - - 4. Hedge derivatives - - - - - - Total 79,135-9,421 - - - 1. Held-for-trading financial liabilities - - - - - - 2. Financial liabilities at fair value - - - - - - 3. Hedge derivatives - 3,751 - - - - Total - 3,751 - - - - Amounts in Em Legend: L1 = Level 1 L2 = Level 2 L3 = Level 3 A.3.2.2 Annual variations in financial assets at fair value (level 3) Information not required for 2009 owing to specific transitional rules. A.3.2.3 Annual variations in financial liabilities at fair value (level 3) Information not required for 2009 owing to specific transitional rules. A.3.3 Information on day one profit/loss The initial recognition value of financial instruments corresponds to their fair value on the date they are first recorded and is normally deemed to be the price paid. The models used for valuing not very liquid financial instruments at fair value through profit or loss are based on prudential criteria in order to ensure that the effects recorded through profit or loss are based on valuation benchmarks that can be seen on the markets. 91
Notes to the Financial Statements Part B INFORMATION ON THE BALANCE SHEET ASSETS Section 1 - Cash and cash equivalents - Item 10 1.1 Cash and cash equivalents: breakdown Items/Amounts Total 31/12/2009 Total 31/12/2008 A. Cash in hand 117,098 96,359 B. Demand deposits with Central Banks - - Total 117,098 96,359 Section 2 - Held-for-trading financial assets - Item 20 2.1 Held-for-trading financial assets: breakdown by liability classes Items/Amounts Total 31/12/2009 Total 31/12/2008 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Cash assets 1. Debt securities: - - 640 76,427-2,104 1.1 structured securities - - - - - - 1.2 other debt securities - - 640 76,427-2,104 2. Equity securities 1 - - - - - 3. Units in UCITS 98 - - 113 - - 4. Corporate financing: - - - - - - 4.1 repos available - - - - - - 4.2 other - - - - - - Total A 99-640 76,540-2,104 B. Derivatives 1. Financial derivatives: - - - - - 97,616 1.1 for trading - - - - - 97,616 1.2 linked with the fair value option - - - - - - 1.3 other - - - - - - 2. Credit derivatives: - - - - - - 2.1 for trading - - - - - - 2.2 linked with the fair value option - - - - - - 2.3 other - - - - - - Total B - - - - - 97,616 Total (A+B) 99-640 76,540-99,720 92
Notes to the Financial Statements 2.2 Held-for-trading financial assets: breakdown by debtors/issuers Items/Amounts Total 31/12/2009 Total 31/12/2008 A. Cash assets 1. Debt securities 640 78,531 a) Governments and Central Banks - 75,906 b) Other public bodies - - c) Banks 15 659 d) Other issuers 625 1,966 2. Equity securities 1 - a) Banks - - b) Other issuers: 1 - - insurance companies - - - finance companies - - - non-financial companies 1 - - other - - 3. Units in UCITS 98 113 4. Corporate financing - - a) Governments and Central Banks - - b) Other public bodies - - c) Banks - - d) Other entities - - Total A 739 78,644 B. Derivatives a) Banks - 39,648 - fair value - - b) Customers - 57,968 - fair value - - Total B - 97,616 Total (A + B) 739 176,260 2.3 Held-for-trading financial assets: annual variations Debt Equity Units in Corporate Total securities securities UCITS financing A. Opening balance 78,531-113 - 78,644 B. Increases 184,271 465 332-185,068 B.1 Purchases 183,818 465 332-184,615 B.2 Positive fair value variations - - - - - B.3 Other variations 453 - - - 453 C. Decreases 262,162 464 347-262,973 C.1 Sales 260,138 458 323-260,919 C.2 Repayments 374 - - - 374 C.3 Negative fair value variations 626 3 12-641 C.4 Transfers to other portfolios - - - - - C.5 Other variations 1,024 3 12 1,039 D. Closing balance 640 1 98-739 93
Notes to the Financial Statements Section 3 - Financial assets at fair value - Item 30 No assets classified under this item are shown in the financial statements. Section 4 - Available-for-sale financial assets - Item 40 4.1 Available-for-sale financial assets: breakdown by asset classes Items/Amounts Total 31/12/2009 Total 31/12/2008 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 74,456-5,152 240,204-40,098 1.1 Structured securities - - - - - - 1.2 Other debt securities 74,456-5,152 240,204-40,098 2. Equity securities 1,279-3,629 1,171-3,704 2.1 At fair value 1,279-672 1,171-776 2.2 At cost - - 2,957 - - 2,928 3. Units in UCITS 3,301 - - 2,454 - - 4. Corporate financing - - - - - - Total 79,036-8,781 243,829-43,802 4.2 Available-for-sale financial assets: breakdown by debtors/issuers Items/Amounts Total 31/12/2009 Total 31/12/2008 1. Debt securities 79,608 280,302 a) Governments and Central Banks 6,976 198,749 b) Other public bodies - - c) Banks 37,338 42,980 d) Other issuers 35,294 38,573 2. Equity securities 4,908 4,875 a) Banks 273 188 b) Other issuers: 4,635 4,687 - insurance companies 137 134 - finance companies 2,563 2,667 - non-financial companies 1,935 1,886 - other - - 3. Units in UCITS 3,301 2,454 4. Corporate financing - - a) Governments and Central Banks - - b) Other public bodies - - c) Banks - - d) Other entities - - Total 87,817 287,631 4.3 Specifically hedged available-for-sale financial assets No hedged assets are shown in the financial statements. 94
Notes to the Financial Statements 4.4 Available-for-sale financial assets: annual variations Debt Equity Units in Corporate Total securities securities UCITS financing A. Opening balance 280,302 4,875 2,454-287,631 B. Increases 34,428 1,255 1,053-36,736 B.1 Purchases 19,374 178 - - 19,552 B.2 Positive fair value variations 10,438 360 847-11,645 B.3 Readjustments allocated to: - 717 206-923 - income statement - - - - - - equity - 717 206-923 B.4 Transfers from other portfolios 8,226 - - - 8,226 B.5 Other variations 4,616 - - - 4,616 C. Decreases 235,122 1,222 206-236,550 C.1 Sales 224,744 249 - - 224,993 C.2 Repayments - - - - - C.3 Negative fair value variations 873 41 - - 914 C.4 Impairment write-downs allocated to: 1,957 717 206-2,880 - income statement 1,957 717 206-2,880 - equity - - - - - C.5 Transfers to other portfolios - - - - - C.6 Other variations 7,548 215 - - 7,763 D. Closing balance 79,608 4,908 3,301-87,817 Sub-item B5 - Other variations mainly consisted of profits made when assigning and/or redeeming securities. Section 5 - Held-to-maturity financial assets - Item 50 No assets classified under this item are shown in the financial statements. Section 6 - Receivables from banks - Item 60 6.1 Receivables from banks: breakdown by asset classes Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 A. Receivables from Central Banks 38,684 41,384 1. Term deposits - - 2. Compulsory reserve 38,684 41,384 3. Repos receivable - - 4. Other - - B. Receivables from banks 935,584 849,615 1. Current accounts and demand deposits 97,298 213,448 2. Term deposits 240,042 14,218 3. Other corporate financing: 48,906 89,356 3.1 Repos receivable - - 3.2 Financial leasing - - 3.3 Others 48,906 89,356 4. Debt securities 549,338 532,593 4.1 Structured securities - - 4.2 Other debt securities 549,338 532,593 Total (book value) 974,268 890,999 Total (fair value) 973,683 885,126 95
Notes to the Financial Statements 6.2 Specifically hedged receivables from banks No hedged assets are shown in the financial statements. 6.3 Financial leasing There are no financial leasing arrangements. Section 7 - Receivables from customers - Item 70 7.1 Receivables from customers: breakdown by asset classes Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 performing Deteriorated Performing Deteriorated 1. Current accounts 965,856 190,698 1,045,635-2. Repos receivable - - - - 3. Mortgage loans 5,244,620 825,541 5,714,853-4. Credit cards, personal loans and loans on wages 122,004 13,790 152,231-5. Financial leasing - - - - 6. Factoring - - - - 7. Other transactions 1,712,942 118,708 1,097,613 445,639 8. Debt securities 24,139-24,094-8.1 Structured securities - - - - 8.2 Other debt securities 24,139-24,094 - Total (book value) 8,069,561 1,148,737 8,034,426 445,639 Total (fair value) 8,106,825 1,148,737 8,641,490 445,639 7.2 Receivables from customers: breakdown by debtors/issuers Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 performing Deteriorated Performing Deteriorated 1. Debt securities: 24,140-24,094 - a) Governments - - - - b) Other public bodies - - - - c) Other issuers 24,140-24,094 - - non-financial companies 2,420-2,419 - - finance companies 21,720-21,675 - - insurance - - - - - others - - - - 2. Loans to: 8,045,421 1,148,737 8,010,332 445,639 a) Governments 1 12 32 2 b) Other public bodies 106,526 1 83,906 - c) Other entities 7,938,894 1,148,724 7,926,394 445,637 - non-financial companies 4,342,954 953,889 4,636,398 332,628 - finance companies 311,692 3,968 192,627 14,019 - insurers 53-138,129 - - others 3,284,195 190,867 2,959,240 98,990 Total 8,069,561 1,148,737 8,034,426 445,639 7.3 Specifically hedged receivables from customers There are no specifically hedged assets. 96
Notes to the Financial Statements 7.4 Financial leasing There are no financial leasing arrangements. Section 8 - Hedge derivatives - Item 80 8.1 Hedge derivatives: breakdown by type of hedge and level FV 31/12/2009 NV FV 31/12/2008 NV L1 L2 L3 31/12/2009 L1 L2 L3 31/12/2008 A. Financial derivatives: - - - - - - 292 76,000 1) Fair value - - - - - - 292 76,000 2) Financial flows - - - - - - - - 3) Overseas investments - - - - - - - - B. Loan derivatives: - - - - - - - - 1) Fair value - - - - - - - - 2) Financial flows - - - - - - - - Total - - - - - - 292 76,000 8.2 Hedge derivatives: breakdown by hedged portfolio and type of hedge No assets classified under this item are shown in the financial statements. Section 9 - Adjustments in generically hedged financial assets - Item 90 No adjustments of this kind are shown in the financial statements. Section 10 - Investments - Item 100 10.1 Investments in subsidiaries, joint ventures and in companies subject to significant influence: information on participating interests Registered Shareholding Availability Names office % of votes % Fully controlled subsidiaries 1. UGF Merchant Banca per le Imprese S.p.A. Bologna 86.18% 86.18% 2. UGF Leasing S.p.A. Bologna 100% 100% 3. Unipol Fondi Ltd Dublin 100% 100% 4. UGF Private Equity S.p.A. Bologna 100% 100% 5. Nettuno Fiduciaria S.r.l. Bologna 100% 100% 6. Unicard S.p.A. Milan 51% 51% Joint ventures None Companies subject to significant influence None 97
Notes to the Financial Statements 10.2 Investments in subsidiaries, joint ventures or in companies subject to significant influence: accounting information Names Total Total Profit/ Equity Book Fair value assets income loss value A. Fully controlled subsidiaries 122,228 1. UGF Merchant Banca per le Imprese S.p.A. 614,447 28,776 (25,054) 89,374 101,604 2. UGF Leasing S.p.A. 126,756 6,349 15 10,628 15,321 3. Unipol Fondi Ltd 2,039 2,633 1,353 1,594 1,550 4. UGF Private Equity S.p.A. 1,738 7 (240) 1,586 2,000 5. Nettuno Fiduciaria S.r.l. 239 204 8 161 170 6. Unicard S.p.A. 12,451 5,910 (874) 1,100 1,583 B. Joint ventures - - - - - C. Companies subject to significant influence - - - - - Total - - - - 122,228 The data given in the table above is taken from the draft 2009 financial statements approved by the Boards of Directors of the subsidiaries. Only the financial statements of Nettuno Fiduciaria have been drawn up in accordance with Italian accounting standards, the other financial statements are IAS compliant. In the column total income, the total value of the income components with a plus sign is indicated, gross of taxes. The value of the equity includes the result for the period, and the quota intended as the dividend. The value of fair value is only required for listed investments. The difference between the book value of the investments and the value assigned to them using the equity method is mostly due to goodwill recognised at the time of the acquisition, as well as losses realised by the participating interests during the year. Although the subsidiary UGF Merchant made a loss of 25m in 2009 it must be pointed out that testing revealed no evidence of impairment. The impairment test was carried out on the basis of the multiyear plan 2010-2014 recently approved by the subsidiary s Board of Directors using a procedure similar to that applied for evaluating the Bank s goodwill and illustrated in Section 12 - Intangible assets, which sets out the procedural notes and the benchmarks used. 10.3 Investments: annual variations Total 2009 Total 2008 A. Opening balance 122,228 119,034 B. Increases - 3,583 B.1 Purchases - 3,376 B.2 Readjustments - - B.3 Write-ups - - B.4 Other variations - 207 C. Decreases - 389 C.1 Sales - 12 C.2 Adjustments - 377 C.3 Other variations - - D. Closing balance 122,228 122,228 E. Total write-ups - - F. Total readjustments - 377 98
Notes to the Financial Statements 10.4 Commitments relating to shareholdings in subsidiaries There are no commitments of this kind. 10.5 Commitments relating to investments in joint ventures There are no commitments of this kind. 10.6 Commitments relating to to investments in companies subject to significant influence There are no commitments of this kind. Section 11 - Property, plant and equipment - Item 110 11.1 Property, plant and equipment: breakdown of the assets valued at cost Assets/Amounts Total 2009 Total 2008 A. Assets used for corporate business 1.1 owned 24,006 23,848 a) land - - b) buildings 1,491 1,542 c) movables 11,716 9,674 d) electronic equipment 10,799 12,632 e) other - - 1.2 under financial leasing 625 84 a) land - - b) buildings - - c) movables 625 84 d) electronic equipment - - e) other - - Total A 24,631 23,932 B. Assets held for corporate use 2.1 owned - - a) land - - b) buildings - - 2.2 under financial leasing - - a) land - - b) buildings - - Total B - - Total (A + B) 24,631 23,932 11.2 Property, plant and equipment: breakdown of the assets at fair value or written up There are no assets recorded at fair value or written up. 99
Notes to the Financial Statements 11.3 Property, plant and equipment used for corporate business: annual variations Land Buildings Movables Electronic Other Total equipment A. Gross opening balance - 1,700 29,963 31,424-63,087 A.1 Net total decreases in value - (158) (20,205) (18,792) - (39,155) A.2 Net opening balance - 1,542 9,758 12,632-23,932 B. Increases - - 5,807 1,884-7,691 B.1 Purchases - - 5,765 1.884-7,649 B.2 Capitalised improvement costs - - - - - - B.3 Readjustments - - - - - - B.4 Positive variations in fair value allocated to: - - - - - - a) equity - - - - - - b) income statement - - - - - - B.5 Positive exchange rate differences - - - - - - B.6 Transfers from property held for investment - - - - - - purpose B.7 Other increases - - 42 - - 42 C. Decreases - (51) (3,224) (3,717) - (6,992) C.1 Sales - - (94) - - (94) C.2 Depreciation - (51) (3,087) (3,717) - (6,855) C.3 Adjustments due to impairment allocated to: - - - - - - a) equity - - - - - - b) income statement - - - - - - C.4 Negative variations in fair value allocated to: - - - - - - a) equity - - - - - - b) income statement - - - - - - C.5 Negative exchange rate differences - - - - - - C.6 Transfers to: - - - - - - a) property, plant and equipment held for corporate use - - - - - - b) discontinued assets - - - - - - C.7 Other decreases - - (43) - - (43) D. Net closing balance - 1,491 12,341 10,799-24,631 D.1 Net total decreases in value - 209 23,091 22,509-45,809 D.2 Gross closing balance - 1,700 35,432 33,308-70,440 E. Valuation at cost The values indicated in lines A1 and D1 refer exclusively to total depreciation respectively at the beginning and end of the year. Sub-item E Valuation at cost provides additional information only where there is property, plant and equipment at fair value. This is not the case in these financial statements and therefore there are no values under this sub-item. 11.4 Property, plant and equipment held for investment purposes: annual variations There were no variations during the year. 100
Notes to the Financial Statements Section 12 - Intangible assets - Item 120 12.1 Intangible assets: breakdown by type of assets Assets/Amounts Total 31/12/2009 Total 31/12/2008 Limited life Unlimited life Limited life Unlimited life A.1 Goodwill 419,226 419,226 A.2 Other intangible assets 448-778 - A.2.1 Assets at cost: 448-778 - a) Intangible assets - - - - generated internally b) Other assets 448-778 - A.2.2 Assets at fair value: - - - - a) Intangible assets - - - - generated internally b) Other assets - - - - Total 448 419,226 778 419,226 Goodwill was entered following business combinations which took place between 1999 and 2004. Worthy of special mention, due to the extent of the values acquired are three transactions, which took place in 2001, 2002 and 2004 and were aimed at acquiring bank counters, respectively 51 counters from Banca Intesa, 60 counters from Capitalia and 22 counters from Antonveneta. Goodwill represents the payment made in advance by the Bank for future economic benefits resulting from the business combinations in question. As stated by IAS 36 (paragraphs 8, 9, 10), an entity must assess at each reference date for the financial statements whether there is an indication that an asset may have undergone impairment. With reference to goodwill, regardless of the fact that there may be indications of long-term impairment, it is necessary to carry out the aforementioned test at least annually. In accordance with aforementioned IAS 36, an asset has undergone long-term impairment when its book value exceeds its recoverable value, understood as the higher between its fair value less the sale costs and its usage value. The goodwill recorded in the financial statements at 31 December 2009 was impairment-tested by ascertaining the value in use of the goodwill and comparing it with the book value. Goodwill was allocated to UGF Banca s entire banking activity as a cash-generating unit. The value in use was estimated by discounting back the expected income flows based on the following factors: (I) the latest budget and five-year plan (2010-2014) compiled and approved by the Board of Directors on 24 March 2010, which indicated the following incentives for achieving the result for core banking activity: - negotiating quantitative objectives and relative margins, which are then shared by the Commercial Department and accepted by general consensus of the market; - expanding short- and medium-/long-term lending to customers; - increasing customer funds and deposits; - developing new target products; - strengthening the network of branches; (II) a stable long-term rate of growth (g factor), beyond the specific forecasting period and for an unlimited time, of 2.0%; (III) a rate of discounting of 8.03% broken down as follows: - risk-free rate: 4.02%; - beta coefficient: 0.80; - premium for risk: 5%. The average figure for the 10-year Long-Term Treasury Bond for the period July December 2009 was used for the risk-free rate. The beta coefficient used was a 5-year adjusted beta coefficient recorded in December for a sample of listed banks deemed to be comparable. Finally the premium for risk was deemed to be 5%, in line with common practice among financial analysts and professionals practices. Analysis revealed that the recoverable value of goodwill was 974m, 554m more than the book value ( 419m). There was no evidence of external indicators or likely changes to the basic assumptions used by the senior executives to ascertain the recoverable value of the goodwill that could affect the results of the analysis and lead to the recoverable value being less than the book value. The recoverable value was also tested for sensitivity to variations in the following benchmarks: rate of discounting back and long-term growth rate (g factor). 101
Notes to the Financial Statements In line with a central hypothesis (delta 554m) which provides for a rate of discounting of 8.03% (risk-free rate 4.02%, beta coefficient 0.80, premium for risk 5%) and a g factor of 2%, a range of rates of discounting of between 6.03% and 10.03% and a g factor of between 0% and 3% were used. The effects of the sensitivity analysis are summarised in the following table. Delta of recoverable amount Goodwill = 0 Sensitivity (Value range) Hp. 1 (Rate g same as rate Hp. 2 (Rate g equal to 0) used for impairment) Delta of recoverable amount Min Max g Short-term g Short-term Goodwill discounting rate g discounting rate 554.4 (97.6) 2,234.4 2% 10.72% 0% 9.25% The two extreme values (minimum - 97.6m and maximum 2,234.4m) are obtained by combining a rate of discounting of 10.03% with a g factor of 0% and a rate of discounting of 6.03% with a g factor of 3% respectively. The benchmarks that determine whether the difference between recoverable value and goodwill is cancelled out were also monitored: with a g factor of 2% the rate of discounting would be 10.72% whilst with a g factor of 0% the rate of discounting would be 9.25%. The intangible assets with a limited life consist of software costs, which are depreciated over a three-year period. 12.2 Intangible assets: annual variations Other intangible Other intangible assets: assets: Goodwill generated internally other Total Limited Unlimited Limited Unlimited A. Opening balance 416,226 - - 4,112-423,338 A.1 Net total decreases in value - - - (3,334) - (3,334) A.2 Net opening balance 416,226 - - 778-420,004 B. Increases - - - 31-31 B.1 Purchases - - - 31-31 B.2 Increases in internal intangible assets - - - - - - B.3 Readjustments - - - - - - B.4 Positive variations in fair value allocated to: - - - - - - - equity - - - - - - - income statement - - - - - - B.5 Positive exchange rate differences - - - - - - B.6 Other increases - - - - - - C. Decreases - - - (361) - (361) C.1 Sales - - - - - - C.2 Adjustments - - - (361) - (361) - Depreciation - - - (361) - (361) - Write-downs - - - - - - + equity - - - - - - + income statement - - - - - - C.3 Negative variations in fair value allocated to: - - - - - - - equity - - - - - - - income statement - - - - - - C.4 Transfers to discontinued fixed assets - - - - - - C.5 Negative exchange rate differences - - - - - - C.6 Other decreases - - - - - - D. Net closing balance 419,226 - - 448-419,674 D.1 Net total adjustments - - - 3,695-3,695 E. Gross closing balance 419,226 - - 4,143-423,369 F. Valuation at cost 102
Notes to the Financial Statements In line A1 Net total decreases in value and line D1 Net total adjustments, the balance on the depreciation fund is shown, respectively at year-start and year-end, only for the intangible assets with a limited life. Sub-item F Valuation at cost provides additional information only where there are intangible assets at fair value in the financial statements. This is not the case in these financial statements and therefore there are no values under this sub-item. Section 13 - Tax assets and tax liabilities - Item 130 in the assets and item 80 in the liabilities 13.1 Deferred tax assets: breakdown Figures as at 31/12/2009 Figures as at 31/12/2008 Temporary IRES IRAP Temporary IRES IRAP differences effect effect differences effect effect Deferred tax assets through profit or loss: 273,757 73,617 1,198 275,956 74,958 2,243 - recognition of securitised assets 20,804 5,721 893 44,890 12,345 2,067 - write-downs on receivables deductible in future years 218,260 60,022-210,883 57,993 - - other taxed write-downs on receivables 157 43-157 43 - - charges that can no longer be capitalised 38 10 2 212 58 10 - provision for risk of actions for revocation 13,142 3,614-10,279 2,827 - - other provisions for risks and charges 5,810 1,598-5,954 1,637 - - personnel expenses 3,016 829 - - - - - other relevant IRAP items 6,057-291 3,382-162 - tax losses 5,757 1,583 - - - - - other items 716 197 12 199 55 4 Deferred tax assets through equity: 8,883 2,443 426 16,938 4,439 813 - capital losses on available-for-sale assets (debt securities) 5,132 1,411 246 16,142 4,439 775 - capital losses on available-for-sale assets (equity securities) - - - 796-38 - capital losses on derivatives of cash-flow hedging 3,751 1,032 180 - - - Total deferred tax assets 282,640 76,060 1,624 292,894 79,397 3,056 13.2 Deferred tax liabilities: breakdown Figures as at 31/12/2009 Figures as at 31/12/2008 Temporary IRES IRAP Temporary IRES IRAP differences effect effect differences effect effect Deferred tax liabilities through profit or loss: 50,614 13,919 2,365 28,954 7,963 1,198 - write-off of depreciation on goodwill 48,595 13,364 2,333 24,297 6,682 1,166 - overdue interest uncollected 2,019 555 32 1,250 344 32 - variation in provision for employees leaving entitlement - - - 3,407 937 - Deferred tax liabilities through equity: 325 23 15 755 208 36 - capital gains on available-for-sale assets (debt securities) 84 23 4 755 208 36 - capital gains on available-for-sale assets (equity securities) 241-11 - - - Total deferred tax liabilities 50,939 13,942 2,380 29,709 8,171 1,234 103
Notes to the Financial Statements 13.3 Change in deferred tax assets (through profit or loss) Total 31/12/2009 Total 31/12/2008 1. Opening balance 77,200 29,731 2. Increases 11,582 53,496 2.1 Deferred tax assets recorded during the year 11,582 53,496 a) relating to previous years - 16 b) owing to changes in accounting standards - - c) readjustments - - d) other 11,582 53,480 2.2 New taxes or increases in tax rates - - 2.3 Other increases - - 3. Decreases 13,967 6,027 3.1 Deferred tax assets written off during the year 13,967 6,027 a) reallocations 13,967 6,027 b) write-downs for unanticipated irrecoverability - - c) changes in accounting standards - - d) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 74,815 77,200 13.4 Change in deferred tax liabilities (through profit or loss) Total 31/12/2009 Total 31/12/2008 1. Opening balance 9,161 10,713 2. Increases 8,060 8,006 2.1 Deferred tax liabilities recorded during the year 8,060 8,006 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 8,060 8,006 2.2 New taxes or increases in tax rates - - 2.3 Other increases - - 3. Decreases 937 9,558 3.1 Deferred tax liabilities written off during the year 937 9,558 a) reallocations 937 9,558 b) changes in accounting standards - - c) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 16,284 9,161 104
Notes to the Financial Statements 13.5 Change in deferred tax assets (through equity) Total 31/12/2009 Total 31/12/2008 1. Opening balance 5,252 208 2. Increases 1,211 5,084 2.1 Deferred tax assets recorded during the year 1,211 5,084 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 1,211 5,084 2.2 New taxes or increases in tax rates - - 2.3 Other increases - - 3. Decreases 3,594 40 3.1 Deferred tax assets written off during the year 3,594 40 a) reallocations 3,594 40 b) write-downs for unanticipated non-irrecoverability - - c) changes in accounting standards - - d) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 2,869 5,252 13.6 Change in deferred tax liabilities (through equity) Total 31/12/2009 Total 31/12/2008 1. Opening balance 244 2 2. Increases 11 242 2.1 Deferred tax liabilities recorded during the year 11 242 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 11 242 2.2 New taxes or increases in tax rates - - 2.3 Other increases - - 3. Decreases 217-3.1 Deferred tax liabilities written off during the year 217 - a) reallocations 217 - b) changes in accounting standards - - c) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 38 244 105
Notes to the Financial Statements Section 14 - Non-current assets held for sale and discontinued operations and related liabilities - Item 140 in the assets and item 90 in the liabilities These items are not present in the financial statements. Section 15 - Other assets - Item 150 15.1 Other assets: breakdown Total 31/12/2009 Total 31/12/2008 Current account cheques being processed 7,882 49,016 Debits being processed 49,671 13,364 Improvements to property belonging to third parties 30,165 29,084 Sundry prepayments 6,508 4,357 Sundry accrued income 470 493 Tax assets linked to substitute tax 68,842 18,985 Securities transactions to be settled 1,040 237 Other items 73,752 19,410 Total 238,330 134,946 LIABILITIES Section 1 - Payables to banks - Item 10 1.1 Payables to banks: breakdown by liability classes Types of transaction/amounts Total 31/12/2009 Total 31/12/2008 1. Payables to Central Banks 335,520 658,214 2. Payables to banks 84,914 35,184 2.1 Current accounts and demand deposits 46,034 3,189 2.2 Term deposits 38,880 31,809 2.3 Corporate financing - 186 2.3.1 Repos payable - - 2.3.2 Other - 186 2.4 Amounts due for commitments to repurchase own equity - - 2.5 Other payables - - Total 420,434 693,398 Fair value 420,446 693,405 1.2 Breakdown of item 10 Payables to banks : subordinated payables to customers There are no payables of this type in the financial statements. 1.3 Breakdown of item 10 Payables to banks : structured payables There are no payables of this type in the financial statements. 1.4 Breakdown of item 10 Payables to banks : specifically hedged payables There are no payables of this type in the financial statements. 106
Notes to the Financial Statements 1.5 Payables for financial leasing There are no payables of this type in the financial statements. Sezione 2 - Payables to customers - Item 20 2.1 Payables to customers: breakdown by liability classes Types of transaction/amounts Total 31/12/2009 Total 31/12/2008 1. Current accounts and demand deposits 5,294,890 5,221,167 2. Term deposits 919,753 817,876 3. Corporate financing 430,103 476,058 3.1 Repos payable 429,509 475,975 3.2 Other 594 83 4. Amounts due for commitments to repurchase own equity - - 5. Other payables 1,020,732 1,296,320 Total 7,665,478 7,811,421 Fair value 7,665,478 7,811,421 2.2 Breakdown of item 20 Payables to customers : subordinated payables to customers There are no payables of this type in the financial statements. 2.3 Breakdown of item 20 Payables to customers : structured payables There are no payables of this type in the financial statements. 2.4 Breakdown of item 20 Payables to customers : specifically hedged payables There are no payables of this type in the financial statements. 2.5 Payables for financial leasing Total 31/12/2009 Minimum payments Gross investment principal Including Time zones Explicit Including Interest nonpayables guaranteed guaranteed residual residual value value Up to 3 months - 22-7 29 - Bet. 3 mths + 1 yr - 64-19 83 - Bet. 1 and 5 years - 508-45 553 283 More than 5 years - - - - - - Unspecified duration - - - - - - Gross total - 594-71 665 283 Adjustments - - - - - - Net total - 594-71 665 283 107
Notes to the Financial Statements Section 3 - Securities outstanding - Item 30 3.1 Securities outstanding: breakdown by liability classes Types of security/amounts Total 31/12/2009 Total 31/12/2008 BV FV BV FV Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Securities 1,873,146 - - 1,866,669 919,995 - - 908,712 1. Bonds 1,854,772 - - 1,848,171 909,555 - - 898,271 1.1 structured - - - - - - - - 1.2 other 1,854,772 - - 1,848,171 909,555 - - 898,271 2. Other securities 18,374 - - 18,498 10,440 - - 10,441 2.1 structured - - - - - - - - 2.2 other 18,374 - - 18,498 10,440 - - 10,441 Total 1,873,146 - - 1,866,669 919,995 - - 908,712 Legend: BV: book value FV: fair value 3.2 Breakdown of item 30 Securities outstanding : subordinated securities Total 31/12/2009 Total 31/12/2008 Securities outstanding: subordinated securities 640,504 268,117 The increase compared with the previous year is mainly due to the issue of hybrid equity instruments worth 300m. For further information you are referred to Part F of these notes to the financial statements. 3.3 Breakdown of item 30 Securities outstanding : specifically hedged securities Total 31/12/2009 Total 31/12/2008 1. Specifically hedged securities (fair value): - 76,670 a) interest rate risk - 76,670 b) exchange rate risk - - c) several risks - - 2. Specifically hedged securities (cash flow): 223,920 - a) interest rate risk 223,920 - b) exchange rate risk - - c) other - - Total 223,920 76,670 108
Notes to the Financial Statements Section 4 - Held-for-trading financial liabilities - Item 40 4.1 Held-for-trading financial liabilities: breakdown by liability classes Total 31/12/2009 Total 31/12/2008 Types of transaction/amounts FV FV NV FV* NV FV* L1 L2 L3 L1 L2 L3 A. Liabilities - - - - - - - - - - 1. Payables to banks - - - - - - - - - - 2. Payables to customers - - - - - - - - - - 3. Debt securities - - - - - - - - - - 3.1 Bonds - - - - - - - - 3.1.1 Structured - - - - - - - - 3.1.2 Other bonds - - - - - - - - 3.2 Other securities - - - - - - - - 3.2.1 Structured - - - - - - - - 3.2.2 Other - - - - - - - - Total A - - - - - - - - - B. Derivatives - - - - - - 1. Financial derivatives - - - - 94,018-1.1 For trading - - - - 94,018-1.2 Linked with the fair value option - - - - - - 1.3 Other financial derivatives - - - - - - 2. Credit derivatives - - - - - - 2.1 For trading - - - - - - 2.2 Linked with the fair value option - - - - - - 2.3 Other credit derivatives - - - - - - Total B - - - - 94,018 - Total (A + B) - - - - 94,018 - Legend: FV: fair value FV*: fair value calculated by excluding the variations in value that are due to a change in the creditworthiness of the issuer since the date of issue NV: nominal value L1: level 1 L2: level 2 L3: level 3 4.2 Breakdown of item 40 Held-for-trading financial liabilities : subordinated liabilities There are no liabilities of this type in the financial statements. 4.3 Breakdown of item 40 Held-for-trading financial liabilities : structured payables There are no liabilities of this type in the financial statements. 4.4 Held-for-trading financial liabilities (excluding technical overdrafts ): annual variations No changes occurred. 109
Notes to the Financial Statements Section 5 - Financial liabilities at fair value - Item 50 There are no liabilities of this type in the financial statements. Section 6 - Hedge derivatives - Item 60 6.1 Hedge derivatives: breakdown by type of contract and ranking level FV 31/12/2009 NV FV 31/12/2008 NV L1 L2 L3 31/12/2009 L1 L2 L3 31/12/2008 A. Financial derivatives - 3,751-224,000 - - - - 1) Fair value - - - - - - - - 2) Financial flows - 3,751-224,000 - - - - 3) Overseas investments - - - - - - - - B. Credit derivatives - - - - - - - - 1) Fair value - - - - - - - - 2) Financial flows - - - - - - - - Total - 3,751-224,000 - - - - Legend: FV: fair value NV: nominal value L1: level 1 L2: level 2 L3: level 3 6.2 Hedge derivatives: breakdown by hedged portfolio and type of hedge Fair value hedging Cash flow Transactions/Hedge type Specific Generic hedging Overseas Interest Exchange Credit Market Several Specific Generic investment rate risk rate risk risk price risk risks 1. Available-for-sale - - - - - - financial assets 2. Receivables - - - - - 3. Held-to-maturity - - - - financial assets 4. Portfolio - - 5. Other transactions - - - - - - - Total assets - - - - - - - - - 1. Financial liabilities - - - - 3,751 2. Portfolio - - Total liabilities - - - - - - 3,751 - - 1. Anticipated transactions - 2. Portfolio of financial assets and liabilities - - - Section 7 - Adjustment of generically hedged financial liabilities - Item 70 This item is not present in the financial statements. 110
Notes to the Financial Statements Section 8 - Tax liabilities - Item 80 Please refer to the explanation in Section 13 of the Assets. Section 9 - Liabilities associated with discontinued operations - Item 90 This item is not present in the financial statements. Section 10 - Other liabilities - Item 100 10.1 Other liabilities: breakdown Total 31/12/2009 Total 31/12/2008 Items being processed 78,755 169,216 Due to tax authorities 41,618 28,335 Sums to be paid to third parties on mortgage loans granted 7,685 6,397 Due to suppliers 22,489 24,543 Bank transfers being processed 17,074 35,913 Cheque and bill discounts - subject to/after collection 22,935 11,903 Due to employees 6,698 1,755 Sundry deferred income 236 782 Sundry accruals 1,505 4,082 Due to employees pension fund 163 1,350 Portfolio risk liabilities 371 258 Utility bills paid by customers 368 346 Due to social security bodies 5,188 4,280 Inter-branch transit items 3 149 Other 24,840 25,005 Total 229,928 314,314 Section 11 - Employees leaving entitlement - Item 110 11.1 Employees leaving entitlement: annual variations Total 31/12/2009 Total 31/12/2008 A. Opening balance 15,489 16,257 B. Increases 6,601 6,633 B.1 Provisions during the year 6,601 6,633 B.2 Other increases - - C. Decreases (7,157) (7,401) C.1 Payments made (1,097) (1,707) C.2 Other decreases (6,060) (5,694) D. Closing balance 14,933 15,489 Total 14,933 15,489 The other decreases consist of the quotas transferred to external funds: a supplementary pension scheme or a treasury fund set up with the INPS [national pensions body]. 111
Notes to the Financial Statements Section 12 - Provisions for risks and charges - Item 120 12.1 Provisions for risks and charges: breakdown Items/Amounts Total 31/12/2009 Total 31/12/2008 1. Occupational pension funds - - 2. Other provisions for risks and charges 18,952 15,379 2.1 Litigation - - 2.2 Personnel expenses 682 1,601 2.3 Other 18,270 13,778 Total 18,952 15,379 12.2 Provisions for risks and charges: annual variations pension Other Total funds funds A. Opening balance - 15,379 15,379 B. Increases - 5,323 5,323 B.1 Amounts set aside during the year - 5,323 5,323 B.2 Changes due to the passage of time - - - B.3 Differences due to discount rate changes - - - B.4 Other increases - - - C. Decreases - 1,750 1,750 C.1 Utilisation during the year - 1,750 1,750 C.2 Changes due to discount rate changes - - - C.3 Other decreases - - - D. Closing balance - 18,952 18,952 12.3 Defined-benefit occupational pension schemes There are no provisions of this kind. 12.4 Provisions for risks and charges: other provisions At 31 December 2009 the funds for personnel expenses are allocated to cover the residual share of costs estimated at 682K in respect of the notice offering incentives to employees to take voluntary redundancy, issued in the autumn of 2007 as part of the reorganisation of the UGF Banca group, which at the end of 2007 amounted to 3,520K and recorded a profit during 2008 of 1,919K and 919K utilised during 2009. The other funds are made up as follows: - provision for risks for actions for revocation: these total 13,142K and are allocated to cover the probable risk connected with challenges of antecedent transactions brought against the Bank. They increased by 2,863K due exclusively to provisions in the year and without availments. The Bank intends to take all appropriate legal steps to protect its rights and therefore the estimated amounts and related times involved are uncertain. The discounting of the estimated disbursements was done on the basis of the curve of the forward Euribor rates relating to the end of the year; - provision for risks for compensation to customers, which amounted to 3,629K at 31 December 2009 ( 3,500K at 31/12/2008) and were set up to meet the likely cost of paying compensation to customers for illegal acts carried out by some members of the sales network. During 2009 831K of the fund in question was used for actually paying compensation and was increased by 960K for provisions during the year to meet new risk events; - provision for miscellaneous risks, which amounted to 1,500K for miscellaneous risks for current disputes. 112
Notes to the Financial Statements The following relates to potential liabilities: - UGF Banca executing orders on financial transactions In November 2007 and July 2009 several UGF Banca customers instituted civil and criminal proceedings relating to alleged irregularities and illicit activities carried out by UGF Banca while dealing in financial derivatives. The petitioners submitted a counterclaim for a total of 67m. The preliminary criminal hearings concluded in April 2009 with the Public Prosecutor applying for the case to be dismissed, which the petitioners opposed. Deeming the opponents to have no case, UGF Banca also applied for the civil case to be dismissed and made a counterclaim for payment of debts arising from the petitioners current financial statements with UGF Banca. - Parmalat insolvency procedure In December 2004, as part of the collective creditor action against the Parmalat Group, the Parmalat Special Administration brought an action for revocation under Article 67 of the Bankruptcy Act against UGF Banca and all the lenders that had ever had any dealings with this food group amounting to approximately 47m. The Bank considered that this amount was liable to be reduced in view of the fact that certain operations were not subject to an action for revocation. Nevertheless 1.3m was added to the provision for risks, which, gross of discounting back, amounted to 3m at 31 December 2009, this amount being deemed commensurate with the values of transactions already finalised between Parmalat and other lenders. Section 13 - Redeemable shares - Item 140 This item is not present in the financial statements. Section 14 - Equity attributable to the Company - Items 130, 150, 160, 170, 180, 190 and 200 14.1 Capital and Own shares : breakdown Items/Amounts Amount at 31/12/2009 Amount at 31/12/2008 1. Capital 904,500 703,500 2. Share premium 122,613 249,500 3. Reserves 12,856 (25,508) 4. (Own shares) - - 5. Valuation reserves (5,728) (11,174) 6. Equity instruments 7. Profit (loss) for the year 5,682 (88,523) Total 1,039,923 827,795 113
Notes to the Financial Statements 14.2 Capital - Number of shares: annual variations Items/Type Ordinary Other A. Shares in existence at the beginning of the year 703,500,000 - - fully paid-up 703,500,000 - - not fully paid-up - - A.1 Own shares (-) - - A.2 Shares outstanding: opening figures 703,500,000 - B. Increases 201,000,000 - B.1 New issues 201,000,000 - for payment: 201,000,000 - - business combinations - - - conversion of bonds - - - exercise of warrants - - - other 201,000,000 - free: - - - in favour of employees - - - in favour of directors - - - other - - B.2 Sale of own shares - - B.3 Other variations - - C. Decreases - - C.1 Cancellation - - C.2 Purchase of own shares - - C.3 Business disposals - - C.4 Other variations - - D. Shares outstanding: closing figures 904,500,000 - D.1 Own shares (+) - - D.2 Shares in existence at the end of the year 904,500,000 - - fully paid-up 904,500,000 - - not fully paid-up - - 14.3 Capital - Other information The Extraordinary Shareholders Meeting held on 21 October 2009 voted to increase the share capital by 201,000,000 by issuing 201,000,000 shares at par to be offered to shareholders as an option in accordance with Article 2441, paras 1, 2 and 3, of the Civil Code. The increase was fully subscribed and paid up on 31 October 2009. The share capital is fully subscribed and paid up and, at the end of the 2009 year, is made up of 904,500,000 ordinary shares each with a face value of 1. 14.4 Profit reserves: other information For further details on the composition of the profit reserves, please refer to Part F - Section 1 - Equity in the Notes to the financial statements. 14.5 Capital instruments: breakdown and annual variations This item is not present in the financial statements. 14.6 Other information This item is not present in the financial statements. 114
Notes to the Financial Statements OTHER INFORMATION 1. Guarantees issued and commitments Transactions Amount 31/12/2009 Amount 31/12/2008 1) Financial guarantees issued 33,587 36,091 a) Banks - - b) Customers 33,587 36,091 2) Commercial guarantees issued 504,440 493,030 a) Banks 4,089 4,000 b) Customers 500,351 489,030 3) Irrevocable commitments to grant funds 618,596 19,135 a) Banks 9,806 6,815 i) use certain 928 277 ii) use uncertain 8,878 6,538 b) Customers 608,790 12,320 i) use certain 10,045 12,320 ii) use uncertain 598,745-4) Commitments underlying derivatives on receivables: protection sales - - 5) Assets lodged as guarantee for third party commitments - - 6) Other commitments - - Total 1,156,623 548,256 2. Assets lodged as guarantee for own liabilities and commitments Portfolio Amount 31/12/2009 Amount 31/12/2008 1. Held-for-trading financial assets - 20,798 2. Financial assets at fair value 3. Available-for-sale financial assets 34,432 247,941 4. Held-to-maturity financial assets - - 5. Receivables from banks 233,937 30,281 6. Receivables from customers 6,693 6,648 7. Property, plant and equipment - - 3. Information on operating leasing Not applicable. 115
Notes to the Financial Statements 4. Management and brokerage on behalf of third parties Type of service Amount 31/12/2009 1. Trading of financial instruments on behalf of third parties - a) Purchases - 1. settled - 2. not settled - b) Sales - 1. settled - 2. not settled - 2. Portfolio management 294,675 a) individual 294,675 b) group - 3. Custody and management of securities 44,264,303 a) Third party securities on deposit connected with the bank s custodian activity (excluding portfolio management): - 1. securities issued by the bank drafting the financial statements - 2. other securities - b) Other third party securities on deposit (excluding portfolio management) 22,582,549 1. securities issued by the bank drafting the financial statements 2,762,435 2. other securities 19,820,114 c) Third party securities deposited with third parties 20,876,656 d) Owned securities deposited with third parties 805,098 4. Other transactions - 116
Notes to the Financial Statements Part C INFORMATION ON THE INCOME STATEMENT Section 1 - Interest - Items 10 and 20 1.1 Interest receivable and similar income: breakdown Items/Types Debt Corporate Other Total Total securities financing transactions 2009 2008 1. Held-for-trading financial assets 598 - - 598 6,534 2. Available-for-sale financial assets 4,124 - - 4,124 5,075 3. Held-to-maturity financial assets - - - - - 4. Receivables from banks 11,868 4,569-16,437 30,833 5. Receivables from customers 832 353,412-354,244 538,770 6. Financial assets at fair value - - - - - 7. Hedge derivatives - - 1,301 1,301-8. Other assets - - 37 37 23 Total 17,422 357,981 1,338 376,741 581,235 On the items classified as deteriorated, interest receivable worth 37,050K matured in 2009 ( 35,793K in 2008). 1.2 Interest receivable and similar income: differentials relating to hedging transactions Items/Sectors Total 2009 Total 2008 A. Positive differentials relating to hedging transactions 1,301 - B. Negative differentials relating to hedging transactions - - C. Balance (A-B) 1,301-1.3 Interest receivable and similar income: other information Total 2009 Total 2008 1. Interest receivable on financial assets in currencies 291 725 2. Interest receivable for financial leasing transactions - - 1.4 Interest payable and similar charges: breakdown Items/Types payables Securities Other Total Total liabilities 2009 2008 1. Payables to Central Banks 4,048-4,048 20,249 2. Payables to banks 2,574-2,574 4,858 3. Payables to customers 111,498-111,498 281,601 4. Securities outstanding - 44,044-44,044 35,456 5. Held-for-trading financial liabilities - - - - - 6. Financial liabilities at fair value - - - - - 7. Other liabilities and funds 37 37 70 8. Hedge derivatives - - 697 Total 118,120 44,044 37 162,201 342,931 117
Notes to the Financial Statements 1.5 Interest payable and similar charges: differentials relating to hedging transactions Items/Amounts Total 2009 Total 2008 A. Positive differentials relating to hedging transactions B. Negative differentials relating to hedging transactions 697 C. Balance (A-B) - (697) 1.6 Interest payable and similar charges: other information Totale 2009 Totale 2008 1. Interest payable on liabilities in currencies 224 446 2. Interest payable on liabilities for financial leasing transactions - - Section 2 - Fees and commissions - Items 40 and 50 2.1 Fees and commissions receivable: breakdown Types of service/amounts Total 2009 Total 2008 a) Guarantees issued 2,759 2,495 b) Credit derivatives - - c) Management, brokerage and consultancy services: 26,791 11,385 1. trading in financial instruments - - 2. trading in currencies 574 650 3. portfolio management 1,321 1,894 3.1 individual 1,321 1,894 3.2 group - - 4. custody and administration of securities 8,939 2,295 5. depository bank - - 6. placing of securities 1,837 2,678 7. acceptance of instructions 1,432 1,445 8. consultancy work 975-8.1 investment activities 975-8.2 financial structure activities - - 9. providing third parties services 11,713 2,423 9.1 portfolio management - 127 9.1.1 individual - - 9.1.2 group - 127 9.2 insurance products 6,599 1,694 9.3 other products 5,114 602 d) Collection and payment services 24,876 26,233 e) Servicing for securitisation transactions - 7 f) Factoring services - - g) Tax collection services - - h) Work of managing multilateral trading systems - - i) Holding and managing current accounts 41,138 27,900 j) Other services 12,656 11,364 Total 108,220 79,384 118
Notes to the Financial Statements 2.2 Fees and commissions receivable: distribution channels for products and services Channels/Amounts Total 2009 Total 2008 a) Own sales outlets: 13,629 5,218 1. portfolio management 993 1,358 2. placing of securities 923 1,437 3. third party services and products 11,713 2,423 b) Services offered off-premises: 1,242 1,777 1. portfolio management 328 536 2. placing of securities 914 1,241 3. third party services and products - - c) Other distribution channels: - - 1. portfolio management - - 2. placing of securities - - 3. third party services and products - - 2.3 Fees and commissions payable: breakdown Services/Amounts Total 2009 Total 2008 a) Guarantees received 6 - b) Credit derivatives - - c) Management and brokerage services: 7,725 6,767 1. trading in financial instruments 1 16 2. trading in currencies - - 3. portfolio management: - - 3.1 individual - - 3.2 group - - 4. custody and administration of securities 1,133 1,226 5. placing of financial instruments - - 6. financial instruments, products and services offered off-premises 6,591 5,525 d) Collection and payment services 9,247 12,181 e) Other services 136 125 Total 17,114 19,073 Section 3 - Dividends and similar income - Item 70 3.1 Dividends and similar income: breakdown Total 2009 Total 2008 Items/Income Dividends Income for Dividends Income for units in units in UCITS UCITS A. Held-for-trading financial assets 5 6 B. Available-for-sale financial assets 303 56 247 49 C. Financial assets at fair value - - D. Investments 5,024 9,677 Total 5,327 61 9,924 55 119
Notes to the Financial Statements Section 4 - Net result from trading activity - Item 80 4.1 Net result from trading activity: breakdown Capital gains Profits from Capital losses Losses from Net result Transactions/Income (A) trading (C) trading [(A+B) - (B) (D) (C+D)] 1. Held-for-trading financial assets - 454 (641) (15) (202) 1.1 Debt securities - 451 (626) - (175) 1.2 Equity securities - - (3) (3) (6) 1.3 Units in UCITS - - (12) (12) (24) 1.4 Corporate financing - - - - - 1.5 Other - 3 - - 3 2. Held-for-trading financial liabilities - - - - - 2.1 Debt securities - - - - - 2.2 Payables - - - - - 2.3 Other - - - - - 3. Other financial assets and liabilities: exchange rate differences 6,426 4. Derivatives - 159 (65) (757) (4,257) 4.1 Financial derivatives: - 159 (65) (757) (4,257) - on debt securities and interest rates - 159 (65) (757) (663) - on equity securities and share indices - - - - - - on currencies and gold (3,594) - other - - - - - 4.2 Derivatives on receivables - - - - - Total - 613 (706) (772) 1,967 Capital losses on debt securities relate to securities issued by companies in the Lehman Brothers Group involved in the September 2008 collapse. The presumed recovery rate of these securities, all of which were senior, was estimated at 31 December 2009 to be 25% of their nominal value. Section 5 - Net result from hedging activity - Item 90 5.1 Net result from hedging activity: breakdown Types of income/amounts Total 2009 Total 2008 A. Income from: A.1 Hedging derivatives (fair value) - - A.2 Hedged financial assets (fair value) - - A.3 Hedged financial liabilities (fair value) 437 1,227 A.4 Hedging financial derivatives (cash flow) - - A.5 Assets and liabilities in other currencies - - Total income from hedging activity (A) 437 1,227 B. Charges relating to: B.1 Hedging derivatives (fair value) 292 1,311 B.2 Hedged financial assets (fair value) - - B.3 Hedged financial liabilities (fair value) - - B.4 Hedging financial derivatives (cash flow) - - B.5 Assets and liabilities in other currencies - - Total charges relating to hedging activity (B) 292 1,311 C. Net result from hedging activity (A B) 145 (84) 120
Notes to the Financial Statements Section 6 - Profit (loss) from sale/repurchase - Item 100 6.1 Profit (loss) from sale/repurchase: breakdown Total 2009 Total 2008 Items/Types of income profits Losses Net Profits Losses Net result result Financial assets 1. Receivables from banks - - - - - - 2. Receivables from customers - - - - (2,030) (2,030) 3. Available-for-sale financial assets 3,394 (215) 3,179 10,638 (27) 10,611 3.1 Debt securities 3,394-3,394 124 (25) 99 3.2 Equity securities - (215) (215) 10,302 (2) 10,300 3.3 Units in UCITS - - 212 212 3.4 Corporate financing - - - - - - 4. Held-to-maturity financial assets - - - - - - Total assets 3,394 (215) 3,179 10,638 (2,057) 8,581 Financial liabilities 1. Payables to banks - - - - - - 2. Payables to customers - - - - - - 3. Securities outstanding 15,061 15,061 1,685 1,685 Total liabilities 15,061-15,061 1,685-1,685 Losses relating to equity securities were on the sale of shares in Hopa S.p.A. in the final quarter of 2009. Losses of 2,030K for 2008 relating to Receivables from customers shown in the table above were recorded as initial recognition of receivables repurchased during the year by Grecale ABS S.r.l. under the call option provided for in the securitization contracts. 14,647K of the profits relating to financial liabilities arose from the repurchase of securities issued by the vehicles Castoro RMBS and Atlante Finance under the securitisation schemes carried out by the Bank. Section 7 - Net result from financial assets and liabilities at fair value - Item 110 Item not applicable for the years under examination. 121
Notes to the Financial Statements Section 8 - Impairments/reversals of impairments - Item 130 8.1 Net adjustments due to impaired receivables: breakdown Adjustments (1) Readjustments (2) Transactions/ Specific Specific On portfolio Total 2009 Total 2008 Types of income On portfolio (3)=(1) (2) (3)=(1) (2) write-offs other A B A B A. Receivables from banks - - - - - - - - - - - corporate financing - - - - - - - - - - - debt securities - - - - - - - - - - B. Receivables from customers 3,572 53,502 3,932-1,484 6,148 - - 53,374 207,807 - corporate financing 3,572 53,502 3,932 1,484 6,148 53,374 207,807 - debt securities - - - - - - - - - - C. Total 3,572 53,502 3,932-1,484 6,148 - - 53,374 207,807 Legend: A = interest B = other readjustments 8.2 Net adjustments due to impaired available-for-sale financial assets: breakdown Adjustments (1) Readjustments (2) Transactions/ Specific Specific Total 2009 Total 2008 Types of income (3)=(1) (2) (3)=(1) (2) write-offs other A B A. Debt securities - 1,957 - - 1,957 3,382 B. Equity securities - 717 717 150 C. Units in UCITS - 206-206 - D. Financing to banks - - - - - - E. Financing to customers - - - - - - F. Total - 2,880 - - 2,880 3,532 Legend: A = interest B = other readjustments The adjustments to debt securities relate to securities issued by companies in the Lehman Brothers group and involved in the September 2008 failure. The recovery value for these securities, all belonging to the senior category, was estimated to be 50% of their nominal value at 31 December 2009. Adjustments on equity securities and units in investment trusts relate to financial instruments which, when tested in accordance with the impairment policy described in Part A2) of these Notes to the financial statements, showed evidence of impairment since their fair value had fallen below the significant and prolonged thresholds. At 31 December 2009 nine financial instruments recorded a fall in fair value of more than 20% of their initial recognition value. 8.3 Net adjustments due to impaired held-to-maturity financial assets: breakdown Sub-item not applicable for the years under examination. 122
Notes to the Financial Statements 8.4 Net adjustments due to impairment of other financial transactions: breakdown Adjustments (1) Readjustments (2) Transactions/ Specific Specific On portfolio Total 2009 Total 2008 Types of income On portfolio (3)=(1) (2) (3)=(1) (2) write-offs other A B A B A. Guarantees issued - - - - - 352 - - (352) 352 B. Credit derivatives - - - - - - - - - - C. Commitments to disburse funds - - - - - - - - - - D. Other transactions - - - - - - - - - 377 E. Total - - - - - 352 - - (352) 729 Legend: A = interest B = other readjustments Readjustments on guarantees relate to a guarantee under an enforcement order for which adjustments had previously been recorded. A demand loan with a specific value in line with other debts of this type was incurred to meet the enforcement. Section 9 - Administrative expenses - Item 150 9.1 Personnel expenses: breakdown Types of expense/amounts Total 2009 Total 2008 1) Employees 130,304 111,642 a) wages and salaries 89,100 74,929 b) social security contributions 23,767 19,930 c) employees leaving entitlement 670 680 d) pensions-related expenses - - e) provisions for employees leaving entitlement 5,931 5,953 f) provisions for pension fund and similar: - - - defined contribution - - - defined benefits - - g) payments to external supplementary pensions schemes: 3,713 3,330 - defined contribution 3,713 3,330 - defined benefits - - h) costs arising out of payment agreements based on own equity instruments - - i) other benefits in favour of employees 7,123 6,820 2) Other staff 112 319 3) Managers and statutory auditors 737 706 4) Retired staff 5) Expenses recovered for employees seconded to other companies (1,678) (881) 6) Reimbursement of expenses for employees of other companies seconded to the company 4,117 1,619 Total 113,592 113,405 The Bank allocates an additional pension indemnity to employees who have signed up to the external defined-contribution Pension Fund for UGF Banca Employees, which was set up on the basis of supplementary labour agreements. The total amount of contributions paid is shown in line 1g) of table 9.1 above. 123
Notes to the Financial Statements 9.2 Average number of employees by category Average 2009 Average 2008 Employees: 2,234 2,050 a) senior officials 7 10 b) total senior managers 690 623 c) other employees 1,537 1,417 Other employees 18 13 Total 2,252 2,063 9.3 Defined-benefit internal pension schemes: total costs No internal pension schemes were set up. 9.4 Other benefits in favour of employees The sub-item in question, shown in table 9.1 above, is made up of 4,068K in charges for luncheon vouchers and health and accident welfare services. The remainder is due to expenses for travel, staff training courses and other incidental costs. 9.5 Other administrative expenses: breakdown Types of expense/amounts Total 2009 Total 2008 Rent payable 26,950 23,803 IT and data processing costs 20,133 17,187 Income taxes and indirect taxation 15,809 16,316 Professional services 11,187 7,678 Joint-ownership and utility charges 4,507 3,575 Security 4,007 3,702 Insurance premiums 2,303 2,490 Postage 3,928 3,672 Transport and delivery costs 3,154 2,731 Cleaning 2,674 2,749 Reports and surveys 2,848 1,636 Advertising and entertainment costs 3,936 2,745 Publications and stationery 1,864 1,821 Maintenance 3,383 2,183 Telephone 1,070 1,083 Membership fees 616 492 Board expenses 0 0 Miscellaneous expenses 14,056 12,014 Total 122,425 105,877 Section 10 - Net provisions for risks and charges - Item 160 10.1 Net provisions for risks and charges: breakdown Total 2009 Total 2008 - provisions for actions for revocation 2,863 3,957 - provisions for sundry charges 2,460 3,386 Total 5,323 7,343 124
Notes to the Financial Statements Section 11 - Adjustments/readjustments on property, plant & equipment - Item 170 11.1 Net adjustments on plant, property and equipment: breakdown Depreciation Adjustments Readjustments Net Assets/Types of income (a) due to impairment (c) result (b) (a+b c) A. Property, plant & equipment 6,855 - - 6,855 A.1 Owned 6,790 - - 6,790 - used for corporate business 6,790 - - 6,790 - for investment purposes - - - - A.2 Leased 65 - - 65 - used for corporate business 65 - - 65 - for investment purposes - - - - Total 6,855 - - 6,855 Section 12 - Adjustments/readjustments on intangible assets - Item 180 12.1 Net adjustments on intangible assets: breakdown Depreciation Adjustments Readjustments Net Assets/Types of income (a) due to impairment (c) result (b) (a+b c) A. Intangible assets 361 - - 361 A.1 Owned 361 - - 361 - generated internally by the business - - - - - other 361 - - 361 A.2 Under financial leasing - - - - Total 361 - - 361 For information on the depreciation criteria, refer to Section 12 of the Assets. Section 13 - Other operating income and charges - Item 190 13.1 Other operating charges: breakdown Types of income/amounts Total 2009 Total 2008 - Depreciation on improvements to property belonging to third parties 8,009 7,224 - Allowances paid to third parties 1,521 1,107 - Losses from theft and robbery 114 172 - Unanticipated losses 190 96 - Miscellaneous charges 627 266 Total 10,461 8,865 125
Notes to the Financial Statements 13.2 Other operating income: breakdown Types of income/amounts Total 2009 Total 2008 - Indirect taxes recovered 13,673 14,409 - Miscellaneous expenses recovered 2,899 3,364 - Reimbursement of utilities and rent 520 592 - Unanticipated profits 265 72 - Employment-related tax relief accrued during the year - - - Reimbursement of allowances and attendance fees from participating interests 41 7 - Miscellaneous income 6,366 5,013 Total 23,764 23,457 Section 14 - Profits (losses) from investments - Item 210 14.1 Profits (losses) from investments: breakdown Item not applicable for the years under examination. Section 15 - Net result of recording property, plant & equipment and intangible assets at fair value - Item 220 Item not applicable for the years under examination. Section 16 - Adjustments on goodwill - Item 230 The valuation of the goodwill did not reveal any adjustments. Section 17 - Profits (losses) on disposal of investments - Item 240 Item not applicable for the years under examination. Section 18 - Income tax for the year relating to continuing operations - Item 260 18.1 Income tax for the year relating to continuing operations: breakdown Types of income/amounts Total 2009 Total 2008 1. Current taxation (-) (7,972) (21,175) 2. Changes in current taxation for previous years (+/-) 2,934 (5) 3. Reduction in current taxation for the year (+) - - 4. Change in anticipated tax (+/-) (2,385) 47,469 5. Change in deferred tax (+/-) (7,123) 1,552 6. Tax for the year (-) (-1+/-2+3+/-4+/-5) (14,546) 27,841 including IRES (4,363) 40,172 including IRAP (9,338) (7,945) including substitute tax on off-balance sheet deductions (845) (4,386) 126
Notes to the Financial Statements 18.2 Reconciliation between theoretical tax charge and actual tax charge in the financial statements Total 2009 Total 2008 Profit on continuing operations gross of tax 20,227 (116,365) Income tax - theoretical tax charge (5,562) 32,000 Effect of non-taxable income or on which reduced rates are applicable 1,395 2,586 Effect of non-deductible charges (2,091) (2,595) Effects of releasing off-balance sheet deductions 937 7,881 Other effects 958 300 Income tax - actual tax charge (4,363) 40,172 IRAP - theoretical tax charge (975) 5,609 Effect of income and charges excluded from the taxable income (8,378) (14,950) Effects of releasing off-balance sheet deductions - 1,375 Effect of increased-rate taxation applicable on a regional basis 15 21 IRAP - actual tax charge (9,338) (7,945) Substitute tax on off-balance sheet deductions (845) (4,386) Total tax charge in the financial statements (14,546) 27,841 The calculation of the theoretical tax charge was based on following rates: 27.5% for IRES and 4.82% for IRAP. The theoretical IRAP rate adopted is equivalent to that approved by the Emilia Romagna region. The effects of differentiated rate taxations are shown separately under Effect of increased-rate taxation applicable on a regional basis. Section 19 - Profit (loss) on discontinued operations, net of tax - Item 280 Item not applicable for the years under examination. Section 20 - Other information There is no further information other than that already shown in the previous sections. Section 21 - Earnings per share Information not due for companies with shares not traded on financial markets. 127
Notes to the Financial Statements Part D COMPREHENSIVE INCOME ANALYSIS OF COMPREHENSIVE INCOME (amounts in K) Items Gross Amount Income tax Net amount 10 Profit (Loss) for the period 5,682 Other income elements 20 Available-for-sale financial assets: a) variations in fair value 10,731 (3,378) 7,353 b) transfer to the income statement - - - - adjustments arising from deterioration 923 (101) 822 - profits/losses arising from conversion (280) 90 (190) c) other variations - - - 30 Property, plant & equipment - - - 40 Intangible assets - - - 50 Foreign investments hedging: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 60 Cash flow hedging: a) variations in fair value (3,751) 1,212 (2,539) b) transfer to the income statement - - - c) other variations - - - 70 Exchange rate differences: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 80 Discontinued fixed assets: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 90 Actuarial profits (losses) on defined benefit schemes - - - 100 Proportion attributable to the valuation provisions for investments valued using the equity method: a) variations in fair value - - - b) transfer to the income statement - - - - adjustments arising from deterioration - - - - profits/losses arising from conversion - - - c) other variations - - - 110 Total other income elements net of tax 7,623 (2,177) 5,446 120 Comprehensive income (Item 10+110) - - 11,128 128
Notes to the Financial Statements Part E INFORMATION ON RISKS AND RELATED HEDGING POLICIES Section 1 - Credit risk QUALITATIVE INFORMATION 1. General aspects Salient events during 2009 pertaining to the credit risk were as follows: - approval of the Group Lending Policy. This document governs the work of underwriting and monitoring the credit risk in such a way as to ascertain total exposure to the individual counterparty, in line with the risk appetite expressed in the Group s strategic objectives, thus ensuring that the portfolio is sufficiently diversified; - changes to the way the sales network is organised by setting up intermediate units known as Commercial Areas authorised to make important decisions; - as in the previous year, keeping the focus on the quality of the Bank s loan portfolio in order to limit the impact of non-performing loans; - incorporating the Lending Policy of the Parent, UGF Holding, into lending procedures; - incorporating legislation on moratoria agreed between the Italian Banking Association and the Ministry of Finance; - expanding the in-house rating model for the SME-Corporate sector; - refining reporting procedures in order to comply gradually with the reporting requirements of the business on the operational management of risk and with those of senior managers on strategic management. 2. Credit risk management policies 2.1 Organisational aspects Reorganisation was completed during 2009 by bringing the Business Centres up to speed and was refined by the decision to allocate small business customers to the retail branches, leaving the Business Centres to concentrate on corporate customers. On the other hand the six intermediate units known as Commercial Areas began work at the end of April 2009. As well as selling, these units were actively involved in decision-making and dealing with performing customers. However, their direct operations with nonperforming customers were still restricted to persistent defaulters (past-due and objective substandard loans) whilst the Commercial Area coordinated the work of the sales network to recover the debt from officially substandard customers in accordance with Head Office guidelines. The work of granting loans continued in accordance with the rules introduced during previous years but with a filter represented by the Commercial Areas, which enabled response times to be reduced and made good use of local knowledge, including of economic trends. 2.2 Management, measurement and monitoring systems The trend in the credit risk is currently monitored using traditional indicators. In order to quantify this risk a model for calculating the probability of default (PD) for SME/corporate business was developed in-house during 2009, whilst several solutions offered by external suppliers for retail business (companies and individuals) will be evaluated in 2010. Once fully implemented the models for quantifying the probability of default will calculate the exposure at the time of default (exposure at default - EAD), the rate of loss in the event of default (loss given default - LGD) and the expected and unexpected loss. 129
Notes to the Financial Statements The results of monitoring and analysing the Group loan portfolio were periodically shared with the Group s senior executives and the Credit Risk Committee, particular attention being paid to the largest debts and the sectors of greatest concentration. The Lending Policy was approved by UGF S.p.A. s Board of Directors in 2009 and extended to all the companies in the Group. This policy is designed to record exposures that are of such a size as to represent a potential risk: the objective is achieved by adopting appropriate risk management and internal auditing mechanisms, enabling exposure to the various counterparties to be ascertained and monitored. The Lending Policy lays down: - the types of customer and transaction deemed suitable for granting credit; - the general principles with which the credit risk underwriting policy must comply; - the main roles and duties of the various units, in order to ensure compliance with the provisions of the Lending Policy; - a systematic decision-making process, common to all the companies in the Group, structured in such a way as to enable UGF to monitor risk underwriting decisions in its capacity as Parent; - roles and responsibilities in the process of monitoring risks at Group level; - the functions of the Group Credit Risk Committee, particular attention being paid to responsibility for monitoring large debts. 2.3 Techniques for mitigating credit risk Lending transactions during 2009 were no different from traditional lending to customers. Most business with individuals was mortgage lending and credit cards issued by the Bank, whilst granting specific and non-specific personal loans was gradually abandoned in favour of brokerage and agency. Most lending to businesses was to support production cycles: to unfreeze receivables by anticipating invoices and electronic banking receipts and to finance imports and exports. There was a particular drop in new mortgage lending to businesses, especially for building, with the exception of further loans on existing mortgages for ongoing building works. This resulted from the negative performance of the economy as a whole and in the property market in particular and from the new lending guidelines issued by the Parent. At the end of the year activities connected with the Bank s having signed up to the Italian Banking Association-Ministry of Finance agreements on the temporary suspension of the payment of instalment loans and the general work of renegotiating mortgage and unsecured loans to performing customers in temporary financial difficulties assumed particular importance. In order to reduce the credit risk the Bank used traditional forms of bond, especially mortgage liens and omnibus and specific warranties. The deterioration in the values of financial instruments used to guarantee lines of credit was insignificant since there were very few of them and they were not very sensitive to market fluctuations (Government bonds and bonds issued by the Bank). 2.4 Impaired financial assets The Bank classified receivables strictly in accordance with the supervisory regulations issued by Banca d Italia in line with International Accounting Standards. In particular the Bank included in its non-performing portfolio customers who were: a) insolvent (even if not ascertained by the courts) or in broadly comparable situations (bad and doubtful loans); 130
Notes to the Financial Statements b) in temporary objective difficulty (substandard loans) or persistently behind or late with repayments as defined in the Supervisory Instructions for particular core types of loan (objective substandard loans); c) subject to debt-rescheduling agreements as a result of financial difficulties (restructured debts); d) behind or late with repayments as defined by law (past-due and objective substandard loans). The work of managing the critical items of retail and corporate customers was reinforced by the assistance of the new Commercial Areas, which used specialist staff to take over the task of coordinating and monitoring the work of reducing the risk carried out by the Branches and the relevant Business Centres. Head Office was thus able to concentrate on managing critical items of major importance and those that were so complex that it was deemed prudent to manage them centrally. QUANTITATIVE INFORMATION A. CREDIT QUALITY A.1 Performing and non-performing exposures: amounts, adjustments, changes, economic and geographical distribution A.1.1 Distribution of port folio and credit quality exposures (book values) Portfolio/Quality Bad and Substandard Restructured Overdue Other Total doubtful loans loans exposures exposures assets 1. Held-for-trading financial assets - - - - 640 640 2. Available-for-sale financial assets - - - - 79,608 79,608 3. Held-to-maturity financial assets - - - - - - 4. Receivables from banks - - - - 974,268 974,268 5. Receivables from customers 194,066 516,431 90,190 348,050 8,069,561 9,218,298 6. Financial assets at fair value - - - - - - 7. Discontinued financial assets - - - - - - 8. Hedge derivatives - - - - - - Total 2009 194,066 516,431 90,190 348,050 9,124,077 10,272,814 Total 2008 126,992 325,461-37,163 9,345,630 9,835,246 131
Notes to the Financial Statements A.1.2 Distribution of portfolio and credit quality exposures (gross and net values) Deteriorated assets performing Portfolio/Quality Gross Specific Net Gross Portfolio Net Total exposure adjustments exposure exposure adjustments exposure (net exposure) 1. Held-for-trading - - - 640 640 financial assets 2. Available-for-sale - - - 84,947 5,339 79,608 79,608 financial assets 3. Held-to-maturity - - - - - - - financial assets 4. Receivables from banks - - - 974,268-974,268 974,268 5. Receivables from customers 1,470,922 322,185 1,148,737 8,109,136 39,575 8,069,561 9,218,298 6. Financial assets - - - - - at fair value 7. Discontinued - - - - - - - financial assets 8. Hedge derivatives - - - - - Total 2009 1,470,922 322,185 1,148,737 9,168,351 44,914 9,124,077 10,272,814 Total 2008 769,091 279,475 489,616 9,209,122 40,044 9,345,630 9,835,246 A.1.3 On- and off-balance sheet exposures to banks: gross and net values Types of exposure/values Gross Specific portfolio Net exposure adjustments adjustments exposure A. BALANCE SHEET EXPOSURE a) Bad and doubtful loans - - - - b) Substandard loans - - - - c) Restructured exposures - - - - d) Overdue exposures - - - - e) Other assets 1,011,621-1,011,621 TOTAL A 1,011,621 - - 1,011,621 B. OFF- BALANCE SHEET EXPOSURE a) Impaired - - - - b) Other 13,555-13,555 TOTAL B 13,555 - - 13,555 TOTAL (A + B) 1,025,176 - - 1,025,176 The balance sheet exposures shown in the preceding table include all balance sheet financial receivables from banks, regardless of which accounting book they are allocated to. In particular, the assets shown here are allocated to the balance sheet in the loans book, in the trading book and in the portfolio of available-for-sale assets. 132
Notes to the Financial Statements A.1.4 Balance sheet exposures to banks: gross changes in impaired exposures Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Opening gross exposure - - - - including: exposures assigned but not derecognised - - - - B. Increases - - - - B.1 Inflows from performing exposures - - - - B.2 Transfers from other categories of impaired exposures - - - - B.3 Other increases - - - - C. Decreases - - - - C.1 Outflows to performing exposures - - - - C.2 Write-offs - - - - C.3 Receipts - - - - C.4 Proceeds from assignments - - - - C.5 Transfers to other categories of impaired exposures - - - - C.6 Other decreases - - - - D. Closing gross exposure - - - - including: exposures assigned but not derecognised - - - - A.1.5 Balance sheet exposures to banks: changes in total adjustments Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Total opening adjustmentse - - - - including: exposures assigned but not derecognised - - - - B. Increases - - - - B.1 Adjustments - - - - B.2 Transfers from other categories of impaired exposures - - - - B.3 Other increases - - - - C. Decreases - - - - C.1 Readjustments arising out of valuation - - - - C.2 Readjustments arising out of receipts - - - - C.3 Write-offs - - - - C.4 Transfers to other categories of impaired exposures - - - - C.5 Other decreases - - - - D. Total closing adjustments - - - - including: exposures assigned but not derecognised - - - - The valuation of balance sheet exposures to banks did not require the posting of any adjustments. 133
Notes to the Financial Statements A.1.6 On- and off-balance sheet exposures to customers: gross and net values Gross Specific portfolio Net Types of exposure/values exposure adjustments adjustments exposure A. BALANCE SHEET EXPOSURE a) Bad and doubtful loans 417,262 223,196-194,066 b) Substandard loans 607,389 90,958-516,431 c) Restructured exposures 95,818 5,628-90,190 d) Overdue exposures 350,454 2,403-348,051 e) Other assets 8,157,369 44,914 8,112,455 TOTAL A 9,628,292 322,185 44,914 9,261,193 B. OFF- BALANCE SHEET EXPOSURE a) Impaired 54,133 - - 54,133 b) Other 1,088,934-1,088,934 TOTAL B 1,143,067 - - 1,143,067 The balance sheet exposures shown in the preceding table include all balance sheet receivables from customers, regardless of which accounting book they are allocated to. In particular, the assets shown here are allocated to the balance sheet in the loans book, in the trading book and in the portfolio of assets available for sale. A.1.7 Balance sheet exposures to customers: variations in gross impaired exposures Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Total opening gross exposure 283,555 446,829-38,706 including: exposures assigned but not derecognised 18,878 24,687-3,313 B. Increases 172,381 808,745 95,818 390,436 B.1 Inflows from performing loans 8,971 510,456-387,049 B.2 Transfers from other categories of impaired exposures 143,202 24,718 95,818 - B.3 Other increases 20,208 273,571-3,387 C. Decreases 38,674 648,185-78,688 C.1 Outflows to performing loans - 106,249-49,350 C.2 Write-offs 2,139 9,857 - - C.3 Receipts 36,535 292,197-4,536 C.4 Proceeds from assignments - - - - C.5 Transfers to other categories of impaired exposures - 239,020-24,718 C.6 Other decreases - 862-84 D. Total closing gross exposure 417,262 607,389 95,818 350,454 including: assigned but not derecognised 27,840 40,150-54,507 134
Notes to the Financial Statements A.1.8 Balance sheet exposures to customers: variations in total adjustments Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Total opening adjustments 156,563 121,368-1,543 including: exposures assigned but not derecognised 1,802 1,099 - B. Increases 76,355 10,935 5,628 860 B.1 Adjustments 44,882 10,935 5,628 860 B.2 Transfers from other categories of impaired exposures 31,473 - - - B.3 Other increases - - - - C. Decreases 9,722 41,345 - - C.1 Readjustments arising out of valuation 291 - - - C.2 Readjustments arising out of receipts 7,292 15 - - C.3 Write-offs 2,139 9,857 - - C.4 Transfers to other categories of impaired exposures - 31,473 - C.5 Other decreases - - - - D. Total closing adjustments 223,196 90,958 5,628 2,403 including: exposures assigned but not derecognised 3,088 1,099 - - A.2 Classification of exposures based on external and internal ratings Information relating to 31 December 2009 is not available. A.3 Breakdown of collateralised exposures by type of guarantee A.3.1 Collateralised exposures to banks personal guarantees (2) Collaterals (1) Net Derivatives on receivables Unsecured receivables exposure Buildings Secu- Other CLN Other derivatives Total value rities guaran- Govern- Other Banks Other Govern- Other Banks Other (1)+(2) tees ments public enti- ments public entiand bodies ties and bodies ties central central banks banks 1. Guaranteed exposures: - - - - - - - - - - - - - - 1.1 fully guaranteed - - - - - - - - - - - - - - - of which deteriorated - - - - - - - - - - - - - - 1.2 partially guaranteed - - - - - - - - - - - - - - - of which deteriorated - - - - - - - - - - - - - - 2. Guaranteed off-balance sheet exposures: - - - - - - - - - - - - - - 2.1 fully guaranteed - - - - - - - - - - - - - - - of which deteriorated - - - - - - - - - - - - - - 2.2 partially guaranteed - - - - - - - - - - - - - - - of which deteriorated - - - - - - - - - - - - - - 135
Notes to the Financial Statements A.3.2 Collateralised exposures to customers personal guarantees (2) Collaterals (1) Net Derivatives on receivables Unsecured receivables exposure Buildings Secu- Other CLN Other derivatives Total value rities guaran- Govern- Other Banks Other Govern- Other Banks Other (1)+(2) tees ments public enti- ments public entiand bodies ties and bodies ties central central banks banks 1. Guaranteed exposures: 5,263,764 4,265,422 97,048 90,240 - - - - - - 4,996 1,161 712,437 5,171,304 1.1 fully guaranteed 5,050,076 4,263,966 73,560 74,295 - - - - - - 4,555 1,149 650,360 5,067,885 - of which deteriorated 604,416 536,026 921 3,155 - - - - - - 129-64,183 604,414 1.2 partially guaranteed 213,688 1,456 23,488 15,945 - - - - - - 441 12 62,077 103,419 - of which deteriorated 24,630 644 5,540 1,486 - - - - - - 41-9,358 17,069 2. Guaranteed off-balance sheet exposures: 699,322 868,080 20,420 21,406 - - - - - - - 433 49,684 960,023 2.1 fully guaranteed 683,178 868,080 18,492 18,091 - - - - - - - 433 48,021 953,117 - of which deteriorated 13,324 72,054 511 10 - - - - - - - - 321 72,896 2.2 partially guaranteed 16,144-1,928 3,315 - - - - - - - - 1,663 6,906 - of which deteriorated 1,377 - - 558 - - - - - - - - - - B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES B.1 Sector breakdown of on- and off-balance sheet exposures to customers (book value) See table on the following page. 136
Notes to the Financial Statements Governments Other public bodies Finance companies Exposures/Counterparts Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans 2 43 - - - - 1,467 4,444 - A.2 Substandard loans 10 1 - - - - 898 119 - A.3 Restructured exposures - - - - - - - - - A.4 Overdue exposures - - - 1 - - 1,214 129 - A.5 Other exposures 6,976-106,527-367,666 5,989 TOTAL A 6,988 44-106,528 - - 371,245 4,692 5,989 B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - - - - - - - B.2 Substandard loans - - - - - - - - - B.3 Other impaired assets - - - - - - - - - B.4 Other exposures 10,384-71 - 14,709 - TOTAL B 10,384 - - 71 - - 14,709 - - TOTAL 2009 17,372 44-106,599 - - 385,954 4,692 5,989 TOTAL 2008 286,441 43-83,906 34-264,573 11,022 4,477 Insurance companies Non-financial companies Other entities Exposures/Counterparts Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans - - - 123,587 161,557-69,010 57,152 - A.2 Substandard loans - - - 460,416 50,087-55,108 40,750 - A.3 Restructured exposures - - - 90,190 5,628 - - - - A.4 Overdue exposures - - - 306,507 1,817-40,328 457 - A.5 Other exposures 53-4,319,223 31,860 3,312,010 7,065 TOTAL A 53 - - 5,299,923 219,089 31,860 3,476,456 98,359 7,065 B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - 1,073 - - - - - B.2 Substandard loans - - - 14,205 - - 524 - - B.3 Other impaired assets - - - 38,316 - - 15 - - B.4 Other exposures 69,467-972,490-21,813 - TOTAL B 69,467 - - 1,026,084 - - 22,352 - - TOTAL 2009 69,520 - - 6,326,007 219,089 31,860 3,498,808 98,359 7,065 TOTAL 2008 212,678 - - 5,430,045 177,987 28,259 3,119,710 90,422 7,274 137
Notes to the Financial Statements B.2 Territorial distribution of on- and off-balance sheet exposures to customers (book value) ITALY OTHER EUROPEAN AMERICA ASIA REST OF COUNTRIES THE WORLD Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans 193,948 223,129 4 48 - - 3 11 111 8 A.2 Substandard loans 516,271 90,053 5-153 904 - - 2 - A.3 Restructured exposures 90,190 5,628 - - - - - - - - A.4 Overdue exposures 348,050 2,403 - - - - - - - - A.5 Other exposures 8,039,181 44,558 15,572 243 55,626 98 1,992 15 85 - TOTAL 9,187,640 365,771 15,581 291 55,779 1,002 1,995 26 198 8 B. Off-balance sheet exposures: B.1 Bad and doubtful loans 1,073 - - - - - - - - - B.2 Substandard loans 14,729 - - - - - - - - - B.3 Other impaired assets 38,331 - - - - - - - - - B.4 Other exposures 1,085,959 - - - - - 2,776-199 - TOTAL 1,140,092 - - - - - 2,776-199 - TOTAL 2009 10,327,732 365,771 15,581 291 55,779 1,002 4,771 26 397 8 TOTAL 2008 9,331,502 314,821 23,964 232 41,801 4,291 2 12 162 84 B.2.2 Territorial distribution of on- and off-balance sheet exposures to customers (book value) NORTH-WEST NORTH-EAST CENTRAL SOUTHERN ITALY ITALY ITALY ITALY AND ISLANDS Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans 52,034 52,470 32,821 51,696 54,953 78,548 54,140 40,415 A.2 Substandard loans 96,539 14,930 43,140 13,467 242,845 50,132 133,748 11,524 A.3 Restructured exposures 1,169 769 26,368 25 62,652 4,834 - - A.4 Overdue exposures 28,456 501 118,522 814 142,157 805 58,915 284 A.5 Other exposures 1,595,138 9,028 2,593,697 18,965 2,404,331 10,348 1,446,015 6,217 TOTAL 1,773,336 77,698 2,814,548 84,967 2,906,938 144,667 1,692,818 58,440 B. Off-balance sheet exposures: B.1 Bad and doubtful loans 48-905 - - - 120 - B.2 Substandard loans 1,198-203 - 5,620-7,708 - B.3 Other impaired assets 38,190-11 - 125-5 - B.4 Other exposures 429,655-337,898-215,619-102,787 - TOTAL 469,091-339,017-221,364-110,620 - TOTAL 2009 2,242,427 77,698 3,153,565 84,967 3,128,302 144,667 1,803,438 58,440 TOTAL 2008 - - - - - - - - 138
Notes to the Financial Statements B.3 Territorial distribution of on- and off-balance sheet exposures to banks (book value) ITALY OTHER EUROPEAN AMERICA ASIA REST OF COUNTRIES THE WORLD Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans - - - - - - - - - - A.2 Substandard loans - - - - - - - - - - A.3 Restructured exposures - - - - - - - - - - A.4 Overdue exposures - - - - - - - - - - A.5 Other exposures 967,066-8,488-5,039-572 - 30,456 - TOTAL 967,066-8,488-5,039-572 - 30,456 - B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - - - - - - - - B.2 Substandard loans - - - - - - - - - - B.3 Other impaired assets - - - - - - - - - - B.4 Other exposures 13,466 - - - - - 89 - - - TOTAL 13,466 - - - - - 89 - - - TOTAL 2009 980,532-8,488-5,039-661 - 30,456 - TOTAL 2008 921,642-52,967-11,135-334 - 72 - B.3.2 Territorial distribution of on- and off-balance sheet exposures to banks (book value) NORTH-WEST NORTH-EAST CENTRAL SOUTHERN ITALY ITALY ITALY ITALY AND ISLANDS Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans - - - - - - - - A.2 Substandard loans - - - - - - - - A.3 Restructured exposures - - - - - - - - A.4 Overdue exposures - - - - - - - - A.5 Other exposures 53,796-713,584-199,686 - - - TOTAL 53,796-713,584-199,686 - - - B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - - - - - - B.2 Substandard loans - - - - - - - - B.3 Other impaired assets - - - - - - - - B.4 Other exposures 199-13,267 - - - - - TOTAL 199-13,267 - - - - - TOTAL 2009 53,995-726,851-199,686 - - - TOTAL 2008 - - - - - - - - 139
Notes to the Financial Statements B.4 High risks 31/12/2009 a) Amount - b) Number - With regard to the concentration risk you are referred to the information provided in the appropriate section of the management report. C. SECURITISATIONS AND ASSET ASSIGNMENTS C.1 Securitisations Qualitative information Starting in 2001 the Bank carried out a total of six performing loan securitisation schemes, all arising out of loans granted independently, the last of which was paid off in the current year whereas the first two had already been paid off in previous years. The latest scheme is excluded from this section because under the supervisory regulations issued by Banca d Italia it is deemed to be a self-securitisation scheme since at the time they were issued the bank subscribed and still holds all the ABS securities issued by the vehicle company and the scheme was carried out after 30 November 2008. The main features will be summarised at the end of this section. While on the subject of these regulations it should be mentioned that the fifth securitisation scheme, under which the bank also subscribed all the ABS securities at the time they were issued by the vehicle company, was carried out by the deadline of 30 November 2008 and under Banca d Italia provisions is therefore classified as self-securitisation and dealt with in this section. The transactions were carried out with a view to diversifying types of funding, improving the correlation between customer deposits and loan maturities and also improving the prudential supervisory ratios. In the case of schemes other than those of self-securitisation, UGF Banca has also always subscribed and still holds all the junior notes issued under the various securitisation schemes and not yet repaid. Thus the risk pertaining to the assets assigned remains with the bank, which as servicer will regularly monitor performance and provide reports. In addition to the junior notes the Bank also holds some of the higherpriority notes (mezzanine and/or senior) that were not placed on the market at the time of issue or that were subsequently repurchased. As already indicated in Part A Accounting Policies, in the case of schemes still in existence, all completed after 31 December 2003, the assets assigned continued to appear in the financial statements since essentially the risk was not transferred to third parties. The Bank is not exposed to risk on third party securitisation schemes. There follows a descriptive analysis of each of the transactions still underway in 2009. 1. Securitisation scheme carried out through Grecale ABS S.r.l. begun in December 2003 - taken to market in April 2005 following repackaging through Castoro RMBS S.r.l. (Grecale ABS Securitisation 2) In December 2003 a securitisation scheme was signed in which the maximum amount of securities to be issued totalled 750m and which was to be carried out within an initial warehousing period of one year, which was then extended until April 2005. Under this scheme, organised in collaboration with ABN AMRO N.V. acting as arranger and with UGF Merchant Banca per le Imprese S.p.A. as co-arranger, three assignments of receivables were made, funded by Grecale ABS issuing three series of security, divided into only two classes: senior note and junior notes. Assignments of receivables after the first assignment have been partly financed, up to the available amount, with principal funds derived from the income from receivables previously assigned. All assignments of receivables carried out in the warehousing period form a single portfolio in the interests of the holders of the securities issued, according to the priorities set between the various classes of securities but with no differentiation between the various series of securities within the same class. 140
Notes to the Financial Statements The receivables assigned come from performing residential mortgage loans issued by UGF Banca, granted to persons residing in Italy, secured by first or equivalent mortgages, with a ratio between residual debt and property value as determined by an expert valuation of no more than 80%. Overall receivables with a total principal value of 678,084K were assigned for 727,004K. Price of receivables assigned to Grecale ABS Secur. 2 2003 2004 Value Assignment price - principal 270,693 407,391 678,084 Assignment price - interest 569 431 1,000 Assignment price - premium 20,302 27,618 47,920 Total 291,564 435,440 727,004 Grecale ABS financed the purchase by issuing two classes of securities, split into three series, with a total nominal value equal to the amount of the receivables, net of the funds available from receipts from the mortgages. The following table summarises the main characteristics of the securities issued. Securities issued by Grecale ABS Class Legal Interest Rating Nominal expiry date rate amount Senior 28/01/2041 Euribor 3m + 40b.p. n/r 618,000 Junior 28/01/2041 1% + variable return n/r 81,528 Total 699,528 During the warehousing period the senior notes were subscribed through private placement by an independent SPV (Tulip Asset Purchase Company B.V. registered in Amsterdam) and the junior notes were subscribed by UGF Banca. In April 2005 a repackaging exercise took place for all the securities issued by Grecale ABS which were transferred to the SPV Castoro RMBS S.r.l., which funded the purchase by issuing three classes. The following table shows the main features of the securities issued by Castoro RMBS. Securities issued by Castoro RMBS Class Legal Interest Moody s/fitch Nominal expiry date rate rating amount Class A 28/01/2041 Euribor 3m + 10b.p. Aaa/AAA 622,500 Class B 28/01/2041 Euribor 3m + 28b.p. Aa3/A 26,000 Class C 28/01/2041 1% fixed n/r 51,678 Total 700,178 The first two classes of securities were placed on the market with Italian and foreign institutional investors. UGF Banca underwrote the entire amount of junior notes (Class C) after transferring to Castoro RMBS the junior notes issued by Grecale ABS. UGF Banca subsequently purchased Class B securities issued by Castoro for a nominal value of 4m (2007), as well as Class A securities issued by Castoro for a nominal value (on issue) of 35m, 9m of which was during the 2008 year and 26m during the current year; the Class A securities already repaid at the close of the year were more than 59% of their nominal value on issue as seen in the table below. The three classes of securities feature increasing degrees of subordination, with absolute preference in favour of the Class A securities, on which principal repayment began in October 2006. The residual value to be repaid on the Castoro notes is set out below: Residual value to be repaid on securities issued Issue Residual Residual value value at value at 31/12/2008 31/12/2009 Class A securities 622,500 328,676 252,607 Class B securities 26,000 26,000 26,000 Class C securities 51,678 51,678 51,678 Total 700,178 406,354 330,285 141
Notes to the Financial Statements The transaction as a whole is a pass through type: the entire mortgage loan portfolio of Grecale ABS is collateral for the holders of securities issued by Castoro and all the inward cash flows of Grecale ABS are transferred to Castoro RMBS separately for the principal and interest portions. ABN AMRO Bank (RBS group) provided the SPV Castoro with a credit facility initially totalling 19.5m, now reduced, as a result of the fall in the residual value of the notes to be refunded, to 9.7m and never used. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting Castoro. Under the terms of the interest rate swap contract, the SPV receives from the counterparty Euribor 3 months and pays to the counterparty a fixed rate of 3.75%, Euribor 6 months + 3bps and Euribor 3 months on notional amounts corresponding to the portion of the mortgage loan portfolio indexed to these parameters. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. 2. Securitisation scheme carried out through Grecale ABS S.r.l. begun in December 2004 - taken to market in May 2006 following repackaging through Atlante Finance S.r.l. (Grecale ABS Securitisation 3) In December 2004 another securitisation scheme was launched in which the initial maximum amount of securities to be issued totalled 1,050m, later raised to 1,700m, to be completed within a one-year warehousing period expiring in December 2005, later extended to May 2006. During this programme, organised in collaboration with ABN AMRO N.V. as arranger and UGF Merchant Banca per le Imprese S.p.A. and Nomura International plc as co-arrangers, five assignments of receivables were made, funded by Grecale ABS by issuing several series of notes, divided into only two classes: senior note and junior notes. Assignments of receivables after the first assignment have been partly financed, up to the available amount, with principal funds derived from the income from receivables previously assigned. All assignments of receivables carried out in the warehousing period form a single portfolio in the interests of the holders of the securities issued, according to the priorities set between the various classes of securities but with no differentiation between the various series of securities within the same class. The receivables assigned come from performing residential and non-residential mortgage loans and from loans other than mortgage loans to public bodies, issued by UGF Banca and granted to persons residing in Italy, secured (with the sole exception of loans to public bodies) by first or equivalent mortgages, with a ratio between residual debt and property value as determined by an expert valuation of no more than 80%. Summarised below are the amounts of the assignments made. Price of receivables assigned to Grecale ABS Secur. 3 2004 2005 Value Assignment price principal 570,810 965,752 1,536,562 Assignment price interest 2,856 1,362 4,218 Assignment price premium 28,541 57,945 86,486 Total 602,207 1,025,059 1,627,266 Five assignments of receivables were completed, the first taking place in December 2004 and the rest during 2005. Grecale ABS funded the purchase by issuing two classes of securities, divided into five series, for an aggregate nominal value equal to the amount of the loans net of available funds deriving from loan proceeds. The following table summarises the main features of the securities issued by Grecale ABS. Securities issued by Grecale ABS Class Legal Interest Rating Nominal expiry date rate amount Senior 28/01/2047 Euribor 3m + 40b.p. n/r 1,358,000 Junior 28/01/2047 1% fixed n/r 158,150 Total 1,516,150 142
Notes to the Financial Statements During the warehousing period the senior notes were subscribed through private placement by an independent SPV (Tulip Asset Purchase Company B.V. registered in Amsterdam) and the junior notes were subscribed by UGF Banca. In May 2006 a repackaging exercise took place for all the securities issued by Grecale ABS which were assigned to the SPV Atlante Finance S.r.l., which funded the purchase by issuing four classes of notes. The following table shows the main features of the securities issued by Atlante Finance. Securities issued by Atlante Finance Class Legal Interest Original rating Current rating Nominal expiry date rate Moody s/fitch/s&p Moody s/fitch/s&p value Class A 28/01/2047 Euribor 3m + 19b.p. Aaa/AAA/AAA Aaa/AA/AAA 1,202,500 Class B 28/01/2047 Euribor 3m + 62b.p. Aa3/A/A Aa3/A/A 28,800 Class C 28/01/2047 Euribor 3m + 160b.p. Baa3/BBB-/BBB- Baa3/B/BB 136,800 Class D 28/01/2047 Euribor 3m n/r n/r 152,250 Total 1,520,350 The first three classes of securities were placed on the market with Italian and foreign institutional investors. UGF Banca subscribed the entire amount of junior notes (Class D) after transferring to Atlante Finance the junior notes issued by Grecale ABS. It also subscribed a portion of the Class C mezzanine notes for a nominal value of 21m and repurchased all of the Class C securities issued by Atlante for a nominal value of 38m, 24m of which was during the current year. UGF Banca also issued outstanding guarantees to third parties for Class C securities for a nominal value of 40m, originally subscribed by the subsidiary UGF Merchant and subsequently transferred to third parties, supported by a capital repayment guarantee from UGF Banca. The Bank also repurchased Class A securities issued by Atlante for a nominal value (on issue) of 46.5m; the Class A securities already repaid at the close of the year were more than 55% of their nominal value on issue as seen in the table below. The four classes of securities feature increasing degrees of subordination, with absolute preference in favour of the Class A securities, on which principal repayment began in January 2008. The residual value to be repaid on the Atlante notes is set out below: Residual value to be repaid on securities issued Issue Residual Residual value value at value at 31/12/2008 31/12/2009 Class A securities 1,202,500 664,595 538,880 Class B securities 28,800 28,800 28,800 Class C securities 136,800 136,800 136,800 Class D securities 152,250 152,250 152,250 Total 1,520,350 982,445 856,730 The transaction as a whole is a pass through type: the entire mortgage loan portfolio of Grecale ABS is collateral for the holders of securities issued by Atlante Finance and all the inward cash flows of Grecale ABS are transferred to Atlante Finance separately for the principal and interest portions. ABN AMRO Bank (RBS group) provided the SPV Atlante with a credit facility initially totalling 110.8m, now reduced, as a result of the fall in the residual value of the notes to be refunded, to 63.8m and never used. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting Atlante. Under the terms of the interest rate swap contract, the SPV receives from the counterparty Euribor 3 months and pays to the counterparty a fixed rate of 4.32%, Euribor 6 months + 27.25bps and Euribor 3 months +31.5bps on notional amounts corresponding to the portion of the loan portfolio indexed to these parameters. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. 143
Notes to the Financial Statements In January 2009 the securitisation scheme had to record that one of the trigger events provided for in the regulation, relating to the percentage ratio between the delinquent loans (with instalment payments in arrears by between 30 and 180 days) and the residual loan amount, had been exceeded; this event was caused by arrears on a few significant commercial positions and will lead to suspension of the payment, but not the accrual, of interest on the class D junior notes, producing also a movement of flows to the principal, which will help speed up the process of redeeming the senior notes; some ratings agencies decided nonetheless to partially revise the rating attributed to the notes issued by Atlante, as detailed in the previous table. 3. Securitisation scheme carried out through Grecale ABS S.r.l. in May 2008 (Grecale ABS Securitisation 4) In May 2008, a securitisation scheme was performed for an amount of securities issued for the nominal value of 1,104m. The scheme was organised with the collaboration of BNP Paribas and Finanziaria Internazionale Securitisation Group as arrangers; the assignment of loans was funded by Grecale ABS with the issuing of securities distributed in only two classes: senior notes and junior notes. The loans assigned arise out of performing mortgage loans on residential property granted by UGF Banca to individuals resident in Italy, backed by first or equivalent mortgages, where the residual debt does not exceed 80% of the property value as determined by an expert valuation. The values of the assignment carried out are as follows: Price of receivables assigned to Grecale ABS Secur. 4 2008 Assignment price - principal 1,059,353 Assignment price - interest 1,139 Assignment price - premium - Total 1,060,492 Grecale ABS funded the purchase by issuing two classes of securities. The following table summarises the main features of the securities issued by Grecale ABS: Class Legal Interest Moody s/s&p Nominal expiry date rate rating amount Senior 22/04/2058 Euribor 6m/3m + 60b.p. Aaa/AAA 1,007,750 Junior 22/04/2058 variable return n/r 96,510 Total 1,104,260 UGF Banca subscribed the full amount of both the senior notes (class A) and the junior notes (class B). Given the tensions generated on the financial market and the strong rise in the credit spreads applied to the interest rates following the subprime loan crisis, the operation was, in fact, planned from the start with the aim of subscribing all the notes issued, in the event, as indeed happened, of using the senior notes for refinancing operations with the ECB. The features of the notes are, at any rate, such that they will be able to be swiftly placed with institutional investors, should the changed expectations with regard to yield expressed by the market make the offer profitable. The two classes of notes are characterised by increasing levels of subordination, with absolute priority in favour of the Class A securities, the repayment of principal of which begins eighteen months from issue. The senior notes were initially issued with the half-yearly coupon indexed to the 6-month Euribor 6m with the option on 22 January 2010 to convert the coupon to a quarterly period and indexing, as a result, to the 3-month Euribor. The scheme was not backed by any credit facility as it has a cash reserve in the amount of 41.9m, originally financed by an issue premium for junior notes designed to protect the Class A securities, whose amount it will be possible to reduce according to the changed requirements for protection as soon as the amount of the junior notes (class B) is at least 17.50% of the residual value of the senior notes (class A) in circulation. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting the vehicle company. Depending on the interest rate swap contract, the vehicle company collects the 6-month/3 month Euribor + 100bps from the counterparty and pays the counterparty all the interest collected, net of the differential of the relating accruals on the performing loans. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. 144
Notes to the Financial Statements After the close of the year capital repayments of the senior notes began, starting eighteen months from the date of issue. 4. Securitisation scheme carried out through Grecale ABS S.r.l. in April 2009 (Grecale ABS Securitisation 5) Purely for information, as stated at the beginning of this section, it should be mentioned that in April 2009 a new securitisation scheme was carried out by selling a total of 611m of performing mortgage loans on residential property granted by UGF Banca to persons resident in Italy, backed by first or equivalent mortgages, where the residual debt did not exceed 80% of the professionally ascertained value of the property, and consequently securities with a nominal value of 627m, divided into only two classes (senior and junior), were issued. Moody s rated the senior securities Aaa. UBS Investment Bank and UGF Merchant acted as arrangers and all the securities were subscribed by UGF Banca at the time of issue on the assumption that the senior notes would be used for refinancing operations with the ECB and other Central Banks, which in fact is what happened. The scheme is therefore described as self-securitisation. Quantitative information C.1.1 Exposures arising from securitisation schemes categorised by the quality of the underlying assets Type of underlying asset/ Exposure Balance sheet exposures Guarantees issued Senior Mezzanine Junior Senior Mezzanine Junior Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net expo- expo- expo- expo- expo- expo- expo- expo- expo- expo- expo- exposure sure sure sure sure sure sure sure sure sure sure sure A. With own underlying assets: 1,053,645 1,053,645 50,128 50,128 320,842 297,463 - - 40,000 40.000 - - a) Impaired - - - - - - - - - - - - b) Other 1,012,248 1,012,248 37,988 37,988 300,438 262,149 - - 40,000 40,000 - - B. With underlying assets of third parties: - - - - - - - - - - - - a) Impaired - - - - - - - - - - - - b) Other - - - - - - - - - - - - The Bank has not granted credit facilities associated with securitisation schemes. Guarantees issued, shown in the table above, comprise the liability assumed by the Bank in relation to Atlante Finance as receiver of the Class C notes originally underwritten by the subsidiary company UGF Merchant for the amount of 40m. In the event that UGF Merchant assigns to third parties the entire face value held, UGF Banca has in effect guaranteed to reimburse the purchaser for the full principal amount of the note, as well as to pay the periodical coupons, in accordance with the conditions set out in the Offering Circular for the securitisation. The Bank has issued no other guarantee in connection with securitisation schemes. 145
Notes to the Financial Statements C.1.2 Exposures arising from the main own securitisation schemes divided by type of asset securitised and by type of exposure Balance sheet exposures Off-balance sheet exposures Senior Mezzanine Junior Senior Mezzanine Junior Type of securitised asset/exposures Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ value readjust- value readjust- value readjust- value readjust- value readjust- value readjustments ments ments ments ments ments A. Entirely derecognised - - - - - - - - - - - - A.1 Grecale S.r.l. - performing residential - - - - - - - - - - - - mortgage loans A.2 Grecale ABS Secur. 1 - performing mortgage - - - - - - - - - - - - loans B. Partially derecognised - - - - - - - - - - - - C. Not derecognised 1,053,645-50,128-297,463 (23,379) - - 40,000 - - - C.1 Grecale ABS Secur. 2 - performing residential 13,534-3,800-41,757 (9,921) - - - - - - mortgage loans C.2 Grecale ABS Secur. 3 - performing mortgage 18,799-46,328-152,163 (9,077) - - 40,000 - - - loans C.3 Grecale ABS Secur. 4 - performing mortgage 1,021,312 - - - 103,543 (4,381) - - - - - - loans Total 1,053,645-50,128-297,463 (23,379) - - 40,000 - - - C.1.3 Exposures arising from the main securitisation schemes of third parties divided by type of asset securitised and by type of exposure There are no exposures of this type. C.1.4 Securitisation exposures divided by portfolio and by type Exposure/Portfolio Held-for-trading Fair-value-option Available-for-sale Held-to-maturity Receivables Total Total financial assets financial assets financial assets financial assets 2009 2008 1. Balance sheet exposures - - - - - - - - Senior - - - - - - - - Mezzanine - - - - - - - - Junior - - - - - - - 2. Off-balance sheet exposures - - - - - - - - Senior - - - - - - - - Mezzanine - - - - - - - - Junior - - - - - - - The amounts in the table above do not include exposures on own securitisation schemes, for which the assigned assets are still recorded on the balance sheet. 146
Notes to the Financial Statements C.1.5 Total amount of securitised assets underlying the junior notes or other forms of credit support Assets/Values Traditional Synthetic securitisations securitisations A. Own underlying assets: 1,401,236 A.1 Full derecognition - 1. Bad and doubtful loans - 2. Substandard loans - 3. Restructured exposures - 4. Overdue exposures - 5. Other assets - A.2 Partial derecognition - 1. Bad and doubtful loans - 2. Substandard loans - 3. Restructured exposures - 4. Overdue exposures - 5. Other assets - A.3 Not derecognised 1,401,236-1. Bad and doubtful loans - - 2. Substandard loans - - 3. Restructured exposures - - 4. Overdue exposures - - 5. Other assets 1,401,236 - B. Underlying assets of third parties: - - 1. Bad and doubtful loans - - 2. Substandard loans - - 3. Restructured exposures - - 4. Overdue exposures - - 5. Other assets - - C.1.6 Participating interests in SPVs Name Registered office Holding % Grecale ABS S.r.l. Bologna - Castoro RMBS S.r.l. Milan - Atlante Finance S.r.l. Milan - 147
Notes to the Financial Statements C.1.7 Servicer activity - receipts from securitised loans Servicer activity: receipts from principal Other Total individual securitisations amount receipts receipts Received on behalf of Grecale S.r.l.: 100,255 33,445 133,700 - during the year - - - - in previous years 100,255 33,445 133,700 Received on behalf of Grecale ABS S.r.l. Sec. 1: 105,937 34,022 139,959 - during the year - - - - in previous years 105,937 34,022 139,959 Received on behalf of Grecale ABS S.r.l. Sec. 2: 374,132 132,569 506,701 - during the year 61,850 13,302 75,152 - in previous years 312,282 119,267 431,549 Received on behalf of Grecale ABS S.r.l. Sec. 3: 728,337 246,872 975,209 - during the year 99,360 31,008 130,368 - in previous years 628,977 215,864 844,841 Received on behalf of Grecale ABS S.r.l. Sec. 4: 182,545 76,255 258,800 - during the year 111,683 36,040 147,723 - in previous years 70,862 40,215 111,077 Total receipts: 1,491,206 523,163 2,014,369 - during the year 272,893 80,350 353,243 - in previous years 1,218,313 442,813 1,661,126 For information on repayments of notes issued by the SPVs you are referred to the data on the previous pages relating to the individual transactions. C.2 Assignments C.2.1 Financial assets assigned and not derecognised Held-for- Financial Available- Held-to- Receivables Receivables Technical forms/ trading assets for-sale maturity from from Total Portfolio financial at fair financial financial banks customers assets value assets assets A A A A A A 2009 2008 A. Balance sheet assets - - 41,746-202,453 2,292,711 2,536,910 2,942,903 1. Debt securities - - 41,746-202,453 7,988 252,187 442,472 2. Equity securities - - - - - 3. Units in UCITS - - - - - 4. Financing - - - - - 2,284,723 2,284,723 2,500,431 B. Derivatives - - - Total 2009 17,213-200,405-224,854 2,500,431 2,942,903 2,274,504 - of which impaired - - - - - 118,311 118,311 - Total 2008 298,397 - - - - 1,976,107 - - - of which impaired - - - - - 43,977-43,977 The table above does not include assets assigned and partially recognised. 148
Notes to the Financial Statements C.2.2 Financial liabilities relating to financial assets assigned and not derecognised Held-for- Financial Available- Held-to- Receivables Receivables Total Liabilities/ trading assets for-sale maturity from from Asset portfolio financial at fair financial financial banks customers assets value assets assets 1. Payables to customers - - 247,763-11,571 1,052,093 1,311,427 a) relating to assets - - 247,763-11,571 1,052,093 1,311,427 fully recognised b) relating to assets - - - - - - - partially recognised 2. Payables to banks - - 130,159 - - - 130,159 a) relating to assets - - 130,159 - - - 130,159 fully recognised b) relating to assets - - - - - - - partially recognised Total 2009 - - 377,922-11,571 1,052,093 1,441,586 Total 2008 17,031-234,685-224,259 1,147,083 1,623,058 Section 2 - Market risk QUALITATIVE INFORMATION In relation to market risk, defined as risks arising from fluctuations in the value of financial positions of the bank as a result of variations in prices and in market conditions, UGF Banca has exposures of a residual nature on positions held as a result of trading transactions (the trading book) and particularly from commercial transactions and strategic investment choices (the banking book). Decisions relating to assuming market risks and defining limits for the management thereof are made by the Board of Directors, based on risk propensity and profit targets in relation to risks that may be assumed and to the capital allocation process. The instrument used to measure market risk on positions held is the Value at Risk (VaR) calculated using the variance-covariance method. This method is based on the assumption that risk factors are distributed normally and that there is a direct relationship between variations in risk factors and variations in the price of the financial instruments in the portfolio. Risk arises from the volatility of market conditions, from the degree of correlation between these (variance-covariance matrix) and how sensitive the position is to variations in risk factors (delta coefficients: for example beta for shares and funds and duration for bonds). The information below shows the change in the VaR of UGF Banca s trading book during 2009, revealing the market risk in the book to be insignificant. Monthly change to VaR during 2009 120000 100000 VaR market UGF Banca s trading book 80000 60000 Var 40000 20000 0 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 149
Notes to the Financial Statements 2.1 interest rate risk and price risk Regulatory trading book Qualitative information Trading book interest rate risk means the risk deriving from a possible change in the value of a financial asset in the trading book as a result of adverse changes in interest rates. The interest rate risk on the trading book is measured either by calculating the VaR or by determining the impacts resulting from stress tests. The trading book value was 739K. The sensitivity of the trading bond portfolio in respect of a parallel movement in the rate curve of +10 basis points at 31 December 2009 was negligible. Quantitative information 2.1.1 Regulatory trading book: breakdown of assets, liabilities and financial derivatives by residual duration (repricing date) Currency of denomination: all currencies Item/Residual duration On Up to 3 From From From From More than Unspecified demand months > 3 months > 6 months > 1 year > 5 years 10 years duration up to 6 months up to 1 year up to 5 years up to 10 years 1. Assets - 640 - - - - - - 1.1 Debt securities - 640 - - - - - - With early repayment - - - - - - - - option Other - 640 - - - - - - 1.2 Other assets - - - - - - - - 2. Liabilities - - - - - - - - 2.1 Repos payable - - - - - - - 2.2 Other liabilities - - - - - - - - 3. Financial derivatives - 17,339 14,523 44 276 434 1,106-3.1 With underlying security - 17,339 14,523 44 276 434 1,106 - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 17,339 14,523 44 276 434 1,106 - - long-term positions - 6,342 9,669 10 80 207 553 - - short-term positions - 10,997 4,854 34 196 227 553-3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - The above table shows the breakdown by residual duration of all the balance sheet assets and liabilities and all the financial derivatives which make up the regulatory trading book, irrespective of currency of denomination. Below are detailed the same figures for the principal currencies (counter values in ). 150
Notes to the Financial Statements Currency of denomination: EUR Item/Residual duration On Up to 3 From From From From More than Unspecified demand months > 3 months > 6 months > 1 year > 5 years 10 years duration up to 6 months up to 1 year up to 5 years up to 10 years 1. Assets - 640 - - - - - - 1.1 Debt securities - 640 - - - - - - With early repayment - - - - - - - - option Other - 640 - - - - - - 1.2 Other assets - - - - - - - - 2. Liabilities - - - - - - - - 2.1 Repos payable - - - - - - - 2.2 Other liabilities - - - - - - - - 3. Financial derivatives - 17,339 14,523 44 276 434 1,106-3.1 With underlying security - 17,339 14,523 44 276 434 1,106 - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 17,339 14,523 44 276 434 1,106 - - long-term positions - 6,342 9,669 10 80 207 553 - - short-term positions - 10,997 4,854 34 196 227 553-3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 2.1.2 Regulatory trading book: distribution of exposures in equity securities and share indices for the principal countries in the market where they are listed Type of operation/listing index Listed Unlisted Italy A. Equity securities 1 - - long-term positions 1 - - short-term positions - - B. Purchase and sale of equity securities not yet regulated - - - long-term positions - - - short-term positions - - C. Other equity security derivatives - - - long-term positions - - - short-term positions - - D. Share index derivatives - - - long-term positions - - - short-term positions - - 151
Notes to the Financial Statements 2.2 Interest rate risk and price risk - Banking book Qualitative information The banking book rate risk is analysed using typical asset and liability management tools, such as the duration gap and calculating the effect of changes in interest rates on expected net interest income and on the financial value of equity. The entire banking book was analysed, all lending to customers being compared with income to provide an overview and pick up any mismatch either in average duration or in the balance of items placed in the various repricing segments. Shown below is a table summarising the sensitivity parameters for the banking portfolio at 31 December 2009. The duration gap shows the difference between the average duration of the asset compared with that of the liability, whilst the sensitivity parameters illustrate the percentage divergence between the expected margin and the economic value of the bank s net assets in relation to an interest rate shock of +/- 100 basis points. Interest rate change 31/12/2008 31/12/2009 Duration Gap 0.33 0.1 Margin sensitivity + 100 bps 15,754,086 46,086,580-100 bps (16,746,881) (55,674,888) Economic value sensitivity + 100 bps (19,609,815) 10,659,198-100 bps 32,523,156 (1,809,110) UGF Banca s operations on the share markets on its own account were limited. The price risk was calculated and monitored by using the VaR and by sensitivity and stress tests. Holdings in shares at 31 December 2009 were minimal and the impact through profit or loss of the price risk on the trading book amounted to only - 15,000 and was therefore insignificant in view of the variation of -20% in the share market. 152
Notes to the Financial Statements Quantitative information 2.2.1 Banking book: breakdown of assets, liabilities and financial derivatives by residual duration (repricing date) Currency of denomination: all currencies Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 7,218,656 712,648 441,962 258,241 430,054 184,859 1,025,754-1.1 Debt securities - 398,746 235,703-18,636 - - - with early repayment - - - - - - - - option other - 398,746 235,703-18,636 - - - 1.2 Financing to banks 386,246 38,684 - - - - - - 1.3 Financing to customers 6,832,410 275,218 206,259 258,241 411,418 184,859 1,025,754 - current account 965,857 - - 126,187 - - - - other financing 5,866,553 275,218 206,259 132,054 411,418 184,859 1,025,754 - - with early repayment 5,092,300 4,998 48,607 8,073 172,690 159,447 1,023,327 - option - other 774,253 270,220 157,652 123,981 238,728 25,412 2,427-2. Liabilities 6,513,103 1,528,623 41,446 94,838 922,753 160,969 2,270-2.1 Payables to customers 6,214,980 883,231 4 9 995-1,362 - current account 6,057,944 - - - - - - - other financing 156,986 883,231 4 9 995-1,362 - - with early repayment - - - - - - - - option - other 156,986 883,231 4 9 995-1,362-2.2 Payables to banks 267,647 19,849 2,779 - - - - - current account 46,034 - - - - - - - other payables 221,613 19,849 2,779 - - - - - 2.3 Debt securities 30,476 625,543 38,663 94,829 921,758 160,969 908 - with early repayment 2 - - - - - - - option other 30,474 625,543 38,663 94,829 921,758 160,969 908-2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - 5,476,702 - - 92,000 132,000 - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - 5,476,702 - - 92,000 132,000 - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 5,476,702 - - 92,000 132,000 - - - long-term positions - 2,850,351 - - - - - - - short-term positions - 2,626,351 - - 92,000 132,000 - - 153
Notes to the Financial Statements The above table shows the breakdown by residual duration of all the balance sheet assets and liabilities and all the financial derivatives which make up the banking book, irrespective of currency of denomination. Below are detailed the same figures for the principal currencies (counter values in ). Currency of denomination: EUR Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 7,200,601 689,974 441,440 258,131 430,054 184,859 1,025,754-1.1 Debt securities - 398,746 235,703-18,636 - - - with early repayment - - - - - - - - option other - 398,746 235,703-18,636 - - - 1.2 Financing to banks 368,781 38,684 - - - - - - 1.3 Financing to customers 6,831,820 252,544 205,737 258,131 411,418 184,859 1,025,754 - current account 965,857 - - 126,187 - - - - other financing 5,865,963 252,544 205,737 131,944 411,418 184,859 1,025,754 - - with early repayment 5,092,300 4,998 48,607 8,073 172,690 159,447 1,023,327 - option - other 773,663 247,546 157,130 123,871 238,728 25,412 2,427-2. Liabilities 6,493,724 1,508,774 38,667 94,838 922,753 160,969 2,270-2.1 Payables to customers 6,195,601 883,231 4 9 995-1,362 - current account 6,038,615 - - - - - - - other financing 156,986 883,231 4 9 995-1,362 - - with early repayment - - - - - - - - option - other 156,986 883,231 4 9 995-1,362-2.2 Payables to banks 267,647 - - - - - - - current account 46,034 - - - - - - - other payables 221,613 - - - - - - - 2.3 Debt securities 30,476 625,543 38,663 94,829 921,758 160,969 908 - with early repayment 2 - - - - - - - option other 30,474 625,543 38,663 94,829 921,758 160,969 908-2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - 5,476,702 - - 92,000 132,000 - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - 5,476,702 - - 92,000 132,000 - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 5,476,702 - - 92,000 132,000 - - - long-term positions - 2,850,351 - - - - - - - short-term positions - 2,626,351 - - 92,000 132,000 - - 154
Notes to the Financial Statements Currency of denomination: USD Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 6,636 18,354 458 78 - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,220 - - - - - - - 1.3 Financing to customers 416 18,354 458 78 - - - - current account - - - - - - - - other financing 416 18,354 458 78 - - - - - with early repayment - - - - - - - - option - other 416 18,354 458 178 - - - - 2. Liabilities 10,972 11,822 2,779 - - - - - 2.1 Payables to customers 10,972 - - - - - - - current account 10,972 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 11,822 2,779 - - - - - current account - - - - - - - - other payables - 11,822 2,779 - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 155
Notes to the Financial Statements Currency of denomination: GBP Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 6,236 - - - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,236 - - - - - - - 1.3 Financing to customers - - - - - - - - current account - - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2. Liabilities 6,698 - - - - - - - 2.1 Payables to customers 6,698 - - - - - - - current account 6,698 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - - - - - - - - current account - - - - - - - - other payables - - - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 156
Notes to the Financial Statements Currency of denomination: JPY Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 854 298 - - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 854 - - - - - - - 1.3 Financing to customers - 298 - - - - - - current account - - - - - - - - other financing - 298 - - - - - - - with early repayment - - - - - - - - option - other - 298 - - - - - - 2. Liabilities 1,221 - - - - - - - 2.1 Payables to customers 1,221 - - - - - - - current account 1,221 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - - - - - - - - current account - - - - - - - - other payables - - - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 157
Notes to the Financial Statements Currency of denomination: CHF Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 2,905 3,883-32 - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,731 - - - - - - - 1.3 Financing to customers 174 3,883-32 - - - - current account - - - - - - - - other financing 174 3,883-32 - - - - - with early repayment - - - - - - - - option - other 174 3,883-32 - - - - 2. Liabilities 378 6,741 - - - - - - 2.1 Payables to customers 378 - - - - - - - current account 378 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 6,741 - - - - - - current account - 6 - - - - - - other payables - 6,741 - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 158
Notes to the Financial Statements Currency of denomination: other currencies Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 1,424 139 64 - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 1,424 - - - - - - - 1.3 Financing to customers - 139 64 - - - - - current account - - - - - - - - other financing - 139 64 - - - - - - with early repayment - - - - - - - - option - other - 139 64 - - - - - 2. Liabilities 110 1,286 - - - - - - 2.1 Payables to customers 110 - - - - - - - current account 110 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 1,286 - - - - - - current account - 0 - - - - - - other payables - 1,286 - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 159
Notes to the Financial Statements 2.3 Exchange risk Qualitative information As a result of suspending operations in financial derivatives on exchange rates and forward exchange rates, UGF Banca s exchange rate risk management was limited to operating in repo exchange rates and aimed at managing commercial flows from the sales network. Exchange items held at 31 December 2009 were insignificant. Quantitative information Breakdown of assets, liabilities and derivatives by currency of denomination Items Currencies USD GBP CHF JPY CAD Other currencies A. Financial assets 25,539 6,269 6,842 1,154 574 1,021 A.1 Debt securities - - - - - - A.2 Equity securities 403 - - - - - A.3 Financing to banks 6,219 6,236 2,731 854 574 850 A.4 Financing to customers 18,917 33 4,111 300-171 A.5 Other financial assets - - - - - - B. Other assets 741 443 349 83 155 221 C. Financial liabilities 25,549 6,698 7,118 1,221 678 719 C.1 Payables to banks 14,577-6,740-661 625 C.2 Payables to customers 10,972 6,698 378 1,221 17 94 C.3 Debt securities - - - - - - C.4 Other financial liabilities - - - - - - D. Other liabilities 95 - - - - - E. Financial derivatives - - - - - - Options - - - - - - + long-term positions - - - - - - + short-term positions - - - - - - Others - - - - - - + long-term positions - - - - - - + short-term positions - - - - - - Total assets 26,280 6,712 7,191 1,237 729 1,242 Total liabilities 25,644 6,698 7,118 1,221 678 719 Balance (+/ ) 636 14 73 16 51 523 160
Notes to the Financial Statements 2.4 Derivative instruments A. Financial derivatives A.1 Regulatory trading book: notional values at the end of the period and averages Underlyings/ Total 2009 Total 2008 Types of derivative Over the counter Central counterparty Over the counter Central counterparty 1. Debt securities and interest rates 38,291-1,408,698 - a) Options 21,103-45,846 - b) Swaps - - 1,337,121 - c) Forward 17,188 - - - d) Futures - - - - e) Other - - 25,731-2. Equity securities and share indices - - 2 - a) Options - - - - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - 2-3. Currencies and gold - - 1,328,902 - a) Options - - 1,242,420 - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - 86,482-4. Goods - - - - 5. Other underlyings - - - - Total 38,291-2,737,602 - Average amounts 21,103-1,246,173-161
Notes to the Financial Statements A.2 Banking book: notional values at the end of the period and averages A.2.1 Hedging derivatives Underlyings/ Total 2009 Total 2008 Types of derivative Over the counter Central counterparty Over the counter Central counterparty 1. Debt securities and interest rates 224,000-76,000 - a) Options - - - - b) Swaps 224,000-76,000 - c) Forward - - - - d) Futures - - - - e) Other - - - - 2. Equity securities and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - - - 3. Currencies and gold - - - - a) Options - - - - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - - - 4. Goods - - - - 5. Other underlyings - - - - Total 224,000-76,000 - Average amounts 224,000 - - - A.2.2 Other derivatives There are no derivatives of this type. 162
Notes to the Financial Statements A.3 Financial derivatives: Gross positive fair value breakdown according to product positive fair value Portfolio/Types of derivative Total 2009 Total 2008 Over the counter Central counterparty Over the counter Central counterparty A. Regulatory trading books - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - B. Banking book - for hedging - - 292 - a) Options - - - - b) Interest rate swaps - - 292 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - Total - - 292-163
Notes to the Financial Statements A.4 Financial derivatives: Gross negative fair value - breakdown according to product Negative fair value Portfolio/Types of derivative Total 2009 Total 2008 Over the counter Central counterparty Over the counter Central counterparty A. Regulatory trading books - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - B. Banking book - for hedging 3,751 - - - a) Options - - - - b) Interest rate swaps 3,751 - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - Total 3,751 - - - 164
Notes to the Financial Statements A.5 OTC financial derivatives - Regulatory trading book: notional values, positive and negative gross fair values in the case of counterparty agreements not deemed to be offsetting agreements Agreements not deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreements Central public companies companies financial entities Banks bodies companies 1. Debt securities and interest rates - - 12,232 9,923-4,270 11,958 - notional value - - 12,182 9,923-4,256 11,930 - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - 50 - - 14 28 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 4. Other values - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 165
Notes to the Financial Statements A.6 OTC financial derivatives - Regulatory trading book: notional values, positive and negative gross fair values in the case of counterparty agreements deemed to be offsetting agreements Agreements deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreements Central public companies companies financial entities Banks bodies companies 1. Debt securities and interest rates - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 4. Other currencies - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 166
Notes to the Financial Statements A.7 OTC financial derivatives - Banking book: notional values, positive and negative gross fair values in the case of counterparty agreements not deemed to be offsetting agreements Agreements not deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreements Central public companies companies financial entities Banks bodies companies 1. Debt securities and interest rates - - 230,191 - - - - - notional value - - 224,000 - - - - - positive fair value - - - - - - - - negative fair value - - 3,751 - - - - - future exposure - - 2,440 - - - - 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 4. Other values - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 167
Notes to the Financial Statements A.8 OTC financial derivatives - Banking book: notional values, positive and negative gross fair values in the case of counterparty agreements deemed to be offsetting agreements Agreements deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreements Central public companies companies financial entities Banks bodies companies 1. Debt securities and interest rates - - 2,626,351 - - - - - notional value - - 2,626,351 - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 4. Other currencies - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - A.9 Residual duration of OTC financial derivatives: notional values Underlyings/Residual duration Up to More than More than Total 1 year 1 year and 5 years up to 5 years A. Regulatory trading book 19,791 18,500-38,291 A.1 Financial derivatives on debt securities and interest rates 19,791 18,500-38,291 A.2 Financial derivatives on equity securities and share indices - - - - A.3 Financial derivatives on exchange rates and gold - - - - A.4 Financial derivatives on other currencies - - - - B. Banking book - 92,000 132,000 224,000 B.1 Financial derivatives on debt securities and interest rates - 92,000 132,000 224,000 B.2 Financial derivatives on equity securities and share indices - - - - B.3 Financial derivatives on exchange rates and gold - - - - B.4 Financial derivatives on other currencies - - - - Total 2009 19,791 110,500 132,000 262,291 Total 2008 1,451,965 24,516 1,337,121 2,813,602 A.10 OTC financial derivatives: counterparty risk/financial risk - Internal models Information relating to 31 December 2009 is not available. B. Credit derivatives There are no derivatives of this type. 168
Notes to the Financial Statements Section 3 - Liquidity risk QUALITATIVE INFORMATION General aspects, management processes and methods of measuring the liquidity risk By liquidity risk is meant the risk that the individual companies in the UGF Banca Group and the Banking Group as a whole could find it difficult to afford to meet its expected or unexpected cash liabilities within a reasonable time and therefore have to sell some of its less liquid assets on unfavourable terms, thus affecting its solvency. Holding excessive amounts of liquidity would provide a greater safeguard in conditions of stress but would lead to a reduction in the profits of the companies in the Banking Group in the long run. Within the limits approved by the Board of Directors, UGF Banca s Finance Committee is responsible for managing UGF Banca s ALM and the liquidity risk. UGF Banca s Finance Department is responsible for the operational management of liquidity. A UGF Banca Banking Group ALM and Liquidity meeting takes place every week and is attended by the Head of UGF Banca s Finance Department, the Head of UGF Banca s Corporate Treasury Department, the Head of UGF Banca s Risk Management Department, the Head of UGF Banca s Scheduling and Financial Auditing Department, the UGF Group s Head of Risk Management and the UGF Group s Head of ALM. In addition UGF Assicurazioni s Head of Asset Management and UGF Assicurazioni s Head of Liquid Asset Management are always invited to attend to provide information on the cash flows expected from the insurance companies in the UGF Group and from UGF S.p.A. During this meeting the overall liquidity situation of the UGF Banca Banking Group and of the individual companies in the Banking Group is monitored and decisions are taken on action to meet future liquidity requirements. At the weekly meeting the structural and tactical liquidity-gap situation is analysed based on the date cash flows are due. Short-term tactical cash flows are supplemented by the expected flows linked to the renewal of sources of finance due from institutional customers, to expected major new transactions not taken into account for generating the cash flows and managing liquidity, and to administrative expenses and amounts due. The liquidity gap based on contractual flows and expected flows is then compared with the reserves of liquid assets or assets that can be swiftly turned into cash and with the finance margins available from the ECB and the lenders of standby lines of credit. The meeting also analyses trends in final amounts of and rates on income and lending by institutional counterparties, banks and customers of the UGF Banca Group and compares them with the budget concerned. A summary of the information shared during weekly meetings held to monitor liquidity and any action to be taken are discussed and reported to UGF Banca s Finance Committee. During the monthly meeting of UGF Banca s Finance Committee the Head of UGF Banca s Corporate Treasury Department and its Head of Risk Management report on the short-term tactical liquidity situation and the long-term strategic liquidity situation, including any action to be taken to improve the overall liquidity profile. The document procedure for managing the liquidity risk (Liquidity Policy) is currently being approved. This document formalises the general principles for managing liquidity and ALM, the criteria for calculating liquidity and the contingency capacity, the contingency funding plan, the limits on the liquidity gaps and stress tests to be carried out regularly to ensure that the finance available is adequate. It also contains the contingency funding plan, which establishes the criteria for identifying the availability of liquid assets for tackling potential crises in various scenarios over various timescales, and the crisis action plan, which establishes the operational procedures to be carried out in the event of a liquidity crisis. The Kondor + front office system already used by the Parent UGF S.p.A. was introduced during 2009 to improve the way UGF Banca calculates and manages risks. The Kondor + interest rate and liquidity management tool was also introduced. This tool combines the Bank s trading book and banking book management in a single system, thus making it possible to use the tools available in Kondor + for calculating risk and managing financial flows. 169
Notes to the Financial Statements QUANTITATIVE INFORMATION 1. Time distribution of financial assets and liabilities by remaining contract duration Currency of denomination: EUR Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 1,699,718 144,728 155,934 145,408 369,826 340,872 688,190 2,207,521 4,482,576 - A.1 Government bonds - - - - - - - 1,997 4,979 - A.2 Listed debt securities 69 - - - - 40,076 281,192 306,719 18,693 - A.3 Units in UCITS 3,399 - - - - - - - - - A.4 Financing 1,696,250 144,728 155,934 145,408 369,826 300,796 406,998 1,898,805 4,458,904 - Banks 83,781 135,000 105,000-38,611 45,000 - - - - Customers 1,612,469 9,728 50,934 145,408 331,215 255,796 406,998 1,898,805 4,458,904 - Liabilities 5,305,095 113,418 182,681 299,366 510,994 687,188 294,677 1,383,383 1,004,860 - B.1 Deposits and 5,303,009 113,000 23 85,581 336,279 516,988 104,763 64 3,204 - current accounts Banks 47,647 15,000-25,000 25,000 85,000 70,000 - - - Customers 5,255,362 98,000 23 60,581 311,279 431,988 34,763 64 3,204 - B.2 Debt securities 460 418 193 536 1,782 105,566 128,817 1,039,643 595,731 - B.3 Other liabilities 1,626-182,465 213,249 172,933 64,634 61,097 343,676 405,925 - Off-balance sheet 628,844 17,186 - - - 14,611 294 721 527,450 24,690 transactions C.1 Financial derivatives - 17,186 - - - 14,611 294 709 1,578 - with capital swaps long-term positions - 6,213 - - - 9,669 210 319 778 - short-term positions - 10,973 - - - 4,942 84 390 800 - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable 628,844 - - - - - - 12 525,872 24,964 commitments to grant funds long-term positions 51,480 - - - - - - 12 525,872 12,482 short-term positions 577,364 - - - - - - - - 12,482 C.5 Financial - - - - - - - - - 274 guarantees issued 170
Notes to the Financial Statements Currency of denomination: USD Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 7,271 636 363 1,144 2,352 458 - - 13,324 - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 7,271 636 363 1,144 2,352 458-13,324 - Banks 6,237 - - - - - - - - - Customers 1,034 636 363 1,144 2,352 458 - - 13,324 - Liabilities 10,991-4,167 2,085 5,553 2,777 - - - - B.1 Deposits and 10,991-4,167 2,085 5,553 2,777 - - - - current accounts Banks 19-4,167 2,085 5,553 2,777 - - - - Customers 10,972 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 Financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 Financial - - - - - - - - - - guarantees issued 171
Notes to the Financial Statements Currency of denomination: GBP Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 6,236 - - - 32 - - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 6,236 - - - 32 - - - - Banks 6,236 - - - - - - - - - Customers - - - - 32 - - - - - Liabilities 6,698 - - - - - - - - - B.1 Deposits and 6,698 - - - - - - - - - current accounts Banks - - - - - - - - - - Customers 6,698 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 Financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 Financial - - - - - - - - - - guarantees issued 172
Notes to the Financial Statements Currency of denomination: CHF Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 2,906 - - - 2,349 1,534 32 - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 2,906 - - - 2,349 1,534 32 - - Banks 2,731 - - - - - - - - - Customers 175 - - - 2,349 1,534 32 - - - Liabilities 379 - - - 6,740 - - - - - B.1 Deposits and 379 - - - 6,740 - - - - - current accounts Banks 1 - - - 6,740 - - - - - Customers 378 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 Financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 Financial - - - - - - - - - - guarantees issued 173
Notes to the Financial Statements Currency of denomination: JPY Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 855 - - - 298 - - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 855 - - - 298 - - - - Banks 854 - - - - - - - - - Customers 1 - - - 298 - - - - - Liabilities 1,221 - - - - - - - - - B.1 Deposits and 1,221 - - - - - - - - - current accounts Banks - - - - - - - - - - Customers 1,221 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 Financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 Financial - - - - - - - - - - guarantees issued 174
Notes to the Financial Statements Currency of denomination: other currencies Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 1,498 - - - 106 63 - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 1,498 - - - 106 63 - - - Banks 1,497 - - - - - - - - - Customers 1 - - - 106 63 - - - - Liabilities 110-1,286 - - - - - - - B.1 Deposits and 110-1,286 - - - - - - - current accounts Banks - - 1,286 - - - - - - - Customers 110 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 Financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 Financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 Deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 Irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 Financial - - - - - - - - - - guarantees issued 175
Notes to the Financial Statements Section 4 - Operational risks QUALITATIVE INFORMATION General aspects, management processes and methods of calculating the liquidity risk Banca d Italia circular 263 of 27 December 2006, which takes in the Basle II regulations, defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes the legal risk and excludes the strategic and reputational risk. A procedural framework was laid down during 2009 which, in line with Banca d Italia regulations, will enable the operational risk management system and an appropriate internal audit system to be developed. Software for identifying a suite of integrated programs was selected in order to draw up a model for identifying, calculating and monitoring the operational risk in line with the Bank s organisational procedures. The system was purchased and implemented in early 2010. It will also facilitate dialogue between the various departments dealing with Control Governance (Risk Management, Internal Audit, Compliance) and the Company. The cardinal points of this framework are: collecting and storing information on operational risk events that occur (Loss Data Collection); identification and assessment of operational risks by staff working in the various lines of business, services and all the organisational units (Risk Self Assessment); identifying and assessing operational risks relating to new products/processes using a compulsory Operational Risk Assessment Procedure (ORAP), which enables unexpected losses, damage to reputation, the impact of regulations and other negative effects to be avoided; drawing up benchmarks able to indicate changes in the risk profile (Key Risk Indicators); identifying, assessing and evaluating the impact that some extreme events could have (Scenario Analysis). The new procedural framework will assist the transition to the standard method (TSA - Traditional Standardised Approach), which also breaks down banking activity into eight business lines for which specific capital and reserves requirements are calculated. Part F INFORMATION ON EQUITY Section 1 - Equity QUALITATIVE INFORMATION Equity management relates to all the policies and choices required to identify the size of the equity, as well as the optimum combination from amongst the various alternative capitalisation instruments, in order to ensure that the equity and the ratios of the Bank are consistent with the assumed risk profile and comply with regulatory requirements. The Bank is subject to the capital adequacy rules established by Banca d Italia. Activity to verify compliance with the regulatory requirements and consequently capital adequacy is ongoing and is based on the established growth targets. 176
Notes to the Financial Statements Quantitative information The following table provides a breakdown of equity. Items/Amounts 2009 2008 1. Share capital 904,500 703,500 2. Share premiums 122,613 249,500 3. Reserves 12,856 (25,508) - profit 12,856 (25,508) a) legal 12,856 12,856 b) statutory - - c) own shares - - d) other - (38,364) - other - (38,364) 4. Equity instruments - - 5. (Own shares) - - 6. Valuation reserves: (5,728) (11,174) - Available-for-sale financial assets (3,188) (11,174) - Property, plant and equipment - - - Intangible assets - - - Hedging of foreign investments - - - Hedging of financial flows (2,540) - - Exchange rate differences - - - Discontinued fixed assets - - - Actuarial profits (losses) on defined benefit pension plans - - - Proportion attributable to the valuation provisions for investments valued using the equity method - - 7. Profit (loss) for the year 5,682 (88,523) Total 1,039,923 827,795 B.2 Valuation reserves for the available-for-sale financial assets: breakdown Assets/Amounts Total 2009 Total 2008 Positive reserve Negative reserve Positive reserve Negative reserve 1. Debt securities 57 3,194 511 9,935 2. Equity securities 229 - - 757 3. Units in UCITS - 280-993 4. Financing - - - - Total 286 3,474 511 11,685 177
Notes to the Financial Statements B.3 Valuation reserves for the available-for-sale financial assets: annual variations Debt Equity Units in Corporate securities securities UCITS financing 1. Opening balance (9,424) (757) (993) - 2. Positive variations 7,387 1,026 713-2.1 Fair value increases 7,066 343 574-2.2 Transfer to the income statement from negative provisions: 321 683 139 - - arising from impairment - 683 139 - - arising from availment 321 - - - 2.3 Other variations - - - - 3. Negative variations 1,100 40 - - 3.1 Fair value reductions 590 40 - - 3.2 Adjustments arising from impairment - - - - 3.3 Transfer to the income statement from positive provisions: 510 - - - arising from availment 3.4 Other variations - - - - 4. Closing balance (3,137) 229 (280) - Liquidity and availability for distribution of items in the equity In compliance with the requirements of Article 2427 7-bis of the Civil Code, given below are the individual items which make up the equity (excluding the profit for the year) at 31 December 2009, showing the potential for using and distributing such balances. Amount Availment Available Availment in the three Type/Description amount previous years hedging losses other availments Share capital 904,500 - - - - Share premiums 122,613 A, B 122,613 126,887 - Equity reserves: legal reserve 12,856 B 12,856 - - extraordinary reserve - - - 32,721 - Valuation reserves: available-for-sale assets (3,188) - - - - cash-flow hedging (2,540) - - - - Total - - 135,469 159,608 - Non-distributable amount - - 135,469 - - Distributable amount - - - - - Legend: A = for capital increase B = for hedging losses C = for distribution to members Under the terms of Article 2431 of the Civil Code, sums received as share premiums may not be distributed until the legal reserve has reached the limit of one fifth of share capital. The valuation reserve is unavailable for use under the terms of Article 6 of Legislative Decree 38/2005. 178
Notes to the Financial Statements Section 2 - Regulatory banking capital and ratios The equity for supervisory purposes was based on the provisions of Banca d Italia Circular 263 of 27 December 2006 ( New prudent supervisory rules for banks ) and Banca d Italia Circular 155/1991 ( Instructions for compiling information on the equity for supervisory purposes and prudent coefficients ) as amended and supplemented. The basic equity does not include new capital instruments. 300m of the supplementary capital was made up of hybrid capital instruments, all of which were quantifiable. The instruments in question were issued on 17 December 2009 in the form of a ten-year Upper Tier II subordinate bonded loan reimbursable only with the authorisation of Banca d Italia. The loan, issued at par with a nominal value of 300m, has a variable rate of return commensurate with the 3-month Euribor plus a spread of 640 basis points. Regulatory banking capital Total 2009 Total 2008 A. Core capital before application of prudential filters 625,976 418,965 B. Core capital prudential filters: (3,188) (11,174) B.1 Positive IAS/IFRS prudential filters (+) - - B.2 Negative IAS/IFRS prudential filters (-) (3,188) (11,174) C. Core capital including items to be deducted (A+B) 622,788 407,791 D. Items to be deducted from core capital 60 60 E. Total core capital (TIER 1) (C-D) 622,728 407,731 F. Supplementary capital before application of prudential filters 596,044 203,184 G. Supplementary capital prudential filters: - - G.1 Positive IAS/IFRS prudential filters (+) - - G.2 Negative IAS/IFRS prudential filters (-) - - H. Supplementary capital including items to be deducted (F+G) 596,044 203,184 I. Items to be deducted from supplementary capital 60 60 L. Total supplementary capital (TIER 2) (H-I) 595,984 203,124 M. Elements to be deducted from the total core and supplementary capital - - N. Regulatory banking capital (E+L-M) 1,218,712 610,855 O. Third level capital (TIER 3) - 304 P. Regulatory banking capital including TIER 3 (N+O) 1,218,712 611,159 179
Notes to the Financial Statements Capital adequacy At 31 December 2009 there is a ratio between core capital and weighted risk assets equal to 11.01% (Tier 1 Capital Ratio) and a ratio of regulatory capital to weighted risk assets equal to 21.54% (Total Capital Ratio). Category/Values Unweighted amounts Weighted amounts/requirements 31/12/2009 31/12/2008 31/12/2009 31/12/2008 A. RISK ASSETS A.1 Credit and counterparty risk 11,337,641 10,976,572 6,959,498 6,297,897 1. Standardised procedure 8,802,580 8,708,175 5,699,488 5,061,100 2. Procedure based on in-house ratings - - - - 2.1 Basic - - - - 2.2 Advanced - - - - 3. Securitisations 2,535,061 2,268,397 1,260,010 1,236,797 B. Regulatory capital requirements B.1 Credit and counterparty risk 556,760 503,832 B.2 Market risks 154 426 1. Standard procedure 154 426 2. Internal models - - 3. Concentration risk - - B.3 Operational risk 46,464 41,966 1. Basic method 46,464 41,966 2. Standardised method - - 3. Advanced method - - B.4 Other prudential requirements - - B.5 Other calculation requirements (150,844) (136,556) B.6 Total prudential requirements 452,534 409,668 C. RISK ASSETS AND regulatory ratios C.1 Weighted risk assets 5,656,681 5,120,850 C.2 Core capital/weighted risk assets (Tier 1 capital ratio) 11.01 7.96 C.3 Regulatory capital including TIER 3/Weighted risk assets 21.54 11.93 (Total capital ratio) Part G BUSINESS COMBINATIONS CONCERNING COMPANIES OR BUSINESS BRANCHES The Bank has not carried out any business combinations concerning companies or business branches during the year, nor in the subsequent months. Part H RELATED PARTY TRANSACTIONS The types of related parties, as defined by IAS 24, include: parents; subsidiaries; 180
Notes to the Financial Statements associates; directors, statutory auditors and senior management of the Bank; close family members of the above; the external pension fund established by the Bank with the agreement of the trade unions. 1. Information on emoluments to directors and managers Below is the information on emoluments for 2009 to the directors, statutory auditors and to key managers, such as general managers, deputy general managers and other representatives of the supervisory bodies. Emoluments Directors Statutory Auditors Other Emoluments and contributions 575 145 2,235 Bonuses, premiums and misc. incentives - - 4 Non-monetary benefits - - - Total 575 145 2,239 - paid to their respective companies 346-2,130 2. Information on related party transactions Related party transactions have as a rule been executed on terms analogous with those applied to transactions with independent third parties. The table which follows shows the assets, liabilities and the guarantees existing at 31 December 2009. Related parties/items Trading Receivables Receivables Payables Payables Securities Guarantees activity from banks from customers to banks to customers outstanding Parent - - 30,080-832,881 - - Subsidiaries - 525,091 97,004 1,294 4,615 - - Associates - - 54-868,996 312,200 - Directors and management - - 2,119-3,000 354 - Statutory auditors - - - - 29 - - Employee pension fund - - - 452 - - Reported below are the main significant financial data for the year in respect of related party transactions. Items/Related parties parents Subsidiaries Associates Interest receivable 335 14,992 19 Interest payable 4,036 40 40,657 Fees and commissions receivable 280 4,222 11,969 Fees and commissions payable - 5,082 4,683 Dividends - 5,024 - Other income/charges - 262 101 Other administrative expenses 6,783 (544) 7,807 3. Information on the company controlling the Parent UGF Banca S.p.A. is controlled by Unipol Gruppo Finanziario S.p.A., formerly Compagnia Assicuratrice Unipol S.p.A. registered in via Stalingrado 45, Bologna, a different company to the Parent referred to in Article 25 of Legislative Decree 87/1992. In accordance with Article 2497-bis of the Civil Code, set out below are the key data from the last approved financial statements of the Parent Unipol Gruppo Finanziario S.p.A. (under the former title of Compagnia Assicuratrice Unipol S.p.A.), the company which exercises steering and coordination functions over UGF Banca S.p.A. 181
Notes to the Financial Statements HIGHLIGHTS FROM UNIPOL GRUPPO FINANZIARIO S FINANCIAL STATEMENTS AT 31/12/2008 and 31/12/2007 (in m) BALANCE SHEET 31/12/2008 31/12/2007 Assets A. Subscribed share capital unpaid - - B. Fixed assets I. Intangible fixed assets 29.3 32.3 II. Tangible fixed assets 24.8 31.4 III. Long-term investments 4,209.2 4,466.0 Total fixed assets 4,263.3 4,529.7 C. Working capital I. Inventory - - II. Financial receivables 229.7 111.7 III. Non-fixed financial assets 284.0 633.6 IV. Liquid funds 416.9 800.9 Total working capital 930.6 1,546.2 D. Prepayments and accrued incomei 6.4 18.0 Total assets 5,200.4 6,093.9 Liabilities A. Equity I. Share capital 2,391.4 2,391.4 II. Share premium reserve 1,051.9 1,867.6 III. Revaluation reserve 20.7 20.7 IV. Legal reserve 478.3 472.0 V. Statutory reserve - - VI. Reserve for own shares in portfolio - - VII. Other reserves 391.4 293.0 VIII. Profits (losses) carried forward - - IX. Profit (loss) for the year (2.9) 288.8 Total equity 4,330.9 5,333.6 B. Provisions for risks and charges 17.3 38.2 C. Employees leaving entitlement 29.9 32.5 D. Payables 802.8 670.0 E. Prepayments and accrued income 19.4 19.6 Total liabilities 5,200.4 6,093.9 31/12/2008 31/12/2007 Income statement A. Production reserves 271.2 3,742.5 B. Production costs 328.0 3,942.7 Operating result (A-B) (56.9) (200.1) C. Investment income and charges 57.2 669.6 D. Impairments on financial assets (81.0) (37.5) E. Extraordinary income and expenses 44.1 (29.6) Pre-tax profit (36.5) 402.3 Profit (loss) for the year (2.9) 288.8 The key data for the Parent Unipol Gruppo Finanziario S.p.A., set out in the above summary table required by Article 2497-bis of the Civil Code, are extracted from the relevant year-end financial statements at 31 December 2008 and 31 December 2007. For a proper and complete understanding of the equity and financial situation of Unipol Gruppo Finanziario S.p.A., as well as the financial statements for the years which ended on those dates, you are invited to read the financial statements which, together with the Reports of the Auditors and the Board of Statutory Auditors, are available at the Company s registered office, via Stalingrado 45, Bologna, or on the website www.unipolgf.it. 182
Notes to the Financial Statements Part I PAYMENT AGREEMENTS BASED ON OWN EQUITY INSTRUMENTS At the close-off date for the financial statements there are no payment agreements based on own equity instruments. Parte L SECTOR INFORMATION Sector information is provided at consolidated level. DISCLOSURE OF AUDITOR REMUNERATION For the purposes of implementing the regulation included in Article 160 para 1-bis of the Legislative Decree dated 24 February 1998 (TUF) on the subject of disclosure of remuneration to auditors, Article 149-duodiecies of the CONSOB Issuers Regulation states that a company which has assigned the task of auditing is to fulfil its reporting obligation by attaching to the annual financial statements a table showing the payments paid which relate to that year for services rendered by the auditors and by entities belonging to its network. For companies which have to draw up consolidated financial statements, this information must also be provided in respect of services rendered to the subsidiary companies by the auditors of the Parent. The following table shows the payments made (in K) by UGF Banca and by its subsidiaries to the auditors of the Parent UGF Banca for services rendered and, where applicable, to entities belonging to the network of the said auditors, broken down by type. List of payments to the auditors as per Article 149-duodiecies of the Issuer s Regulation Types of service provider Recipient payments of the service Audit of financial statements KPMG S.p.A. UGF Banca S.p.A. 148 Services for approval of financial statements 3 Total for UGF Banca S.p.A. 151 Audit of financial statements KPMG S.p.A. Subsidiary 148 Services for approval of financial statements 18 Total for subsidiary 166 Overall total 317 The payments shown do not include expenses charged nor VAT which is not recoverable by the companies allocating the work. 183
BOARD OF STATUTORY AUDITORS REPORT
Board of Statutory Auditors Report Under Article 153, Legislative Decree 58/1998 and Article 2429 (3), Civil Code To the Shareholders Meeting of UGF BANCA S.p.A. Dear Shareholders, During the year that ended on 31 December 2009 we carried out our supervisory duties laid down in law, in accordance with the code of conduct recommended by the National Board of Chartered Accountants and Accounting Experts. In particular, in compliance with the guidelines issued in CONSOB communication 1025564 of 6 April 2001, we hereby report as follows. I. Preliminary information on the legislation governing drawing up UGF Banca S.p.A. s financial statements for the year ended 31 December 2009. A) The Board of Statutory Auditors certifies that UGF Banca S.p.A. s 2009 financial statements are made up of the Statement of Assets and Liabilities, the Income Statement, the Statement of Comprehensive Income, the Statement of Variations in the Equity, the Financial Statement and the Notes to the Financial Statements. They are also accompanied by the Directors Management Report. In accordance with the provisions of Legislative Decree 38 of 28 February 2005 the financial statements for the year ended 31 December 2009 were drawn up in accordance with the International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB), validated by the European Commission and published in the Official Gazette of the European Union, in accordance with the procedure for approval and publication laid down in EC Regulation 1606 of 19 July 2002. The new version of IAS 1, Presentation of financial statements, came into effect on 1 January 2009. It introduced the concept of comprehensive income and also required that the income elements not recorded in the income statement but allocated direct to capital and reserves be represented. This concerns the variations that took place during the year in the equity valuation provisions which, in accordance with the option adopted by Banca d Italia (one of the two provided for by IAS 1), were included in the new Statement of Comprehensive Income and, together with the Profit (Loss) for the year, made up the Comprehensive Income. The financial statements were also drawn up in accordance with the instructions issued in Banca d Italia Circular 262 of 22 December 2005 as amended, which governs the layout and contents of financial statements to be drawn up in accordance with international accounting principles. B) Summary of the figures in the financial statements As usual we summarise below the results for 2009, in K. 187
Board of Statutory Auditors Report Statement of Financial Position 2009 2008 Assets 11,294,626 10,728,027 Liabilities 10,254,703 9,900,798 Equity 1,034,241 915,752 Net profit (loss) for the year 5,682 (88,523) Income Statement Profit (Loss) on continuing operations 20,227 (116,364) Taxation on continuing operations (14,545) 27,841 Net profit (loss) for the year 5,682 (88,523) II. Operations affecting the financial position, organisation and corporate governance that were a feature of 2009 Here we recall the operations that your Directors mention in the Management Report and the Notes to the financial statements: 1. UGF Banca increased its capital by 201m during 2009 and issued 375m of subordinate debt instruments, 300m of it Upper Tier 2 instruments and 75m Lower Tier 2 instruments. This immediately improved the Bank s equity ratios and laid the groundwork for growth over the next few years. 2. Measures were taken to strengthen the corporate structure, the main aim being to iron out the anomalies pointed out by the Supervisory Board at the time of its visit of inspection in 2008. In an update to the Management Report accompanying the financial statements for the previous year the Directors state that some of the initiatives and the work carried out and/or in progress had already been concluded by March 2010 whilst other work required rescheduling as a consequence of replacing the IT system with effect from 1 January 2010 and outsourcing to Cedacri. Most of these projects are expected to be completed by Summer 2010. 3. In June 2009, under the Provisions for supervising the organisation and corporate governance of banks (issued by Banca d Italia on 4/3/2008), the Bank voted to amend the By-Laws accordingly and to adopt the UGF Banca Banking Group Corporate Governance Draft. The Shareholders Meeting also approved the remuneration policies for members of the Board of Directors, employees or consultants not employed by the Bank directly. III. Monitoring work carried out by the Board of Statutory Auditors In accordance with the legislation and regulations referred to above the Board of Statutory Auditors reports below on its findings. 1. We ensured that the law and the memorandum of association were observed. 2. We received a monthly report from the Directors on the business activity and the operations carried out by the company that had a major economic and financial impact and a major impact on capital and reserves and we can reasonably state that the activities decided on and carried out complied with the law and with 188
Board of Statutory Auditors Report the by-laws and did not appear to be imprudent, risky, likely to give rise to a conflict of interest nor to be in conflict with the resolutions passed by the Shareholders Meeting. 3. As far as we were able we examined the company s organisational structure and ensured that it was properly administered and that the information requested by the company in its capacity as holding company was sufficient and timely. We collected information from departmental heads and held meetings with the Auditors in order to exchange relevant figures and information, and we have no particular observations to make in that respect. 4. By looking at the information obtained from the heads of the various departments, examining company records and analysing the results of the work carried out by the Auditors, the various company bodies and those responsible for internal audit, we ensured that the internal auditing system and the bookkeeping system were appropriate and that the bookkeeping system could be relied on to give an accurate representation of business operations. By examining the work carried out by the various departments responsible for auditing (Internal Audit, Compliance and Risk Management) and by at least one of the members of the Board of Statutory Auditors, normally the Chairman, attending the meetings of the Internal Audit Committee, we were able to check that it was done properly and evaluate the effectiveness of the entire internal audit system. On the basis of the findings made while carrying out its supervisory duties the Board of Statutory Auditors deems that the internal audit system is currently appropriate. The Board of Statutory Auditors is also of the opinion that the Internal Audit, Compliance and Risk Management Departments were staffed in such a way and carried out their work in such a professional manner that the internal audit system was effective and efficient. 5. The Board of Statutory Auditors, which acquired information on the work carried out by the Supervisory Body, confirms that on 11 November 2009 the Board of Directors updated the Organisational and Management Model to take account of changes to Legislative Decree 231 of 8 June 2001 introduced during the year. 6. UGF Banca S.p.A. is administered and coordinated by Unipol Gruppo Finanziario S.p.A. (under Articles 2497 et seq. of the Civil Code). Your Directors provide (in the Management Report and the Notes to the financial statements respectively): the information required by Article 2497-ter of the Civil Code; the information required by Article 2497-bis of the Civil Code on the essential figures in the latest financial statements 189
Board of Statutory Auditors Report approved by Unipol Gruppo Finanziario S.p.A. 7. As indicated in 6) above, UGF Banca S.p.A. belongs to the Unipol Gruppo Finanziario S.p.A. Group. We ascertained the existence of relations, both ordinary and recurrent, of a financial and commercial nature between your Company and companies in the Unipol Gruppo Finanziario S.p.A. Group (including the Parent). The financial and commercial relations between UGF Banca and the other companies in the Unipol Gruppo Finanziario S.p.A. Group came under the usual business of a group split into different companies and, as far as banking was concerned, related to deposit or corporate financing services. Agreements were also entered into for the sale and/or management of banking and investment products and/or services and for the provision of auxiliary banking services in general. The financial effects of these relations were governed by the market terms applied to major customers. We also ascertained that loans and guarantees granted to Directors, Statutory Auditors and other representatives with management and auditing responsibilities in your Bank were approved in accordance with Article 136 of Legislative Decree 385/1993. All the transactions with related parties are set out in Part H of the Notes to the financial statements and are grouped according to type. The Board of Statutory Auditors ascertained that the aims of all the operations with related parties mentioned above were rationalisation and profitability and we found nothing that could give rise to doubts about the accuracy and completeness of the information, conflicts of interest, safeguarding the equity and the protection of minority shareholders. 8. We found no evidence of atypical or unusual transactions with third parties or with related parties, as stated above. 9. We held meetings with representatives of the Auditors and found no figures nor information in the financial statements for the year ended 31 December 2009 that required a mention in this report. The Report of the Auditors KPMG S.p.A. on the financial statements for the year ended 31 December 2009 contains no comments. Paragraph 4 of the Report contains an observation which states that as UGF Banca S.p.A. was administered and coordinated by Unipol Gruppo Finanziario S.p.A. (under Articles 2497 et seq. of the Civil Code) it included the essential figures from Unipol Gruppo Finanziario S.p.A s latest financial statements in the Notes to the financial statements. The observation made by the Auditors states that its opinion on UGF Banca S.p.A s financial statements does not cover those figures. The Board of Statutory Auditors points out that the observation was purely technical, since owing to the nature of its task and of the legislation referred to in its Report the Auditors is required 190
Board of Statutory Auditors Report to express an opinion only on UGF Banca S.p.A. s individual financial statements for the year ended 31 December 2009. 10. During the year the Auditors KPMG S.p.A. was entrusted with the following additional tasks: checking UGF Banca S.p.A s Single Model 2009 and 770 Model for a fee of 3K. 11. No tasks were entrusted to parties with links to the Auditors during the year. 12. We checked that, in accordance with the provisions of Legislative Decree 196/2003, the Data Protection Act, which came into effect in January 2004, the Document on Security had been updated in accordance with the legal requirements. 13. The Board of Statutory Auditors issued the following opinions during 2009: 1) in favour of the Board of Directors resolution passed on 21 January 2009 to transfer a Senior Executive from UGF S.p.A. to Unipol Banca S.p.A. (now UGF Banca S.p.A.); 2) in favour of the Board of Directors resolution passed on 11 February 2009 to approve the reply to Banca d Italia letter 1328040 of 15 December 2008 and to approve the counterarguments; 3) in favour of the Board of Directors resolution passed on 4 June 2009 to amend the procedures and financial terms for KPMG S.p.A s auditing duties; 4) in favour of the Board of Directors resolution passed on 24 June 2009 on the Project relating to the organisation and corporate governance of banks ; 5) in favour of the Board of Directors resolution passed on 16 December 2009 to amend the Corporate Governance Draft. 14. The Board of Statutory Auditors received no complaints under Article 2408 of the Civil Code, nor were any complaints received from third parties. 15. We checked that the financial statements and the Management Report had been drawn up in accordance with current legislation and in a thorough manner. We should like to point out that in accordance with the provisions of Article 14 of Legislative Decree 39 of 27 January 2010 (and, until 6/4/2010, those of Article 2409- ter of the Civil Code and Article 156 of Legislative Decree 58 of 24/2/1998) it is for the Auditors to decide whether the Management Report gives a true and fair reflection of the financial statements. The Report on the financial statements for the year ended 31 December 2009 issued by the Auditors did not contain any comments on the above matter. 16. We approved the valuation criteria applied to intangible assets. 17. Before the financial statements for the year ended 31 December 2009 are approved your Directors have expressly approved the criteria for (and the results of) determining the 419,225,718 of Goodwill recorded in the financial 191
Board of Statutory Auditors Report statements that could be recovered (on acquisitions of banking outlets). They have also approved the criteria for (and the results of) determining the recoverable value of the holding in the subsidiary UGF Merchant S.p.A.. The Notes to the financial statements show the criteria used for the calculations, and the results, which did not necessitate writing down the value of the goodwill or the recognition value of the holding in UGF Merchant. On the basis of the findings that the Board of Statutory Auditors has, to the best of its ability, made on the above, both direct and by exchanging information with the Auditors, we have no observations to make in this Report. 18. The Board of Statutory Auditors declares that your Directors changed the impairment policy relating to listed equity securities classified as available-for-sale financial assets to comply with the Joint Banca d Italia - CONSOB - ISVAP Document of 3 March 2010 (the result of the publication of the July 2009 Update of the IFRIC (International Financial Reporting Interpretations Committee) document), eliminating qualitative valuations from the (previous) impairment policy, and applied the quantitative thresholds of significant and prolonged loss objectively and separately (keeping these objective benchmarks the same as those adopted for drawing up the financial statements for the year ended 31/12/2008), in particular: significant : a fall in value of more than 20% of the initial recognition value on the reference date; prolonged : the market price below the initial recognition value for the previous 36 months. The Directors report goes on to say that as a result of these criteria being applied the Bank s share portfolio contained nine financial instruments (equity securities and units in investment trusts) that fulfilled the first condition. Thus in the financial statements for the year ended 31 December 2009 923K of impairments were transferred from the Valuation provisions (Provision for the valuation of available-for-sale financial assets) to Net adjustments for deterioration of available-for-sale financial assets in the income statement (gross of the tax effect) but this had no effect on the capital and reserves at 31 December 2009. 19. The Board of Statutory Auditors ascertained, to the best of its ability, that UGF Banca S.p.A. s financial statements for the year ended 31 December 2009 contained the information required by the Joint Documents of 6 February 2009 and 3 March 2010 (identified in 18) above). For this reason, and on the basis of information received from the Auditors, we have no observations to make in this Report. The Board of Statutory Auditors carried out the work described above by holding 18 meetings and attending the 16 meetings of the Board of Directors. 192
Board of Statutory Auditors Report During the course of the supervisory work and on the basis of information obtained from the Auditors, no omissions, mistakes, irregularities nor any significant facts came to light such as to require the supervisory bodies to be notified nor to require a mention in this Report on the financial statements for the year ended 31 December 2009. The Board of Statutory Auditors invites the Shareholders Meeting to approve the 2009 financial statements as submitted by the Board of Directors and expresses itself in favour of the Board of Directors motion on distribution of the profits, which total 5,681,539, as follows: 10%, i.e. 568,154, to the legal reserves; the remaining 5,113,385 to the other provisions. Bologna, 6 April 2010 THE BOARD OF STATUTORY AUDITORS ROBERTO CHIUSOLI - Chairman GIOVANNI BATTISTA GRAZIOSI VINCENZO URBINI 193
AUDITORS REPORT
196 Auditors Report
Auditors Report 197
UGF BANCA GROUP 2009 CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT REPORT
Management Report Dear Shareholders, As part of the UGF Group s brand architecture project the Parent changed its name to UGF Banca S.p.A. with effect from 20 February 2009. Similarly several subsidiary companies also changed their company name: Unipol Merchant - Banca per le Imprese S.p.A. became UGF Merchant - Banca per le Imprese S.p.A., Cooperleasing S.p.A. became UGF Leasing S.p.A. and Unipol Private Equity SGR S.p.A. became UGF Private Equity SGR S.p.A. The Banking Group of which the Bank is the Parent also changed its name to Gruppo Bancario UGF Banca (UGF Banca Banking Group). On 31 October 2009 the Parent, UGF Banca S.p.A., increased its capital by E201m, to E904.5m. Another thing UGF Banca did to strengthen its capital base was to issue E375m of subordinate debt instruments: E300m of Upper Tier 2 and E75m of Lower Tier 2. These measures not only brought about an immediate improvement in equity ratios but laid the groundwork for the growth that the Bank is expected to make over the next few years. The Group was made up of the credit and financial institutions belonging to the UGF Banca Banking Group, together with the vehicle companies for the securitisation schemes that, whilst not controlled by UGF Banca, were consolidated as laid down in SIC 12 (prevalence of substance over form). Consolidation scope at 31 December 2009 Companies consolidated on a line-by-line basis Company - Registered office Business - % holding Group Share capital direct indirect holding (amounts in ) PARENT COMPANY UGF Banca S.p.A. Bank - - - Bologna 904,500,000 SUBSIDIARIES UGF Merchant - Banca per Bank 86.175-86.18 le Imprese S.p.A. - Bologna 105,468,007 Unipol Fondi Ltd Unit trust management 100.00-100.00 Dublin 125,001 UGF Leasing S.p.A. Leasing 100.00-100.00 Bologna 6,000,000 Nettuno Fiduciaria S.r.l. Fiduciary business 100.00-100.00 Bologna 250,000 Unicard S.p.A. Credit card business 51.00-51.00 Milan 2,080,000 Unipol Private Equity S.p.A. Equity fund management 100.00-100.00 Bologna 2,000,000 SINGLE-PURPOSE ENTITIES Grecale ABS S.r.l. Loan securitisation - - - Bologna 20,000 Castoro RMBS S.r.l. Loan securitisation - - - Milan 10,000 Atlante Finance S.r.l. Loan securitisation - - - Milan 10,000 Consolidated Financial Statements 203
Management Report Companies valued by the equity method Company - Registered office Business - % holding Group Share capital direct indirect holding (amounts in ) ASSOCIATES SCS Azioninnova S.p.A. Advisory and training 40.00 34.47 Bologna services (UGF Merchant) 2,501,250 Promorest S.r.l. Holding company 48.92 42.16 Villanova di Castenaso (BO) 10,400,000 (UGF Merchant) There were no changes in the percentage holdings in the Banking Group during 2009. BUSINESS PERFORMANCE Apart from being strongly correlated with the Parent s performance and growth, not only because of its size but also because it is the channel through which the services provided by the companies in the Group are sold to the public, the Group s performance during 2009 was affected by the performance of the principal subsidiary, UGF Merchant. For a detailed report on the Parent s performance you are referred to the Management Report accompanying its annual financial statements. The principal subsidiary, UGF Merchant, ended the year with a 10.4% increase in gross operating income. To be specific, the interest spread shrank by 14.2% as a result of the substantial drop in the rate curve and the simultaneous increase in the cost of borrowing, whilst at E5.0m net commissions were 46.2% up on 2008. The increase in commissions was due both to Merchant Banking services (Capital Markets, Mergers & Acquisitions, Advisory and Structured Finance) and to new or renewed loans. However, the unfavourable economic climate necessitated E33.4m of adjustments to loans and E6.9m to investments and securities. All this had a negative effect on the operating result, which turned out to be a loss of E25.1m. Obviously lending activity was affected by the macroeconomic crisis, recording a drop in volumes: E65m of new transactions as well as E20m of renewals, with a final figure for receivables from customers of E561.2m (-10.6% compared with the end of 2008). The number of outlets in the sales network remained unchanged in 2009, with 299 at 31 December 2009. UGF Banca, the only company in the Group with sales outlets open to the public, began to rationalise the geographical sales network during 2009, closing six sales outlets and simultaneously opening six new branches. This process will continue in 2010. Therefore, as already mentioned, at 31 December 2009 the sales network consisted of 299 outlets, 180 of them co-located with UGF Assicurazioni insurance agencies and 119 traditional, i.e. located close to one or more insurance agencies. As well as these sales outlets there were 28 Finance Shops and 1,629 Insurance Agencies authorised to sell standard banking products. The chart below shows the Banking Group s sales network: 204 Consolidated Financial Statements
Management Report Branches Finance shops Financial advisers 500 400 386 374 Number 300 200 299 299 100 0 28 28 2008 2009 In the second half of 2009 Banca d Italia paid its first general visit of inspection to UGF Merchant S.p.A. On 22 March 2010 UGF Merchant made its own observations on the information that emerged. Several corrective measures were carried out during the visit of inspection, whilst others are planned and will be carried out during 2010. However, some of the work of the Parent, UGF Banca, has now been concluded whilst some has required rescheduling as a result of the IT system being replaced in 2010 (see paragraph on Organisation and Systems). Most of these projects will be concluded during the Summer of 2010. Statement of Assets and Liabilities Income Group Customer Deposits amounted to E9,541m at 31 December 2009 compared with E8,731m the previous year (+9.3%). The increase of E810m was exclusively attributable to the Parent, UGF Banca. Payables to customers (item 20 of liabilities) increased by E122.3m (+1.8%) net of the E640m (-27%) decrease in Group funds. However, Outstanding securities (item 30 of liabilities) recorded growth of E688m (+33%) thanks to the excellent performance of bonds issued to customers by the Parent, UGF Banca, and to the issue of E375m of junior notes (E300m of upper Tier 2 and E75m of lower Tier 2) by UGF Banca during the last quarter of 2009. Thus the work of building up customer funds continued. Customer funds amounted to E21.7bn (+7.7% since 2008) and consisted of E19.9bn of assets under management and E1.8m of funds under custody. Assets under management were up 7.7% and funds under custody 3.4% since 31 December 2008, growth being mainly attributable to the better climate in the financial markets after the tense atmosphere in 2008. The increase in assets under management was mainly in the UGF Group, where funds were up 9.2% because of both the upturn in the markets and an increase in new funds. However, there was a 6.9% increase in funds from corporate customers whilst funds from retail customers fell 13.5% as a result of Consolidated Financial Statements 205
Management Report savings being reallocated to alternative products with specific yields and guaranteed capital sum. In this situation customers preferred bonds issued by the Bank and Class I (capital redemption) Life policies, which guaranteed them a minimum rate and the certainty that their capital would be repaid on maturity. In fact income from Life policies in 2009 amounting to approximately E193.5m, was up 38% compared with 2008. Lending to customers Lending to customers was up 7.4%, from E9,132m in 2008 to E9,806m in 2009. UGF Banca lent to individuals mainly for consumer goods and house purchase and to small and medium enterprises for expansion or normal operating costs. As well as continuing to lend to individuals UGF Banca revised its lending policy to clarify the sectors to which it was willing to lend and the types of loan it was willing to grant: mainly small-medium, with core types preferably short-term and not financial. On the other hand UGF Merchant lent to larger businesses, mainly for industrial investment. Total new lending during the year fell because of the uncertain macroeconomic situation: UGF Banca granted more than E961.6m of mortgage loans (-35.2% compared with 2008) whilst UGF Merchant granted E85m compared with E168m in 2008. The crisis in the markets undoubtedly focused attention on both allocating and managing loans. The Group sought to spread the risk as much as possible and to apply the Credit Policy introduced in 2008 and updated in 2009 to take account of the changes in market terms. Concentration risk In the statement of assets and liabilities at 31 December 2009 receivables from customers included two major types of exposure, the level of concentration of the risk and the sector of activity, almost all being property. These mainly related to 13 economic groups, with a total exposure of E792m largely classified as under observation, substandard or restructured debts and covered by E45m of valuation reserve. In view of the size and type of these loans (largely mortgages), a unit was set up during the year with the help of external consultants specifically to manage these items: its work focused on negotiating to reschedule debts and on identifying professional operators wishing to buy the property on which loans were outstanding in order to help customers to divest and at the same time reduce the debt to the bank. This work produced its initial positive results towards the end of the year, with approximately E4m of recoveries from one group and agreements to reschedule and/or plans to restructure items representing approximately E348m being finalised. This work continued during the first few months of 2010, with documents being drafted prior to further plans for restructuring and/or rescheduling for two more of the 13 groups, totalling E147m, as well as approximately E1m of further receipts. Agreements for renegotiating a total of E37m of one group s debts were also signed. Held-for-trading financial assets These consisted of investments in financial instruments linked to Group trading operations, mainly those carried out by the Parent, UGF Banca. There was E0.9m in the portfolio at the end of the year, a decrease of E175.4m compared with the previous year mainly owing to a policy of reducing the risk linked to held- 206 Consolidated Financial Statements
Management Report for-trading assets because of the tensions in the financial markets over the last few years. Available-for-sale financial assets These consisted mainly of leading issuers debt securities (E86.3m). The overall balance at 31 December 2009 was approximately E123m, a decrease of E209.7m compared with the previous year. As for the effect of the write-downs on equity securities classified as Availablefor-sale assets, it should be mentioned that on 3 March 2010, under the agreement to collaborate on applying international accounting standards (IAS/ IFRS), and following the communication of 6 February 2009 and publication of the July 2009 Update of the IFRIC document, Banca d Italia, CONSOB and ISVAP published the following Joint Document: Years 2009 and 2010 - Information to be provided in financial reports on monitoring reductions in value of assets (impairment testing), on contractual terms for financial payables, on rescheduling debts and on ranking fair value, in order to reaffirm the need for financial reports to represent clearly, comprehensively and in timely fashion the risks and uncertainties to which companies are exposed, the capital and reserves they have available to face up to them and their ability to generate income. The document identified the following areas where companies must provide a higher level of transparency: (i) valuing the goodwill (impairment testing) of other intangible assets with an indefinite useful life and investments; (ii) valuing equity securities classified as available for sale ; (iii) classifying financial liabilities when the contractual terms that stipulate that benefits will be lost if contracts are not allowed to run until their expiry date are not observed. The Joint Document also gave details of the information to be provided on rescheduling debts and mentioned the new duties of disclosure relating to fair value ranking. In particular, as regards point (ii) businesses were invited to impairment test equity securities in line with IFRIC s observations in the July 2009 document which, albeit not containing a specific Interpretation of para. 58 et seq. of IAS 39, provided instructions on applying it. In particular, in the wake of these IFRIC guidelines, the Joint Document drew Directors attention to the fact that, once significant and prolonged have been defined, even only one of these thresholds being crossed is objective evidence of the reduction in value of equity securities classified as Availablefor-sale assets (AFS) and therefore it is not possible to submit the value to further qualitative checks such as analytical valuation methods. The result is that, once one of the two thresholds of significant or prolonged has been crossed, falls in value of equity securities classified as AFS must be recorded in the income statement, irrespective of any further consideration of their value. The Group adjusted its previous impairment testing policy to these criteria, eliminating qualitative valuations, and applied objectively and separately the quantitative thresholds of significant (in the case of the Group, a fall in value of more than 20%) and prolonged (in the case of the Group, the market price below the initial subscription value for the previous 36 months). Application of these objective criteria revealed that E7.8m of falls in value (gross of the tax effect) had to be transferred from the Provision on available-for-sale assets to the income Consolidated Financial Statements 207
Management Report statement, but capital and reserves were not affected. Own shares None of the consolidated companies held own shares at the end of the period, nor had they bought or sold any such shares. Equity Group consolidated equity stood at E1,014m at the end of the year compared with E821m one year earlier. The table below compares the equity of the Parent, UGF Banca, and the consolidated equity: Reconciliation table of the parent s equity and profit and consolidated equity and profit for the year at 31 December 2008 (Amounts in K) Equity of which profit Parent balance sheet 1,039,923 5,682 Consolidation of subsidiaries (25,602) (20,745) Consolidation of participating interests valued by the equity method (463) (89) Dividends received during the year - (5,056) Elimination of infragroup profits - - Consolidated balance sheet 1,013,858 (20,208) Income Statement The year 2009 ended with a consolidated loss of E20.2m, E25.1m of it pertaining to the subsidiary UGF Merchant. The loss made by the subsidiary UGF Merchant was partially offset by the positive result achieved by the Parent, UGF Banca, and by the subsidiary Unipol Fondi. The table below analyses the results of the Parent and the individual subsidiaries. Obviously dividends within the Group are eliminated as part of the consolidation process, leading to a final result that does not represent the sum of the results of the individual companies. Net result - Subsidiaries 31/12/2009 UGF Merchant S.p.A. (25,054,310) Unipol Fondi Ltd 1,351,509 UGF Private Equity SGR S.p.A. (240,270) Unicard S.p.A. (873,682) UGF Leasing S.p.A. 15,417 Nettuno Fiduciaria S.r.l. 8,290 Grecale ABS S.r.l. 18 Castoro S.r.l. 466 Atlante Finance S.r.l. 413 Gross operating income was E348.4m, up 6.7% compared with the previous year. This result was due to Net Interest Income being down 10% following the considerable fall in interbank rates which put the margin on Customer Deposits under particular pressure: obviously although rates of remuneration were down they could not fall below the minimum granted so the spread narrowed whilst the same reduction inevitably led to a drop in average rates received. In addition, in accordance with the new legislation, charges for maximum overdrafts applied to customers were eliminated with effect from 1 July 2009. 208 Consolidated Financial Statements
Management Report On the other hand non-interest income was up 46.2% to E100.1m. This increase occurred in all the main companies in the Group (UGF Banca +51% and UGF Merchant +46%) thanks to both the marketing of new products (Credit Protection for loans and credit facilities and for Personal Loans granted by third parties on behalf of UGF Banca) and UGF Merchant s excellent performance. The result of asset management (dividends, trading activity and cover and cessions or repurchase of financial assets - items 70, 80, 90 and 100 on the income statement) was E22.1m compared with E6.6m in 2008 (+232%). This increase was mainly due to the upturn in the financial markets as from April, which enabled useful profits to be made in the Bank s own portfolio, partly owing to the repurchase of own financial liabilities relating to securitisation schemes carried out by the Group in previous years. Operating costs were E266.9m, an increase of 16.4% compared with the previous year. This increase was mainly attributable to the costs of the Parent, UGF Banca, which was finalising several extraordinary projects aimed at resolving several critical situations. This work involved extraordinary non-recurring costs which penalised the 2009 year but in the years to come will lead to both organisational and financial benefits. The goodwill recorded in UGF Banca S.p.A. financial statements was impairment tested following three company mergers the object of which was to acquire banking outlets. This goodwill of some 419m represented the payment made by the Bank in advance for future financial benefits arising out of the company mergers in question. The impairment test was carried out on the goodwill recorded in the financial statements at 31 December 2009 by ascertaining the value in use of the goodwill and comparing it with the book value. Goodwill was allocated to UGF Banca s entire core banking activity as a cash-generating unit. The value in use was estimated by discounting back the income flows established on the basis of several factors: I. the latest budget and multiyear plan; II. long-term growth in the entire banking sector; III. a rate of discounting back corresponding to the average of the discount rates used by financial analysts to value the assets of the banking sector. This analysis revealed that there were no prolonged losses of value (impairment losses) on the goodwill recorded in UGF Banca s financial statements at the end of the year and there was no indication of any changes that could affect the results of the analysis and lead to the value that can be recouped being less than the book value. The goodwill of the principal subsidiary, UGF Merchant, was similarly valued. Net write-downs of 97.4m were carried out on receivables and financial assets (item 130 in the income statement) (-55.0% compared with 2008). The result showed a considerable fall in value since 2008 when, as already described in full in the 2008 financial statements, the Parent, UGF Banca, carried out a major review of asset items and adjusted the sources of valuation. The write-downs were the result of adjustments on receivables, net of 88.0m of value readjustments on other financial operations and 9.8m of adjustments on available-for-sale financial assets. These last adjustments were necessary since the performance of Consolidated Financial Statements 209
Management Report several securities had led to their being subject to adjustments under the Group impairment policy. However, the 2009 result was negatively affected by both the general economic situation, which led to a generalised increase in deteriorated loans, and by the review of receivables carried out by UGF Merchant which as a result of the increase in its deteriorated loans had to carry out 33.4m of further adjustments to receivables, to which 6.9m of adjustments to financial assets held for sale had to be added. Finally, 5.3m set aside for risks and charges (item 190 in the income statement) must be added to these write-downs (-31% compared with 2008). Therefore the loss on current operations was 16.0m. In view of the loss for the year a tax credit of 8.0m was accrued. Let us briefly mention the results of the principal subsidiaries: UGF MERCHANT Banca per le Imprese S.p.A. (Merchant Banking) 86.175% owned by UGF Banca S.p.A. The 2009 financial statements submitted to the Shareholders Meeting will show a net loss for the period of 25.1m compared with a net profit of 3m in 2008. The result was strongly affected by the 33.4m of adjustments made to receivables as a result of the unfavourable economic climate and the 6.9m of adjustments made under the Group impairment policy to available-for-sale assets that had performed negatively. Receivables from customers amounted to 561.2m, down 10.6% compared with 31 December 2008, to which must be added 60.9m of endorsement credit (+41.1% compared with 31/12/2008). 65m of net loans and 20m of renewals were granted during 2009, compared with 117m of repayments and redemptions. The increase in deteriorated items as a result of the general macroeconomic situation necessitated adjusting provisions for both items classified as in default and items classified as substandard. To be specific the gross exposure of deteriorated items amounted to 171.2m ( 11.2m at 31/12/2008), 23.1m of which was for doubtful debts and 148.1m for substandard items. Exposure net of the valuation reserve was 134.1m ( 6.5m at 31/12/2008). The ratio between net doubtful debts and receivables from customers was 0.83% at 31 December 2009 and the ratio between deteriorated loans and receivables from customers was 23.9%. UGF LEASING S.p.A. (Leasing Company) Wholly owned by UGF Banca S.p.A. and acquired in September 2007. The 2009 financial statements submitted to the Shareholders Meeting will show a net profit for the year of 15K. During 2009 the Company entered into 538 new agreements with a value of 61.4m, slightly down on the previous year (-3%). The main influence on business was the negative business cycle, with a marked reduction in investments affecting the whole sector and a drop of approximately 33% at national level. Receivables amounted to 118.7m at the end of the year compared with 91.1m the previous year. The Company had 12 employees at 31 December 2009 plus seven seconded from other companies in the Group. Core business was still affected by significant provisions for receivables and a further increase in administrative expenses, which, for the reasons already mentioned, were not 210 Consolidated Financial Statements
Management Report offset by the expected growth. However, the Company still made a profit thanks to extraordinary income from the sale of property. UNIPOL FONDI Ltd (investment fund management) Wholly owned by UGF Banca S.p.A. and set up in January 2002. The net profit achieved during 2009 was 1.4m, less than the 2.6m of the previous year. The fall in the net profit was due to the decrease in funds managed, from 406m in 2008 to 296m in 2009. UNICARD S.p.A. (credit cards) 51% owned by UGF Banca S.p.A., which became the majority shareholder in July 2008. The 2009 financial statements submitted to the Shareholders Meeting will show a loss of approximately 874K, which the company proposes to carry forward. Work continued during 2009 on company reorganisation and creating new products, most of which will be marketed from the first few months of 2010. Turnover from new cards (Acquiring) was 440m, broadly in line with 2008, whilst the number of cards issued was 42,812 by the end of the year, 14% more than at 31 December 2008. The Company ended the year with a loss of 874K, mainly owing to the costs of internal reorganisation and new technology. As a result of the operating loss there was a shortfall in equity for supervisory purposes of approximately 300K, but immediate measures will be taken to tackle it. Taking into account the increase that manifested itself as early as the final quarter of 2009 it is possible to envisage that 2010 will see a return to a small net operating profit. UGF PRIVATE EQUITY SGR S.p.A. (group savings management) Wholly owned by UGF Banca S.p.A. and set up on 10 January 2008. The 2009 financial statements submitted to the Shareholders Meeting will show a net loss of 240K. Banca d Italia authorisation procedure was completed during 2009: on 27 May the Company was registered in accordance with Article 35, para. 1, of Legislative Decree 58/1998 to provide a group management service; on 12 October it was approved to run the Preludio closed-end unit trust. Therefore it began to receive the subscriptions (instalments) to this Fund. Thus SGR activity in 2009 was mainly focused on organisational and procedural matters and therefore the financial statements had yet to reflect full operation. NETTUNO FIDUCIARIA S.r.l. Wholly owned by UGF Banca and acquired in September 2004. The 2009 financial statements submitted to the Shareholders Meeting will show a net profit of 8K. Data protection The Bank drew up the Data Protection Document in accordance with the provisions of Legislative Decree 196/2003 (the Data Protection Act ), which replaced Law 675/1996 on 1 January 2004. This document is updated once a year, covers the security measures provided for in Appendix B to the Data Protection Act and contains the following information: list of operations involving personal information; list of duties and responsibilities of the various departments responsible for processing personal information; analysis of risks affecting information held; Consolidated Financial Statements 211
Management Report existing measures and measures to be adopted in order to guarantee that information is complete and available and that premises are protected; criteria and procedures for restoring information if it is destroyed or damaged; organising training in processing personal information; operations outsourced. Organisation and systems Substantial changes were made during 2009: the analysis carried out with the help of a leading consultancy in order to identify IT tools suitable for the Parent s requirements and for guaranteeing compliance with current legislation led to the decision for the Parent, UGF Banca S.p.A., Grecale ABS S.r.l. and UGF Merchant S.p.A. to adopt a new IT system as from 1 January 2010. In view of the problems with the previous system, which were also picked up by the consultants, the new system was to be provided by one of the market leaders (Cedacri S.p.A.). This choice necessitated strengthening the existing telecommunications network and installing new hardware throughout the Head Office and peripheral offices. Therefore in October work was begun on replacing all the PCs, printers (now all laser printers that use normal A4 paper) and cheque scanners (equipment that automatically captures the image of a cheque). Obviously at the same time all staff had to receive training. Related party transactions In accordance with the provisions of Legislative Decree 87 of 27 January 1992 and CONSOB recommendations of 27 February 1998, financial and commercial relations between the companies in the Banking Group and the other companies in the UGF Group were the usual types of operation carried out by a group that is split into different companies and as far as banking activity was concerned were for services, deposit accounts or corporate financing. Agreements were also entered into for the sale and/or management of banking and investment products and/or services and for the provision of auxiliary banking services in general. The financial effects of these relations were normally governed by the market terms applied to major customers. Loans were approved and guarantees issued in favour of directors, statutory auditors and other representatives of the business who were authorised and responsible for management and auditing within the UGF Banca Banking Group. The credit limits were approved in accordance with Article 136 of Legislative Decree 385/1993. Details of these relations are set out in part H of the Notes to the financial statements. Significant events after the end of the year The Parent, UGF Banca, UGF Merchant S.p.A. and Grecale ABS S.r.l. completed the transition to the new IT system on 1 January 2010. The new IT service, Cedacri, is supplied by one of the leading Italian providers of IT services to banks. More than 150 businesses in Italy, with more than 2,700 sales outlets and 30,000 employees, use its package of services. Once the new system is fully operational the Group will have a partner that will be capable not only of managing the current situation better at a competitive cost but also of helping the companies in the Group to grow over the next few years. The provider of the previous IT system 212 Consolidated Financial Statements
Management Report has already announced that as a result of the gradual reduction of the use of its system in 2010 it will apply to the Parent for compensation of 9.2m. The Parent considers that this request for compensation is unfounded for the reasons already mentioned under Organisation and systems. Business outlook The gradual passing of the macroeconomic crisis that dogged 2008 and 2009 should lay the groundwork for a significant improvement in economic performance. Of undoubted importance for this will be the major review of the assets of UGF Banca in 2008 and of those of UGF Merchant in 2009, whereby critical items were reclassified and receivables were adjusted, and the introduction of a new IT system, which according to the result of the analyses should, at a competitive cost, help the company to grow. 2010 should be the first real year of operation for the subsidiary Unicard S.p.A. as well as for the holding company, UGF Banca, and the principal subsidiary, UGF Merchant. After investing in restructuring during 2009, at the end of the year Unicard began to market its products through UGF Banca and consumer cooperatives. It is therefore considered that 2010 will undoubtedly be a year during which things will really take off and there will be a return to a profit.. Bologna, 24 March 2010 The Board of Directors Consolidated Financial Statements 213
TABLES OF CONSOLIDATED FINANCIAL STATEMENTS
Tables of Consolidated Financial Statements UGF BANCA GROUP CONSOLIDATED BALANCE SHEET (amounts in K) Assets 31/12/2009 31/12/2008 Variations 10 Cash and cash equivalents 117,103 96,369 20,734 20 Held-for-trading financial assets 851 176,289 (175,438) 40 Available-for-sale financial assets 123,174 332,837 (209,663) 60 Receivables from banks 452,352 324,998 127,354 70 Receivables from customers 9,805,975 9,132,358 673,617 80 Hedge derivatives - 292 (292) 100 Investments 6,008 2,108 3,900 120 Property, plant and equipment 24,917 25,971 (1,054) 130 Intangible assets 427,404 427,165 239 of which: - goodwill 426,179 426,179-140 Tax assets 101,994 118,138 (16,144) a) current 14,165 32,363 (18,198) b) deferred 87,829 85,775 2,054 160 Other assets 248,279 120,476 127,803 Total assets 11,308,057 10,757,001 551,056 216 Consolidated Financial Statements
Tables of Consolidated Financial Statements (amounts in K) Liabilities 31/12/2009 31/12/2008 Variations 10 Payables to banks 421,651 694,151 (272,500) 20 Payables to customers 6,783,558 6,661,128 122,340 30 Securities outstanding 2,757,640 2,069,479 688,161 40 Held-for-trading financial liabilities - 94,018 (94,018) 60 Hedge derivatives 3,825 15 3,810 80 Tax liabilities 29,430 50,114 (20,684) a) current 12,284 40,202 (27,918) b) deferred 17,146 9,912 7,234 100 Other liabilities 250,256 319,026 (68,770) 110 Employees leaving entitlement 15,930 16,493 (563) 120 Provisions for risks and charges: 19,352 15,933 3,419 a) pensions and similar liabilities - - - b) other provisions 19,352 15,933 3,419 140 Valuation reserves (5,849) (17,335) 11,486 170 Reserves 12,802 (21,076) 33,878 180 Share premiums 122,613 249,500 (126,887) 190 Share capital 904,500 703,500 201,000 210 Equity attributable to non-controlling interests (+/-) 12,557 15,688 (3,131) 220 Profit (loss) for the year (+/-) (20,208) (93,723) 73,515 Total equity and liabilities 11,308,057 10,757,001 551,056 Consolidated Financial Statements 217
Tables of Consolidated Financial Statements UGF BANCA GROUP CONSOLIDATED INCOME STATEMENT (amounts in K) Items 31/12/2009 31/12/2008 Variations 10 Interest receivable and similar income 388,830 594,941 (206,111) 20 Interest payable and similar charges (162,559) (343,403) 180,844 30 Net interest income 226,271 251,538 (25,267) 40 Fees and commissions receivable 113,301 85,506 27,795 50 Fees and commissions payable (13,185) (17,015) 3,830 60 Non-interest income 100,116 68,491 31,625 70 Dividends and similar income 1,040 1,434 (394) 80 Net result from trading activity 1,982 (5,040) 7,022 90 Net result from hedging activity 145 (84) 229 100 Profit (loss) from sale or repurchase of: 18,892 10,333 8,559 a) loans - (1,981) 1,981 b) available-for-sale financial assets 3,830 10,629 (6,799) c) held-to-maturity financial assets - - - d) financial liabilities 15,062 1,685 13,377 110 Net result from financial assets and liabilities at fair value - - - 120 Gross operating income 348,446 326,672 21,774 130 Net impairments/reversal of impairments of: (97,383) (216,150) 118,767 a) loans (87,972) (212,266) 124,294 b) available-for-sale financial assets (9,763) (3,532) (6,231) c) held-to-maturity financial assets - - - d) other financial assets 352 (352) 704 140 Net result from financial management 251,063 110,522 140,541 150 Net premiums - - - 160 Balance on other income/charges from insurance business - - - 170 Net result from financial management and insurance business 251,063 110,522 140,541 180 Administrative expenses: (268,139) (229,261) (38,878) a) personnel expenses (141,067) (119,777) (21,290) b) other administrative expenses (127,072) (109,484) (17,588) 190 Net provisions for risks and charges (5,323) (7,743) 2,420 200 Net adjustments/readjustments on property, plant and equipment (6,976) (7,112) 136 210 Net adjustments/readjustments on intangible assets (620) (363) (257) 220 Other operating income and charges 14,110 15,131 (1,021) 230 Operating expenses (266,948) (229,348) (37,600) 240 Profit (loss) from investments (103) (183) 80 250 Net result from property, plant & equipment and intangible assets at fair value - - - 260 Goodwill adjustments - - - 270 Profit (loss) from disposal of investments - - - 280 Pre-tax profit (loss) on continuing operations (15,988) (119,009) 103,021 290 Income tax for the year relating to continuing operations (8,044) 25,863 (33,907) 300 Post-tax profit (loss) on continuing operations (24,032) (93,146) 69,114 310 Post-tax profit (loss) on discontinued operations - - - 320 Profit (loss) for the year (24,032) (93,146) 69,114 330 Profit (loss) for the year attributable to non-controlling interests 3,824 (577) 4,401 340 Profit (loss) for the year attributable to owners of the Parent (20,208) (93,723) 73,515 218 Consolidated Financial Statements
Tables of Consolidated Financial Statements UGF BANCA GROUP STATEMENT OF COMPREHENSIVE INCOME (amounts in K) Items 31/12/2009 31/12/2008 Variations 10 Profit (loss) for the year (24,032) (93,146) 69,114 Other comprehensive income, net of tax 20 Available-for-sale financial assets 15,898 (20,445) 36,343 30 Property, plant and equipment - - - 40 Intangible assets - - - 50 Foreign investment hedging - - - 60 Cash flow hedging (2,557) (65) (2,492) 70 Exchange rate differences - - - 80 Discontinued fixed assets - - - 90 Actuarial profits (losses) on defined benefit schemes - - - 100 Share of valuation reserves for investments valued at equity - - - 110 Total other comprehensive income, net of tax 13,341 (20,510) 33,850 120 Comprehensive income (items 10+110) (10,691) (113,656) 102,964 130 Comprehensive consolidated income attributable 2,730 530 2,200 to non-controlling interests 140 Comprehensive consolidated income attributable to owners (7,961) (113,126) 105,164 of the Parent Consolidated Financial Statements 219
Tables of Consolidated Financial Statements STATEMENT OF CHANGES IN CONSOLIDATED EQUITY FOR THE YEAR ENDED 31 DECEMBER 2009 (amounts in K) Figures at 31.12.2008 Changes in opening balances Figures at 1.1.2009 Allocation of previous year s result Reserves Dividends and other allocations Variations in reserves Variations during the year Issue of new shares Transactions on equity Purchase of own shares Extraordinary distribution of dividends Variation in equity instruments Derivatives on own shares Stock options Comprehensive income for 2009 Group equity at 31.12.2009 Equity of non-controlling interests at 31.12.2009 Share capital: a) ordinary shares 719,140-719,140 - - - 201,000 - - - - - - 904,500 15,640 b) other shares - - - - - - - - - - - - - - - Share premium 249,986-249,986 (55,803) - (71,084) - - - - - - - 122,613 486 Reserves: a) accumulated earnings (20,983) - (20,983) (37,344) (394) 71,791 - - - - - - - 12,802 268 b) other reserves - - - - - - - - - - - - - - Valuation reserves: (18,442) - (18,442) - - (761) - - - - - - 13,341 (5,849) (13) Equity instruments - - - - - - - - - - - - - - - Own shares - - - - - - - - - - - - - - - Profit (loss) for the year (93,147) - (93,147) 93,147 - - - - - - - - (24,032) (20,208) (3,824) Group equity 820,866-820,866 - - (47) 201,000 - - - - - (7,961) 1,013,858 - Equity of non-controlling 15,688-15,688 - (394) (7) - - - - - - (2,730) - 12,557 interests 220 Consolidated Financial Statements
Tables of Consolidated Financial Statements STATEMENT OF CHANGES IN CONSOLIDATED EQUITY FOR THE YEAR ENDED 31 DECEMBER 2008 (amounts in K) Figures at 31.12.2007 Changes in opening balances Figures at 1.1.2008 Allocation of previous year s result Reserves Dividends and other allocations Variations in reserves Variations during the year Issue of new shares Transactions on equity Purchase of own shares Extraordinary distribution of dividends Variation in equity instruments Derivatives on own shares Stock options Comprehensive income for 2008 Group equity at 31.12.2008 Equity of non-controlling interests at 31.12.2008 Share capital: a) ordinary shares 718,121-718,121 - - 1,019 - - - - - - - 703,500 15,640 b) other shares - - - - - - - - - - - - - - - Share premium 249,986-249,986 - - - - - - - - - - 249,500 486 Reserves: a) accumulated earnings (33,388) - (33,388) 12,603 - (198) - - - - - - - (21,076) 93 b) other reserves - - - - - - - - - - - - - - Valuation reserves: 2,068-2,068 - - - - - - - - - (20,510) (17,335) (1,107) Equity instruments - - - - - - - - - - - - - - - Own shares - - - - - - - - - - - - - - - Profit (loss) for the year 39,581-39,581 (12,603) (26,978) - - - - - - - (93,146) (93,723) 577 Group equity 960,022-960,022 - (26,030) - - - - - - -(113,126) 820,866 - Equity of non-controlling 16,346-16,346 - (948) 821 - - - - - - (530) - 15,689 interests Consolidated Financial Statements 221
Tables of Consolidated Financial Statements CONSOLIDATED CASH FLOW STATEMENT (amounts in K) Amount 2009 Amount 2008 A. OPERATING ACTIVITY 1. Operations - result for the year (+/-) 87,521 (24,032) 101,519 (93,146) - capital gains/losses on financial assets/liabilities held for trading and on assets/liabilities at fair value (-/+) 719 6,710 - capital gains/losses on hedging assets (-/+) (145) 84 - net impairments/reversals of impairments (+/-) 104,707 219,397 - net impairments/reversals of impairments on tangible and intangible fixed assets (+/-) 7,596 7,475 - net provisions for risks and charges and other costs/income (+/-) 5,903 8,749 - net premiums uncollected (-) - - - other insurance income/charges uncollected (-/+) - - - payable taxes (+) (7,484) (47,180) - net impairments/reversals of impairments on discontinued operations, net of tax (-/+) - - - other adjustments (+/-) 257 (570) 2. Cash inflows/outflows from financial assets (633,315) (8,313) - held-for-trading financial assets 176,157 467,699 - financial assets at fair value - - - available-for-sale financial assets 207,274 (241,097) - receivables from banks: on demand 126,408 (40,970) - receivables from banks: other receivables (253,762) 1,104,408 - receivables from customers (761,589) (1,356,510) - other assets (127,803) 58,157 3. Cash inflows/outflows from financial liabilities 376,268 (41,167) - payables to banks: on demand 42,956 (89,423) - payables to banks: other payables (315,456) 680,843 - payables to customers 122,340 (536,724) - securities outstanding 692,116 169,695 - held-for-trading financial liabilities (94,025) (277,542) - financial liabilities at fair value - - - other liabilities (71,663) 11,984 Net cash inflows/outflows from operating activity (169,526) 52,039 B. INVESTMENT ACTIVITY 1. Cash inflows from 2,295 63 - sale of investments - - - dividends received on investments - 35 - sales of held-to-maturity financial assets - - - sales of property, plant and equipment 2,295 8 - sales in intangible assets - - - sales of subsidiaries and business branches - 20 2. Cash outflows from (12,641) (14,868) - purchases of investments (4,076) - - purchases of held-to-maturity financial assets - - - purchases of property, plant and equipment (7,706) (10,356) - purchases of intangible assets (859) (1,136) - purchases of subsidiaries and business branches - (3,376) Net cash inflows/outflows from investment activity (10,346) (14,805) C. FUNDING ACTIVITY - issue/purchase of own shares 201,000 - - issue/purchase of equity instruments - - - distribution of dividends and other purposes (394) (26,977) Net cash inflows/outflows from funding activity 200,606 (26,977) NET CASH INFLOWS/OUTFLOWS DURING THE YEAR 20,734 10,257 RECONCILIATION Balance sheet items Amount 2009 Amount 2008 Opening cash and cash equivalents 96,369 86,112 Total net cash inflows/outflows during the year 20,734 10,257 Cash and cash equivalents: effects of changes in exchange rates - - Closing cash and cash equivalents 117,103 96,369 222 Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements Part A - Accounting policies........................... 226 Part B - Information on the Consolidated Balance Sheet... 244 Part C - Information on the Consolidated Income Statement. 271 Part D - Consolidated comprehensive income............ 283 Part E - Information on risks and related hedging policies.. 284 Part F - Information on consolidated equity............. 330 Part G - Business combinations concerning companies or business branches......................... 334 Part H - Related party transactions..................... 334 Part I - Payment agreements based on own equity instruments.................................. 337 Part L - Sector information........................... 337 Consolidated Financial Statements 225
Notes to the Consolidated Financial Statements Part A ACCOUNTING POLICIES A.1 - GENERAL Section 1 - Declaration of compliance with international accounting standards In compliance with Legislative Decree 38 of 28 February 2005, the 2009 consolidated financial statements of UGF Banca were drafted in accordance with the International Financial Reporting Standards (IAS/IFRS) issued by the International Accounting Standards Board (IASB), endorsed by the European Commission and published in the Official Journal of the European Union, according to the approval and publication procedure set out in Community Regulation 1606 of 19 July 2002. The financial statements were drawn up in accordance with the instructions issued by Banca d Italia under the authority and powers conferred on it by the Decree. In particular the instructions referred to in Circular 262 of 22 December 2005 as amended, which governs the layout and contents of financial statements to be drawn up in accordance with international accounting principles, were applied. In drawing up the consolidated financial statements, reference was made to the international accounting standards (IAS/IFRS) published at 31 December 2008. Recent developments regarding international accounting standards are shown in Section 5 - Other aspects below. Section 2 - General principles The consolidated financial statements are made up of the Statement of Assets and Liabilities, the Income Statement, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Cash Flow Statement and the Notes to the Financial Statements. They are also supplemented by the Board of Directors Report on business performance. The consolidated financial statements have been drawn up clearly and represent the assets and liabilities, financial position and economic result for the year in a true and correct manner. The measurement criteria are adopted with a view to business continuing, in application of the principles of accruals, relevance and significance of the accounting information and prevalence of the economic substance on the legal form. The assumption of business continuity is considered to be confirmed with reasonable certainty, since it is thought that the Banking Group, together with the reference group of companies, have adequate resources to guarantee that the business can continue in the foreseeable future. Please see also Section 5 - Other aspects below. The international accounting standards were applied without exception. The currency of account is the Euro. The amounts in the financial statements and in the notes to the financial statements are, unless otherwise stated, expressed in K. The financial statements are shown in comparative format, stating the values for the previous year. The Notes to the financial statements and the Management Report on business performance supply the information required under applicable legislation, supplemented, where deemed appropriate, by other information which is not compulsory but intended to provide a fuller picture of the Group s overall situation. Section 3 - Scope and methods of consolidation The scope of consolidation includes the UGF Banca Parent, the subsidiaries and the associates. Subsidiaries are considered to be companies in which the Parent, directly or indirectly, holds the majority of voting rights at the Ordinary Shareholders Meeting, or holds fewer voting rights but exercises de facto control as a result of contractual agreements or statutory encumbrances which enable it to appoint the majority of the directors in the participating interest and to determine the company s financial and operating policies. As a result of this definition, in compliance with the provisions of SIC 12, securitisation vehicle companies, so-called special purpose entities are also included in the scope of consolidation, although Unipol Banca has no participating interest in their share capital. The subsidiaries are consolidated according to the line-by-line method. Associates are considered to be companies in which the Parent, directly or indirectly, exercises considerable influence and which are not constituted as subsidiaries or joint ventures. Considerable influence is presumed when the partner holds at least 20% of the voting rights at 226 Consolidated Financial Statements
Notes to the Consolidated Financial Statements the Ordinary Shareholders Meeting. Associates are consolidated by the equity method. Joint ventures are considered to be companies in which the voting rights and control of the assets are distributed equally between a number of partners. There are no joint ventures within the scope of consolidation. Line-by-line consolidation The line-by-line method of consolidation involves recording in the consolidated financial statements all the items in the financial statements of the companies subject to consolidation, unless otherwise provided for by consolidation of the investments and elimination of the reciprocal transactions. The value of the investments held in the consolidated companies is offset by the group s share of the equity in the participating interests and any non-controlling interest share is classified in the appropriate liability items. Offsetting is effected according to the values at the date of acquisition or, if later, the date of consolidation. The differences in value arising from offsetting, where not chargeable in whole or in part to specific asset or liability items, are entered if positive, such as goodwill, under intangible assets. Negative differences are charged to the Income Statement. As far as reciprocal transactions are concerned, the credit and debit transactions between the consolidated companies, the income and charges relating to transactions carried out between these companies, and the profits and losses resulting from infra-group transactions and therefore not effected in respect of third parties, are eliminated. Consolidation by the equity method The equity method represents a concise method of consolidation which incorporates the changes in the relevant portion of the equity into the value of the investment. The investment is, in fact, entered at cost, inclusive of any goodwill value paid on acquisition, and is adjusted from period to period to reflect the changes in the equity of the participating interest, including the non-distributed profit in respect of the relevant share. The table below shows the subsidiaries included in the scope of consolidation according to the various classifications. Fully-owned subsidiaries and joint ventures Type of Participating interest Votes Name Registered holding Shareholder % available % office (1) share (2) A. Companies Parent UGF Banca S.p.A. Bologna A.1 Consolidated on a line-by-line basis 1. UGf Merchant Banca per le Imprese S.p.A. Bologna 1 UGF Banca 86.18% 86.18% 2. Unipol Fondi Ltd Dublin 1 UGF Banca 100.00% 100.00% 3. UGF Leasing S.p.A. Bologna 1 UGF Banca 100.00% 100.00% 4.Unicard S.p.A. Milan 1 UGF Banca 51.00% 51.00% 5. Nettuno Fiduciaria S.r.l. Bologna 1 UGF Banca 100.00% 100.00% 6. UGF Private Equity S.p.A. Bologna 1 UGF Banca 100.00% 100.00% 7. Grecale ABS S.r.l. Bologna 4 0.00% 0.00% 8. Castoro RMBS S.r.l. Milan 4 0.00% 0.00% 9. Atlante Finance S.r.l. Milan 4 0.00% 0.00% A.2 Consolidated on a proportional basis Legend: (1) Type of holding: 1 = majority of voting rights at Ordinary Shareholders Meetings 2 = dominant influence at Ordinary Shareholders Meetings 3 = agreements with other partners 4 = other forms of control 5 = single management as per Article 26 (1), of Leg. Decree 87/92 6 = single management as per Article 26 (2), of Leg. Decree 87/92 7 = joint control (2) Votes available at the Ordinary Shareholders Meetings, with a distinction between actual and potential Consolidated Financial Statements 227
Notes to the Consolidated Financial Statements There were no changes in the scope of consolidation during the year. For consolidation purposes, the financial statements of the Parent and of the companies consolidated on a line-by-line basis have been used. Almost all of the subsidiaries have to draw up their own financial statements in conformity with the international accounting standards (IAS/ IFRS) under the provisions of Legislative Decree 38/2005. In absolutely marginal cases where this obligation does not occur, the financial statements of the subsidiaries have been duly reclassified and adjusted so that they conform to the IAS/IFRS where necessary. The financial statements of the companies included in the consolidation are all at 31 December 2009 and are all drawn up in euro; therefore it was not necessary to proceed with the conversion of values expressed in currency other than the euro. Section 4 - Events subsequent to the accounting reference date No significant events occurred after the close of the year likely to affect the results of the financial statements or which may lead to significant changes in the scope of consolidation. Section 5 - Other aspects Information on the business s expected continuation as a going concern The joint coordination board between Banca d Italia, CONSOB and ISVAP regarding application of the IAS/IFRS according to document 2 of 6 February 2009 Information to be provided in financial reports on expected continuation as a going concern, financial risks, impairment tests on assets and uncertainty as to the use of estimates, asked the Directors to make particularly accurate evaluations concerning the existence of the assumption of expected continuation as a going concern. The recommendation was in the latest document issued jointly by Banca d Italia, CONSOB and ISVAP, no. 4 of 3 March 2010. To be specific paragraphs 25 and 26 of IAS 1 establish, in brief, that the senior executives must assess the company s ability to continue to operate as a functioning entity, taking account of all the information available on at least the twelve months following the end of the year. The level of analysis depends on the specific circumstances of each individual case. Profits from previous years and easy access to finance confirm the presumption that the Company will remain in business, even if no detailed analysis is carried out. In this regard, having examined the risks and uncertainties connected with the current macroeconomic context, it was considered reasonable to expect that the Bank will continue operating in the foreseeable future and, as a result, the consolidated financial statements for 2009 were drawn up on the assumption of business continuing. The uncertainties connected with problems as to risks involving liquidity, credit and returns were not considered significant and, at any rate, such as not to generate doubts as to business continuing, considering also the Group s solid equity position and facilitated access to financial resources. Risks and uncertainties connected with the use of estimates As stated in part A.2 of these Notes to the financial statements and as provided for by the accounting standards in force and the reference regulations, estimate processes have been created in support of the book value of applicable items entered in these financial statements. These processes are largely based on estimates as to the future recoverability of the values entered in the financial statements according to the rules laid down by the regulations in force and have been implemented with a view to business continuing, that is, regardless of assumptions of compulsory settlement of the items which are the subject of evaluation. The investigation carried out supports the values entered in the financial statements at 31 December 2009. In particular, summarised below are the main accounting items which, by their nature and composition, are subject to risks and uncertainties connected with the use of estimates: Held-for-trading financial assets; Available-for-sale financial assets; Receivables from customers; Goodwill; Provisions for risks and charges; Net result from trading activity; Impairments/reversals of impairments on loans; 228 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Impairments/reversals of impairments on available-for-sale financial assets; Net provisions for risks and charges. Changes to the context of the applicable accounting standards Among the principal changes to the relevant accounting standards and interpretations are the following. IAS 1 - Presentation of financial statements - new version that came into effect on 1 January 2009 introduced the concept of comprehensive income and required the income elements not recorded in the income statement but allocated direct to capital and reserves to be shown. This concerns the variations that took place during the year in the equity valuation provisions which, in accordance with the option adopted by Banca d Italia (one of the two provided for by IAS 1), were included in the new Statement of Comprehensive Income and, together with the Profit (Loss) for the year, made up the Comprehensive Income. IFRS 7 - Financial instruments: Disclosures - amendments and additions to the information to be provided were introduced as from the annual financial statements for 2009. To be specific paragraphs 27A and 27B were added, requiring further information on calculating fair value, ranking fair value and the liquidity risk relating to financial instruments. Financial instruments recorded at fair value are ranked at three different levels, the aim being to provide information on their quality. Level 1: when the fair value is based on unadjusted prices recorded on an active market in accordance with the definition given in IAS 39; Level 2: when the fair value is based on valuation methods that use benchmarks that can be seen on the market, other than the prices referred to in Level 1; Level 3: when the fair value is based on valuation methods that use benchmarks that cannot be seen on the market. On 18 November 2009 Banca d Italia updated and reprinted Circular 262 of 22 December 2005 to include all the changes that had been made in the meantime to IAS/IFRS international accounting standards and incorporating clarifications already issued separately. Other The consolidated financial statements are submitted for auditing by KPMG S.p.A. to whom the Shareholders Meeting entrusted the assignment for the years 2006-2011. A.2 - THE PRINCIPAL ITEMS IN THE FINANCIAL STATEMENTS Section 1 - Held-for-trading financial assets 1.1 Classification criteria A financial asset is classified as held for trading if it meets one of the following conditions: the asset is acquired principally for the purpose of selling it in the short term; the asset is part of a portfolio of identified financial instruments which are managed as a unit as part of a strategy aimed at obtaining gain in the short term; the asset is a derivative contract which differs from derivative hedging contracts. Also included amongst derivative contracts are those incorporated into complex financial instruments (hybrid or combined) which need to be recorded separately if all the following conditions are met: the economic features and the risks of the incorporated derivative are not strictly correlated with those of the primary contract; even if recorded separately, the incorporated derivative has features such as to comply with the definition of a derivative contract; the hybrid instrument which incorporates the derivative is not valued at fair value with the relating changes being recorded in the income statement. The Group has classified under this item debt securities, equities and positive values for derivative contracts held for trading. Excluded from this item are debt securities and equities not managed for trading purposes, as well as hedge derivatives. 1.2 Recognition criteria The initial recognition of the assets held for trading is done on the settlement date for debt securities and equities and on the subscription Consolidated Financial Statements 229
Notes to the Consolidated Financial Statements date for derivatives, for a value equal to the fair value of the financial instrument without taking into consideration directly chargeable transaction costs or income, which are recorded directly in the income statement. 1.3 Measurement criteria After initial recognition, the assets in question are valued at fair value and the changes in value encountered are recorded in the income statement (item 80 - Net result from trading activity). In the case of financial instruments listed on active markets, the fair value is determined on the basis of the quotations shown on those markets at the reference date for the valuations, without recourse to average period values. In the case of financial instruments not listed on active markets, the fair value is determined on the basis of prices supplied by other qualified operators and/or on internal valuation models generally used in financial negotiations. These models take account of the risk factors inherent in instruments which are the subject of valuation and are based on data observable on the markets: models for discounting expected cash flows, models for determining the price of options, valuation of listed instruments with similar features, values observed in recent market transactions. 1.4 Derecognition criteria A financial asset is derecognised only when the rights under the contract to the cash flows arising out of it expire or when it is assigned to third parties and all the risks and benefits are effectively and substantially transferred. Section 2 - Available-for-sale financial assets 2.1 Classification criteria Classified under this item are all the financial assets, other than derivatives, designated as such or not otherwise classified as receivables, assets held to maturity and assets held for trading. The Group has recorded in this category the following types of financial activity: debt securities held for the purposes of investment and not intended for short-term trading; strategic participating interests (shares of less than 20% of shareholders equity, of strategic importance from a commercial or corporate point of view); non-managed participating interests for the purposes of trading and not classifiable as a subsidiary, affiliate or joint venture, including those held for merchant banking operations. 2.2 Recognition criteria Initial recognition is carried out when the Group becomes a party to the contractual clauses of the financial instrument, which normally coincides with the settlement date. The initial recognition value is equal to the fair value of the financial instrument, which generally coincides with the related purchase cost, including the directly chargeable transaction costs or income. When recognition is the result of a reclassification of assets originally entered under those held to maturity or those held for trading and at fair value, which in special cases transfers are permitted according to IAS 39, the recognition value is determined at fair value for the instrument on the transfer date. 2.3 Measurement criteria After initial recognition, the assets in question continue to be at fair value. The interest component resulting from application of the cost less depreciation method, where it exists, goes to the income statement, whilst gains and losses from the change in fair value are recorded directly under the equity (item 140 - Valuation reserves). The fair value is determined according to the same criteria as already stated for the assets held for trading. When the asset is derecognised or when reasons arise for recording an impairment, gains and losses accumulated due to changes in fair value are recorded in the income statement. 230 Consolidated Financial Statements
Notes to the Consolidated Financial Statements The loss in value is recorded if there is objective evidence that the recoverable value of the financial instrument is lower than its purchase value less any refunds and depreciation. Any readjustments are allowed only if the reasons that determined the recording of the loss no longer apply, and they are recorded up to an amount such as to attribute to the financial instrument a value no higher than the value it would have had at that time as a result of applying the cost less depreciation method without previous adjustments. The losses in value go to the income statement under item 130 sub-item b) - adjustments/readjustments due to impairment of availablefor-sale financial assets. Recorded under the same item are readjustments on debt securities whilst readjustments on equities are recorded under the equity (item 140 - Valuation reserves). Checking for the existence of conditions for recording impairments and subsequent readjustments is done on the reference date for each annual account or infra-annual position. Equity instruments for which it is not possible to determine the related fair value amount reliably manner are valued at cost, except for the recording of losses in value reasons for this exist. These impairments must not, however, be reinstated in subsequent years. Impairment policies on available-for-sale financial assets IAS 39, para. 58, stipulates that, at each reference date for the financial statements, companies must check whether there is any objective evidence that a financial asset or group of financial assets has suffered impairment. In order to determine whether a financial asset or group of financial assets has suffered impairment, they need to be prepared for and subjected to a periodical impairment test. Indications of possible impairment are, for example, the issuer experiencing significant financial difficulties, non-payment or missed payments of interest or capital, the possibility that the beneficiary may become subject to bankruptcy proceedings or similar such proceedings and the disappearance of an active market for the asset. Under paragraph 61 of IAS 39 a significant or prolonged fall in the fair value of an investment in an instrument representing capital below cost must be considered to be objective evidence of impairment. The impairment policy adopted by the Bank is in line with that adopted by the Parent Unipol Gruppo Finanziario S.p.A. and impairment testing is carried out in close collaboration with and under the leadership of the Group Finance Department. As a result of the publication of Document 4 of 3 March 2010 issued jointly by Banca d Italia, CONSOB and ISVAP on applying IAS/IFRS, and in compliance with the instructions in it drawn up in the wake of the IFRIC document published in July 2009, the Group amended its previous impairment policy as from 2009, eliminating the qualitative valuations that were used in addition to first-level quantitative analysis based on the thresholds of significant and prolonged. Therefore all the equity securities to which at least one of the following conditions applied were impairment-tested: a) the market price had remained below the initial recognition value for the previous 36 months; b) the decrease in value on the accounting reference date was more than 20% of the initial recognition value. This confirmed that these securities were impaired and the total variation in fair value was recorded in the income statement and the AFS provision written off. In the case of debt securities, whenever payment of a coupon or repayment of capital is late or missed and this is confirmed by the deposit bank, the Finance Department immediately notifies the relevant Risk Management Department of the need to carry out any write-downs. 2.4 Derecognition criteria The same criteria apply as already stated for the held-for-trading assets (paragraph 1.4). Section 3 - Held-to-maturity financial assets 3.1 Classification criteria The held-to-maturity financial assets are represented by financial instruments but not by derivatives, with fixed or ascertainable payments and a fixed due date, in respect of which there is the intention and ability to hold onto the assets until they mature. The Group has not classified any assets under this item. Consolidated Financial Statements 231
Notes to the Consolidated Financial Statements 3.2 Recognition criteria Initial recognition is carried out when the Group becomes a party to the contractual clauses of the financial instrument, which normally coincides with the settlement date. The initial recognition value is equal to the fair value of the financial instrument, which generally coincides with the related purchase cost, including the directly chargeable transaction costs or income. When recognition is the result of a reclassification of assets originally entered under those available for sale, the recognition value is determined at fair value for the instrument on the transfer date. The Group has made no reclassifications of the kind described above. 3.3 Measurement criteria After initial recognition, the assets in question are valued at cost less depreciation, using the effective interest method. Gains and losses are recorded in the income statement within the space of the residual life owing to amortisation of the difference between recognition value and redeemable value when they fall due. Gains and losses recorded when these assets are eliminated or undergo impairment also go to the income statement. The held-to-maturity assets are subject to periodical auditing for the existence of losses in value. Should objective evidence of impairment arise, the amount of the loss is measured against the difference in the book value of the asset and the current value of the estimated future cash flows, discounted at the financial asset s original effective interest rate. Any readjustments are allowed only if the reasons that determined the recording of the loss no longer apply, and they are recorded up to an amount such as to attribute to the financial instrument a value no higher than the value it would have had at that time as a result of applying the cost less depreciation method without previous adjustments. 3.4 Derecognition criteria The same criteria apply as already stated for the held-for-trading assets (paragraph 1.4). Should a significant amount of assets classified within this category be sold or reclassified during the year, before maturity, any remaining held-to-maturity assets would be reclassified as available for sale and for two successive years it would not be possible to classify any asset within this category. This penalty does not apply if the sales or reclassifications: are so near to maturity that the fluctuations in the market rates cannot have a significant effect on the fair value of the assets; occurred after substantially all the original principal for the asset was cashed as a result of ordinary scheduled or early payments; or are to be attributed to an uncontrollable isolated event, which is not recurrent and cannot therefore be reasonably forecast. Section 4 - Receivables 4.1 Classification criteria Classified within this category are financial assets, other than derivatives, which involve fixed or determinable payments and which are not quoted on an active market. The following assets are excluded from this category: receivables intended to be sold immediately or in the short term, which must be classified under held-for-trading assets; receivables in respect of which it is not possible to recover essentially all the initial investment, due to reasons other than impairment of the receivable, which must be classified under available-for-sale assets; receivables which may, at the time of being initially recorded, have been described as assets at fair value through profit or loss or as available-for-sale assets. The Group has classified within this category all the receivables resulting from financing and/or deposit contracts with customers and the banking system. Repo contracts and commercial receivables fall within this category as well. The receivables are shown in the financial statements under items 60 - Receivables from banks and 70 - Receivables from customers, except for receivables of a commercial nature not able to be related to business to customers which are allocated to item 160 - Other assets. 232 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 4.2 Recognition criteria The initial recognition is carried out when the Group, as creditor, acquires the right to payment of the sums contractually agreed. This time coincides with the payment date in the case of financing and the settlement date in the case of debt securities. The asset is recognised at fair value, which is generally equal to the amount paid or to the purchase price, inclusive of costs and income directly able to be related to the individual asset and determinable from the start of the transaction even if settled at a later time. Charges to be paid by the debtor and the company s normal internal administrative costs are not included. In the case of financing agreed under conditions other than market ones, the fair value is determined by special valuation techniques and the difference between this value and the amount paid is recorded directly through profit or loss. When recognition is the result of a reclassification of assets originally entered under those held to maturity or those held for trading and at fair value, which in special cases transfers are permitted according to IAS 39, the recognition value is determined at fair value for the instrument on the transfer date. Loans on negotiable securities and repo contracts with the commitment or entitlement to repurchase/resell are entered in the financial statements as receivables and payables and the assets temporarily transferred are not derecognised. In particular, the cash sale and forward repurchase agreements are recorded as payables for the amount received in cash, and vice versa the cash purchase and forward resale agreements are recorded as receivables for the amount paid in cash. 4.3 Measurement criteria Following initial recognition, receivables are valued at the amortised cost, which is represented by the value at which they are initially recorded net of repayments, plus or minus any difference between the initial value and the value on maturity because of depreciation calculated in accordance with the criterion of effective interest and less any reduction because of any decrease in value or non-recoverability. Applying the effective interest rate enables the financial effect of a loan transaction to be spread evenly over its expected life, which makes financial sense. In fact the effective interest rate is the rate that discounts back all the future cash flows of the loan and establishes a current value corresponding to the value granted including all the transaction costs and income attributable to it. When the cash flows and the contractual duration of the loan are being estimated, all the contractual terms that can affect the amounts and the maturity dates (for instance, early redemptions and the various options that may be exercised) are taken into account but not the losses expected on the loan. Following initial recognition, for the whole life of the loan the amortised cost is determined by continuing to apply the effective interest rate fixed at the start of the operation (original interest rate). This original interest rate does not vary over time and is also used in the case of any contractual amendments to the interest rate or events which have rendered the loan unproductive (for instance, due to insolvency proceedings having taken place). The cost less depreciation method is applied only to credit arrangements with an original term of at least eighteen months, on the assumption that applying this method for shorter-term arrangements does not involve significant changes in measuring the economic effect. Loans with a duration of less than eighteen months and those that have no fixed maturity date or are revocable are therefore valued at cost. At the reference date for each annual account or infra-annual position, the receivables are audited to identify those which show objective evidence of a loss in value due to events which occurred after they were initially recognised. The valuation procedures differ depending on whether impaired receivables or performing receivables are involved. Impaired receivables are considered to be those to which the status of bad or doubtful, substandard, restructured or overdue for more than 180 days has been attributed, according to current Banca d Italia guidelines. These impaired receivables (except for substandard loans and/or those due for an insignificant unit amount) are subject to a process of cost valuation which consists of discounting (at the original effective interest rate) the expected cash flows in respect of principal and interest, taking account of any guarantees backing the receivable. The negative difference between the current value of the receivable determined in this way and its book value (cost less depreciation) at the time of the valuation constitutes an adjustment which is entered in the income statement under item 130 sub-item a) - adjustments/ readjustments due to impairment of loans. The original value of the receivables is reinstated in subsequent years only if the reasons which determined the recognition of the relating loss no longer apply. The readjustments are recorded up to an amount such as to attribute to the financial asset a value no higher than the value it would have had at that time as a result of applying the cost less depreciation without previous adjustments. Receivables for which, individually, objective evidence of a loss (generally performing receivables, including those due from counterparties Consolidated Financial Statements 233
Notes to the Consolidated Financial Statements resident in countries at risk, and substandard loans and/or those overdue by more than 180 days for an insignificant unit amount) has not been ascertained are subject to a process of collective valuation carried out by uniform credit risk categories, identified according to a matrix breakdown by customer segment and product type. The value of the latent loss for each uniform category is quantified by applying percentage loss indices inferred from the trend analysis of historical series, for the same category. The adjustments determined according to the collective valuation method are entered in the Income Statement. In subsequent periods, any additional adjustments or readjustments are determined differentially with reference to the entire portfolio of receivables valued collectively. 4.4 Derecognition criteria The general criteria already stated for the other classification items apply. In particular, receivables are derecognised only if assignment involves the substantial transfer of the risks and benefits attributable to them. If this is not the case receivables continue to be recorded in the financial statements even though ownership of them has been legally transferred. It is assumed that all the risks and benefits were essentially transferred if the assignment involved the transfer of at least 90% of them. Vice versa, it is assumed that all the risks and benefits were essentially maintained if the assignment involved the transfer of no more than 10% of them. If the assignment did not essentially involve either the transfer or maintenance of the risks and benefits (in the event of the Group having retained a risks/benefits ratio of more than 10% but less than 90%), the receivables are derecognised if the Group does not retain any type of control over them. Otherwise, the existence of control over the assigned receivables determines that they remain in the financial statements in proportion to the extent of the residual involvement. The Group has still entered in the financial statements under this category all the receivables which are the subject of securitisation schemes carried out after 31 December 2003, regarding which it has essentially retained all the risks and benefits as a result of holding the junior securities issued by the SPVs. For further information on the handling of securitisation schemes, please refer to paragraph 18.2 below. Section 5 - Financial assets at fair value 5.1 Classification criteria Any financial asset may be recognised at fair value at the time it is initially recognised (so-called fair value option ), except for instruments representing capital for which active market prices are not recordable and the fair value of which cannot be reliably determined. Excluded from this category are derivatives and the assets which belong to the trading portfolio, in respect of which IAS 39 provides for the obligation to apply the fair value criterion. The Group has not classified any assets under this item. The recognition, measurement and derecognition criteria are similar to those for held-for-trading financial assets, with recording of gains and losses under the relevant item in the income statement (item 110 - Net result for financial assets and liabilities at fair value). Section 6 - Hedging transactions 6.1 Types of hedging According to IAS 39, hedging relationships can be of three types: a) fair value hedge: the objective is to hedge the exposure to variations of fair value of assets or liabilities, or part of them, attributable to a particular risk, which could affect the income statement; b) cash-flow hedge: the objective is to hedge the exposure to the variability of cash flows attributable to a particular risk associated with assets or liabilities which could affect the income statement; c) hedging of a net investment in a foreign operation: the objective is to cover the risks of an investment in a foreign company expressed in currency. 234 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Only instruments traded with a counterparty outside the company or group of companies to which the financial statements refer can be considered to be hedging instruments. A relationship is described as hedging and has consistent accounting representation, if and only if all the following conditions are met: at the beginning of hedging there is the designation and formal documentation of the hedging relationship, the objectives of the company in the management of the risk and the strategy in carrying out the hedging. This documentation includes the identification of the hedging instrument, the hedged item or transaction, the nature of the hedged risk and how the company evaluates the effectiveness of the hedging instrument in offsetting the exposure to the variations in fair value of the hedged item or the cash flows attributable to the hedged risk; the hedge is expected to be highly effective; as regards the hedging of cash flows, the planned transaction which is the subject of the hedging is highly likely and presents an exposure to the variations of cash flows which could have an effect on the income statement; the effectiveness of the hedging can be evaluated reliably; the hedging is assessed on the basis of a criterion of continuity and is considered to be highly effective for all the years for which the hedging is designated. At 31 December 2009 the Group has set up cash flow hedging transactions on its own variable rate bond issues and a specific cash flow hedging transaction for a bank funding operation shown on the item payables. 6.2 Measurement criteria Hedging financial derivatives, like all derivatives, are initially recognised and then measured at fair value and are classified in the asset item 80 Hedge derivatives and liability item 60 Hedge derivatives. The effects of the valuation are shown as follows: in the case of a fair value hedge: the fair value variation of the hedging instrument is recorded through profit or loss and is offset by the fair value variation of the hedged item, for the quota attributable to the hedged risk, which must be entered in the income statement as a contra-entry to the recognition value of the hedged item; in the case of a cash flow hedge: the variations in fair value of the derivative are allocated to the equity only for the quota of the hedging considered to be effective and are entered in the Income Statement in the year or years in which the hedged cash flows have an effect on profits and losses or if the hedging is not effective; in the case of hedging a net investment in a foreign operation: the same criteria as laid down for cash flow hedging apply. The effectiveness of the hedge is evaluated continuously on the reference date of each annual and infra-annual financial statements. In particular, the evaluation is done on the basis of prospective and retrospective tests which measure the expected effectiveness of the hedging relationship and the effectiveness actually obtained in the reference period and therefore justify the classification of the instrument as a hedging instrument. Hedging is considered to be effective when the fair value variation of the hedged instrument (or of the expected cash flows) is substantially offset by the variation in the hedging instrument, in a ratio between the two variations which falls within the limits of a fixed interval of 80-125%. The accounting of the hedging is discontinued prospectively in the following cases: the hedging instrument expires, is sold, terminated or exercised; the hedge no longer meets the aforementioned criteria for hedge accounting; the company revokes the designation. If the hedging relationship is no longer effective or comes to an end, the hedging derivative, if it still exists, is classified amongst the held-fortrading financial assets and the hedged instrument is evaluated according to the measurement criteria corresponding to its classification in the financial statements. If the hedged instrument is an asset or liability evaluated according to the depreciated cost, the difference between the book value of the hedged item at the moment hedging ceases and what its book value would have been if the hedging had never existed, is depreciated in the Income Statement for the remaining life of the financial instrument. If the hedged item is sold or reimbursed the fair value quota not depreciated is recorded immediately through profit or loss. If a cash flow hedge terminates or is no longer effective, gains or losses on the hedging instrument already shown in the equity must be transferred to the income statement in the year in which the cash flows originally hedged have an effect through profit or loss or in the year in which it emerges that these cash flows are no longer expected. Consolidated Financial Statements 235
Notes to the Consolidated Financial Statements Section 7 - Investments Recognition and measurement criteria for investments governed by IAS 27 (Consolidated and individual financial statements), 28 (Investments in associates) and 31 (Investments in joint ventures) are stated in Section 3 - Scope and methods of consolidation in Part 1. The item includes participating interests in associates. The remaining investments other than in associates and subsidiaries (the Group has no joint ventures) are classified as available-for-sale assets. Section 8 - Property, plant and equipment 8.1 Classification criteria The item includes property used for corporate business, heating systems, equipment, furniture, fixtures and fittings. It involves assets held for functional purposes, to be used for more than one period in the production and supply of goods and services. The Group does not have any property, plant and equipment held for investment purposes. 8.2 Recognition criteria The property, plant and equipment are initially recorded at cost, inclusive of all the expenses directly charged to setting up the asset. The non-routine maintenance costs, which include an increase in the future economic benefits, are recorded to increasing the value of the assets, whilst the routine maintenance costs are recorded in the income statement. 8.3 Measurement criteria After initial recognition, property, plant and equipment are entered at cost net of depreciation and impairments. The fixed assets with a limited useful life are systematically depreciated on a straight-line basis over their useful life. However, fixed assets with an unlimited useful life or those whose residual value is equal to or higher than their book value are not depreciated. The Group does not, therefore, depreciate artistic assets. Should objective evidence of an impairment emerge, the loss is measured as the difference between the book value of the asset and its recovery value, and is recorded in the income statement. The value of the asset must be reinstated if the assumptions which determined the recognition of the loss, for an amount no higher than the value it would have had, net of the calculated depreciation, without impairments, no longer apply. 8.4 Derecognition criteria Property, plant and equipment are derecognised on disposal or when no further future economic benefits are expected from using or disposing of it. Section 9 - Intangible assets 9.1 Classification criteria Intangible assets are non-monetary assets, identifiable even if they have no physical solidity, from which future economic benefits are expected. The intangible assets include goodwill and the other intangible assets governed by IAS 38. 9.2 Recognition and measurement criteria for goodwill Goodwill is defined as the difference between the purchase cost and the fair value for the assets and liabilities acquired as part of a business 236 Consolidated Financial Statements
Notes to the Consolidated Financial Statements combination which consists of joining together different companies or company operations into a single firm obliged to draft the financial statements. The result of almost all business combinations comes from the fact that only one company, the buyer, obtains control over one or a number of different company operations relating to the purchase. Goodwill is not subject to depreciation, but it is subject to testing for a reduction in value (impairment test) at least once a year, generally when drafting the annual financial statements and in any case on the occurrence of events which lead it to believe that the asset may have undergone a reduction in value. Any adjustments made to the goodwill, even if the reasons which originated it no longer apply in subsequent years, cannot be reinstated. 9.3 Recognition and measurement criteria for other intangible assets Intangible assets other than goodwill are entered in the financial statements at purchase value, inclusive of any direct cost incurred for preparing to use them, net of accumulated amortisation and any impairments. The intangible fixed assets are systematically amortised on a straight-line basis over their useful life, which, for the software, is estimated at three years on average. The Group holds no intangible fixed assets with an unlimited life. Should objective evidence of an impairment emerge, the loss is measured as the difference between the book value of the asset and its recovery value, and is recorded in the income statement. The value of the asset must be reinstated if the assumptions which determined the recognition of the loss, for an amount no higher than the value it would have had, net of the calculated depreciation, without impairments, no longer apply. 9.4 Derecognition criteria An intangible asset is derecognised on disposal or when no further future economic benefits are expected from using or disposing of it. Section 10 - Non-current assets held for sale and discontinued operations Included under item 150 in the assets and item 90 in the liabilities (Liabilities associated with discontinued assets) are the fixed assets or groups of assets and associated liabilities in respect of which a process of disposal has been undertaken and the sale of which is considered very likely. These are valued at the lesser between their book value and their fair value net of the sale costs. The income and charges, including the effects of the valuations, for these assets/liabilities are recorded under a special item in the income statement, net of the related tax effect. Section 11 - Current and deferred tax Income tax is recorded in the income statement, except that relating to items charged or credited directly to the equity. The financial statements include the effects of the deferred tax assets and liabilities deriving from time differences between book values and taxable values, in order to correctly show on an accrual basis the charges for income tax, irrespective of the actual cash flow. The deferred tax assets are recorded in the financial statements under item 140 b) deferred tax assets, insofar as there is the likelihood of producing sufficient taxable income in future years to enable them to be recovered. The deferred tax liabilities are recorded under item 80 b) deferred tax liabilities. The offsetting between deferred tax assets and liabilities may be carried out exclusively within the context of the individual tax and with reference to that tax year. Offsetting is not carried out unless the year in which the taxes for the changes in taxable income were relevant can be determined with certainty. The deferred tax assets and liabilities have been quantified on the basis of the rates currently in force for future years. The changes in the deferred tax assets and liabilities and related economic effects are detailed in the relevant sections of the notes to the financial statements. Consolidated Financial Statements 237
Notes to the Consolidated Financial Statements Section 12 - Provisions for risks and charges The Group does not have pension funds and provisions for similar obligations. The other provisions for risks and charges are made up of appropriations relating to current, legal or implicit obligations resulting from a past event and which will probably give rise to the disbursement of economic resources, the amount of which may be reliably estimated. The appropriations are made on the basis of the best possible estimate of the expenses needed to fulfil the obligations. The amount of the estimated expenses is discounted at market rates if the effect of the deferment in time is significant. The provisions are periodically scrutinised and, if necessary, adjusted to reflect the best possible estimate. If, following re-examination, the charge becomes unlikely, the appropriation is reversed. An appropriation is only used in respect of the charges for which it was originally recorded. Section 13 - Payables and securities outstanding 13.1 Classification criteria Under the item Payables to banks, Payables to customers and Securities outstanding are classified the various technical forms of customer and inter-banking system deposits and funds, as well as funds raised by issuing bonds and other securities outstanding, net of those that may be repurchased by the Group. Also included are the repo contracts and the liabilities matching assets assigned and not derecognised due to the lack of assumptions for derecognition. This involves, in particular, the liabilities associated with the securitisation schemes carried out from 1 January 2004. 13.2 Recognition criteria Initial recognition takes place on the date of settlement based on the fair value for the liabilities, which corresponds to the amount cashed or the issue price, net of the directly attributable transaction costs. The mixed debt instruments connected with equity instruments, foreign currency, credit instruments or indices, are deemed structured instruments and recorded in the financial statements after separation of the incorporated derivative, should the conditions for this apply. The primary contract is attributed a value equal to the difference between the value cashed and the fair value of the derivative. 13.3 Measurement criteria After initial recognition, the medium- or long-term financial liabilities are valued at cost less depreciation based on the effective interest rate criterion. The short-term financial liabilities, on the other hand, remain recorded at the originally cashed value, less any repayments. 13.4 Derecognition criteria Financial liabilities were derecognised when they were paid off. The repurchase of own securities previously issued is assimilated to repayment and leads to the liabilities being derecognised. Any replacement on the market of repurchased own shares is similar to newly issued financial instruments and is recorded in the financial statements on the basis of the new placement price. Section 14 - Held-for-trading financial liabilities 14.1 Classification criteria The item may include: a) derivatives which are not recorded as hedging items; b) financial liabilities issued with the intention of repurchasing them in the short term; c) financial liabilities which form part of a portfolio of financial instruments considered as a unit and for which there is evidence of an effective management strategy aimed at obtaining profit in the short term. 238 Consolidated Financial Statements
Notes to the Consolidated Financial Statements The Group has classified under the item only the negative values for derivatives. 14.2 Recognition, measurement and derecognition criteria All the financial liabilities included in this category are at fair value both at the time they are initially recognised and later during the life of the transaction, with the result of the valuation being charged to the income statement. Where not otherwise shown, the criteria for the held-for-trading financial assets apply. Section 15 - Financial liabilities at fair value Following a change to IAS 39, endorsed by European Union Regulation 1864 of 15 November 2005, it is possible to apply the so-called fair value option to financial liabilities as well, that is, to designate the financial liabilities at the time they are initially at fair value. This faculty is permitted providing that the fair value designation makes it possible to eliminate or significantly reduce a lack of uniformity which would otherwise result from valuation using different criteria for assets and liabilities, or if a group of liabilities or financial assets/liabilities were managed at fair value under an investment or risk management strategy documented internally to the Management Boards. The Group has not classified any liability under this item. The recognition, measurement and derecognition criteria are similar to those for held-for-trading financial liabilities, with recognition of gains and losses in a special item in the income statement (item 110 - Net result from financial assets and liabilities at fair value). Section 16 - Currency transactions 16.1 Recognition criteria The currency transactions are initially recorded by applying the exchange rate current at the date of the transaction. 16.2 Measurement criteria Periodically on closing the financial statements and any infra-annual position, the currency monetary items are valued using the exchange rate current at the date of closing the period, with recognition of gains and losses in the income statement. The non-monetary assets and liabilities at fair value, are also converted using the exchange rate at the date of valuation, charging the differences to the income statement if they are held-for-trading assets/liabilitiesor to the valuation reserve if they are available-for-sale assets/ liabilities. The non-monetary assets and liabilities entered at historic cost are, however, valued at the historic exchange rate. Section 17 - Insurance assets and liabilities The UGF Banca Group does not include companies which carry out insurance business and therefore assets and liabilities of this kind are not present in the consolidated financial statements. Section 18 - Other information 18.1 Reclassification of financial assets As a result of the amendments to IAS 39 issued by the IASB and validated by the European Commission under EC Regulation 1004 of 15 October 2008, as from 2008 there have been other ways of reclassifying financial assets in addition to those previously allowed, which were limited to transfers between the categories of held-to-maturity financial assets and available-for-sale financial assets. The following ways of reclassifying assets are now also allowed. Consolidated Financial Statements 239
Notes to the Consolidated Financial Statements If a financial asset is no longer held for sale or repurchase in the short term (even though it may have been acquired or held mainly for sale or repurchase in the short term), it may be transferred from fair value through profit or loss if the following requirements are met: the circumstances must be very unusual (para. 50B), or the asset to be reclassified would have come under loans and receivables (if it had not had to be classified as held for trading when initially recognised) and the entity has the intention and the ability to hold it for the foreseeable future or to maturity (para. 50D). A financial asset classified as available for sale that would have come under loans and receivables (if it had not been recognised as available for sale) may be transferred from available for sale to loans and receivables if the entity has the intention and the ability to hold it for the foreseeable future or to maturity (para. 50E). If an entity reclassifies a financial asset from fair value through profit or loss or from available for sale it must reclassify it at its fair value on the date of reclassification and the profit or loss already recorded must not be adjusted. The fair value of the financial asset on the date of reclassification becomes its new cost or amortised cost (paras. 50C and 50F). In the case of a financial asset transferred from available for sale, the previous profit or loss on the asset recorded in the equity directly must be amortised in the income statement throughout its remaining useful life using the criterion of actual interest. If the entity has reclassified a financial asset from fair value through profit or loss or from available for sale, the following is some of the information that must be provided (IFRS 7): the amount reclassified from and to each category; for each year until it is derecognised from the financial statements, the book value and the fair value of all financial assets reclassified during the current and preceding year; whether a financial asset was reclassified in accordance with paragraph 50B, however unusual the situation, and the facts and circumstances indicating the rarity of the situation; for the year in which the financial asset was reclassified, the fair value profit or loss; for each year following reclassification of the financial asset (including the year in which it was reclassified) until it is derecognised from the financial statements, the fair value profit or loss that would have been recognised if it had not been reclassified. Until 1 November 2008 the changes to IAS 39 made it possible to reclassify assets retroactively as from 1 July 2008 by way of exception. Any reclassification carried out after 1 November 2008 takes effect only as from the date on which it is carried out. For information on reclassifications of financial assets carried out by the Bank see Part A.3 - Note on fair value, below. 18.2 Securitisation schemes Since 2002 the Bank has carried out several securitisation schemes under which it has assigned performing loan portfolios to vehicle companies set up for the purpose. None of the securitisation schemes carried out meets the requirements for the assets assigned to be derecognised since the Bank has retained almost all the risks and benefits of the assets assigned. For the schemes completed after 31 December 2003 and before the transition to IAS, including the assignment of the first portfolio of receivables and the issuing of the first series of notes carried out in December 2003 as part of a programme concluded in the first months of 2005, the Bank has reversed the effects of the derecognition carried out by applying national accounting standards and has shown in the financial statements the economic-financial results of the vehicles relating to the managed portfolios, offsetting the junior notes held in the portfolio. In the case of schemes finalised after the transition to IAS, the Bank has not derecognised assets assigned and, as in the preceding case, has recorded the vehicles earned and unearned income/losses on managed portfolios and eliminated the notes held in the portfolio. In the case of securitisation schemes finalised by 31 December 2003 in accordance with the provisions of paragraph 27 of IFRS 1, the Bank had maintained the effects of the derecognition carried out by 31 December 2003 under the national standards applicable at the time. This affected in particular two securitisation schemes that were both redeemed, the first in 2007 and the second in 2008, because the option to repurchase the loans originally assigned was exercised. The receivables repurchased were recorded on the basis of their fair value on the repurchase date. 18.3 Own shares Any own shares held are charged to reducing the equity. If they are subsequently resold, the difference between the sale price and the related repurchase value is charged directly to the equity, net of the related tax effect. 240 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 18.4 Employees leaving entitlement The employees leaving entitlement governed by IAS no. 19 Employee benefits. In particular, it falls within the category of benefits subsequent to the employer-employee relationship, which IAS 19 distinguishes as defined benefit plans and defined contribution plans. The reform of the welfare system, governed by Legislative Decree 252/2005, effective as from 1 January 2007, provides that employers in the private sector, with the exclusion of companies with less than 50 employees, must pay all of the maturing employees leaving entitlement, not assigned to supplementary pension schemes, to a Fund called the Fund for granting employees leaving entitlements to employees in the private sector as stated in Article 2120 of the Civil Code, managed by INPS on behalf of the State. This means that the contributions which matured and were due to mature after 31 December 2006 are transferred to external bodies and are entered as a cost at a sum equal to the amount due for each year. The obligation with regard to employees for the quota of employees leaving entitlements matured up to 31 December 2006, entered in the financial statements as a liability, may not be transferred to external bodies, as laid down by the aforementioned Decree, and was therefore quantified using actuarial techniques and updated on the basis of the expected remaining working life of each employee. In the application of this methodology the variables used to take account of the effects produced by the new law have been reviewed. 18.5 Costs for improvements to third party assets The costs of restructuring leased property are capitalised in consideration of the fact that, throughout the term of the leasing contract, the lessee company has control of the assets and draws future economic benefits from them. The aforementioned costs are classified under Other assets in the financial statements and not under Property, plant and equipment on Banca d Italia instructions, since these costs do not in themselves constitute identifiable and separable assets. The capitalised charges of this kind are amortised on the basis of their useful life, estimated over six years equal to the term of the leasing contract. 18.6 Guarantees issued and commitments The guarantees issued and commitments are valued analytically and collectively in a way similar to that used to value the receivables. The appropriations adjusted to the possible disbursements connected with the credit risks are recorded in the financial statements under Other liabilities on Banca d Italia instructions and are offset in item 130.d) of the income statement Net impairments/reversals of impairments on other financial operations. 18.7 Recognition of income and expenditure Income from the sale of goods or the provision of services is recorded on the financial statements at the fair value of the consideration received, subject to compliance with the following terms: the company has transferred to the purchaser the risks and returns associated with the sale of the goods or provision of services; the value of the income can be reliably determined; it is probable that financial returns will be received by the company. Costs and income will be recorded on the financial statements in accordance with accrual accounting principles; in particular: accrued interest receivable and payable is recorded as earner/incurred, using a time-based criterion which considers the actual rate of return on the assets and liabilities; commissions are recorded according to when they are earned; costs are recorded on the profit and loss account for the periods in which the associated income is recorded. The dividends are entered in the income statement in the period in which their distribution is decided. 18.8 Other All the equity and economic values in the consolidated financial statements refer exclusively to companies belonging to the Banking Group. It should be pointed out that, in order to obtain a better comparison between this year s data and last year s data, the values relating to 2008 for items 20 and 30 on the balance sheet and the detailed information provided in the Notes to the financial statements were amended following the reclassification of the values of outstanding securities issued by securitisation vehicle companies as a consequence of the consolidation of the vehicle companies themselves. Consolidated Financial Statements 241
Notes to the Consolidated Financial Statements A.3 - INFORMATION ON FAIR VALUE A.3.1 Inter-portfolio transfers This paragraph provides the information required by IFRS 7 when financial assets have been reclassified during the current year or previous years, until the asset is recorded as a receivable. As a result of the liquidity crisis in the financial markets in Autumn 2008, the Group transferred debt securities with a total value of 74,824K, from the category of held-for-trading assets with effect from 1 July 2008, 58,382K being reclassified as loans and receivables and 16,442K as available-for-sale assets. The table below shows the book values and the fair value of the securities reclassified and still in the portfolio and the effects on comprehensive income. It should be mentioned that the substantial reduction in the book value of the securities transferred to the loan portfolio was due exclusively to redemptions since none was assigned. A.3.1.1 Reclassified financial assets: book value, fair value and effects on comprehensive income Type Original Destination Book Fair value at Income Income of financial portfolio portfolio value at 31,12,2009 elements elements recorded instrument (1) (2) (3) 31,12,2009 (5) not transferred during the year (4) (pre-tax) (pre-tax) Valuative Other Valuative Other (6) (7) (8) (9) Debt securities Held-for-trading Available-for-sale 5,677 5,677 162 544 162 432 financial assets financial assets Debt securities Held-for-trading Receivables 49,984 49,652-333 1,463-5,824 financial assets from banks Debt securities Held-for-trading Receivables 9,112 9,174 62 494-583 financial assets from customers Equity securities Held-for-trading Available-for-sale 3,134 3,134 412 775 412 775 financial assets financial assets The valuation elements in the columns relating to income elements not transferred (pre-tax) include the results of the valuations that would have been recorded in the income statement for the year or in the equity if the transfer had not taken place and the other elements include other types of charge and income relating to the reclassified assets (interest and profits/losses arising from assignment and redemption). The columns relating to income elements recorded during the year (pre-tax) show the income elements that were actually recorded in the income statement or in the equity. A.3.1.2 Reclassified financial assets: effects on comprehensive income before transfer Information not applicable as the Group has not carried out transfers of financial assets during the year. A.3.1.3 Transfer of financial assets held for trading Information not applicable as the Group has not carried out transfers of financial assets during the year. A.3.1.4 Effective interest rate and financial flows expected from reclassified assets Information not applicable as the Group has not carried out transfers of financial assets during the year. 242 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.3.2 Fair value ranking When the fair value is being determined information must be provided for each class of financial instrument on the methods and, if a method of valuation is used, on the assumptions made to determine the fair value of each individual class of financial asset or liability. If there has been a change in the method of valuation, information must be provided on this change and on the reasons for it. The fair value must be ranked in such a way as to reflect the importance of the data used in making the valuations. The scale of fair values must be made up of the following levels: prices listed (not adjusted) on active markets for identical assets or liabilities (Level 1); input data other than the listed prices included in Level 1 that can be seen for each asset or liability, either direct (as in the case of the prices) or indirectly (i.e. derived from the prices) (Level 2); and input data relating to the asset or liability that are not based on observable market data (data that cannot be seen) (Level 3). The following information must also be provided, inter alia, for each class of financial instrument: the level of fair value that includes the valuations of fair values in their entirety, the valuations of fair value being subdivided in accordance with the three levels defined above; all transfers of significant amounts between Level 1 and Level 2 of the scale of fair value and the reasons for the transfers; in the case of valuations of fair value on Level 3 of the scale of fair value, a reconciliation of the initial and final balances. A.3.2.1 Banking book: breakdown according to fair value levels 2009 2008 Financial assets/liabilities at fair value L1 L 2 L3 L1 L 2 L3 1. Held-for-trading financial assets 211-640 2. Financial assets at fair value - - - 3. Available-for-sale financial assets 97,711-25,462 4. Hedge derivatives - - - Total 97,922-26,102 1. Held-for-trading financial liabilities - - - 2. Financial liabilities at fair value - - - 4. Hedge derivatives - 3,825 - Total - 3,825 - Legend: L1 = Level 1 L2 = Level 2 L3 = Level 3 A.3.2.2 Annual variations in financial assets at fair value (level 3) Information not required for 2009 owing to specific transitional rules. A.3.2.3 Annual variations in financial liabilities at fair value (level 3) Information not required for 2009 owing to specific transitional rules. A.3.3 Information on day one profit/loss The initial recognition value of financial instruments corresponds to their fair value on the date they are first recorded and is normally deemed to be the price paid. The models used for valuing not very liquid financial instruments at fair value through profit or loss are based on prudential criteria in order to ensure that the effects recorded through profit or loss are based on valuation benchmarks that can be seen on the markets. Consolidated Financial Statements 243
Notes to the Consolidated Financial Statements Part B INFORMATION ON THE CONSOLIDATED BALANCE SHEET ASSET Section 1 - Cash and cash equivalents - Item 10 1.1 Cash and cash equivalents: breakdown Total 31/12/2009 Total 31/12/2008 A. Cash in hand 117,103 96,369 B. Demand deposits with Central Banks - - Total 117,103 96,369 Section 2 - Held-for-trading financial assets - Item 20 2.1 Held-for-trading financial assets: breakdown by asset classes Items/Amounts Total 31/12/2009 Total 31/12/2008 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Cash assets 1. Debt securities 1-640 76,428-2,104 1.1 Structured securities - - - - - - 1.2 Other debt securities 1-640 76,428-2,104 2. Equity securities 90 - - - - - 3. Units in UCITS 98 - - 113 - - 4. Corporate financing - - - - - - 4.1 Repos receivable - - - - - - 4.2 Others - - - - - - Total A 189-640 76,541-2,104 B. Derivatives 1. Financial derivatives: 22 - - 28-97,616 1.1 for trading 22 - - 28-97,616 1.2 linked with the fair value option - - - - - - 1.3 others - - - - - - 2. Credit derivatives: - - - - - - 2.1 for trading - - - - - - 2.2 linked with the fair value option - - - - - - 2.3 others - - - - - - Total B 22 - - 28-97,616 Total (A+B) 211-640 76,569-99,720 244 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 2.2 Held-for-trading financial assets: breakdown by debtors/issuers Items/Amounts Total 31/12/2009 Total 31/12/2008 A. Assets 1. Debt securities 641 78,532 a) Governments and Central Banks 1 75,907 b) Other public bodies - - c) Banks 15 659 d) Other issuers 625 1,966 2. Equity securities 90 - a) Banks - - b) Other issuers: 90 - - insurance companies - - - finance companies 89 - - non-financial companies 1 - - other - - 3. Units in UCITS 98 113 4. Corporate financing - - a) Governments and Central Banks - - b) Other public bodies - - c) Banks - - d) Other entities - - Total A 829 78,645 B. Derivatives - - a) Banks - 39,648 - fair value 22 28 b) Customers - 57,968 - fair value - - Total B 22 97,644 Total (A + B) 851 176,289 2.3 Held-for-trading financial assets: annual variations Variations/ Debt Equity Units in Corporate Total Underlying assets securities securities UCITS financing A. Opening balance 78,532-113 - 78,645 B. Increases 184,271 712 332-185,315 B1. Purchases 183,818 705 332-184,855 B2. Positive fair value variations - 1 - - 1 B3. Other variations 453 6 - - 459 C. Decreases 262,162 622 347-263,131 C1. Sales 260,138 616 323-261,077 C2. Repayments 374 - - - 374 C3. Negative fair value variations 626 3 12-641 C4. Transfer to other portfolios - - - - - C5. Other variations 1,024 3 12-1,039 D. Closing balance 641 90 98-829 Consolidated Financial Statements 245
Notes to the Consolidated Financial Statements Section 3 - Financial assets at fair value - Item 30 No assets classified under this item are shown in the financial statements. Section 4 - Available-for-sale financial assets - Item 40 4.1 Available-for-sale financial assets: breakdown by asset classes Items/Amounts Total 31/12/2009 Total 31/12/2008 Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 1. Debt securities 81,214-5,152 243,275-40,098 1.1 Structured securities - - - - - - 1.2 Other debt securities 81,214-5,152 243,275-40,098 2. Equity securities 13,196-20,311 12,863-34,147 2.1 at fair value 13,196-672 12,863-776 2.2 at cost - - 19,639 - - 33,371 3. Units in UCITS 3,301 - - 2,454 - - 4. Corporate financing - - - - - - Total 97,711-25,463 258,592-74,245 4.2 Available-for-sale financial assets: breakdown by debtors/issuers Items/Amounts Total 31/12/2009 Total 31/12/2008 1. Debt securities 86,366 283,373 a) Governments and Central Banks 6,976 198,749 b) Other public bodies - - c) Banks 37,338 42,980 d) Other issuers 42,052 41,644 2. Equity securities 33,507 47,010 a) Banks 273 188 b) Other issuers: 33,234 46,822 - insurance companies 137 134 - finance companies 4,085 18,127 - non-financial companies 29,011 28,561 - other - - 3. Units in UCITS 3,301 2,454 4. Corporate financing - - a) Governments and Central Banks - - b) Other public bodies - - c) Banks - - d) Other entities - - Total 123,174 332,837 4.3 Available-for-sale financial assets: specifically hedged No hedged assets are shown in the financial statements. 246 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 4.4 Available-for-sale financial assets: annual variations Debt Equity Units in Corporate Total securities securities UCITS financing A. Opening balance 283,373 47,011 2,454-332,838 B. Increases 39,207 7,193 1,053-47,453 B1. Purchases 23,477 4,068 - - 27,545 B2. Positive fair value variations 10,846 1,468 847-13,161 B3. Readjustments - 717 206-923 B4. Transfers from other portfolios: - - - - - - held-for-trading financial assets - - - - - - held-to-maturity financial assets - - - - - B5. Other variations 4,884 940 - - 5,824 C. Decreases 236,214 20,697 206-257,117 C1. Sales 225,808 19,724 - - 245,532 C2. Repayments - - - - - C3. Negative fair value variations 873 41 - - 914 C4. Impairment write-downs allocated to: 1,957 717 206-2,880 - income statement 1,957 717 206-2,880 - equity - - - - - C5. Transfers to other portfolios - - - - - C5. Other variations 7,576 215 - - 7,791 D. Closing balance 86,366 33,507 3,301-123,174 Sub-item B5 - Other changes mainly consists of profits made when assigning and/or redeeming securities. Section 5 - Held-to-maturity financial assets - Item 50 No assets classified under this item are shown in the financial statements. Section 6 - Receivables from banks - Item 60 6.1 Receivables from banks: breakdown by asset classes Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 A. Receivables from Central Banks 38,684 41,384 1. Term deposits - - 2. Compulsory reserve 38,684 41,384 3. Repos receivable - - 4. Others - - B. Receivables from banks 413,668 283,614 1. Current accounts and demand deposits 89,993 216,401 2. Term deposits 240,042 13,001 3. Other corporate financing: 3,659 4,262 3.1 Repos receivable - - 3.2 Financial leasing - - 3.3 Others 3,659 4,262 4. Debt securities: 79,974 49,950 4.1 Structured securities - - 4.2 Other debt securities 79,974 49,950 Total (book value) 452,352 324,998 Total (fair value) 451,817 319,127 Consolidated Financial Statements 247
Notes to the Consolidated Financial Statements 6.2 Specifically hedged receivables from banks No hedged assets are shown in the financial statements. 6.3 Financial leasing There are no financial leasing arrangements. Section 7 - Receivables from customers - Item 70 7.1 Receivables from customers: breakdown by asset classes Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 Performing Deteriorated Performing Deteriorated 1. Current accounts 883,879 190,698 986,880-2. Repos receivable - - - - 3. Mortgage loans 5,638,632 942,437 6,253,282-4. Credit cards, personal loans and loans on wages 126,774 13,790 157,141-5. Financial leasing 111,268 6,779 84,306-6. Factoring - - - - 7. Other transactions 1,747,801 124,574 1,166,981 459,056 8. Debt securities 9,112 10,231 24,280-8.1 Structured securities - - - - 8.2 Other debt securities 9,112 10,231 24,280 - Total (book value) 8,517,466 1,288,509 8,673,302 459,056 Total (fair value) 8,562,787 1,288,509 9,281,457 459,056 7.2 Receivables from customers: breakdown by debtors/issuers Type of transaction/amounts Total 31/12/2009 Total 31/12/2008 Performing Deteriorated Performing Deteriorated 1. Debt securities 24,140 10,231 24,280 - a) Governments - - - - b) Other public bodies - - - - c) Other issuers 24,140 10,231 24,280 - - non-financial companies 2,420 10,231 17,077 - - finance companies 21,720-7,203 - - insurance companies - - - - - others - - - - 2. Loans to: 8,493,326 1,278,278 8,649,022 459,056 a) Governments 1 12 32 2 b) Other public bodies 118,293 1 95,904 - c) Other entities 8,375,032 1,278,265 8,553,086 459,054 - non-financial companies 4,709,369 1,076,651 5,189,728 339,167 - finance companies 263,339 3,968 174,521 14,019 - insurers 53-138,129 - - others 3,402,271 197,646 3,050,708 105,868 Total 8,517,466 1,288,509 8,673,302 459,056 7.3 Specifically hedged receivables from customers There are no specifically hedged assets. 248 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 7.4 Financial leasing Total 31/12/2009 Minimum payments Gross investment Capital share of which Time bands Deteriorated of Interest nonexposures which share guaranteed residual residual value value On demand 166 1,576-500 2,076 69 Up to 3 months 156 2,969-956 3,925 34 Between 3 months and 1 year 1,724 13,213-3,968 17,181 133 Between 1 year and 5 years 2,088 48,543-12,573 61,116 3,839 More than 5 years 1,961 35,420-15,451 50,871 10,423 Unspecified duration 684 197 - - 197 3 Total 6,779 101,918-33,448 135,366 14,501 Section 8 - Hedge derivatives - Item 80 8.1 Hedge derivatives: breakdown by type of contracts and underlying assets FV 2009 NV FV 2008 NV L1 L2 L3 2009 L1 L2 L3 2008 A. Financial derivatives: - - - - - - 292 76,000 1. Fair value - - - - - - 292 76,000 2. Financial flows - - - - - - - - 3. Overseas investments - - - - - - - - B. Credit derivatives: - - - - - - - - 1. Fair value - - - - - - - - 2. Financial flows - - - - - - - - Total - - - - - - 292 76,000 Legend: FV = fair value NV = nominal value 8.2 Hedge derivatives: breakdown by hedged portfolios and type of hedge (book value) No assets classified under this item are shown in the financial statements. Section 9 - Adjustments in generically hedged financial assets - Item 90 No adjustments of this kind are shown in the financial statements. Consolidated Financial Statements 249
Notes to the Consolidated Financial Statements Section 10 - Investments - Item 100 10.1 Investments in joint ventures (valued by the equity method) and in companies subject to significant influence: information on participating interests Type of Participating interest Votes Names Registered holding Shareholder % available % office (1) share (2) A. Companies 1. SCS Azioninnova S.p.A. Bologna 8 UGF Merchant 39.996% 39.996% 2. Promorest S.p.A. Castenaso (BO) 8 UGF Merchant 48.919% 48.919% Legend: (1) Type of holding: 1 = majority of voting rights at Ordinary Shareholders Meetings 2 = dominant influence at Ordinary Shareholders Meetings 3 = agreements with other partners 4 = other forms of control 5 = single management as per Article 26 (1), of Leg. Decree 87/1992 6 = single management as per Article 26 (2), of Leg. Decree 87/1992 7 = joint control 8 = associates (2) Votes available at the Ordinary Shareholders Meetings, with a distinction between actual and potential As already stated in the general part, the Group does not have any joint ventures. 10.2 Investments in joint ventures and in companies subject to significant influence: accounting information Names Total Total Profit/ Equity Consolidated Fair value assets income Loss book value A. Companies valued by the equity method A1. joint ventures - - - - - A2. subject to significant influence - - - - 6,008 1. SCS Azioninnova S.p.A. 6,483 8,244 (310) 2,350 975 2. Promorest S.p.A. 11,108 - (113) 10,287 5,033 B. Companies consolidated on a proportional basis (not applicable) The fair value is not provided in the case of unlisted companies. 250 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 10.3 Investments: annual variations Total 2009 Total 2008 A. Opening balance 2,108 1,084 B. Increases 4,076 1,399 B.1 Purchases 4,076 - B.2 Readjustments - 12 B.3 Write-ups - - B.4 Other variations - 1,387 C. Decreases 176 375 C.1 Sales - - C.2 Adjustments 176 375 C.3 Other variations - - D. Closing balance 6,008 2,108 E. Total write-ups - - F. Total readjustments 1,144 968 10.4 Commitments relating to investments in joint ventures Information not applicable due to there being no jointly-held companies. 10.5 Commitments relating to investments in companies subject to significant influence There are no commitments relating to investments subject to significant influence. Section 11 - Technical provisions - reinsurers share - Item 110 Item not applicable to the UGF Banca Group. Consolidated Financial Statements 251
Notes to the Consolidated Financial Statements Section 12 - Property, plant and equipment - Item 120 12.1 Property, plant and equipment: breakdown of the assets valued at cost Assets/Amounts Total 2009 Total 2008 A. Assets used for corporate business 1.1 owned 24,219 24,141 a) land - - b) buildings 1,491 1,542 c) movables 11,767 9,754 d) electronic equipment 10,873 12,749 e) other 88 96 1.2 under financial leasing 698 148 a) land - - b) buildings - - c) movables 625 84 d) electronic equipment - - e) other 73 64 Total A 24,917 24,289 B. Assets held for investment purposes 2.1 owned - 1,682 a) land - - b) buildings - 1,682 2.2 under financial leasing - - a) land - - b) buildings - - Total B - 1,682 Total (A + B) 24,917 25,971 12.2 Property, plant and equipment: breakdown of the assets at fair value or written up There are no assets at fair value or written up. 252 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 12.3 Property, plant and equipment used for corporate business: annual variations Land Buildings Movables Electronic Other Total equipment A. Gross opening balance - 1,700 30,361 32,063 430 64,554 A.1 Net total decreases in value - (158) (20,523) (19,314) (270) (40,265) A.2 Net opening balance - 1,542 9,838 12,749 160 24,289 B. Increases - - 5,809 1,908 77 7,794 B.1 Purchases - - 5,766 1,891 49 7,706 B.2 Capitalised improvement costs - - - - - - B.3 Readjustments - - - - - - B.4 Positive variations in fair value allocated to: - - - - 4 4 a) equity - - - - - - b) income statement - - - - 4 4 B.5 Positive exchange rate differences - - - - - - B.6 Transfers from property held for investment purpose - - - - - - B.7 Other increases - - 43 17 24 84 C. Decreases - (51) (3,255) (3,784) (76) (7,166) C.1 Sales - - (94) - (1) (95) C.2 Depreciation - (51) (3,116) (3,764) (45) (6,976) C.3 Adjustments due to impairment allocated to: - - - - - - a) equity - - - - - - b) income statement - - - - - - C.4 Negative variations in fair value allocated to: - - - - - - a) equity - - - - - - b) income statement - - - - - - C.5 Negative exchange rate differences - - - - - - C.6 Transfers to: - - - - - - a) property, plant and equipment held for corporate use - - - - - - b) discontinued assets - - - - - - C.7 Other decreases - - (45) (20) (30) (95) D. Net closing balance - 1,491 12,392 10,873 161 24,917 D.1 Net total decreases in value - 209 23,428 23,061 302 47,000 D.2 Gross closing balance - 1,700 35,820 33,934 463 71,917 E. Valuation at cost The values indicated in lines A1 and D1 refer exclusively to total depreciation respectively at the beginning and end of the year. Sub-item E Valuation at cost provides additional information only where there is property, plant and equipment at fair value. This is not the case in these financial statements and therefore there are no values under this sub-item. Consolidated Financial Statements 253
Notes to the Consolidated Financial Statements 12.4 Property, plant and equipment held for investment purposes: annual variations Land Buildings A. Opening balance - - B. Increases - 1,682 B.1 Purchases - 518 B.2 Capitalised improvement costs - - B.3 Positive variations in fair value - - B.4 Readjustments - - B.5 Positive exchange rate differences - - B.6 Transfers from property held for corporate use - - B.7 Other increases - 518 C. Decreases - 2,200 C.1 Sales - 2,200 C.2 Depreciation - - C.3 Negative variations in fair value - - C.4 Adjustments due to impairment - - C.5 Negative exchange rate differences - - C.6 Transfers to other asset portfolios - - a) property held for corporate use - - b) discontinued assets - - C.7 Other decreases - - D. Closing balance - - E. Valuation at fair value - - Total Section 13 - Intangible assets - Item 130 13.1 Intangible assets: breakdown by type of assets Assets/Amounts Total 31/12/2009 Total 31/12/2008 Limited life Unlimited life Limited life Unlimited life A.1 Goodwill 426,179 426,179 A.1.1 attributable to the Group 426,179 426,179 A.1.2 attributable to non-controlling interests - - A.2 Other intangible assets 1,225-986 - A.2.1 Assets at cost: 1,225-986 - a) intangible assets - - - - generated internally b) other assets 1,225-986 - A.2.2 Assets at fair value: - - - - a) intangible assets - - - - generated internally b) other assets - - - - Total 1,225 426,179 986 426,179 254 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Goodwill consists of 419,226K from the value entered in UGF Banca S.p.A. s financial statements following business combinations which took place between 1999 and 2004. Worthy of special mention, due to the extent of the values acquired are three transactions, which took place in 2001, 2002 and 2004 and were aimed at acquiring bank counters, respectively 51 counters from Banca Intesa, 60 counters from Capitalia and 22 counters from Antonveneta. Goodwill represents the payment made in advance by the Parent for future economic benefits resulting from the business combinations in question. As stated by IAS 36 (paragraphs 8, 9, 10), an entity must assess at each reference date for the financial statements whether there is an indication that an asset may have undergone an impairment test. With reference to goodwill, regardless of the fact that there may be indications of long-term impairment, it is necessary to carry out the aforementioned test at least annually. In accordance with aforementioned IAS 36, an asset has undergone long-term impairment when its book value exceeds its recoverable value, understood as the higher between its fair value less the sale costs and its usage value. The goodwill recorded in the financial statements at 31 December 2009 was impairment-tested by ascertaining the value in use of the goodwill and comparing it with the book value. Goodwill was allocated to UGF Banca s entire banking activity as a cash-generating unit. The value in use was estimated by discounting back the expected income flows based on the following factors: (i) the latest budget and five-year plan (2010-2014) compiled and approved by the Board of Directors on 24 March 2010, which indicated the following incentives for achieving the result for core banking activity: - negotiating quantitative objectives and relative margins, which are then shared by the Commercial Department and accepted by general consensus of the market; - expanding short- and medium-/long-term lending to customers; - increasing customer funds and deposits; - developing new target products; - strengthening the network of branches; (ii) a stable long-term rate of growth (g factor), beyond the specific forecasting period and for an unlimited time, of 2.0%; (iii) a rate of discounting of 8.03% broken down as follows: - risk-free rate: 4.02%; - beta coefficient: 0.80; - premium for risk: 5%. The average figure for the 10-year Long-Term Treasury Bond for the period July - December 2009 was used for the risk-free rate. The beta coefficient used was a 5-year adjusted beta coefficient recorded in December for a sample of listed banks deemed to be comparable. Finally the premium for risk was deemed to be 5%, in line with common practice among financial analysts and professionals practices. Analysis revealed that the recoverable value of goodwill was 974m, 554m more than the book value ( 419m). There was no evidence of external indicators or likely changes to the basic assumptions used by the senior executives to ascertain the recoverable value of the goodwill that could affect the results of the analysis and lead to the recoverable value being less than the book value. The recoverable value was also tested for sensitivity to variations in the following benchmarks: rate of discounting back and long-term growth rate (g factor). In line with a central hypothesis (delta 554m) which provides for a rate of discounting of 8.03% (risk-free rate 4.02%, beta coefficient 0.80, premium for risk 5%) and a g factor of 2%, a range of rates of discounting of between 6.03% and 10.03% and a g factor of between 0% and 3% were used. The effects of the sensitivity analysis are summarised in the following table. Delta of recoverable amount Goodwill = 0 Sensitivity (Value range) Hp. 1 (Rate g same as rate Hp. 2 (Rate g equal to 0) used for impairment) Delta of recoverable amount Min Max g Short-term g Short-term Goodwill discounting rate g discounting rate 554.4 (97.6) 2,234.4 2% 10.72% 0% 9.25% The two extreme values (minimum - 97.6m and maximum 2,234.4m) are obtained by combining a rate of discounting of 10.03% with a g factor of 0% and a rate of discounting of 6.03% with a g factor of 3% respectively. The benchmarks that determine whether the difference between recoverable value and goodwill is cancelled out were also monitored: with a g factor of 2% the rate of discounting would be 10.72% whilst with a g factor of 0% the rate of discounting would be 9.25%. The remaining goodwill worth 6,953K is due to the positive consolidation differences relating to the subsidiaries UGF Merchant, Unipol Fondi, UGF Leasing and Unicard and Nettuno Fiduciaria. The intangible assets with a limited life consist of software costs, which are depreciated over a three-year period. Consolidated Financial Statements 255
Notes to the Consolidated Financial Statements 13.2 Intangible assets: annual variations Other intangible Other intangible assets: assets: Goodwill generated internally other Total Limited Unlimited Limited Unlimited A. Opening balance 426,179 - - 4,423-430,602 A.1 Net total decreases in value - - - (3,437) - (3,437) A.2 Net opening balance 426,179 - - 986-427,165 B. Increases - - - 859-859 B.1 Purchases - - - 859-859 B.2 Increases in internal intangible assets - - - - - B.3 Readjustments - - - - - B.4 Positive variations in fair value allocated to: - - - - - - equity - - - - - - income statement - - - - - B.5 Positive exchange rate differences - - - - - - B.6 Other increases - - - - - - C. Decreases - - - (620) - (620) C.1 Sales - - - - - - C.2 Adjustments - - - (620) - (620) - Depreciation - - (620) - (620) - Write-downs - - - - - - + equity - - - - - + income statement - - - - - - C.3 Negative variations in fair value: - - - - - - equity - - - - - - income statement - - - - - C.4 Transfers to discontinued - - - - - - fixed assets C.5 Negative exchange rate differences - - - - - - C.6 Other decreases - - - - - - D. Net closing balance 426,179 - - 1,225-427,404 D.1 Net total value adjustments - - - 4,057-4,057 E. Gross closing balance 426,179 - - 5,282-431,461 F. Valuation at cost In line A1 Net total decreases in value and line D1 Net total adjustments, the balance on the depreciation fund is shown, respectively at year-start and year-end, only for the intangible assets with a limited life. Sub-item F Valuation at cost provides additional information only where there are intangible assets at fair value in the financial statements. This is not the case in these financial statements and therefore there are no values under this sub-item. 256 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 14 - Tax assets and tax liabilities Item 140 in the assets and item 80 in the liabilities 14.1 Deferred tax assets: breakdown Figures as at 31/12/2009 Figures as at 31/12/2008 Temporary IRES IRAP Temporary IRES IRAP differences effect effect differences effect effect Deferred tax assets through profit or loss: 315,292 83,186 1,595 284,559 77,324 2,328 - assets assigned but not derecognised 24,391 6,707 893 48,825 13,427 2,067 - write-downs on receivables ded. over fifteen years 233,216 64,135-212,787 58,517 - - other taxed write-downs on receivables 2,410 663-157 43 - - charges that can no longer be capitalised 38 10 2 212 58 10 - provision for risk of actions for revocation 13,542 3,724-10,679 2,937 - - other provisions for risks and charges 5,810 1,598-6,082 1,672 - - personnel expenses 3,016 829-3,382-162 - other relevant IRAP items 6,057-291 - - - - tax losses 17,189 4,727-1,767 486 85 - other items 9,623 793 409 669 184 4 Deferred tax assets through the equity: 9,435 2,595 453 18,532 4,878 1,245 - capital losses on available-for-sale assets (debt securities) 5,628 1,548 270 18,502 4,869 1,244 - capital losses on derivatives of cash-flow hedging 3,807 1,047 183 30 9 1 Total deferred tax assets 324,727 85,781 2,048 303,091 82,202 3,573 14.2 Deferred tax liabilities: breakdown Figures as at 31/12/2009 Figures as at 31/12/2008 Temporary IRES IRAP Temporary IRES IRAP differences effect effect differences effect effect Deferred tax liabilities through profit or loss: 53,060 14,592 2,401 30,418 8,365 1,264 - write-off of depreciation on goodwill 48,595 13,364 2,333 24,297 6,682 1,166 - effect of repurchasing financial liabilities issued - - - - - - - fair value variation to hedged financial liabilities - - - - - - - capital gains on trading activity 692 191 33 727 200 35 - change in provision for employees leaving entitlement - - - 3,436 945 - - overdue interest uncollected 2,862 787 32 1,250 344 32 - off-balance sheet loan write-downs - - - - - - - other items 911 250 3 708 194 31 Deferred tax liabilities through the equity: 518 121 32 875 241 42 - capital gains on available-for-sale assets 277 121 21 875 241 42 - cash-flow hedging 241-11 - - - Total deferred tax liabilities 53,578 14,713 2,433 31,293 8,606 1,306 Consolidated Financial Statements 257
Notes to the Consolidated Financial Statements 14.3 Change in deferred tax assets (through profit or loss) Total 31/12/2009 Total 31/12/2008 1. Opening balance 79,652 31,832 2. Increases 19,445 54,074 2.1 Deferred tax assets recorded during the year 12,188 54,074 a) relating to previous years 5 16 b) owing to changes in accounting standards - - c) readjustments - - d) other 12,183 54,058 2.2 New taxes or increases in tax rates - - 2.3 Other increases 7,257-3. Decreases 14,316 6,254 3.1 Deferred tax assets written off during the year 14,316 6,254 a) reallocations 14,316 6,254 b) write-downs for unanticipated non-recoverability - - c) changes in accounting standards - - d) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 84,781 79,652 14.4 Change in deferred tax liabilities (through profit or loss) Total 31/12/2009 Total 31/12/2008 1. Opening balance 9,629 11,272 2. Increases 8,516 8,006 2.1 Deferred tax liabilities recorded during the year 8,284 8,006 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 8,284 8,006 2.2 New taxes or increases in tax rates - - 2.3 Other increases 232-3. Decreases 1,151 9,649 3.1 Deferred tax liabilities written off during the year 1,151 9,649 a) reallocations 1,151 9,649 b) changes in accounting standards - - c) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 16,994 9,629 258 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 14.5 Change in deferred tax assets (through the shareholders equity) Total 31/12/2009 Total 31/12/2008 1. Opening balance 6,123 208 2. Increases 1,220 5,955 2.1 Deferred tax assets recorded during the year 1,219 5,955 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 1,219 5,955 2.2 New taxes or increases in tax rates - - 2.3 Other increases 1-3. Decreases 4,295 40 3.1 Deferred tax assets written off during the year 4,295 40 a) reallocations 4,295 40 b) write-downs for unanticipated non-recoverability - - c) changes in accounting standards - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 3,048 6,123 14.6 Change in deferred tax liabilities (through the shareholders equity) Total 31/12/2009 Total 31/12/2008 1. Opening balance 283 23 2. Increases 86 281 2.1 Deferred tax liabilities recorded during the year 86 281 a) relating to previous years - - b) owing to changes in accounting standards - - c) other 86 281 2.2 New taxes or increases in tax rates - - 2.3 Other increases - - 3. Decreases 217 21 3.1 Deferred tax liabilities written off during the year 217 21 a) reallocations 217 21 b) changes in accounting standards - - c) other - - 3.2 Reductions in tax rates - - 3.3 Other decreases - - 4. Closing balance 152 283 Consolidated Financial Statements 259
Notes to the Consolidated Financial Statements Section 15 - Non-current assets held for sale and discontinued operations Item 150 in the assets and item 90 in the liabilities These items are not present in the financial statements. Section 16 - Other assets - Item 160 16.1 Other assets: breakdown Total 31/12/2009 Total 31/12/2008 Current account cheques being processed 7,882 49,016 Debits being processed 49,671 13,364 Improvements to property belonging to third parties 30,165 29,084 Sundry prepayments 6,623 4,425 Sundry accrued income 1,064 548 Tax assets linked to substitute tax 68,842 - Securities transactions to be settled 1,040 237 Other items 82,992 23,802 Total 248,279 120.476 LIABILITIES Section 1 - Payables to banks - Item 10 1.1 Payables to banks: breakdown by liability classes Type of transactions Total 31/12/2009 Total 31/12/2008 1. Payables to Central Banks 335,520 658,214 2. Payables to banks 86,131 35,937 2.1 Current accounts and demand deposits 45,986 3,030 2.2 Term deposits 37,635 28,924 2.3 Corporate financing 2,510 3,983 2.3.1 repos payable - - 2.3.2 other 2,510 3,983 2.4 Amounts due for commitments to repurchase own equity - - 2.5 Other payables - - Total 421,651 694,151 Fair value 421,663 694,158 1.2 Breakdown of item 10 Payables to banks : subordinated payables to customers The Group does not have any subordinated payables due to banks. 1.3 Breakdown of item 10 Payables to banks : structured payables The Group does not have any structured payables due to banks. 260 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 1.4 Breakdown of item 10 Payables to banks : specifically hedged payables Type of transaction/amount Total 31/12/2009 Total 31/12/2008 1. Specifically hedged securities (fair value) - - a) interest rate risk - - b) exchange rate risk - - c) several risks - - 2. Specifically hedged securities (cash flow) 2,511 3,809 a) interest rate risk 2,511 3,809 b) exchange rate risk - - c) other - - Total 2,511 3,809 1.5 Payables for financial leasing The Group does not have any payables for financial leasing. Section 2 - Payables to customers - Item 20 2.1 Payables to customers: breakdown by liability classes Type of transactions Total 31/12/2009 Total 31/12/2008 1. Current accounts and demand deposits 5,290,858 5,211,447 2. Term deposits 919,753 817,876 3. Corporate financing 431,639 478,390 3.1 repose payable 429,509 475,892 3.2 other 2,130 2,498 4. Amounts due for commitments to repurchase own equity - - 5. Other payables 141,308 153,505 Total 6,783,558 6,661,218 Fair value 6,783,558 6,661,218 2.2 Breakdown of item 20 Payables to customers : subordinated payables to customers The Group does not have any subordinated payables to customers. 2.3 Breakdown of item 20 Payables to customers : structured payables The Group does not have any structured payables to customers. 2.4 Breakdown of item 20 Payables to customers : specifically hedged payables There are no specifically hedged payables. 2.5 Payables for financial leasing The Group does not have any payables for financial leasing. Consolidated Financial Statements 261
Notes to the Consolidated Financial Statements Section 3 - Securities outstanding - Item 30 3.1 Securities outstanding: breakdown by liability classes Type of security Total 31/12/2009 Total 31/12/2008 BV FV BV FV Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 A. Securities - - - - - - - - 1. Bonds 2,739,266 - - 2,732,666 2,059,039 - - 2,047,758 1.1 structured - - - - - - - - 1.2 other 2,739,266 - - 2,732,666 2,059,039 - - 2,047,758 2. Other securities 18,374 - - 18,498 10,440 - - 10,441 2.1 structured - - - - - - - - 2.2 other 18,374 - - 18,498 10,440 - - 10,441 Total 2,757,640 - - 2,751,164 2,069,479 - - 2,058,199 Legend: BV: book value FV: fair value 3.2 Breakdown of item 30 Securities outstanding : subordinated securities Total 31/12/2009 Total 31/12/2008 Securities outstanding: subordinated securities 640,504 268,117 The increase compared with the previous year is mainly due to the issue of hybrid equity instruments worth 300m. For further information you are referred to Part F of these notes to the financial statements. 3.3 Breakdown of item 30 Securities outstanding : specifically hedged securities Type of transactions/amounts Total 31/12/2009 Total 31/12/2008 1. Specifically hedged securities (fair value): - 76,670 a) interest rate risk - 76,670 b) exchange rate risk - - c) several risks - - 2. Specifically hedged securities (cash flow): 223,920 - a) interest rate risk 223,920 - b) exchange rate risk - - c) other - - Total 223,920 76,670 262 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 4 - Held-for-trading financial liabilities - Item 40 4.1 Held-for-trading financial liabilities: breakdown by liability classes Total 31/12/2009 Total 31/12/2008 Type of security FV FV NV FV* NV FV* L1 L2 L3 L1 L2 L3 A. Liabilities - - - - - - - - - - 1. Payables to banks - - - - - - - - - - 2. Payables to customers - - - - - - - - - - 3. Debt securities - - - - - - - - - - 3.1 Bonds - - - - - - - - 3.1.1 Structured - - - - - - - - 3.1.2 Other bonds - - - - - - - - 3.2 Other securities - - - - - - - - 3.2.1 Structured - - - - - - - - 3.2.2 Other - - - - - - - - Total A - - - - - - - - - B. Derivatives - - - - - - 1. Financial derivatives - - - - - 94,018 1.1 for trading - - - - - 94,018 1.2 linked with the fair value option - - - - - - 1.3 other financial derivatives - - - - - - 2. Credit derivatives - - - - - - 2.1 for trading - - - - - - 2.2 linked with the fair value option - - - - - - 2.3 other credit derivatives - - - - - - Total B - - - - - 94,018 Total (A + B) - - - - - 94,018 Legend: FV: fair value FV*: fair value calculated by excluding the variations in value that are due to a change in the creditworthiness of the issuer since the date of issue NV: nominal value L1: level 1 L2: level 2 L3: level 3 4.2 Breakdown of item 40 Held-for-trading financial liabilities : subordinated liabilities There are no liabilities of this type in the financial statements. 4.3 Breakdown of item 40 Held-for-trading financial liabilities : structured payables There are no liabilities of this type in the financial statements. 4.4 Held-for-trading financial liabilities (excluding the technical overdrafts ): annual variations No changes occurred. Consolidated Financial Statements 263
Notes to the Consolidated Financial Statements Section 5 - Financial liabilities recorded at fair value - Item 50 There are no liabilities of this type in the financial statements. Section 6 - Hedge derivatives - Item 60 6.1 Hedge derivatives: breakdown by type of contract and ranking level Fair value 31/12/2009 NV Fair value 31/12/2008 NV L1 L2 L3 31/12/2009 L1 L2 L3 31/12/2008 A. Financial derivatives: - 3,825-226,500-15 - 3,750 1. Fair value - - - - - - - - 2. Financial flows - 3,825-226,500-15 - 3,750 3. Overseas investments - - - - - - - - B. Credit derivatives: - - - - - - - - 1. Fair value - - - - - - - - 2. Financial flows - - - - - - - - Total - 3,825-226,500-15 - 3,750 Legend: NV: nominal value L1: level 1 L2: level 2 L3: level 3 6.2 Hedge derivatives: breakdown by hedged portfolio and type of hedge Fair value hedging Cash-flow Transactions/Hedge type Specific Generic hedging Overseas Interest Currency Credit Market Several Specific Generic investment rate risk risk risk price risk risks 1. Available-for-sale - - - - - - financial assets 2. Receivables - - - - - 3. Held-to-maturity - - - - financial assets 4. Portfolio - - - - - - - - 5. Other transactions - Total assets - - - - - - - - - 1. Financial liabilities - - - - 3,825 2. Portfolio - - - - - - - - Total liabilities - - - - - - 3,825 - - 1. Anticipated transactions - 2. Portfolio of financial assets and liabilities - - - Section 7 - Adjustment of generically hedged financial liabilities - Item 70 This item is not present in the financial statements. 264 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 8 - Tax liabilities - Item 80 Please refer to the explanation in Section 14 of the Assets. Section 9 - Liabilities associated with discontinued operations - Item 90 This item is not present in the financial statements. Section 10 - Other liabilities - Item 100 10.1 Other liabilities: breakdown Total 31/12/2009 Total 31/12/2008 Items being processed 74,055 173,423 Due to tax authorities 41,699 28,356 Sums to be paid to third parties on mortgage loans granted 7,685 6,397 Due to suppliers 32,229 26,923 Bank transfers being processed 17,074 35,913 Cheque and bill discounts - subject to/after collection 22,935 11,903 Due to employees 6,922 2,012 Sundry deferred income 293 815 Sundry accruals 1,367 4,004 Due to employees pension fund 166 1,374 Portfolio risk liabilities 371 258 Due to social security bodies 5,507 4,539 Utility bills paid by customers 368 346 Inter-branch transit items 3 149 Other 39,582 35,266 Total 250,256 331,678 Section 11 - Employees leaving entitlement - Item 110 11.1 Employees leaving entitlement: annual variations Total 31/12/2009 Total 31/12/2008 A. Opening balance 16,493 16,902 B. Increases 6,869 7,248 B.1 Provisions during the year 6,869 6,894 B.2 Other increases - 354 C. Decreases 7,432 7,657 C.1 Payments made 1,143 1,769 C.2 Other decreases 6,289 5,888 D. Closing balance 15,930 16,493 Total 15,930 16,493 The other decreases include the quotas transferred to external funds: a supplementary pension scheme or a treasury fund set up with the INPS [national pensions body]. Consolidated Financial Statements 265
Notes to the Consolidated Financial Statements Section 12 - Provisions for risks and charges - Item 120 12.1 Provisions for risks and charges: breakdown Items/Elements Total 31/12/2008 Total 31/12/2007 1. Occupational pension funds - - 2. Other provisions for risks and charges 19,352 15,933 2.1 litigation - 154 2.2 personnel expenses 1,082 2,001 2.3 other 18,270 13,778 Total 19,352 15,933 12.2 Provisions for risks and charges: annual variations Items/Elements Pension Other Total funds funds A. Opening balance - 15,933 15,933 B. Increases - 5,323 5,323 B.1 Provisions during the year - 5,323 5,323 B.2 Changes due to the passage of time - - - B.3 Differences due to discount rate changes - - - B.4 Other increases - - - C. Decreases - 1,904 1,904 C.1 Utilisation during the year - 1,904 1,904 C.2 Changes due to discount rate changes - - - C.3 Other decreases - - - D. Closing balance - 19,352 19,352 12.3 Defined-benefit occupational pension schemes There are no provisions of this kind. 12.4 Provisions for risks and charges: other provisions At 31 December 2009 the funds for personnel expenses are allocated to cover the residual share of costs estimated at 682K in respect of the notice offering incentives to employees to take voluntary redundancy, issued in the autumn of 2007 as part of the reorganisation of the UGF Banca group, which at the end of 2007 amounted to 3,520K and recorded a profit during 2008 of 1,919K and 919K utilised during 2009. The other funds are made up as follows: - provision for risks for actions for revocation: these total 13,142K and are allocated to cover the probable risk connected with challenges of antecedent transactions brought against the Bank. They increased by 2,863K due exclusively to provisions in the year and without availments. The Bank intends to take all appropriate legal steps to protect its rights and therefore the estimated amounts and related times involved are uncertain. The discounting of the estimated disbursements was done on the basis of the curve of the forward Euribor rates relating to the end of the year. - provision for risks for compensation to customers, which amounted to 3,629K at 31 December 2009 ( 3,500K at 31/12/2008) and were set up to meet the likely cost of paying compensation to customers for illegal acts carried out by some members of the sales network. During 2009 831K of the fund in question was used for actually paying compensation and was increased by 960K for provisions during the year to meet new risk events; - provision for miscellaneous risks, which amounted to 1,900K for miscellaneous risks for current disputes. The following relates to potential liabilities: 266 Consolidated Financial Statements
Notes to the Consolidated Financial Statements - UGF Banca executing orders on financial transactions In November 2007 and July 2009 several UGF Banca customers instituted civil and criminal proceedings relating to alleged irregularities and illicit activities carried out by UGF Banca while dealing in financial derivatives. The petitioners submitted a counterclaim for a total of 67m. The preliminary criminal hearings concluded in April 2009 with the Public Prosecutor applying for the case to be dismissed, which the petitioners opposed. Deeming the opponents to have no case, UGF Banca also applied for the civil case to be dismissed and made a counterclaim for payment of debts arising from the petitioners current financial statements with UGF Banca. - Parmalat insolvency procedure In December 2004, as part of the collective creditor action against the Parmalat Group, the Parmalat Special Administration brought an action for revocation under Article 67 of the Bankruptcy Act against UGF Banca and all the lenders that had ever had any dealings with this food group amounting to approximately 47m. The Bank considered that this amount was liable to be reduced in view of the fact that certain operations were not subject to an action for revocation. Nevertheless 1.3m was added to the provision for risks, which, gross of discounting back, amounted to 3m at 31 December 2009, this amount being deemed commensurate with the values of transactions already finalised between Parmalat and other lenders. Section 13 - Technical provisions - Item 130 This item is not present in the financial statements. Section 14 - Redeemable shares - Item 150 This item is not present in the financial statements. Section 15 - Equity attributable to the group - Items 140, 160, 170, 180, 190, 200 and 220 15.1 Equity attributable to the group: breakdown Items/Amounts Amount 31/12/2009 Amount 31/12/2008 1. Capital 703,500 703,500 2. Share premium 122,613 249,500 3. Reserves 12,802 (21,076) 4. (Own shares) - - a) parent - - b) subsidiaries - - 5. Valuation reserves (5,849) (17,335) 6. Equity instruments - - 7. Profit (loss) for the year attributable to the group (20,208) (93,723) Total 1,013,858 820,866 Consolidated Financial Statements 267
Notes to the Consolidated Financial Statements 15.2 Capital - Number of Parent shares: annual variations Items/Type Ordinary Other A. Shares in existence at the beginning of the year 703,500,000 - - fully paid-up 703,500,000 - - not fully paid-up - - A.1 Own shares (-) - - A.2 Shares outstanding: opening figures 703,500,000 - B. Increases 201,000,000 - B.1 New issues 201,000,000 - for payment: 201,000,000 - - business combinations - - - conversion of bonds - - - exercise of warrants - - - other 201,000,000 - free: - - - in favour of employees - - - in favour of directors - - - other - - B.2 Sale of own shares - - B.3 Other changes - - C. Decreases - - C.1 Cancellation - - C.2 Purchase of own shares - - C.3 Business disposals - - C.4 Other changes - - D. Shares outstanding: closing figures 904,500,000 - D.1 Own shares (+) - - D.2 Shares in existence at the end of the year 904,500,000 - - fully paid-up 904,500,000 - - not fully paid-up - - 15.3 Capital - Other information The Extraordinary Shareholders Meeting held on 21 October 2009 voted to increase the share capital by 201,000,000 by issuing 201,000,000 shares at par to be offered to shareholders as an option in accordance with Article 2441, paras 1, 2 and 3, of the Civil Code. The increase was fully subscribed and paid up on 31 October 2009. The share capital is fully subscribed and paid up and, at the end of the 2009 year, is made up of 904,500,000 ordinary shares each with a face value of 1. 15.4 Profit reserves: other information For further details on the breakdown of the profit reserves, please refer to Part F - Section 1 - Consolidated Equity in the Notes to the financial statements. 15.5 Capital instruments: breakdown and annual variations This item is not present in the financial statements. 268 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 16 - Equity attributable to non-controlling interests - Item 210 16.1 Capital instruments: breakdown and annual variations Item not applicable. OTHER INFORMATION 1. Guarantees issued and commitments Transactions Amount 31/12/2009 Amount 31/12/2008 1) Financial guarantees issued 94,515 71,957 a) Banks - - b) Customers 94,515 71,957 2) Commercial guarantees issued 504,440 493,030 a) Banks 4,089 4,000 b) Customers 500,351 489,030 3) Irrevocable commitments to grant funds 631,475 28,748 a) Banks 10,191 6,815 i) use certain 928 277 ii) use uncertain 9,263 6,538 b) Customers 621,284 21,933 i) use certain 22,266 21,933 ii) use uncertain 599,018-4) Commitments underlying derivatives on receivables: protection sales - - 5) Assets lodged as guarantee for third party commitments - - 6) Other commitments - - Total 1,230,430 593,735 2. Assets lodged as guarantee for own liabilities and commitments Portfolio Amount 31/12/2009 Amount 31/12/2008 1. Held-for-trading financial assets - 20,798 2. Financial assets at fair value - - 3. Available-for-sale financial assets 34,432 247,941 4. Held-to-maturity financial assets - - 5. Receivables from banks 233,937 30,281 6. Receivables from customers 6,693 6,648 7. Property, plant and equipment - - 3. Information on operating leasing Information not applicable as the group only carries out financial leasing transactions. 4. Breakdown of the investments with regard to unit-linked and index-linked policies Not applicable. Consolidated Financial Statements 269
Notes to the Consolidated Financial Statements 5. Management and brokerage on behalf of third parties: banking group Types of service Amount 31/12/2009 1. Trading of financial instruments on behalf of third parties - a) Purchases - 1. settled - 2. not settled - b) Sales - 1. settled - 2. not settled - 2. Portfolio management 590,638 a) individual 294,675 b) group 295,963 3. Custody and management of securities - a) Third party securities on deposit connected with the bank s custodian activity (excluding portfolio management): - 1. securities issued by companies included in the scope of consolidation - 2. other securities - b) Other third party securities on deposit (excluding portfolio management): other 22,583,149 1. securities issued by companies included in the scope of consolidation 2,762,435 2. other securities 19,820,714 c) Third party securities deposited with third parties 20,877,256 d) Owned securities deposited with third parties 811,573 4. Other transactions 180,708 Sub-item 4. Other transactions refers to the countervalue of the shares invested in the Italian Stock Exchange (Borsa Italiana) for which the subsidiary UGF Merchant intervened as Global Coordinator or Co-Lead Manager. 270 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Part C INFORMATION ON THE CONSOLIDATED INCOME STATEMENT Section 1 - Interest - Item 10 and 20 1.1 Interest receivable and similar income: breakdown Items/Type Debt Corporate Other Total Total securities financing transactions 2009 2008 1. Held-for-trading financial assets 598 - - 598 3,367 2. Financial assets at fair value - - - - - 3. Available-for-sale financial assets 4,523 - - 4,523 5,158 4. Held-to-maturity financial assets - - - - - 5. Receivables from banks 970 1,138-2,108 25,859 6. Receivables from customers 194 380,014-380,208 560,456 7. Hedge derivatives 1,315 1,315 49 8. Other assets 78 78 52 Total 6,285 381,152 1,393 388,830 594,941 1.2 Interest receivable and similar income: differentials relating to hedging transactions Items/Sectors Total 2009 Total 2008 A. Positive differentials relating to hedge operations 1,315 49 B. Negative differentials relating to hedge operations - - C. Balance (A-B) 1,315 49 1.3 Interest receivable and similar income: other information Total 2009 Total 2008 1. Interest receivable on financial assets in currencies 291 725 2. Interest receivable for financial leasing transactions 4,173 4,955 1.4 Interest payable and similar charges: breakdown Item/Type Payables Securities Other Total Total liabilities 2009 2008 1. Payables to central banks 4,048 - - 4,048 20,249 2. Payable to banks 2,678-2,678 5,100 3. Payables to customers 111,504 2 111,506 281,544 4. Securities outstanding 44,231-44,231 35,711 5. Held-for-trading financial liabilities - - - - - 6. Financial liabilities at fair value - - - - - 7. Other liabilities and funds 96 96 102 8. Hedge derivatives - - 697 Total 118,230 44,231 98 162,559 343,403 Consolidated Financial Statements 271
Notes to the Consolidated Financial Statements 1.5 Interest payable and similar charges: differentials relating to hedging transactions Items/Sectors Total 2009 Total 2008 A. Positive differentials relating to hedge operations - - B. Negative differentials relating to hedge operations - 697 C. Balance (A-B) - (697) 1.6 Interest payable and similar charges: other information Total 2009 Total 2008 1. Interest payable on liabilities in currencies 224 446 2. Interest payable on liabilities for financial leasing transactions - - Section 2 - Fees and commissions - Items 40 and 50 2.1 Fees and commissions receivable: breakdown Types of services/sectors Total 2009 Total 2008 a) Guarantees issued 2,953 2,673 b) Credit derivatives - - c) Management, brokerage and consultancy services: 32,258 16,933 1. trading in financial instruments - - 2. trading in currencies 574 650 3. portfolio management 3,936 6,510 3.1 individual 1,321 1,894 3.2 group 2,615 4,616 4. custody and administration of securities 8,939 2,295 5. depository bank - - 6. placing of securities 2,281 2,142 7. acceptance of instructions 1,432 1,445 8. consultancy work 3,383 1,468 8.1 investments 3,081-8.2 financial 302-9. providing third parties services 11,713 2,423 9.1 portfolio management - 127 9.1.1 individual - - 9.1.2 group - 127 9.2 insurance products 6,599 1,694 9.3 other products 5,114 602 d) Collection and payment services 21,325 24,479 e) Servicing for securitisation transactions - 7 f) Factoring services - - g) Tax collection services - - h) Work of managing multilateral trading systems - - i) Holding and managing current accounts 41,118 27,900 j) Other services 15,648 13,514 Total 113,302 85,506 272 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 2.2 Fees and commissions payable: breakdown Types of services/sectors Total 2009 Total 2008 a) Guarantees issued 21 - b) Credit derivatives - - c) Management, brokerage and consultancy services: 7,917 7,195 1. trading in financial instruments 1 16 2. trading in currencies - - 3. portfolio management: 192 428 3.1 individual 192 428 3.2 group - - 4. custody and administration of securities 1,133 1,226 5. placing of financial instruments - - 6. financial instruments, products and services offered off-premises 6,591 5,525 d) Collection and payment services 4,255 8,876 e) Other services 992 944 Total 13,185 17,015 Section 3 - Dividends and similar income - Item 70 Total 2009 Total 2008 Items/Income Dividends Income for Dividends Income for units in units in UCITS UCITS A. Held-for-trading financial assets - 5 125 6 B. Available-for-sale financial assets 979 56 1,219 49 C. Financial assets at fair value - - - - D. Investments - 35 Total 979 61 1,379 55 Consolidated Financial Statements 273
Notes to the Consolidated Financial Statements Section 4 - Net result from trading activity - Item 80 4.1 Net result from trading activity: breakdown Capital gains Profits from Capital losses Losses from Net result Transactions/Income (A) trading (C) trading [(A+B) - (B) (D) (C+D)] 1. Held-for-trading financial assets 1 460 (641) (15) (195) 1.1 Debt securities - 451 (626) - (175) 1.2 Equity securities - 6 (3) (3) 1 1.3 Units in UCITS 1 - (12) (12) (24) 1.4 Corporate financing - - - - - 1.5 Other - 3 - - 3 2. Held-for-trading financial liabilities - - - - - 2.1 Debt securities - - - - - 2.2 Payables - - - - - 2.3 Other - - - - - 3. Other financial assets and liabilities: exchange rate differences 6,426 4. Derivatives 7 173 (78) (757) (4,249) 4.1 Financial derivatives: 7 173 (78) (757) (4,249) - on debt securities and interest rates - 159 (65) (757) (663) - on equity instruments and share indices 7 14 (13) - 8 - on currencies and gold (3,594) - others - - - - - 4.2 Derivatives on receivables - - - - - Total 8 633 (719) (772) 1,982 Capital losses on debt securities relate to securities issued by companies in the Lehman Brothers Group involved in the September 2008 collapse. The presumed recovery rate of these securities, all of which were senior, was estimated at 31 December 2009 to be 25% of their nominal value. Section 5 - Net result from hedging activity - Item 90 5.1 Net result from hedging activity: breakdown Types of income/amounts Total 2009 Total 2008 A. Income from: A.1 Hedging derivatives (fair value) - - A.2 Hedged financial assets (fair value) - - A.3 Hedged financial liabilities (fair value) 437 1,227 A.4 Hedging financial derivatives (cash flow) - - A.5 Assets and liabilities in other currencies - - Total charges relating to hedging activity (B) 437 1,227 B. Charges relating to: B.1 Hedging derivatives (fair value) 292 1,311 B.2 Hedged financial assets (fair value) - - B.3 Hedged financial liabilities (fair value) - - B.4 Hedging financial derivatives (cash flow) - - B.5 Assets and liabilities in other currencies - - Total charges relating to hedging activity (B) 292 1, 311 C. Net result from hedging activity (A-B) 145 (84) 274 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 6 - Profit (loss) from sale/repurchase - Item 100 6.1 Profit (loss) from sale/repurchase: breakdown Total 2009 Total 2008 Items/Types of income Profits Losses Net Profits Losses Net result result Financial assets 1. Receivables from banks - - - - - - 2. Receivables from customers - - - 49 (2,030) (1,981) 3. Available-for-sale financial assets 4,336 (505) 3,831 10,672 (42) 10,630 3.1 Debt securities 3,396-3,396 124 (25) 99 3.2 Equity securities 940 (505) 435 10,336 (17) 10,319 3.3 Units in UCITS - - - 212-212 3.4 Corporate financing - - - - - - 3. Held-to-maturity financial assets - - - - - - Total assets 4,336 (505) 3,831 10,721 (2,072) 8,649 Financial liabilities 1. Payables to banks - - - - - - 2. Payables to customers - - - - - - 3. Securities outstanding 15,061-15,061 1,685-1,685 Total liabilities 15,061-15,061 1,685-1,685 Section 7 - Net result from financial assets and liabilities at fair value - Item 110 Item not applicable for the years under examination. Section 8 - Impairments/reversals of impairments - Item 130 8.1 Net adjustments due to impaired receivables: breakdown Adjustments (1) Readjustments (2) Transactions/ Specific Specific On portfolio Total 2009 Total 2008 Types of income On portfolio (3)=(1) (2) (3)=(1) (2) Write-offs Other A B A B A. Receivables from banks - - - - - - - - - corporate financing - - - - - - - - - - debt securities - - - - - - - - - B. Receivables from customers 3,667 88,107 4,283 1,506 6,566-13 87,972 212,266 - corporate financing 3,667 88,107 4,283 1,506 6,566-13 87,972 212,266 - debt securities - - - - - - - - C. Total 3,572 88,107 4,283 1,506 6,566-13 87,972 212,266 Legend: A: interest B: other readjustments Consolidated Financial Statements 275
Notes to the Consolidated Financial Statements 8.2 Net adjustments due to impaired available-for-sale financial assets: breakdown Transactions/ Total Total Types of income Adjustments (1) Readjustments (2) 2009 2008 Specific Specific (3)=(1)-(2) (3)=(1)-(2) Write-offs Other A B A. Debt securities - 1,957 - - 1,957 3,382 B. Equity securities - 7,600 7,600 150 C. Units in UCITS - 206-206 - D. Financing to banks - - - - - - E. Financing to customers - - - - - - F. Total - 9,763 - - 9,763 3,532 Legend: A: interest B: other readjustments The adjustments to debt securities relate to securities issued by companies in the Lehman Brothers group and involved in the September 2008 failure. The recovery value for these securities, all belonging to the senior category, was estimated to be 50% of their nominal value at 31 December 2009. Adjustments on equity securities and units in investment trusts relate to financial instruments which, when tested in accordance with the impairment policy described in Part A2) of these Notes to the financial statements, showed evidence of impairment since their fair value had fallen below the significant and prolonged thresholds. At 31 December 2009 nine financial instruments recorded a fall in fair value of more than 20% of their initial recognition value. 8.3 Net adjustments due to impaired held-to-maturity financial assets: breakdown Sub-item not applicable for the years under examination. 8.4 Net adjustments due to impairment of other financial transactions: breakdown Adjustments (1) Readjustments (2) Transactions/ Specific Specific On portfolio Total 2009 Total 2008 Types of income On portfolio (3)=(1) (2) (3)=(1) (2) Write-offs Other A B A B A. Guarantees issued - - - - - 352 - - 352 352 B. Credit derivatives - - - - - - - - - - C. Commitments to disburse funds - - - - - - - - - - D. Other transactions - - - - - - - - - - E. Total - - - - - 352 - - 352 352 Legend: A: interest B: other readjustments Section 9 - Net premiums - Item 150 Item not applicable. Section 10 - Balance of other income and charges from insurance business - Item 160 Item not applicable. 276 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 11 - Administrative expenses - Item 180 11.1 Personnel expenses: breakdown Types of expense Total 2009 Total 2008 1) Employees 134,921 116,588 a) wages and salaries 92,740 79,049 b) social security contributions 24,780 20,876 c) employees leaving entitlement 670 - d) pensions-related expenses 17 20 e) provisions for employees leaving entitlement 6,174 6,872 f) provisions for pension fund and similar: - - - defined contribution - - - defined benefits - - g) payments to external supplementary pensions schemes: 3,856 3,450 - defined contribution 3,856 3,450 - defined benefits - - h) costs arising out of payment agreements based on own equity instruments - - i) other benefits in favour of employee 6,684 6,321 2) Other staff 4,901 2,006 3) Managers and statutory auditors 1,239 1,183 4) Retired staff 5 - Total 119,777 113,317 11.2 Average number of employees by category: banking group average 2009 average 2008 Employees: 2,313 2,117 a) senior officials 14 13 b) senior managers 715 651 c) other employees 1,584 1,453 Other employees 21 22 Total 2,334 2,139 11.3 Defined-benefit internal pension schemes: total costs No internal pension schemes were set up. 11.4 Other benefits in favour of employees The sub-item in question, shown in table 11.1 above, is made up of charges for luncheon vouchers and health and accident welfare services. Consolidated Financial Statements 277
Notes to the Consolidated Financial Statements 11.5 Other administrative expenses: breakdown Types of expense Total 2009 Total 2008 Rent payable 27,629 24,351 IT and data processing costs 21,054 18,147 Income taxes and indirect taxation 15,980 16,581 Professional services 12,203 8,316 Joint-ownership and utility charges 4,511 3,594 Insurance premiums 2,432 2,619 Postage 4,057 3,733 Reports and surveys 2,848 1,667 Transport and delivery costs 3,160 2,749 Security 4,053 3,747 Cleaning 2,721 2,800 Advertising and entertainment costs 4,005 2,810 Publications and stationery 1,973 1,867 Maintenance 3,526 2,245 Telephone 1,202 1,187 Membership fees 689 570 Board expenses 17 13 Miscellaneous expenses 15,012 12,488 Total 127,072 109,484 Section 12 - Net provisions for risks and charges - Item 190 12.1 Net provisions for risks and charges: breakdown Types of allocation Total 2009 Total 2008 - provisions for actions for revocation 2,863 3,957 - provisions for sundry charges 2,460 3,786 Total 5,323 7,743 Section 13 - Adjustments/readjustments on property, plant and equipment - Item 200 13.1 Net adjustments on property, plant and equipment: breakdown Depreciation Adjustments due Readjustmentsi Net Assets/Types of income (a) to impairment (c) result (b) (a+b c) A. Property, plant and equipment A.1 Owned 6,895 - - 6,895 - used for corporate business 6,895 6,895 - for investment purposes - - A.2 Leased 81 - - 81 - used for corporate business 81 81 - for investment purposes - - Total 6,976 - - 6,976 278 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 14 - Adjustments/readjustments on intangible assets - Item 210 14.1 Net adjustments on intangible assets: breakdown Depreciation Adjustments due Readjustments Net Asset/Types of income (a) to impairment (c) result (b) (a+b c) A. Intangible assets 620 - - 620 A.1 Owned 620 - - 620 - Generated internally by the business - - - - - Other 620 - - 620 A.2 Under financial leasing - - - - Total 620 - - 620 Section 15 - Other operating income and charges - Item 220 15.1 Other operating charges: breakdown Types of income/amounts Total 2009 Total 2008 - Depreciation on improvements to property belonging to third parties 8,010 7,224 - Allowances paid to third parties 1,521 1,107 - Unanticipated losses 380 144 - Losses from theft and robbery 181 215 - Miscellaneous charges 553 408 Total 10,645 9,098 15.2 Other operating income: breakdown Types of income/amounts Total 2009 Total 2008 - Indirect taxes recovered 13,782 14,409 - Miscellaneous expenses recovered 2,990 3,427 - Reimbursement of utilities and rent 520 592 - Unanticipated profits 425 274 - Employment-related tax relief accrued during the year - - - Reimbursement of allowances and attendance fees from participating interests 41 67 - Miscellaneous income 6,999 5,460 Total 24,757 24,229 Consolidated Financial Statements 279
Notes to the Consolidated Financial Statements Section 16 - Profits (losses) from investments - Item 240 16.1 Profits (losses) from investments: breakdown Types of income Total 2009 Total 2008w 1) Joint ventures A. Income - - 1. Write-ups - - 2. Profits on sales - - 3. Readjustments - - 4. Other income - - B. Charges - - 1. Write-downs - - 2. Adjustments due to impairment - - 3. Losses on sales - - 4. Other charges - - Net result - - 2) Companies subject to significant influence A. Income - 12 1. Write-ups - 12 2. Profits on sales - - 3. Readjustments - - 4. Other income - - B. Charges 103 195 1. Write-downs 103 195 2. Adjustments due to impairment - - 3. Losses on sales - - 4. Other charges - - Net result (103) (183) Total (103) (183) The write-downs are due to the effect of valuing the participating interest Promorest S.r.l. and SCS Azioninnova S.p.A. Section 17 - Net result of recording property, plant and equipment and intangible assets at fair value - Item 250 Item not applicable. Section 18 - Adjustments on goodwill - Item 260 As already explained in Part A - Accounting policies, the valuation of the goodwill did not reveal any adjustments. Section 19 - Profits (losses) on disposal of investments - Item 270 Item not applicable. 280 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Section 20 - Income tax for the year relating to continuing operations - Item 290 20.1 Income tax for the year relating to current operations: breakdown Types of income/sectors Total 2009 Total 2008 1. Current taxation (-) (8,750) (23,594) 2. Changes in current taxation for previous years (+/-) 2,944 (4) 3. Reduction in current taxation for the year (+) - - 4. Change in deferred tax assets (+/-) 5,126 47,819 5. Change in deferred tax liabilities (+/-) (7,364) 1,642 6. Tax for the year (-) (-1+/-2+3+/-4+/-5) (8,044) 25,863 20.2 Reconciliation between theoretical tax charge and actual tax charge in the financial statements Total 2009 Total 2008 Profit on current operations gross of tax (15,973) (119,952) Income tax - theoretical tax charge 4,396 32,577 Effect of non-taxable income or on which reduced rates are applicable 523 517 Effect of non-deductible charges (4,364) (3,015) Effect of releasing off-balance sheet deductions 937 7,881 Other effects 1,047 886 Income tax - actual tax charge 2,539 38,846 IRAP - theoretical tax charge 526 5,252 Effect of income and charges excluded from the taxable income (9,933) (15,245) Effect of releasing off-balance sheet deductions - 1,375 Effect of increased-rate taxation applicable on a regional basis (328) 21 IRAP - actual tax charge (9,735) (8,597) Substitute tax on off-balance sheet deductions (848) (4,386) Total actual tax charge (8,044) 25,863 The calculation of the theoretical tax charge is based on the following rates: 27.5% for IRES and 4.82% for IRAP. The theoretical IRAP rate adopted is equivalent to that approved by the Emilia Romagna region. The effects of differentiated rate taxations are shown separately under Effect of increased-rate taxation applicable on a regional basis. Section 21 - Profit (loss) on discontinued operations, net of tax - Item 310 Item not applicable. Consolidated Financial Statements 281
Notes to the Consolidated Financial Statements Section 22 - Profit (loss) attributable to non-controlling interests - Item 330 22.1 Detail of item 330 Loss attributable to non-controlling interests The loss attributable to non-controlling interests was 3,824K and consisted of 3,382K in losses, gross of consolidation effects, within the subsidiary UGF Merchant; 428K of losses on the consolidated figures of subsidiary Unicard; and 14K of losses attributable to noncontrolling interests shown on the other minor companies, in particular on investments consolidated by the equity method. Section 23 - Other information There is no further information other than that already shown in the previous sections. Section 24 - Earnings per share Information not due for companies with shares not traded on financial markets. 282 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Part D CONSOLIDATED COMPREHENSIVE INCOME Analysis OF CONSOLIDATED COMPREHENSIVE INCOME (amounts in K) Items Gross amount Income tax Net amount 10 Profit (Loss) for the period (24,032) Other income elements 20 Available-for-sale financial assets: a) variations in fair value 12,248 (3,687) 8,561 b) transfer to the income statement - - - - adjustments arising from deterioration 7,805 (474) 7,331 - profits/losses arising from conversion 10 (4) 6 c) other variations - - - 30 Property, plant & equipment - - - 40 Intangible assets - - - 50 Foreign investments hedging: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 60 Cash flow hedging: a) variations in fair value (3,778) 1,221 (2,557) b) transfer to the income statement - - - c) other variations - - - 70 Exchange rate differences: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 80 Discontinued fixed assets: a) variations in fair value - - - b) transfer to the income statement - - - c) other variations - - - 90 Actuarial profits (losses) on defined benefit schemes - - - 100 Proportion attributable to the valuation provisions for investments valued using the equity method: a) variations in fair value - - - b) transfer to the income statement - - - - adjustments arising from deterioration - - - - profits/losses arising from conversion - - - c) other variations - - - 110 Total other income elements net of tax 16,285 (2,944) 13,341 120 Comprehensive income (Item 10+110) - - (10,691) 130 Comprehensive consolidated income attributable to non-controlling interests - - 2,730 140 Comprehensive consolidated income attributable to owners of the Parent - - (7,961) Consolidated Financial Statements 283
Notes to the Consolidated Financial Statements Part E INFORMATION ON RISKS AND RELATED HEDGING POLICIES Section 1 - Risks for the banking group The responsibilities for defining and developing the methodologies for measuring and managing risks, as well as the control of risks taken on at consolidated level and the strategic management of those risks, are centralised in the Parent UGF Banca. In general the risks taken on by the Companies in the Banking Group are measured using the same methodologies and the same technological infrastructures. These methodologies are in any case aligned with the policies and logic of risks governance which are currently being defined and implemented by the Parent Unipol Gruppo Finanziario. In addition, the model of the controls applied at various levels (level I, II and III) is also similar at Banking Group level, as the Companies in the Banking Group (UGF Merchant, UGF Leasing and Nettuno Fiduciaria) use the Internal Auditing structures of UGF Banca as total outsourcer of services for evaluating the efficiency and effectiveness of the Internal Control System. In compliance with Banca d Italia circular 263 of 27 December 2006 concerning the New Prudential Supervision Regulations For Banks Section IV, Chapter 1 Public reporting, we confirm that Table 3 - Composition of Regulatory Capital, and Table 4 - Capital adequacy, will be published on the website of UGF Banca S.p.A. www.ugfbanca.it within the stipulated timeframe for publication of the financial statements. 1.1 CREDIT RISK QUALITATIVE INFORMATION 1. General aspects Salient events during 2009 attributable to the credit risk were as follows: - approval of the Group Lending Policy. This document governs the work of underwriting and monitoring the credit risk in such a way as to ascertain total exposure to the individual counterparty, in line with the risk appetite expressed in the Group s strategic objectives, thus ensuring that the portfolio is sufficiently diversified; - changes to the way the sales network is organised by setting up intermediate units known as Commercial Areas authorised to make important decisions; - as in the previous year, keeping the focus on the quality of the Bank s loan portfolio in order to limit the impact of non-performing loans; - incorporating the Lending Policy of the Parent, UGF Holding, into lending procedures; - incorporating legislation on moratoria agreed between the Italian Banking Association and the Ministry of Finance; - expanding the in-house rating model for the SME-Corporate sector; - refining reporting procedures in order to comply gradually with the reporting requirements of the business on the operational management of risk and with those of senior managers on strategic management. 2. Credit risk management policies 2.1 Organisational aspects Reorganisation was completed during 2009 by bringing the Business Centres up to speed and was refined by the decision to allocate small business customers to the retail branches, leaving the Business Centres to concentrate on corporate customers. On the other hand the six intermediate units known as Commercial Areas began work at the end of April 2009. As well as selling, these units were actively involved in decision-making and dealing with performing customers. However, their direct operations with nonperforming customers were still restricted to persistent defaulters (past-due and objective substandard loans) whilst the Commercial Area coordinated the work of the sales network to recover the debt from officially substandard customers in accordance with Head Office guidelines. 284 Consolidated Financial Statements
Notes to the Consolidated Financial Statements The work of granting loans continued in accordance with the rules introduced during previous years but with a filter represented by the Commercial Areas, which enabled response times to be reduced and made good use of local knowledge, including of economic trends. 2.2 Management, measurement and monitoring systems The trend in the credit risk is currently monitored using traditional indicators. In order to quantify this risk a model for calculating the probability of default (PD) for SME/corporate business was developed in-house during 2009, whilst several solutions offered by external suppliers for retail business (companies and individuals) will be evaluated in 2010. Once fully implemented the models for quantifying the probability of default will calculate the exposure at the time of default (exposure at default - EAD), the rate of loss in the event of default (loss given default - LGD) and the expected and unexpected loss. The results of monitoring and analysing the Group loan portfolio were periodically shared with the Group s senior executives and the Credit Risk Committee, particular attention being paid to the largest debts and the sectors of greatest concentration. The Lending Policy was approved by UGF S.p.A. s Board of Directors in 2009 and extended to all the companies in the Group. This policy is designed to record exposures that are of such a size as to represent a potential risk: the objective is achieved by adopting appropriate risk management and internal auditing mechanisms, enabling exposure to the various counterparties to be ascertained and monitored. The Lending Policy lays down: - the types of customer and transaction deemed suitable for granting credit; - the general principles with which the credit risk underwriting policy must comply; - the main roles and duties of the various units, in order to ensure compliance with the provisions of the Lending Policy; - a systematic decision-making process, common to all the companies in the Group, structured in such a way as to enable UGF to monitor risk underwriting decisions in its capacity as Parent; - roles and responsibilities in the process of monitoring risks at Group level; - the functions of the Group Credit Risk Committee, particular attention being paid to responsibility for monitoring large debts. 2.3 Techniques for mitigating credit risk Lending transactions during 2009 were no different from traditional lending to customers. Most business with individuals was mortgage lending and credit cards issued by the Bank, whilst granting specific and non-specific personal loans was gradually abandoned in favour of brokerage and agency. Most lending to businesses was to support production cycles: to unfreeze receivables by anticipating invoices and electronic banking receipts and to finance imports and exports. There was a particular drop in new mortgage lending to businesses, especially for building, with the exception of further loans on existing mortgages for ongoing building works. This resulted from the negative performance of the economy as a whole and in the property market in particular and from the new lending guidelines issued by the Parent. At the end of the year activities connected with the Bank s having signed up to the Italian Banking Association-Ministry of Finance agreements on the temporary suspension of the payment of instalment loans and the general work of renegotiating mortgage and unsecured loans to performing customers in temporary financial difficulties assumed particular importance. In order to reduce the credit risk the Bank used traditional forms of bond, especially mortgage liens and omnibus and specific warranties. The deterioration in the values of financial instruments used to guarantee lines of credit was insignificant since there were very few of them and they were not very sensitive to market fluctuations (Government bonds and bonds issued by the Banking Group). 2.4 Impaired financial assets The Bank classified receivables strictly in accordance with the supervisory regulations issued by Banca d Italia in line with International Accounting Standards. In particular the Bank included in its non-performing portfolio customers who were: a) insolvent (even if not ascertained by the courts) or in broadly comparable situations (bad and doubtful loans); Consolidated Financial Statements 285
Notes to the Consolidated Financial Statements b) in temporary objective difficulty (substandard loans) or persistently behind or late with repayments as defined in the Supervisory Instructions for particular core types of loan (objective substandard loans); c) subject to debt-rescheduling agreements as a result of financial difficulties (restructured debts); d) behind or late with repayments as defined by law (past-due and objective substandard loans). The work of managing the critical items of retail and corporate customers was reinforced by the assistance of the new Commercial Areas, which used specialist staff to take over the task of coordinating and monitoring the work of reducing the risk carried out by the Branches and the relevant Business Centres. Head Office was thus able to concentrate on managing critical items of major importance and those that were so complex that it was deemed prudent to manage them centrally. QUANTITATIVE INFORMATION A. CREDIT QUALITY A.1 Performing and non-performing exposures: amounts, adjustments, changes, economic and geographical distribution A.1.1 Distribution of financial assets according to portfolio and credit quality (book values) Banking Group Other companies Portfolio/Quality Bad and Sub- Restructured Overdue Other dete- Other Total doubtful standard exposures exposures assets riorated loans loans 1. Held-for trading financial assets - - - - 663 - - 663 2. Available-for-sale financial assets - - - - 86,366 - - 86,366 3. Held-to-maturity financial assets - - - - - - - - 4. Receivables from banks - - - - 452,332-20 452,352 5. Receivables from customers 200,357 647,793 90,190 350,169 8,517,466 - - 9,805,975 6. Financial assets at fair value - - - - - - - - 7. Discontinued financial assets - - - - - - - - 8. Hedge derivatives - - - - - - - - Total 2009 200,357 647,793 90,190 350,169 9,056,827-20 10,345,356 Total 2008 133,911 329,202-39,920 9,463,742 - - 9,966,775 286 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.1.2 Breakdown of financial assets by portfolio and credit quality (gross and net values) Deteriorated assets Performing Portfolio/Quality Gross Portfolio Net Gross Portfolio Net Total exposure adjustments exposure exposure adjustments exposure (net exposure) A. Banking Group 1. Held-for-trading financial assets - - - 663 663 2. Available-for-sale financial assets - - - 91,705 5,339 86,366 86,366 3. Held-to-maturity financial assets - - - - - - - 4. Receivables from banks - - - 452,336 4 452,332 452,332 5. Receivables from customers 1,652,442 363,933 1,288,509 8,558,954 41,488 8,517,466 9,805,975 6. Financial assets at fair value - - - - - 7. Discontinued financial assets - - - - - - - 8. Hedge derivatives - - - - - Total A 1,652,442 363,933 1,288,509 9,102,995 46,831 9,056,827 10,345,336 B. Other companies incl. consolidated 1. Held-for-trading financial assets - - - - - 2. Available-for-sale financial assets - - - - - - - 3. Held-to-maturity financial assets - - - - - - - 4. Receivables from banks - - - 20-20 20 5. Receivables from customers - - - - - - - 6. Financial assets at fair value - - - - - 7. Discontinued financial assets - - - - - - - 8. Hedge derivatives - - - - - Total B - - - 20-20 20 Total 2009 1,652,442 363,933 1,288,509 9,103,015 46,831 9,056,847 10,345,356 Total 2008 790,703 287,373 503,033 9,338,593 51,432 9,463,742 9,966,775 Consolidated Financial Statements 287
Notes to the Consolidated Financial Statements A.1.3 Banking Group - On- and off-balance sheet exposures to banks: gross and net values Types of exposure/values Gross Specific Portfolio Net exposure adjustments adjustments exposure A. BALANCE SHEET EXPOSURE a) Bad and doubtful loans - - - b) Substandard loans - - - c) Restructured exposures - - - d) Overdue exposures - - - e) Other assets 489,685-489,685 TOTAL A 489,685 - - 489,685 B. OFF- BALANCE SHEET EXPOSURE a) Impaired - - - b) Other 13,583 6 13,577 TOTAL B 13,583-6 13,577 TOTAL (A + B) 503,268-6 503,262 The balance sheet exposures shown in the preceding table include all balance sheet financial receivables from banks, regardless of which accounting book they are allocated to. In particular, the assets shown here are allocated to the balance sheet in the loans book, in the trading book and in the portfolio of available-for-sale assets. A.1.5 Banking Group - Balance sheet exposures to banks: changes in total adjustments The valuation of balance sheet exposures to banks did not require the posting of any adjustments. A.1.6 Banking Group - On- and off-balance sheet exposures to customers: gross and net values Types of exposure/values Gross Specific Portfolio Net exposure adjustments adjustments exposure A. BALANCE SHEET EXPOSURE a) Bad and doubtful loans 445,373 245,016 200,357 b) Substandard loans 758,306 110,513 647,793 c) Restructured exposures 95,818 5,628 90,190 d) Overdue exposures 352,945 2,775 350,170 e) Other assets 8,613,925 46,806 8,567,119 TOTAL A 10,266,367 363,932 46,806 9,855,629 B. OFF- BALANCE SHEET EXPOSURE a) Impaired 54,133-54,133 b) Other 1,149,862-1,149,862 TOTAL B 1,203,995 - - 1,203,995 The balance sheet exposures shown in the preceding table include all balance sheet receivables from customers, regardless of which accounting book they are allocated to. In particular, the shown here are allocated to the balance sheet in the loans book, in the trading book and in the portfolio of available-for-sale assets. 288 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.1.7 Banking Group - Balance sheet exposures to customers: variations in gross deteriorated exposures Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Total opening gross exposure 297,395 451,547-41,760 - of which: exposures assigned but not derecognised 18,878 24,687-3,313 B. Increases 190,401 975,795 95,818 434,471 B.1 Adjustments 9,546 630,642-429,958 B.2 Transfers from other categories of impaired exposures 160,236 66,513 95,818 - B.3 Other increases 20,619 278,640-4,513 C. Decreases 42,423 669,036-123,286 C.1 Readjustments arising out of valuation - 106,257-49,350 C.2 Write-offs 2,670 9,857 - - C.3 Receipts 39,656 296,584-4,788 C.4 Proceeds from assignments - - - - C.5 Transfers to other categories of impaired exposures - 255,459-67,108 C.6 Other decreases 97 879-2,040 D. Total closing gross exposure 445,373 758,306 95,818 352,945 - of which: exposures assigned but not derecognised 27,840 40,150-54,507 A.1.8 Banking Group - Balance sheet exposures to customers: variations in total adjustments Cause/Category Bad and Substandard Restructured Overdue doubtful loans loans exposures exposures A. Total opening adjustments 163,484 122,345-1,840 - of which: exposures assigned but not derecognised 1,802 1,099 - - B. Increases 92,313 29,792 5,628 996 B.1 Adjustments 60,339 29,776 5,628 996 B.2 Transfers from other categories of impaired exposures 31,685 - - - B.3 Other increases 289 16 - - C. Decreases 10,781 41,624-61 C.1 Readjustments arising out of valuation 415 1 - - C.2 Readjustments arising out of receipts 7,292 15 - - C.3 Write-offs 2,616 9,905 - - C.4 Transfers to other categories of impaired exposures - 31,685 - - C.5 Other decreases 458 18-61 D. Total closing adjustments 245,016 110,513 5,628 2,775 - of which: exposures assigned but not derecognised 3,088 1,099 - - A.2 Classification of exposures based on external and internal ratings Information relating to 31 December 2009 is not available. Consolidated Financial Statements 289
Notes to the Consolidated Financial Statements A.3 Breakdown of collateralised exposures by type of guarantee A.3.1 Banking Group - Exposures to customers by type of guarantee Personal guarantees (2) Collaterals (1) Net Derivatives on receivables Unsecured receivables exposure Buildings Secu- Other CLN Other derivatives Total value rities guaran- Govern- Other Banks Other Govern- Other Banks Other (1)+(2) tees ments public enti- ments public entiand bodies ties and bodies ties central central banks banks 1. Guaranteed exposures: 5,678,153 4,540,155 103,869 170,513 - - - - - - 4,996 4,486 750,001 5,574,020 1.1 fully guaranteed 5,393,654 4,534,331 80,381 149,297 - - - - - - 4,555 4,474 687,054 5,460,092 - of which deteriorated 719,013 645,828 921 6,932 - - - - - - 129-68,873 722,683 1.2 partially guaranteed 284,499 5,824 23,488 21,216 - - - - - - 441 12 62,947 113,928 - of which deteriorated 35,935 1,794 5,540 1,633 - - - - - - 41-9,733 18,741 2. Guaranteed off-balance sheet exposures: 751,685 868,080 20,420 21,406 - - - - - - - 8,495 55,623 974,024 2.1 fully guaranteed 689,117 868,080 18,492 18,091 - - - - - - - 433 53,960 959,056 - of which deteriorated 13,324 72,054 511 10 - - - - - - - - 321 72,968 2.2 partially guaranteed 62,568-1,928 3,315 - - - - - - - 8,062 1,663 14,968 - of which deteriorated 1,377 - - 558 - - - - - - - - - 558 B. DISTRIBUTION AND CONCENTRATION OF CREDIT EXPOSURES B.1 Banking Group - Sector breakdown of on- and off-balance sheet exposures to customers (book value) See table on the following page. 290 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Governments and Central Banks Other public bodies Finance companies Exposures/Counterparty Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans 2 43 - - 1,467 4,444 A.2 Substandard loans 10 1 - - 898 119 A.3 Restructured exposures - - - - - - A.4 Overdue exposures - - 1-1,214 129 A.5 Other exposures 6,976-118,294-319,314 6,148 TOTAL A 6,988 44-118,295 - - 322,893 4,692 6,148 B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - - - - B.2 Substandard loans - - - - - - B.3 Other impaired assets - - - - - - B.4 Other exposures 10,384-71 - 14,709 - TOTAL B 10,384 - - 71 - - 14,709 - - TOTAL (A+B) 2009 17,372 44-118,366 - - 337,602 4,692 6,148 TOTAL (A+B) 2008 286,441 43-95,904-34 245,680 11,022 5,019 Insurance companies Non-financial companies Other subjects Exposures/Counterparty Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments Net exposure Specific adjustments Portfolio adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans - - 128,242 180,460 70,646 60,069 A.2 Substandard loans - - 588,754 68,779 58,131 41,614 A.3 Restructured exposures - - 90,190 5,628 - - A.4 Overdue exposures - - 306,507 1,817 42,448 829 A.5 Other exposures 708 4 4,691,485 32,837 3,430,343 7,817 TOTAL A 708-4 5,805,178 256,684 32,837 3,601,568 102,512 7,817 B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - 1,073 - - - B.2 Substandard loans - - 14,205-524 - B.3 Other impaired assets - - 38,316-15 - B.4 Other exposures 69,467-1,033,418-21,813 - TOTAL B 69,467 - - 1,087,012 - - 22,352 - - TOTAL (A+B) 2009 70,175-4 6,892,190 256,684 32,837 3,623,920 102,512 7,817 TOTAL (A+B) 2008 212,780-1 6,070,390 182,778 38,586 3,219,524 93,529 8,089 Consolidated Financial Statements 291
Notes to the Consolidated Financial Statements B.2 Banking Group - Territorial distribution of on- and off-balance sheet exposures to customers (book value) ITALY OTHER EUROPEAN AMERICA ASIA REST COUNTRIES OF THE WORLD Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans 200,239 244,949 4 48 - - 3 11 111 8 A.2 Substandard loans 645,207 109,609 2,431-153 904 - - 2 - A.3 Restructured exposures 90,190 5,628 - - - - - - - - A.4 Overdue exposure 350,170 2,775 - - - - - - - - A.5 Other exposures 8,493,291 46,450 16,126 243 55,626 98 1,992 15 85 - TOTAL 9,779,097 409,411 18,561 291 55,779 1,002 1,995 26 198 8 B. Off-balance sheet exposures: B.1 Bad and doubtful loans 1,073 - - - - - - - - - B.2 Substandard loans 14,729 - - - - - - - - - B.3 Other impaired assets 38,331 - - - - - - - - - B.4 Other exposures 1,146,887 - - - - - 2,776-199 - TOTAL 1,201,020 - - - - - 2,776-199 - TOTAL 2009 10,980,117 409,411 18,561 291 55,779 1,002 4,771 26 397 8 TOTAL 2008 10,061,647 334,386 27,185 250 41,801 4,291 2 12 84 162 B.3 Banking Group - Territorial distribution of on- and off-balance sheet exposures to banks (book value) ITALY OTHER EUROPEAN AMERICA ASIA REST COUNTRIES OF THE WORLD Exposures/Geographical area Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments Net exposure Comprehensive adjustments A. Balance sheet exposures: A.1 Bad and doubtful loans - - - - - - - - - - A.2 Substandard loans - - - - - - - - - - A.3 Restructured exposures - - - - - - - - - - A.4 Overdue exposure - - - - - - - - - - A.5 Other exposures 443,644-9,973-5,039-572 - 30,456 - TOTAL 443,644-9,973-5,039-572 - 30,456 - B. Off-balance sheet exposures: B.1 Bad and doubtful loans - - - - - - - - - - B.2 Substandard loans - - - - - - - - - - B.3 Other impaired assets - - - - - - - - - - B.4 Other exposures 13,488 6 - - - - 89 - - - TOTAL 13,488 6 - - - - 89 - - - TOTAL 2009 457,132 6 9,973-5,039-661 - 30,456 - TOTAL 2008 352,702 70 55,934-11,135-334 - 72-292 Consolidated Financial Statements
Notes to the Consolidated Financial Statements B.5 High risks 31/12/2009 a) Amount 242,041 b) Number 2 With regard to the concentration risk you are referred to the information provided in the appropriate section of the management report. C. SECURITISATIONS AND ASSET ASSIGNMENTS C.1 Securitisations Qualitative information Starting in 2001 the Bank carried out a total of six performing loan securitisation schemes, all arising out of loans granted independently, the last of which was paid off in the current year whereas the first two had already been paid off in previous years. The latest scheme is excluded from this section because under the supervisory regulations issued by Banca d Italia it is deemed to be a self-securitisation scheme since at the time they were issued the bank subscribed and still holds all the ABS securities issued by the vehicle company and the scheme was carried out after 30 November 2008. The main features will be summarised at the end of this section. While on the subject of these regulations it should be mentioned that the fifth securitisation scheme, under which the bank also subscribed all the ABS securities at the time they were issued by the vehicle company, was carried out by the deadline of 30 November 2008 and under Banca d Italia provisions is therefore classified as self-securitisation and dealt with in this section. The transactions were carried out with a view to diversifying types of funding, improving the correlation between customer deposits and loan maturities and also improving the prudential supervisory ratios. In the case of schemes other than those of self-securitisation, UGF Banca has also always subscribed and still holds all the junior notes issued under the various securitisation schemes and not yet repaid. Thus the risk attributable to the assets assigned remains with the bank, which as servicer will regularly monitor performance and provide reports. In addition to the junior notes the Bank also holds some of the higherpriority notes (mezzanine and/or senior) that were not placed on the market at the time of issue or that were subsequently repurchased. As already indicated in Part A - Accounting Policies, in the case of schemes still in existence, all completed after 31 December 2003, the assets assigned continued to appear in the financial statements since essentially the risk was not transferred to third parties. The Group is not exposed to risk on third party securitisation schemes. There follows a descriptive analysis of each of the transactions still underway in 2009. 1. Securitisation scheme carried out through Grecale ABS S.r.l. begun in December 2003 - taken to market in April 2005 following repackaging through Castoro RMBS S.r.l. (Grecale ABS Securitisation 2) In December 2003 a securitisation scheme was signed in which the maximum amount of securities to be issued totalled 750m and which was to be carried out within an initial warehousing period of one year, which was then extended until April 2005. Under this scheme, organised in collaboration with ABN AMRO N.V. acting as arranger and with UGF Merchant Banca per le Imprese S.p.A. as co-arranger, three assignments of receivables were made, funded by Grecale ABS issuing three series of security, divided into only two classes: senior note and junior notes. Assignments of receivables after the first assignment have been partly financed, up to the available amount, with principal funds derived from the income from receivables previously assigned. All assignments of receivables carried out in the warehousing period form a single portfolio in the interests of the holders of the securities issued, according to the priorities set between the various classes of securities but with no differentiation between the various series of securities within the same class. The receivables assigned come from performing residential mortgage loans issued by UGF Banca, granted to persons residing in Italy, secured by first or equivalent mortgages, with a ratio between residual debt and property value as determined by an expert valuation of no more than 80%. Overall receivables with a total principal value of 678,084K were assigned for 727,004K. Consolidated Financial Statements 293
Notes to the Consolidated Financial Statements Price of receivables assigned to Grecale ABS Secur. 2 2003 2004 Value Assignment price principal 270,693 407,391 678,084 Assignment price interest 569 431 1,000 Assignment price premium 20,302 27,618 47,920 Total 291,564 435,440 727,004 Grecale ABS financed the purchase by issuing two classes of securities, split into three series, with a total nominal value equal to the amount of the receivables, net of the funds available from receipts from the mortgages. The following table summarises the main characteristics of the securities issued. Securities issued by Grecale ABS Class Legal Interest Rating Nominal expiry date rate value Senior 28/01/2041 Euribor 3m + 40b.p. n/r 618,000 Junior 28/01/2041 1% + variable return n/r 81,528 Total 699,528 During the warehousing period the senior notes were subscribed through private placement by an independent SPV (Tulip Asset Purchase Company B.V. registered in Amsterdam) and the junior notes were subscribed by UGF Banca. In April 2005 a repackaging exercise took place for all the securities issued by Grecale ABS which were transferred to the SPV Castoro RMBS S.r.l., which funded the purchase by issuing three classes. The following table shows the main features of the securities issued by Castoro RMBS. Securities issued by Castoro RMBS Class Legal Interest Moody s/fitch Nominal expiry date rate rating value Class A 28/01/2041 Euribor 3m + 10b.p. Aaa/AAA 622,500 Class B 28/01/2041 Euribor 3m + 28b.p. Aa3/A 26,000 Class C 28/01/2041 1% fixed n/r 51,678 Total 700,178 The first two classes of securities were placed on the market with Italian and foreign institutional investors. UGF Banca underwrote the entire amount of junior notes (Class C) after transferring to Castoro RMBS the junior notes issued by Grecale ABS. UGF Banca subsequently purchased Class B securities issued by Castoro for a nominal value of 4m (2007), as well as Class A securities issued by Castoro for a nominal value (on issue) of 35m, 9m of which was during the 2008 year and 26m during the current year; the Class A securities already repaid at the close of the year were more than 59% of their nominal value on issue as seen in the table below. The three classes of securities feature increasing degrees of subordination, with absolute preference in favour of the Class A securities, on which principal repayment began in October 2006. The residual value to be repaid on the Castoro notes is set out below: Residual value to be repaid on securities issued Issue Residual Residual value value at value at 31/12/2008 31/12/2009 Class A securities 622,500 328,676 252,607 Class B securities 26,000 26,000 26,000 Class C securities 51,678 51,678 51,678 Total 700,178 406,354 330,285 The transaction as a whole is a pass through type: the entire mortgage loan portfolio of Grecale ABS is collateral for the holders of securities issued by Castoro and all the inward cash flows of Grecale ABS are transferred to Castoro RMBS separately for the principal and interest portions. 294 Consolidated Financial Statements
Notes to the Consolidated Financial Statements ABN AMRO Bank (RBS group) provided the SPV Castoro with a credit facility initially totalling 19.5m, now reduced, as a result of the fall in the residual value of the notes to be refunded, to 9.7m and never used. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting Castoro. Under the terms of the interest rate swap contract, the SPV receives from the counterparty Euribor 3 months and pays to the counterparty a fixed rate of 3.75%, Euribor 6 months + 3bps and Euribor 3 months on notional amounts corresponding to the portion of the mortgage loan portfolio indexed to these parameters. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. 2. Securitisation scheme carried out through Grecale ABS S.r.l. begun in December 2004 - taken to market in May 2006 following repackaging through Atlante Finance S.r.l. (Grecale ABS Securitisation 3) In December 2004 another securitisation scheme was launched in which the initial maximum amount of securities to be issued totalled 1,050m, later raised to 1,700m, to be completed within a one-year warehousing period expiring in December 2005, later extended to May 2006. During this programme, organised in collaboration with ABN AMRO N.V. as arranger and Unipol Merchant Banca per le Imprese S.p.A. and Nomura International plc as co-arrangers, five assignments of receivables were made, funded by Grecale ABS by issuing several series of notes, divided into only two classes: senior note and junior notes. Assignments of receivables after the first assignment have been partly financed, up to the available amount, with principal funds derived from the income from receivables previously assigned. All assignments of receivables carried out in the warehousing period form a single portfolio in the interests of the holders of the securities issued, according to the priorities set between the various classes of securities but with no differentiation between the various series of securities within the same class. The receivables assigned come from performing residential and non-residential mortgage loans and from loans other than mortgage loans to public bodies, issued by Unipol Banca and granted to persons residing in Italy, secured (with the sole exception of loans to public bodies) by first or equivalent mortgages, with a ratio between residual debt and property value as determined by an expert valuation of no more than 80%. Summarised below are the amounts of the assignments made. Price of receivables assigned to Grecale ABS Sec.ur 3 2004 2005 Value Assignment price principal 570,810 965,752 1,536,562 Assignment price interest 2,856 1,362 4,218 Assignment price premium 28,541 57,945 86,486 Total 602,207 1,025,059 1,627,266 Five assignments of receivables were completed, the first taking place in December 2004 and the rest during 2005. Grecale ABS funded the purchase by issuing two classes of securities, divided into five series, for an aggregate nominal value equal to the amount of the loans net of available funds deriving from loan proceeds. The following table summarises the main features of the securities issued by Grecale ABS: Securities issued by Grecale ABS Class Legal Interest Rating Nominal expiry date rate value Senior 28/01/2047 Euribor 3m + 40b.p. n/r 1,358,000 Junior 28/01/2047 1% fixed n/r 158,150 Total 1,516,150 Consolidated Financial Statements 295
Notes to the Consolidated Financial Statements During the warehousing period the senior notes were subscribed through private placement by an SPV (Tulip Asset Purchase Company B.V. registered in Amsterdam) and the junior notes were subscribed by UGF Banca. In May 2006 a repackaging exercise took place for all the securities issued by Grecale ABS which were assigned to the SPV Atlante Finance S.r.l., which funded the purchase by issuing four classes of notes. The following table shows the main features of the securities issued by Atlante Finance. Securities issued by Atlante Finance Class Legal Interest Original rating Current rating Nominal expiry date Rate Moody s/fitch/s&p Moody s/fitch/s&p value Class A 28/01/2047 Euribor 3m + 19b.p. Aaa/AAA/AAA Aaa/AAA/AAA 1,202,500 Class B 28/01/2047 Euribor 3m + 62b.p. Aa3/A/A Aa3/A/A 28,800 Class C 28/01/2047 Euribor 3m + 160b.p. Baa3/BBB-/BBB- Baa3/B/BB 136,800 Classe D 28/01/2047 Euribor 3m n/r n/r 152,250 Total 1,520,350 The first three classes of securities were placed on the market with Italian and foreign institutional investors. UGF Banca subscribed the entire amount of junior notes (Class D) after transferring to Atlante Finance the junior notes issued by Grecale ABS. The Group also subscribed a portion of the Class C mezzanine notes for a nominal value of 61m. During 2006 the subsidiary UGF Merchant assigned to third parties Class C mezzanine notes with a nominal value of 40m and UGF Banca issued to the purchasers a guarantee for full capital repayment on the securities assigned. As a result of this guarantee, the risk has not been transferred from the Group to the third parties; thus in the consolidated balance sheet the effects cancel each other out, with derecognition applied to the individual financial statements of the subsidiary Unipol Merchant and the countervalue received, including the proportion of profits relating to future years, is shown on the item debt to customers. As far as the profit realised on the sale is concerned, being 4,680K, corresponding to the excess spread expected from the securities assigned compared to the normal return on substantially risk free securities, note that this is recorded on a pro rata basis over time with the interest accruals on the consolidated profit and loss account over the average expected life of the securities assigned. The total income recorded at 31 December 2009 amounts to 1,093K (of which 347K was recorded in the income statement for 2009 and 746K in the previous years) and income deferred to future years amounts to 3.587K. It also repurchased the Class C securities issued by Atlante for a nominal value of 38m, 24m of which was during the current year. UGF Banca also repurchased Class A securities issued by Atlante for a nominal value (on issue) of 46.5m; the Class A securities already repaid at the close of the year were more than 55% of their nominal value on issue as seen in the table below. The four classes of securities feature increasing degrees of subordination, with absolute preference in favour of the Class A securities, on which principal repayment began in January 2008. The residual value to be repaid on the Atlante notes is set out below: Residual value to be repaid on securities issued Issue Residual Residual value value at value at 31/12/2008 31/12/2009 Class A securities 1,202,500 664,595 538,880 Class B securities 28,800 28,800 28,800 Class C securities 136,800 136,800 136,800 Class D securities 152,250 152,250 152,250 Total 1,520,350 982,445 856,730 The transaction as a whole is a pass through type: the entire mortgage loan portfolio of Grecale ABS is collateral for the holders of securities issued by Atlante Finance and all the inward cash flows of Grecale ABS are transferred to Atlante Finance separately for the principal and interest portions. 296 Consolidated Financial Statements
Notes to the Consolidated Financial Statements ABN AMRO Bank (RBS group) provided the SPV Atlante with a credit facility initially totalling 110.8m, now reduced, as a result of the fall in the residual value of the notes to be refunded, to 63.8m and never used. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting Atlante. Under the terms of the interest rate swap contract, the SPV receives from the counterparty Euribor 3 months and pays to the counterparty a fixed rate of 4.32%, Euribor 6 months + 27.25bps and Euribor 3 months +31.5bps on notional amounts corresponding to the portion of the loan portfolio indexed to these parameters. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. In January 2009 the securitisation scheme had to record that one of the trigger events provided for in the regulation, relating to the percentage ratio between the delinquent loans (with instalment payments in arrears by between 30 and 180 days) and the residual loan amount, had been exceeded; this event was caused by arrears on a few significant commercial positions and led to suspension of the payment, but not the accrual, of interest on the class D junior notes, producing also a movement of flows to the principal, which will help speed up the process of redeeming the senior notes; some ratings agencies decided therefore to partially revise the rating attributed to the notes issued by Atlante, as detailed in the previous table. 3. Securitisation scheme carried out through Grecale ABS S.r.l. in May 2008 (Grecale ABS Securitisation 4) In May 2008, a securitisation scheme was performed for an amount of securities issued for the nominal value of 1,104m. The scheme was organised with the collaboration of BNP Paribas and Finanziaria Internazionale Securitisation Group as arrangers; the assignment of loans was funded by Grecale ABS with the issuing of securities distributed in only two classes: senior notes and junior notes. The loans assigned arise out of performing mortgage loans on residential property granted by UGF Banca to individuals resident in Italy, backed by first or equivalent mortgages, where the residual debt does not exceed 80% of the property value as determined by an expert valuation. The values of the assignment carried out are as follows: Grecale ABS funded the purchase by issuing two classes of securities. Price of receivables assigned to Grecale ABS Secur. 4 2008 Assignment price principal 1,059,353 Assignment price interest 1,139 Assignment price premium - Total 1,060,492 The following table summarises the main features of the securities issued by Grecale ABS: Class Legal Interest Rating Nominal expiry date rate amount Senior 22/04/2058 Euribor 6m/3m + 60b.p. Aaa/AAA 1,007,750 Junior 22/04/2058 variable return n/r 96,510 Total 1,104,260 UGF Banca subscribed the full amount of both the senior notes (class A) and the junior notes (class B). Given the tensions generated on the financial market and the strong rise in the credit spreads applied to the interest rates following the subprime loan crisis, the operation was, in fact, planned from the start with the aim of subscribing all the notes issued, in the event, as indeed happened, of using the senior notes for refinancing operations at the ECB. The features of the notes are, at any rate, such that they will be able to be swiftly placed with institutional investors, should the changed expectations with regard to yield expressed by the market make the offer profitable. The two classes of notes are characterised by increasing levels of subordination, with absolute priority in favour of the Class A securities, the repayment of principal of which begins eighteen months from issue. Consolidated Financial Statements 297
Notes to the Consolidated Financial Statements The senior notes were initially issued with the half-yearly coupon indexed to the 6-month Euribor 6m with the option on 22 January 2010 and then with the quarterly coupon and indexed to the 3-month Euribor. The operation was not backed by any credit facility as it has a cash reserve in the amount of 41.9m, originally financed by an issue premium for junior notes designed to protect the Class A securities, whose amount it will be possible to reduce according to the changed requirements for protection as soon as the amount of the junior notes (class B) is at least 17.50% of the residual value of the senior notes (class A) in circulation. As with the transactions described previously, here, too, UGF Banca acts as servicer in the securitisation process and is the indirect counterparty to the interest rate swap contract, which is set up to hedge against the interest rate risks affecting the vehicle company. Depending on the interest rate swap contract, the vehicle company collects the 6-month/3 month Euribor + 100bps from the counterparty and pays the counterparty all the interest collected, net of the differential of the relating accruals on the performing loans. UGF Banca has the option of repurchasing the assigned loan portfolio only from the date on which the residual value of the receivables becomes less than 10% of the value originally assigned, for a payment not greater than the market value. The option may be exercised provided that the payment thus determined will be sufficient for full reimbursement of the residual value of securities in circulation. After the close of the year capital repayments of the senior notes began, starting eighteen months from the date of issue. 4. Securitisation scheme carried out through Grecale ABS S.r.l. in April 2009 (Grecale ABS Securitisation 5) Purely for information, as stated at the beginning of this section, it should be mentioned that in April 2009 a new securitisation scheme was carried out by selling a total of 611m of performing mortgage loans on residential property granted by UGF Banca to persons resident in Italy, backed by first or equivalent mortgages, where the residual debt did not exceed 80% of the professionally ascertained value of the property, and consequently securities with a nominal value of 627m, divided into only two classes (senior and junior), were issued. Moody s rated the senior securities Aaa. UBS Investment Bank and UGF Merchant acted as arrangers and all the securities were subscribed by UGF Banca at the time of issue on the assumption that the senior notes would be used for refinancing operations with the ECB and other Central Banks, which in fact is what happened. The scheme is therefore described as a self-securitisation. Quantitative information C.1.1. Banking Group - Exposures arising from securitisation schemes categorised by the quality of the underlying assets The Group has not granted credit facilities or guarantees connected with securitisation schemes. Type of underlying asset/ Exposure Balance sheet exposures Off-balance sheet exposures Senior Mezzanine Junior Senior Mezzanine Junior Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net expo- expo- expo- expo- expo- expo- expo- expo- expo- expo- expo- exposure sure sure sure sure sure sure sure sure sure sure sure A. With own underlying assets: 1,053,645 1,053,645 90,128 90,128 320,842 297,463 - - - - - - a) Impaired - - - - - - - - - - - - b) Other 1,053,645 1,053,645 90,128 90,128 320,842 297,463 - - - - - - B. With underlying assets of third parties: - - - - - - - - - - - - a) Impaired - - - - - - - - - - - - b) Other - - - - - - - - - - - - 298 Consolidated Financial Statements
Notes to the Consolidated Financial Statements C.1.2 Banking Group - Exposures arising from the main own securitisation schemes divided by type of asset securitised and by type of exposure Balance sheet exposures Off-balance sheet exposures Senior Mezzanine Junior Senior Mezzanine Junior Type of securitised asset/ Exposure Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ Book Adjust/ value readjust- value readjust- value readjust- value readjust- value readjust- value readjustments ments ments ments ments ments A. Entirely derecognised - - - - - - - - - - - - A.1 Grecale S.r.l. - - - - - - - - - - - - - performing residential - - - - - - - - - - - - mortgage loans A.2 Grecale ABS Secur. 1 - - - - - - - - - - - - - performing mortgage - - - - - - - - - - - - loans B. Partially derecognised - - - - - - - - - - - - C. Not derecognised 1,053,645-90,128-297,463 (23,379) - - - - - - C.1 Grecale ABS Secur. 2 - - - - - - - - - - - - - performing residential 13,534-3,800-41,757 (9,921) - - - - - - mortgage loans C.2 Grecale ABS Secur. 3 - - - - - - - - - - - - - performing mortgage 18,799-86,328-152,163 (9,077) - - - - - - loans C.3 Grecale ABS Secur. 4 - - - - - - - - - - - - - performing mortgage 1,021,312 - - - 103,543 (4,381) - - - - - - loans Total 1,053,645-90,128-297,463 (23,379) - - - - - - C.1.3 Banking Group - Exposures arising from the main securitisation schemes of third parties divided by type of asset securitised and by type of exposure There are no exposures of this type. C.1.4 Banking Group - Securitisation exposures divided by financial asset portfolio and by type There are no exposures of this type. Consolidated Financial Statements 299
Notes to the Consolidated Financial Statements C.1.5 Banking Group - Total amount of securitised assets underlying the junior notes or other forms of credit support Asset/Value Traditional Synthetic securitisations securitisations A. Own underlying assets: 1,401,236 A.1 Full derecognition - 1. Bad and doubtful loans - 2. Substandard loans - 3. Restructured exposures - 4. Overdue exposures - 5. Other assets - A.2 Partial derecognition - 1. Bad and doubtful loans - 2. Substandard loans - 3. Restructured exposures - 4. Overdue exposures - 5. Other assets - A.3 Not derecognised 1,401,236-1. Bad and doubtful loans - - 2. Substandard loans - - 3. Restructured exposures - - 4. Overdue exposures - - 5. Other assets 1,401,236 - B. Underlying assets of third parties: - - 1. Bad and doubtful loans - - 2. Substandard loans - - 3. Restructured exposures - - 4. Overdue exposures - - 5. Other assets - - C.1.6 Banking Group - Participating interests in SPVs Name Registered office Holding % Grecale ABS S.r.l. Bologna - Castoro RMBS S.r.l. Milan - Atlante Finance S.r.l. Milan - 300 Consolidated Financial Statements
Notes to the Consolidated Financial Statements C.1.7 Banking Group - Servicer activity - receipts from securitised loans Servicer activity: receipts from Principal Other Total individual securitisation schemes amount receipts receipts Received on behalf of Grecale S.r.l.: 100,255 33,445 133,700 - during the year - - - - in previous years 100,255 33,445 133,700 Received on behalf of Grecale ABS S.r.l. Sec 1: 105,937 34,022 139,959 - during the year - - - - in previous years 105,937 34,022 139,959 Received on behalf of Grecale ABS S.r.l. Sec 2: 374,132 132,569 506,701 - during the year 61,850 13,302 75,152 - in previous years 312,282 119,267 431,549 Received on behalf of Grecale ABS S.r.l. Sec 3: 728,337 246,872 975,209 - during the year 99,360 31,008 130,368 - in previous years 628,977 215,864 844,841 Received on behalf of Grecale ABS S.r.l. Sec 4: 182,545 76,255 258,800 - during the year 111,683 36,040 147,723 - in previous years 70,862 40,215 111,077 Total receipts: 1,491,206 523,163 2,014,369 - during the year 272,893 80,350 353,243 - in previous years 1,218,313 442,813 1,661,126 For information on repayments of notes issued by the SPVs you are referred to the data on the previous pages relating to the individual transactions. C.2 ASSIGNMENTS C.2.1 Banking Group - Financial assets assigned and not derecognised Technical forms/ Held-for- Financial Available- Held-to- Receivables Receivables Total Portfolio trading financial assets for-sale maturity from from assets at fair value financial assets financial assets banks customers A A A A A A 2009 2008 A. Balance sheet assets - - 41,746-8,736 2,292,711 2,343,193 2,721,298 1. Debt securities - - 41,746-8,736 7,988 58,470 220,867 2. Equity instruments - - - - - 3. Units in UCITS - - - - - 4. Financing - - - - - 2,284,723 2,284,723 2,456,454 5. Impaired assets - - - - - - - 43,977 B. Derivatives - - - Total 2009 - - 41,746-8,736 2,292,711 2,343,193 - - impaired - - - - - 118,311 - - Total 2008 17,213-200,405-3,249 2,500,431-2,721,298 - impaired - - - - - 43,977 - - Legend: A = financial assets assigned and fully recognised (book value) B = financial assets assigned and partially recognised (book value) C = financial assets assigned and partially recognised (full value) There are no assets assigned and partially recognised. Consolidated Financial Statements 301
Notes to the Consolidated Financial Statements C.2.2 Banking Group - Financial liabilities relating to financial assets assigned and not derecognised Liabilities/ Held-for- Financial Available- Held-to- Receivables Receivables Total Asset portfolio trading assets for-sale maturity from from financial at fair value financial financial banks customers assets assets assets 1. Payables to customers - - 247,763-11,571 169,638 428,972 a) relating to assets fully recognised - - 247,763-11,571 169,638 428,972 b) relating to assets partially recognised - - - - - - - 2. Payables to banks - - 130,159 - - - 130,159 a) relating to assets fully recognised - - 130,159 - - - 130,159 b) relating to assets partially recognised - - - - - - - 3. Outstanding securities - - - - - 882,455 882,455 a) relating to assets fully recognised - - - 882,455 882,455 b) relating to assets partially recognised - - - - - - - Total 2009 - - 377,922-11,571 1,052,093 1,441,586 Total 2008 17,031-234,685-224,259 1,151,017 1,626,992 302 Consolidated Financial Statements
Notes to the Consolidated Financial Statements D. BANKING GROUP - MODELS FOR MEASURING CREDIT RISK 1.2 MARKET RISK QUALITATIVE INFORMATION In relation to market risk, defined as risks arising from fluctuations in the value of financial positions of the bank as a result of variations in prices and in market conditions, UGF Banca has exposures of a residual nature on positions held as a result of trading transactions (the trading book) and particularly from commercial transactions and strategic investment choices (the banking book). Decisions relating to assuming market risks and defining limits for the management thereof are made by the Board of Directors, based on risk propensity and profit targets in relation to risks that may be assumed and to the capital allocation process. The instrument used to measure market risk on positions held is the Value at Risk (VaR) calculated using the variance-covariance method. This method is based on the assumption that risk factors are distributed normally and that there is a direct relationship between variations in risk factors and variations in the price of the financial instruments in the portfolio. Risk arises from the volatility of market conditions, from the degree of correlation between these (variance-covariance matrix) and how sensitive the position is to variations in risk factors (delta coefficients: for example beta for shares and funds and duration for bonds). The information below shows the change in the VaR of UGF Banca s trading book during 2009, revealing the market risk in the book to be insignificant. Monthly change to VaR during 2009 120000 VaR market UGF Banca s trading book 100000 80000 60000 Var 40000 20000 0 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 1.2.1 Interest rate risk and price risk - Regulatory trading book Qualitative information Trading book interest rate risk means the risk deriving from a possible change in the value of a financial asset in the trading book as a result of adverse changes in interest rates. The interest rate risk on the trading book is measured either by calculating the VaR or by determining the impacts resulting from stress tests. The trading book value was 988K. The sensitivity of the trading bond portfolio in respect of a parallel movement in the rate curve of +10 basis points at 31 December 2009 was negligible. Consolidated Financial Statements 303
Notes to the Consolidated Financial Statements Quantitative information 1. Regulatory trading book: breakdown of assets, liabilities and financial derivatives by residual duration (repricing date) Currency of denomination: all currencies Item/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets - 640 - - - - 1-1.1 Debt securities - 640 - - - - 1 - with early repayment option - - - - - - - - other - 640 - - - - 1-1.2 Other assets - - - - - - - - 2. Liabilities - - - - - - - - 2.1 Repos payable - - - - - - - - 2.2 Other liabilities - - - - - - - - 3. Financial derivatives - 17,339 14,523 44 276 434 1,106-3.1 With underlying security - 17,339 14,523 44 276 434 1,106 - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 17,339 14,523 44 276 434 1,106 - - long-term positions - 6,342 9,669 10 80 207 553 - - short-term positions - 10,997 4,854 34 196 227 553-3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - The above table shows the breakdown by residual duration of all the balance sheet assets and liabilities and all the financial derivatives which make up the regulatory trading book. The currency of denominations is the Euro in all cases. 304 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 2. Regulatory trading book: distribution of exposures in equity securities and share indices for the principal countries in the market where they are listed Type of operation/listing index Listed Unlisted Italy A. Equity securities 90 - - long-term positions 90 - - short-term positions - - B. Purchase and sale of equity securities not yet regulated - - - long-term positions - - - short-term positions - - C. Other equity security derivatives - - - long-term positions - - - short-term positions - - D. Share index derivatives - - - long-term positions - - - short-term positions - - 1.2.2 Interest rate risk and price risk - Banking book Qualitative information The banking book rate risk is analysed using typical asset and liability management tools, such as the duration gap and calculating the effect of changes in interest rates on expected net interest income and on the financial value of equity. The entire banking book was analysed, all lending to customers being compared with income to provide an overview and pick up any mismatch either in average duration or in the balance of items placed in the various repricing segments. Shown below is a table summarising the sensitivity parameters for the banking portfolio at 31 December 2009. The duration gap shows the difference between the average duration of the asset compared with that of the liability, whilst the sensitivity parameters illustrate the percentage divergence between the expected margin and the economic value of the bank s net assets in relation to an interest rate shock of +/- 100 basis points. Interest rate change 31/12/2008 31/12/2009 Duration Gap 0.33 0.1 Margin sensitivity + 100 bps 15,754,086 46,086,580-100 bps (16,746,881) (55,674,888) Economic value sensitivity + 100 bps (19,609,815) 10,659,198-100 bps 32,523,156 (1,809,110) UGF Banca s operations on the share markets on its own account were limited. The price risk was calculated and monitored by using the VaR and by sensitivity and stress tests. Holdings in shares at 31 December 2009 were minimal and the impact through profit or loss of the price risk on the trading book amounted to only - 15,000 and was therefore insignificant in view of the variation of -20% in the share market. Consolidated Financial Statements 305
Notes to the Consolidated Financial Statements Quantitative information 1. Banking book: Breakdown of financial assets and liabilities by residual duration (repricing date) Currency of denomination: all currencies Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 7,326,194 666,414 397,200 282,797 429,167 185,094 1,048,254 9,574 1.1 Debt securities 1,786 133,197 43,764 3,326 3,609 - - - with early repayment - - - - - - - - option other 1,786 133,197 43,764 3,326 3,609 - - - 1.2 Financing to banks 333,693 38,684 - - 3 - - - 1.3 Financing to customers 6,990,715 494,533 353,436 279,471 425,555 185,094 1,048,254 9,574 current account 965,857 - - 126,187 - - - - other financing 6,024,858 494,533 353,436 153,284 425,555 185,094 1,048,254 9,574 - with early repayment 5,318,693 132,618 193,920 25,842 173,186 159,447 1,045,530 - option - other 706,165 361,915 159,516 127,442 252,369 25,647 2,724 9,574 2. Liabilities 6,511,282 1,531,338 43,486 94,858 922,810 160,969 2,270 781 2.1 Payables to customers 6,214,453 980 4 29 1,052-1,362 781 current account 6,053,962 - - - - - - - other financing 160,491 980 4 29 1,052-1,362 781 - with early repayment - - - - - - - - option - other 160,491 980 4 29 1,052-1,362 781 2.2 Payables to banks 266,353 22,360 2,779 - - - - - current account 46,034 - - - - - - - other payables 220,319 22,360 2,779 - - - - - 2.3 Debt securities 30,476 1,507,998 40,703 94,829 921,758 160,969 908 - with early repayment 2 - - - - - - - option other 30,474 1,507,998 40,703 94,829 921,758 160,969 908-2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - 5,479,827-625 93,250 132,000 - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - 5,479,827-625 93,250 132,000 - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 5,479,827-625 93,250 132,000 - - - long-term positions - 2,852,851 - - - - - - - short-term positions - 2,626,976-625 93,250 132,000 - - 306 Consolidated Financial Statements
Notes to the Consolidated Financial Statements The above table shows the breakdown by residual duration of all the balance sheet assets and liabilities and all the financial derivatives which make up the banking book, irrespective of currency of denomination. Below are detailed the same totals for the principal currencies (counter values in ). Currency of denomination: EUR Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 7,308,122 643,740 396,678 282,687 429,167 185,094 1,048,254 9,574 1.1 Debt securities 1,786 133,197 43,764 3,326 3,609 - - - with early repayment - - - - - - - - option other 1,786 133,197 43,764 3,326 3,609 - - - 1.2 Financing to banks 316,211 38,684 - - 3 - - - 1.3 Financing to customers 6,990,125 471,859 352,914 279,361 425,555 185,094 1,048,254 9,574 current account 965,857 - - 126,187 - - - - other financing 6,024,268 471,859 352,914 153,174 425,555 185,094 1,048,254 9,574 - with early repayment 5,318,693 132,618 193,920 25,842 173,186 159,447 1,045,530 - option - other 705,575 339,241 158,994 127,332 252,369 25,647 2,724 9,574 2. Liabilities 6,491,903 1,511,489 40,707 94,858 922,810 160,969 2,270 781 2.1 Payables to customers 6,195,074 980 4 29 1,052-1,362 781 current account 6,034,583 - - - - - - - other financing 160,491 980 4 29 1,052-1,362 781 - with early repayment - - - - - - - - option - other 160,491 980 4 29 1,052-1,362 781 2.2 Payables to banks 266,353 2,511 - - - - - - current account 46,034 - - - - - - - other payables 220,319 2,511 - - - - - - 2.3 Debt securities 30,476 1,507,998 40,703 94,829 921,758 160,969 908 - with early repayment 2 - - - - - - - option other 30,474 1,507,998 40,703 94,829 921,758 160,969 908-2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - 5,479,827-625 93,250 132,000 - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - 5,479,827-625 93,250 132,000 - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - 5,479,827-625 93,250 132,000 - - - long-term positions - 2,852,851 - - - - - - - short-term positions - 2,626,976-625 93,250 132,000 - - Consolidated Financial Statements 307
Notes to the Consolidated Financial Statements Currency of denomination: USD Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 6,653 18,354 458 78 - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,237 - - - - - - - 1.3 Financing to customers 416 18,354 458 78 - - - - current account - - - - - - - - other financing 416 18,354 458 78 - - - - - with early repayment - - - - - - - - option - other 416 18,354 458 178 - - - - 2. Liabilities 10,972 11,822 2,779 - - - - - 2.1 Payables to customers 10,972 - - - - - - - current account 10,972 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 11,822 2,779 - - - - - current account - - - - - - - - other payables - 11,822 2,779 - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 308 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Currency of denomination: GBP Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 6,236 - - - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,236 - - - - - - - 1.3 Financing to customers - - - - - - - - current account - - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2. Liabilities 6,698 - - - - - - - 2.1 Payables to customers 6,698 - - - - - - - current account 6,698 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - - - - - - - - current account - - - - - - - - other payables - - - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Consolidated Financial Statements 309
Notes to the Consolidated Financial Statements Currency of denomination: JPY Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 854 298 - - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 854 - - - - - - - 1.3 Financing to customers - 298 - - - - - - current account - - - - - - - - other financing - 298 - - - - - - - with early repayment - - - - - - - - option - other - 298 - - - - - - 2. Liabilities 1,221 - - - - - - - 2.1 Payables to customers 1,221 - - - - - - - current account 1,221 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - - - - - - - - current account - - - - - - - - other payables - - - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 310 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Currency of denomination: CHF Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 2,905 3,883-32 - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 6,731 - - - - - - - 1.3 Financing to customers 174 3,883-32 - - - - current account - - - - - - - - other financing 174 3,883-32 - - - - - with early repayment - - - - - - - - option - other 174 3,883-32 - - - - 2. Liabilities 378 6,741 - - - - - - 2.1 Payables to customers 378 - - - - - - - current account 378 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 6,741 - - - - - - current account - 6 - - - - - - other payables - 6,741 - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Consolidated Financial Statements 311
Notes to the Consolidated Financial Statements Currency of denomination: other currencies Type/ On Up to 3 From > 3 From > 6 From > 1 From > 5 More Unspecified Residual duration demand months months up to months up to year up to years up to than duration 6 months 1 year 5 years 10 years 10 years 1. Assets 1,424 139 64 - - - - - 1.1 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 1.2 Financing to banks 1,424 - - - - - - - 1.3 Financing to customers - 139 64 - - - - - current account - - - - - - - - other financing - 139 64 - - - - - - with early repayment - - - - - - - - option - other - 139 64 - - - - - 2. Liabilities 110 1,286 - - - - - - 2.1 Payables to customers 110 - - - - - - - current account 110 - - - - - - - other financing - - - - - - - - - with early repayment - - - - - - - - option - other - - - - - - - - 2.2 Payables to banks - 1,286 - - - - - - current account - 0 - - - - - - other payables - 1,286 - - - - - - 2.3 Debt securities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 2.4 Other liabilities - - - - - - - - with early repayment - - - - - - - - option other - - - - - - - - 3. Financial derivatives - - - - - - - - 3.1 With underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 3.2 Without underlying security - - - - - - - - Options - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - Other derivatives - - - - - - - - - long-term positions - - - - - - - - - short-term positions - - - - - - - - 312 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 1.2.3 Exchange rate risk Qualitative information As a result of suspending operations in financial derivatives on exchange rates and forward exchange rates, UGF Banca s exchange rate risk management was limited to operating in repo exchange rates and aimed at managing commercial flows from the sales network. Exchange items held at 31 December 2009 were insignificant. Quantitative information 1. Breakdown of assets, liabilities and derivatives by currency of denomination Items Currencies USD GBP CHF JPY CAD Other currencies A. Financial assets 25,556 6,269 6,842 1,154 574 1,021 A.1 Debt securities - - - - - - A.2 Equity securities 403 - - - - - A.3 Financing to banks 6,236 6,236 2,731 854 574 850 A.4 Financing to customers 18,917 33 4,111 300-171 A.5 Other financial assets - - - - - - B. Other assets 741 443 349 83 155 221 C. Financial liabilities 25,549 6,698 7,118 1,221 678 719 C.1 Payables to banks 14,577-6,740-661 625 C.2 Payables to customers 10,972 6,698 378 1,221 17 94 C.3 Debt securities - - - - - - C.4 Other financial liabilities - - - - - - D. Other liabilities - - - - - - E. Financial derivatives - - - - - - Options - - - - - - + long-term positions - - - - - - + short-term positions - - - - - - Others - - - - - - + long-term positions - - - - - - + short-term positions - - - - - - Total assets 26,297 6,712 7,191 1,237 729 1,242 Total liabilities 25,549 6,698 7,118 1,221 678 719 Balance (+/ ) 748 14 73 16 51 523 Consolidated Financial Statements 313
Notes to the Consolidated Financial Statements 1.2.4 Derivative instruments A. Financial derivatives A.1 Regulatory trading book: notional values at the end of the period and averages Underlyings/ Total 2009 Total 2008 Types of derivative Over the counter Central counterparty Over the counter Central counterparty 1. Debt securities and interest rates 38,291-1,408,698 - a) Options 21,103-45,846 - b) Swaps - - 1,337,121 - c) Forward 17,188 - - - d) Futures - - - - e) Other - - 25,731-2. Equity securities and share indices - 748 2 647 a) Options - 748-647 b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - 2-3. Currencies and gold - - 1,328,902 - a) Options - - 1,242,420 - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - 86,482-4. Goods - - - - 5. Other underlyings - - - - Total 38,291 748 2,737,602 647 Average amounts 21,103 748 1,246,173 647 314 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.2 Banking book: notional values at the end of the period and averages A.2.1 Hedging derivatives Underlyings/ Total 2009 Total 2008 Types of derivative Over the counter Central counterparty Over the counter Central counterparty 1. Debt securities and interest rates 226,500-79,750 - a) Options - - - - b) Swaps 226,500-79,750 - c) Forward - - - - d) Futures - - - - e) Other - - - - 2. Equity securities and share indices - - - - a) Options - - - - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - - - 3. Currencies and gold - - - - a) Options - - - - b) Swaps - - - - c) Forward - - - - d) Futures - - - - e) Other - - - - 4. Goods - - - - 5. Other underlyings - - - - Total 226,500-79,750 - Average amounts 227,125-80,375 - A.2.2 Other derivatives There are no derivatives of this type. Consolidated Financial Statements 315
Notes to the Consolidated Financial Statements A.3 Financial derivatives: Gross positive fair value - breakdown according to product Positive fair value Portfolio/Types of derivative Total 2009 Total 2008 Over the counter Central counterparty Over the counter Central counterparty A. Regulatory trading book - 22-28 a) Options - 22-28 b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - B. Banking book - for hedging - - 292 - a) Options - - - - b) Interest rate swaps - - 292 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - Total - 22 292 28 316 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.4 Financial derivatives: Gross negative fair value - breakdown according to product Positive fair value Portfolio/Types of derivative Total 2009 Total 2008 Over the counter Central counterparty Over the counter Central counterparty A. Regulatory trading book - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - B. Banking book - for hedging 3,825-15 - a) Options - - - - b) Interest rate swaps 3,825-15 - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - C. Banking book - other derivatives - - - - a) Options - - - - b) Interest rate swaps - - - - c) Cross currency swaps - - - - d) Equity swaps - - - - e) Forward - - - - f) Futures - - - - g) Other - - - - Total 3,825-15 - Consolidated Financial Statements 317
Notes to the Consolidated Financial Statements A.5 OTC financial derivatives - Regulatory trading book: notional values, positive and negative gross fair values in the case of counterparty agreements not deemed to be offsetting agreements Agreements not deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreement central public companies companies financial entities banks bodies companies 1. Debt securities and interest rates - - 12,232 9,923-4,270 11,958 - notional value - - 12,182 9,923-4,256 11,930 - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - 50 - - 14 28 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 4. Other values - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 318 Consolidated Financial Statements
Notes to the Consolidated Financial Statements A.7 OTC financial derivatives - Banking book: notional values, positive and negative gross fair values in the case of counterparty agreements not deemed to be offsetting agreements Agreements not deemed Governments and Other Banks Financial Insurance Non- Other to be offsetting agreement central public companies companies financial entities banks bodies companies 1. Debt securities and interest rates - - 232,777 - - - - - notional value - - 226,500 - - - - - positive fair value - - - - - - - - negative fair value - - 3,825 - - - - - future exposure - - 2,452 - - - - 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - 4. Other values - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - - future exposure - - - - - - - Consolidated Financial Statements 319
Notes to the Consolidated Financial Statements A.8 OTC financial derivatives - Banking book: notional values, counterparty positive and negative gross fair values - Contracts included in offsetting agreements Agreements not deemed Governments and Other Banks Financial Insurance Non- Other to be offset agreement central public companies companies financial entities banks bodies companies 1. Debt securities and interest rates - - - - - - - - notional value - - 2,626,351 - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 2. Equity securities and share indices - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 3. Currency and gold - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - 4. Other values - - - - - - - - notional value - - - - - - - - positive fair value - - - - - - - - negative fair value - - - - - - - A.9 Residual duration of OTC financial derivatives: notional values Underlyings/Residual life Up to From More than Total 1 year > 1 year and 5 years up to 5 years A. Regulatory trading book 19,791 18,500-38,291 A.1 Financial derivatives on debt securities and interest rates 19,791 18,500-38,291 A.2 Financial derivatives on equity and share indices - - - - A.3 Financial derivatives on exchange rates and gold - - - - A.4 Financial derivatives on other currencies - - - - B. Banking book - 94,500 132,000 226,500 B.1 Financial derivatives on debt securities and interest rates - 94,500 132,000 226,500 B.2 Financial derivatives on equity securities and share indices - - - - B.3 Financial derivatives on exchange rates and gold - - - - B.4 Financial derivatives on other currencies - - - - Total 2009 19,791 113,000 132,000 264,791 Total 2008 1,451,965 24,516 1,337,121 2,813,602 A.10 OTC financial derivatives: counterpart risk/financial risk - Internal models Information relating to 31 December 2009 is not available. B. Credit derivatives There are no derivatives of this type. 320 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 1.3 BANKING GROUP - LIQUIDITY RISK QUALITATIVE INFORMATION General aspects, management processes and methods of measuring the liquidity risk By liquidity risk is meant the risk that the individual companies in the UGF Banca Group and the Banking Group as a whole could find it difficult to afford to meet its expected or unexpected cash liabilities within a reasonable time and therefore have to sell some of its less liquid assets on unfavourable terms, thus affecting its solvency. Holding excessive amounts of liquidity would provide a greater safeguard in conditions of stress but would lead to a reduction in the profits of the companies in the Banking Group in the long run. Within the limits approved by the Board of Directors, UGF Banca s Finance Committee is responsible for managing UGF Banca s ALM and the liquidity risk. UGF Banca s Finance Department is responsible for the operational management of liquidity. A UGF Banca Banking Group ALM and Liquidity meeting takes place every week and is attended by the Head of UGF Banca s Finance Department, the Head of UGF Banca s Corporate Treasury Department, the Head of UGF Banca s Risk Management Department, the Head of UGF Banca s Scheduling and Financial Auditing Department, the UGF Group s Head of Risk Management and the UGF Group s Head of ALM. In addition UGF Assicurazioni s Head of Asset Management and UGF Assicurazioni s Head of Liquid Asset Management are always invited to attend to provide information on the cash flows expected from the insurance companies in the UGF Group and from UGF S.p.A. During this meeting the overall liquidity situation of the UGF Banca Banking Group and of the individual companies in the Banking Group is monitored and decisions are taken on action to meet future liquidity requirements. At the weekly meeting the structural and tactical liquidity-gap situation is analysed based on the date cash flows are due. Short-term tactical cash flows are supplemented by the expected flows linked to the renewal of sources of finance due from institutional customers, to expected major new transactions not taken into account for generating the cash flows and managing liquidity, and to administrative expenses and amounts due. The liquidity gap based on contractual flows and expected flows is then compared with the reserves of liquid assets or assets that can be swiftly turned into cash and with the finance margins available from the ECB and the lenders of standby lines of credit. The meeting also analyses trends in final amounts of and rates on income and lending by institutional counterparties, banks and customers of the UGF Banca Group and compares them with the budget concerned. A summary of the information shared during weekly meetings held to monitor liquidity and any action to be taken are discussed and reported to UGF Banca s Finance Committee. During the monthly meeting of UGF Banca s Finance Committee the Head of UGF Banca s Corporate Treasury Department and its Head of Risk Management report on the short-term tactical liquidity situation and the long-term strategic liquidity situation, including any action to be taken to improve the overall liquidity profile. The document procedure for managing the liquidity risk (Liquidity Policy) is currently being approved. This document formalises the general principles for managing liquidity and ALM, the criteria for calculating liquidity and the contingency capacity, the contingency funding plan, the limits on the liquidity gaps and stress tests to be carried out regularly to ensure that the finance available is adequate. It also contains the contingency funding plan, which establishes the criteria for identifying the availability of liquid assets for tackling potential crises in various scenarios over various timescales, and the crisis action plan, which establishes the operational procedures to be carried out in the event of a liquidity crisis. The Kondor + front office system already used by the Parent UGF S.p.A. was introduced during 2009 to improve the way UGF Banca calculates and manages risks. The Kondor + interest rate and liquidity management tool was also introduced. This tool combines the Bank s trading book and banking book management in a single system, thus making it possible to use the tools available in Kondor + for calculating risk and managing financial flows. Consolidated Financial Statements 321
Notes to the Consolidated Financial Statements QUANTITATIVE INFORMATION 1. Time distribution of financial assets and liabilities by remaining contract duration Currency of denomination: all currencies Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 1,691,852 146,097 157,480 150,644 430,295 290,675 530,169 2,281,187 4,660,760 9,574 A.1 Government bonds - - - - - - - 1,997 4,980 - A.2 Listed debt securities 639 - - - - - 56,865 103,159 18,693 - A.3 Units in UCITS 3,399 - - - - - - - - - A.4 Financing 1,687,814 146,097 157,480 150,644 430,295 290,675 473,304 2,176,031 4,637,087 9,574 Banks 93,766 135,000 105,000-38,611 - - - - - Customers 1,594,048 11,097 52,480 150,644 391,684 290,675 473,304 2,176,031 4,637,087 9,574 Liabilities 6,205,602 113,418 186,847 261,367 524,127 656,152 234,225 1,044,643 600,297 781 B.1 Deposits and 5,320,532 113,000 4,189 88,952 349,412 519,765 105,408 1,371 3,204 781 current accounts Banks 46,373 15,000 4,166 28,371 37,930 87,777 70,625 1,250 - - Customers 5,274,159 98,000 23 60,581 311,482 431,988 34,783 121 3,204 781 B.2 Debt securities 460 418 193 536 1,782 105,566 128,817 1,041,683 595,731 - B.3 Other liabilities 884,610-182,465 171,879 172,933 30,821-1,589 1,362 - Off-balance sheet 628,844 17,186 - - - 14,611 294 721 527,450 25,238 transactions C.1 financial derivatives - 17,186 - - - 14,611 294 709 1,578 - with capital swaps long-term positions - 6,213 - - - 9,669 210 319 778 - short-term positions - 10,973 - - - 4,942 84 390 800 - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable 628,844 - - - - - - 12 525,872 24,964 commitments to grant funds long-term positions 51,480 - - - - - - 12 525,872 12,482 short-term positions 577,364 - - - - - - - - 12,482 C.5 financial - - - - - - - - - 274 guarantees issued 322 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Currency of denomination: EUR Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 1,699,718 144,728 155,934 145,408 369,826 340,872 688,190 2,207,521 4,482,576 - A.1 Government bonds - - - - - - - 1,997 4,979 - A.2 Listed debt securities 69 - - - - 40,076 281,192 306,719 18,693 - A.3 Units in UCITS 3,399 - - - - - - - - - A.4 Financing 1,696,250 144,728 155,934 145,408 369,826 300,796 406,998 1,898,805 4,458,904 - Banks 83,781 135,000 105,000-38,611 45,000 - - - - Customers 1,612,469 9,728 50,934 145,408 331,215 255,796 406,998 1,898,805 4,458,904 - Liabilities 5,305,095 113,418 182,681 299,366 510,994 687,188 294,677 1,383,383 1,004,860 - B.1 Deposits and 5,303,009 113,000 23 85,581 336,279 516,988 104,763 64 3,204 - current accounts Banks 47,647 15,000-25,000 25,000 85,000 70,000 - - - Customers 5,255,362 98,000 23 60,581 311,279 431,988 34,763 64 3,204 - B.2 Debt securities 460 418 193 536 1,782 105,566 128,817 1,039,643 595,731 - B.3 Other liabilities 1,626-182,465 213,249 172,933 64,634 61,097 343,676 405,925 - Off-balance sheet 628,844 17,186 - - - 14,611 294 721 527,450 24,690 transactions C.1 financial derivatives - 17,186 - - - 14,611 294 709 1,578 - with capital swaps long-term positions - 6,213 - - - 9,669 210 319 778 - short-term positions - 10,973 - - - 4,942 84 390 800 - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable 628,844 - - - - - - 12 525,872 24,964 commitments to grant funds long-term positions 51,480 - - - - - - 12 525,872 12,482 short-term positions 577,364 - - - - - - - - 12,482 C.5 financial - - - - - - - - - 274 guarantees issued Consolidated Financial Statements 323
Notes to the Consolidated Financial Statements Currency of denomination: USD Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 7,271 636 363 1,144 2,352 458 - - 13,324 - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 7,271 636 363 1,144 2,352 458-13,324 - Banks 6,237 - - - - - - - - - Customers 1,034 636 363 1,144 2,352 458 - - 13,324 - Liabilities 10,991-4,167 2,085 5,553 2,777 - - - - B.1 Deposits and 10,991-4,167 2,085 5,553 2,777 - - - - current accounts Banks 19-4,167 2,085 5,553 2,777 - - - - Customers 10,972 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 financial - - - - - - - - - - guarantees issued 324 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Currency of denomination: GBP Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 6,236 - - - 32 - - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 6,236 - - - 32 - - - - Banks 6,236 - - - - - - - - - Customers - - - - 32 - - - - - Liabilities 6,698 - - - - - - - - - B.1 Deposits and 6,698 - - - - - - - - - current accounts Banks - - - - - - - - - - Customers 6,698 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 financial - - - - - - - - - - guarantees issued Consolidated Financial Statements 325
Notes to the Consolidated Financial Statements Currency of denomination: CHF Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 2,906 - - - 2,349 1,534 32 - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 2,906 - - - 2,349 1,534 32 - - Banks 2,731 - - - - - - - - - Customers 175 - - - 2,349 1,534 32 - - - Liabilities 379 - - - 6,740 - - - - - B.1 Deposits and 379 - - - 6,740 - - - - - current accounts Banks 1 - - - 6,740 - - - - - Customers 378 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 financial - - - - - - - - - - guarantees issued 326 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Currency of denomination: JPY Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 855 - - - 298 - - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 855 - - - 298 - - - - Banks 854 - - - - - - - - - Customers 1 - - - 298 - - - - - Liabilities 1,221 - - - - - - - - - B.1 Deposits and 1,221 - - - - - - - - - current accounts Banks - - - - - - - - - - Customers 1,221 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 financial - - - - - - - - - - guarantees issued Consolidated Financial Statements 327
Notes to the Consolidated Financial Statements Currency of denomination: other currencies Item/ On From From From From From From From More Unspecified Time distribution demand 1 day 7 days 15 days 1 month 3 months 6 months 1 year than duration up to up to up to up to up to up to up to 5 years 7 days 15 days 1 month 3 months 6 months 1 year 5 years Assets 1,498 - - - 106 63 - - - - A.1 Government bonds - - - - - - - - - - A.2 Listed debt securities - - - - - - - - - - A.3 Units in UCITS - - - - - - - - - - A.4 Financing 1,498 - - - 106 63 - - - Banks 1,497 - - - - - - - - - Customers 1 - - - 106 63 - - - - Liabilities 110-1,286 - - - - - - - B.1 Deposits and 110-1,286 - - - - - - - current accounts Banks - - 1,286 - - - - - - - Customers 110 - - - - - - - - - B.2 Debt securities - - - - - - - - - - B.3 Other liabilities - - - - - - - - - - Off-balance sheet - - - - - - - - - - transactions C.1 financial derivatives - - - - - - - - - - with capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.2 financial derivatives - - - - - - - - - - without capital swaps long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.3 deposits and financing - - - - - - - - - - to be received long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.4 irrevocable - - - - - - - - - - commitments to grant funds long-term positions - - - - - - - - - - short-term positions - - - - - - - - - - C.5 financial - - - - - - - - - - guarantees issued 328 Consolidated Financial Statements
Notes to the Consolidated Financial Statements 1.4 BANKING GROUP - Operational RISKS QUALITATIVE INFORMATION General aspects, management processes and methods of calculating the liquidity risk Banca d Italia circular 263 of 27 December 2006, which takes in the Basle II regulations, defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. This definition includes the legal risk and excludes the strategic and reputational risk. A procedural framework was laid down during 2009 which, in line with Banca d Italia regulations, will enable the operational risk management system and an appropriate internal audit system to be developed. Software for identifying a suite of integrated programs was selected in order to draw up a model for identifying, calculating and monitoring the operational risk in line with the Bank s organisational procedures. The system was purchased and implemented in early 2010. It will also facilitate dialogue between the various departments dealing with Control Governance (Risk Management, Internal Audit, Compliance) and the Company. The cardinal points of this framework are: collecting and storing information on operational risk events that occur (Loss Data Collection); identification and assessment of operational risks by staff working in the various lines of business, services and all the organisational units (Risk Self Assessment); identifying and assessing operational risks relating to new products/processes using a compulsory Operational Risk Assessment Procedure (ORAP), which enables unexpected losses, damage to reputation, the impact of regulations and other negative effects to be avoided; drawing up benchmarks able to indicate changes in the risk profile (Key Risk Indicators); identifying, assessing and evaluating the impact that some extreme events could have (Scenario Analysis). The new procedural framework will assist the transition to the standard method (TSA - Traditional Standardised Approach), which also breaks down banking activity into eight business lines for which specific capital and reserves requirements are calculated. Consolidated Financial Statements 329
Notes to the Consolidated Financial Statements Part F INFORMATION ON CONSOLIDATED EQUITY Section 1 - Consolidated equity A. Qualitative information Equity management relates to all the policies and choices required to identify the size of the equity, as well as the optimum combination from amongst the various alternative capitalisation instruments, in order to ensure that the equity and the ratios of the Bank are consistent with the assumed risk profile and comply with regulatory requirements. The UGF Banca Group is subject to the capital adequacy rules established by Banca d Italia. Activity to verify compliance with the regulatory requirements and consequently capital adequacy is ongoing and is based on the established growth targets. B. Quantitative information B1. Consolidated equity: breakdown by type of company Equity items Banking Insurance Other Eliminations and Total Group companies companies adjustments arising from consolidation Share capital 920,100-40 - 920,140 Share premiums 123,099 - - - 123,099 Reserves 13,066-4 - 13,070 Equity instruments - - - - - (Own shares) - - - - - Valuation reserves: - - - - - available-for-sale financial assets (3,284) - - - (3,284) property, plant and equipment - - - - - intangible assets - - - - - hedging of foreign investments - - - - - hedging of financial flows (2,578) - - - (2,578) exchange rate differences - - - - - discontinued fixed assets - - - - - actuarial profits (losses) on defined benefit pension plans - - - - - proportion attributable to the valuation provision for investments valued using the equity method - - - - - special revaluation legislation - - - - - Profit (loss) for the year (+/-) - Group and third parties (19,112) - 1 (4,921) (24,032) Net equity 1,031,291-45 (4,921) 1,026,415 330 Consolidated Financial Statements
Notes to the Consolidated Financial Statements B2. Valuation reserves for the available-for-sale assets: breakdown Activity/Amounts Banking Insurance Other Eliminations and Total Group companies companies adjustments arising 2009 from consolidation Positive Negative Positive Negative Positive Negative Positive Negative Positive Negative reserve reserve reserve reserve reserve reserve reserve reserve reserve reserve 1. Debt securities 160 3,202 - - - - - - 160 3,202 2. Equity securities 366 328 - - - - - - 366 328 3. Units in UCITS - 280 - - - - - - - 280 4. Corporate financing - - - - - - - - - - Total 2009 526 3,810 - - - - - - 526 3,810 Total 2008 594 19,776 - - - - - - 594 19,766 B3. Valuation reserves for the available-for-sale financial assets: annual variations Debt Equity Units in Corporate securities securities UCITS financing 1. Opening balance (9,605) (8,584) (993) - 2. Positive variations 7,663 8,662 713-2.1 Fair value increases 7,342 1,274 574-2.2 Transfer to the income statement from negative provisions: 321 7,388 139 - - arising from impairment - 7,192 139 - - arising from availment 321 196 - - 2.3 Other variations - - - - 3. Negative variations 1,100 40 - - 3.1 Fair value reductions 590 40 - - 3.2 Adjustments arising from impairment - - - - 3.3 Transfer to the income statement from positive provisions: 510 - - - arising from availment 3.4 Other variations - - - - 4. Closing balance (3,042) 38 (280) - Consolidated Financial Statements 331
Notes to the Consolidated Financial Statements Section 2 - Regulatory banking capital and ratios The equity for supervisory purposes was based on the provisions of Banca d Italia Circular 263 of 27 December 2006 ( New prudent supervisory rules for banks ) and Banca d Italia Circular 155/1991 ( Instructions for compiling information on the equity for supervisory purposes and prudent coefficients ) as amended and supplemented. The basic equity does not include new capital instruments. 300m of the supplementary capital was made up of hybrid capital instruments, all of which were quantifiable. The instruments in question were issued on 17 December 2009 in the form of a ten-year Upper Tier II subordinate bonded loan reimbursable only with the authorisation of Banca d Italia. The loan, issued at par with a nominal value of 300m, has a variable rate of return commensurate with the 3-month Euribor plus a spread of 640 basis points. Regulatory banking capital Total Total 2008 A. Core capital before application of prudential filters 604,873 426,861 B. Core capital prudential filters: (3,284) (19,182) B.1 Positive IAS/IFRS prudential filters (+) - - B.2 Negative IAS/IFRS prudential filters (-) (3,284) (19,182) C. Core capital including items to be deducted (A+B) 601,589 407,679 D. Items to be deducted from core capital 162 2,906 E. Total core capital (TIER 1) (C-D) 601,427 404,773 F. Supplementary capital before application of prudential filters 596,044 203,889 G. Supplementary capital prudential filters: - G.1 Positive IAS/IFRS prudential filters (+) - - G.2 Negative IAS/IFRS prudential filters (-) - H. Supplementary capital including items to be deducted (F+G) 526,044 203,889 I. Items to be deducted from supplementary capital 162 2,906 L. Total supplementary capital (TIER 2) (H-I) 595,882 200,983 M. Elements to be deducted from the total core and supplementary capital - - N. Regulatory banking capital (E+L-M) 1,197,309 605,756 O. Third level capital (TIER 3) - 305 P. Regulatory banking capital including TIER 3 (N+O) 1,197,309 606,061 332 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Capital adequacy At 31 December 2009 the Group had a ratio between core capital and weighted risk assets equal to 7.28% (Tier 1 Capital Ratio) and a ratio of regulatory capital to weighted risk assets equal to 14.49% (Total Capital Ratio). Category/Amount Unweighted amounts Weighted amounts/requirements 31/12/2009 31/12/2008 31/12/2009 31/12/2008 A. RISK ASSETS A.1 Credit and counterparty risk 12,173,204 11,821,811 7,653,509 6,957,245 1. Standardised procedure 9,638,142 9,553,414 6,393,499 5,720,448 2. Internal ratings method 2.1 Basic 2.2 Advanced 3. Securitisations 2,535,061 2,268,397 1,260,010 1,236,797 B. REGULATORY CAPITAL REQUIREMENTS B.1 Credit and counterparty risk 612,281 556,580 B.2 Market risks 166 427 1. Standardised procedure 166 427 2. Internal models 3. Concentration risk B.3 Operational risk 48,587 43,840 1. Basic method 48,587 43,840 2. Standardised method 3. Advanced method B.4 Other prudential requirements - - B.5 Other calculation elements 600,847 545,040 B.6 Total prudential requirements 661,034 600,847 C. RISK ASSETS AND REGULATORY RATIOS C.1 Weighted risk assets 8,262,922 7,510,582 C.2 Core capital/weighted risk assets (Tier 1 capital ratio) 7.28 5.39 C.3 Regulatory capital including TIER 3/Weighted risk assets 14.49 8.07 (Total capital ratio) Consolidated Financial Statements 333
Notes to the Consolidated Financial Statements Part G BUSINESS COMBINATIONS CONCERNING COMPANIES OR BUSINESS BRANCHES The Group has not carried out any business combinations concerning companies or business branches. Part H RELATED PARTY TRANSACTIONS The types of related parties, as defined by IAS 24, include: parents; subsidiaries; associates; directors, statutory auditors and senior management of the Bank; close family members of the above; the external pension fund established by the Bank with the agreement of the trade unions. 1. Information on emoluments to directors and managers Below is the information on emoluments for 2009 to the directors, statutory auditors and to key managers, such as general managers, joint general managers and deputy general managers, central managers. Emoluments Directors and Key managers statutory auditors Emoluments and contributions 1,239 2,747 Bonuses, premiums and misc. incentives - 10 Non-monetary benefits - - Total 1,239 2,757 2. Information on related party transactions Related party transactions have as a rule been executed on terms analogous with those applied to transactions with independent third parties. The table which follows shows the assets, liabilities and the guarantees existing at 31 December 2009. Related parties/items Trading Receivables Receivables Payables Payables Securities Guarantees activity from banks from customers to banks to customers outstanding Parent - - 30,080-832,881 - - Associates - - 54-868,996 312,200 - Directors and management - - 2,119-3,000 354 - Statutory auditors - - - - 29 - - Employee pension fund - - - 452 - - 334 Consolidated Financial Statements
Notes to the Consolidated Financial Statements Reported below are the main significant financial data for the year in respect of related party transactions. Items/Related parties Subsidiaries Associates Interest receivable 378 46 Interest payable 4,036 40,657 Fees and commissions receivable 1,562 12,044 Fees and commissions payable - 5,017 Dividends - - Other income/charges 1 102 Other administrative expenses 7,524 8,487 3. Information on the company controlling the Parent UGF Banca S.p.A. is controlled by Unipol Gruppo Finanziario S.p.A., formerly Compagnia Assicuratrice Unipol S.p.A. registered in via Stalingrado 45, Bologna, a different company to the Parent referred to in Article 25 of Legislative Decree 87/1992. In accordance with Article 2497-bis of the Civil Code, set out below are the key data from the last approved financial statements of the Parent Unipol Gruppo Finanziario S.p.A. (under the former title of Compagnia Assicuratrice Unipol S.p.A.), the company which exercises steering and coordination functions over the UGF Banca S.p.A. Group. Consolidated Financial Statements 335
Notes to the Consolidated Financial Statements HIGHLIGHTS FROM UNIPOL GRUPPO FINANZIARIO S FINANCIAL STATEMENTS AT 31/12/2008 and 31/12/2007 (figures in m) BALANCE SHEET 31/12/2008 31/12/2007 Assets A. Subscribed share capital unpaid B. Fixed assets I Intangible fixed assets 29.3 32.3 II Tangible fixed assets 24.8 31.4 III Long-term investments 4,209.2 4,466.0 Total fixed assets 4,263.3 4,529.7 C. Working capital I Inventory - - II Financial receivables 229.7 111.7 III Non-fixed financial assets 284.0 633.6 IV Liquid funds 416.9 800.9 Total working capital 930.6 1,546.2 D. Prepayments and accrued income 6.4 18.0 Total assets 5,200.4 6,093.9 Liabilities A. Equity I Share capital 2,391.4 2,391.4 II Share premium reserve 1,051.9 1,867.6 III Revaluation reserve 20.7 20.7 IV Legal reserve 478.3 472.0 V Statutory reserve - - VI Reserve for own shares in portfolio - - VII Other reserves 391.4 293.0 VIII Profits (losses) carried forward - - IX Profit (loss) for the year (2.9) 288.8 Total equity 4,330.9 5,333.6 B. Provisions for risks and charges 17.3 38.2 C. Employees leaving entitlement 29.9 32.5 D. Payables 802.8 670.0 E. Prepayments and accrued income 19.4 19.6 Total liabilities 5,200.4 6,093.9 31/12/2008 31/12/2007 Income statement A. Production reserves 271.2 3,742.5 B. Production costs 328.0 3,942.7 Operating result (A-B) (56.9) (200.1) C. Investment income and charges 57.2 669.6 D. Impairments on financial assets (81.0) (37.5) E. Extraordinary income and expenses 44.1 (29.6) Pre-tax profit (36.5) 402.3 Profit (loss) for the year (2.9) 288.8 336 Consolidated Financial Statements
Notes to the Consolidated Financial Statements The key data for the Parent Unipol Gruppo Finanziario S.p.A., set out in the above summary table required by Article 2497-bis of the Civil Code, are extracted from the relevant year-end financial statements, closed at 31 December 2008 and 31 December 2007. For a proper and complete understanding of the equity and financial situation of Unipol Gruppo Finanziario S.p.A., as well as the financial statements for the years which ended on those dates, you are invited to read the financial statements which, together with the reports of the Auditors and the Board of Statutory Auditors, are available at the Company s registered office, via Stalingrado 45, Bologna, or on the website www.unipolgf.it. Part I PAYMENT AGREEMENTS BASED ON OWN EQUITY INSTRUMENTS At the close-off date for the financial statements there are no payment agreements based on own equity instruments. Part L SECTOR INFORMATION Breakdown by sectors of activity: figures for 2009 Items Traditional Merchant Additional Elininations and Total banking banking financial adjustments activities within the sector Net interest 214,540 9,116 2,270 344 226,270 Dividends and profits (losses) from investments 5,387 713 - -5,163 937 valued using the net equity method Non-interest income 91,106 4,997 4,617-604 100,116 Result from trading and cover 2,111 15 - - 2,126 Profit (loss) from assignment and repurchase 18,240 652 - - 18,892 of financial assets and liabilities Other operating income (charges) 13,302-48 1,302-444 14,112 Net operating income 344,686 15,445 8,189-5,867 362,453 Personnel expenses -133,592-4,352-3,156 33-141,067 Administrative expenses -122,425-2,275-2,819 447-127,072 Depreciation on tangible and intangible -7,216-60 -320 - -7,596 fixed assets Operating charges -263,233-6,687-6,295 480-275,735 Operating result 81,453 8,758 1,894-5,387 86,718 Net provisions for risks and charges -5,323 - - - -5,323 Net adjustments on receivables -53,373-33,371-1,228 - -87,972 Net adjustments on other assets -2,529-7,257-375 -9,411 Current pre-tax profit/(loss) 20,228-31,870 666-5,012-15,988 Income tax on continuing operations -14,546 6,815-404 91-8,044 Profit (loss) for the year attributable to non-controlling interests - 3,464 427-67 3,824 Net profit/(loss) 5,682-21,591 689-4,988-20,208 Consolidated Financial Statements 337
BOARD OF STATUTORY AUDITORS REPORT ON THE 2009 CONSOLIDATED FINANCIAL STATEMENTS
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements Board of Statutory Auditors Report on the Consolidated Financial Statements Dear Shareholders, The Board of Statutory Auditors reports as follows on UGF Banca S.p.A. s Consolidated Financial Statements for the year ended 31 December 2009. 1. We have ascertained that the Consolidated Financial Statements for the year ended 31 December 2009 have been drawn up in accordance with the international accounting standards (IAS/IFRS) issued by the IASB and validated by the European Union and with the relative interpretations issued by IFRIC, in accordance with the provisions of EC Regulation 1606/2002, in force on the date the financial statements closed. The new version of IAS 1, Presentation of financial statements, came into effect on 1 January 2009. It introduced the concept of comprehensive income and also required that the income elements not recorded in the income statement but allocated direct to stock be represented. This concerns the variations that took place during the year in the equity valuation reserves which, in accordance with the option adopted by Banca d Italia (one of the two provided for by IAS 1), are included in the new Statement of Comprehensive Income and, together with the Profit (Loss) for the year, make up the Comprehensive Income. The Consolidated Financial Statements are made up of the Statement of Assets and Liabilities, the Income Statement, the Statement of Comprehensive Income, the Statement of Variations in Equity, the Financial Statement and the Notes to the Financial Statements and are accompanied by the Management Report. They were drawn up in accordance with the instructions issued in Banca d Italia Circular 262 of 22 December 2005 as amended, which governs the layout and contents of banking accounts to be drawn up in accordance with international accounting principles. 2. We have ascertained that the accounting principles and the valuation criteria were applied correctly. In particular the principles of consolidation and the rules on determining the basis of consolidation and the date to which the figures apply were observed. 3. We have ascertained that the Parent s organisational and procedural structure is suitable for managing the flows of information and the operations arising from consolidation. 4. We should like to point out that the Parent UGF Banca S.p.A. (responsible for drawing up these Consolidated Financial Statements) is administered and coordinated by Unipol Gruppo Finanziario S.p.A. (under Articles 2497 et seq. of the Civil Code). In the Consolidated Financial Statements for the year ended 31 December 2009 your Directors provide you with the information required by Article 2497-bis of the Civil Code on the essential figures from the latest financial statements approved by Unipol Gruppo Finanziario S.p.A. 5. We have ascertained that the Parent UGF Banca S.p.A. fulfilled the requirements of the regulations on the accounting information relating Consolidated Financial Statements 341
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements to the performance of the various types of activity and the business outlook. We should like to point out that in accordance with the provisions of Article 14 of Legislative Decree 39 of 27 January 2010 (and, until 6/4/2010, those of Article 2409- ter of the Civil Code and Article 156 of Legislative Decree 58 of 24/2/1998) it is up to the Auditors to decide whether the Management Report gives a true and fair reflection of the Consolidated Financial Statements. However, the Auditors Report on the Consolidated Financial Statements for the year ended 31 December 2009 contains no such comments, with the exception of the positive effect on the Consolidated Income Statement for 2009 of their comment made, as a consequence of the change to the impairment policy (adopted by the UGF Banca S.p.A. Group for its Consolidated Financial Statements for the year ended 31/12/2009) applied to listed equity securities classified as Available-for-sale financial assets, on the contents of the Joint Banca d Italia, CONSOB and ISVAP Document issued on 3 March 2010 in implementation of the collaboration agreement relating to applying international accounting standards (IAS/IFRS), and following the communication of 6 February 2009 and publication of the July 2009 Update of the IFRIC document. The Board of Statutory Auditors will make its own observations on the comment in question in a later paragraph of this Report. 6. We wish to point out that before the Consolidated Financial Statements for the year ended 31 December 2009 were approved your Directors approved the criteria for (and the results of) determining the recoverable value of goodwill with an indefinite useful life recorded in the Consolidated Financial Statements for the year ended 31 December 2009. The Notes to the financial statements show the criteria used for the calculations, and the results, which did not necessitate writing down the value of the Goodwill recorded in the Consolidated Financial Statements for the year ended 31 December 2009. On the basis of the findings that the Board of Statutory Auditors has, to the best of its ability, made on the above, both direct and by exchanging information with the Auditors, we have no observations to make in this Report. 7. In the Notes to the financial statements and the Management Report the Directors report that on 3 March 2010, under the agreement to collaborate on applying international accounting standards (IAS/IFRS) and following the communication of 6 February 2009 and publication of the July 2009 Update of the IFRIC (International Financial Reporting Interpretations Committee) document, Banca d Italia, CONSOB and ISVAP published a document (Joint Document) on the following: Years 2009 and 2010 - Information to be provided in financial reports on monitoring reductions in value of assets (impairment testing), on contractual terms for financial payables, on rescheduling debts and on fair value ranking, in order to reaffirm the need for financial reports to represent clearly, comprehensively and in timely fashion the risks and uncertainties to which companies are exposed, the capital and reserves they have available to face up to them and their ability to generate income. The document identified some areas 342 Consolidated Financial Statements
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements where companies must provide a higher level of transparency: (i) valuing goodwill (impairment testing), other intangible assets with an indefinite useful life and investments; (ii) valuing equity securities classified as available for sale ; (iii) classifying financial liabilities when the contractual terms that stipulate that benefits will be lost if contracts are not allowed to run until their expiry date are not observed. The Joint Document also gives details of the information to be provided on rescheduling debts and calls for new duties of disclosure relating to fair value ranking. In the Board of Statutory Auditors opinion the UGF Banca S.p.A. Group s Consolidated Financial Statements for the year ended 31 December 2009 contain the information required by the Joint Document of 3 March 2010. For this reason, and on the basis of information received from the Auditors, we have no observations to make in this Report. 8. The Board of Statutory Auditors declares that the Auditors Reports on the subsidiary companies financial statements comply with the provisions of Legislative Decree 58/1998 and of the Civil Code. 9. The Report on the UGF Banca S.p.A. Group s Consolidated Financial Statements for the year ended 31 December 2009 issued by the Auditors KPMG S.p.A. contains a comment and an observation. The observation in paragraph 5 of the Auditors Report reveals that as UGF Banca S.p.A. was administered and coordinated by Unipol Gruppo Finanziario S.p.A. (under Articles 2497 et seq. of the Civil Code) it included the essential figures from Unipol Gruppo Finanziario S.p.A. s latest financial statements in the Notes to the financial statements. The observation made by the Auditors states that its opinion on the UGF Banca S.p.A. Group s Consolidated Financial Statements does not cover these figures. The Board of Statutory Auditors points out that this observation was purely technical, since owing to the nature of its task and of the legislation referred to in its Report the Auditors is required to express an opinion only on the UGF Banca S.p.A. Group s Consolidated Financial Statements for the year ended 31 December 2009. The Board of Statutory Auditors reports as follows on the comment in the Auditors Report on the UGF Banca S.p.A. Group s Consolidated Financial Statements. First, in paragraph 4 KPMG states: In our opinion, except for the positive effect on the 2009 consolidated income statement of the matter described in paragraph 3, the consolidated financial statements of UGF Banca Group as at and for the year ended 31 December 2009 comply with the International Financial Reporting Standards endorsed by the European Union and the Italian regulations implementing article 9 of Legislative decree no. 38/05. Therefore, they are clearly stated and give a true and fair view of the financial position of UGF Banca Group as at 31 December 2009, the results of its operations, changes in its equity and its cash flows for the year then ended. Paragraph 3 of the Report issued by the Auditors on the Consolidated Financial Statements contains the following comment: Consolidated Financial Statements 343
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements Our report on the consolidated financial statements at 31 December 2008 was qualified with respect to a matter, the effect of which we were unable to determine for the reasons given therein, relating to the policy used by the group to impair the listed equity instruments classified as Available-for-sale financial assets. In note A.2 Section 2 Available for sale financial assets paragraph Impairment policy on available-for-sale financial assets to the consolidated financial statements, the directors state that they have changed the above impairment policy in the consolidated financial statements at 31 December 2009 following publication of the Banca d Italia, Consob and ISVAP Joint Document on 3 March 2010, recognising the related effect in the 2009 income statement under the caption 130 impairments / reversals of impairments. Consequently, the loss shown in the 2009 income statement is overstated by an amount which are unable to calculate following the reversal of the effect of the above matter, now overcome, described in our report on the consolidated financial statements at 31 December 2008, which had no impact on the Group s equity at 31 December 2009. With regard to this comment the Board of Statutory Auditors would like to point out that CONSOB Communication 1025564 of 6 April 2001 requires that as part of its monitoring work the Board of Statutory Auditors consider the comments and observations in the Auditors reports on the company and Consolidated Financial Statements and that it include observations and proposals on these comments and observations in its Report to the Shareholders Meeting. Below are the Board of Statutory Auditors observations on the comment in the Auditors Report. First of all we wish to point out that the Consolidated Financial Statements do not have to be approved by the Shareholders Meeting and therefore the Board of Statutory Auditors will make no proposals but only observations. We should also like to point out that the Consolidated Financial Statements are exclusively for information and therefore the calculations made when they are drawn up have no direct effect on the bodies referred to in the Civil Code in whose (company) financial statements the figures are of prime importance. Observations on the comment in the Auditors Report on the UGF Banca S.p.A. Group s Consolidated Financial Statements for the year ended 31 December 2009 In the Notes to the financial statements and the Management Report the Directors report that on 3 March 2010, under the agreement to collaborate on applying international accounting standards (IAS/IFRS) and following the communication of 6 February 2009 and publication of the July 2009 Update of the IFRIC (International Financial Reporting Interpretations Committee) document, Banca d Italia, CONSOB and ISVAP published a document (Joint Document) on the following: Years 2009 and 2010 - Information to be provided in financial reports on monitoring reductions in value of assets 344 Consolidated Financial Statements
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements (impairment testing), on contractual terms for financial payables, on rescheduling debts and on fair value ranking, in order to reaffirm the need for financial reports to represent clearly, comprehensively and in timely fashion the risks and uncertainties to which companies are exposed, the capital and reserves they have available to face up to them and their ability to generate income. The Joint Document invites businesses to adopt impairment procedures for equity securities, particularly those classified as available for sale, in line with IFRIC s observations in the document of July 2009 which, whilst not containing a specific Interpretation of IAS 39 (paragraph 58 et seq.), offered guidance on procedures for applying it. In particular, in the wake of these IFRIC guidelines, the Joint Document drew Directors attention to the fact that, once significant and prolonged have been defined, even only one of these thresholds being crossed is objective evidence of the reduction in value of equity securities classified as available-for-sale assets (AFS) and therefore it is not possible to submit the value to further qualitative checks such as analytical valuation methods. The result is that, once one of the two thresholds of significant or prolonged has been crossed, falls in value of equity securities classified as available-for-sale financial assets must be recorded in the income statement, irrespective of any further consideration of their value. The report provided by your Directors goes on to mention that in its Consolidated Financial Statements for the year ended 31 December 2009 the UGF Banca S.p.A. Group changed its impairment policy to comply with Banca d Italia - CONSOB - ISVAP Document of 3 March 2010, eliminating qualitative valuations from its (previous) impairment policy, and applied the quantitative thresholds of significant and prolonged loss objectively and separately (keeping these objective benchmarks the same as those adopted for drawing up the Consolidated Financial Statements for the year ended 31/12/2008), in particular: significant : a fall in value of more than 20% of the initial subscription value on the reference date; prolonged : the market price below the initial subscription value for the previous 36 months. The Directors report goes on to say that as a result of these criteria being applied the UGF Banca S.p.A. Group s share portfolio contained 12 financial instruments (equity securities and units in investment trusts) that fulfilled at least one of the conditions mentioned above. Thus in the Consolidated Financial Statements for the year ended 31 December 2009 7,806K of falls in value were transferred from the Valuation provisions (Provision for the valuation of available-for-sale financial assets) to Net adjustments for deterioration of available-for-sale financial assets in the income statement (gross of the relative tax effect) but this had no effect on the Consolidated capital and reserves at 31 December 2009. The Board of Statutory Auditors has the following observations. In view of the fact that in the previous year the Board of Statutory Auditors considered that the analysis procedure followed by the UGF Banca S.p.A. Group for measuring any reduction in value and non-recoverability of its financial assets (impairment testing) appeared adequate to indicate whether, in accordance with the provisions of para. 59 of IAS 39, as referred to in para. 67, a financial asset or group of availablefor-sale financial assets has suffered a reduction in value and losses resulting from the reduction in value have been incurred and therefore appeared to Consolidated Financial Statements 345
Board of Statutory Auditors Report on the 2009 Consolidated Financial Statements comply with the provisions of IAS 39, noting that the latest information provided by the Joint Document indicates the objective uncertainty and differences in interpretative procedures encountered when impairment-testing available-forsale financial assets and also advises businesses to use more standardised methods of valuation in line with the information that emerged during 2009, after the company financial statements had been approved, as a result of IFRIC and CESR communications on this matter, recorded that the Directors of your Company have decided to adjust the procedure for impairment-testing available-for-sale financial assets to comply with the latest guidelines laid down in the Joint Document, considers that the choice made by the Directors of the Company should be shared, as should the decision made by the Directors in a climate of objective interpretative uncertainty to reflect - also for reasons of transparency and clarity - the effects of the valuation of available-for-sale financial assets during 2009 on the result for the period. Finally the Board of Statutory Auditors has determined that the comment made by the Auditors this year does not relate to the criterion for valuing available-forsale financial assets applied by the Directors of your Company but only to the circumstance that a portion of the financial repercussions of the valuation carried out by the Directors this year, the amount of which has, moreover, not been established, would, in the opinion of the Auditors, have already had to be reflected in the consolidated income statement for 2008. Moreover none of this had any effect on the Company s capital and reserves in 2008 nor in 2009, which incorporated the fair value of available-for-sale financial assets by adjusting the value of the equity reserves. Bologna, 9 April 2010 The Board of Statutory Auditors Roberto Chiusoli (Chairman) Giovanni Battista Graziosi Vincenzo Urbini 346 Consolidated Financial Statements
AUDITORS REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS
Auditors Report on the Consolidated Financial Statements 348 Consolidated Financial Statements
Auditors Report on the Consolidated Financial Statements Consolidated Financial Statements 349
Translated from the original Italian by SEL, the translation company owned by the University of Salford, Manchester, UK
UGF BANCA S.P.A. REGISTERED AND HEAD OFFICE Piazza della Costituzione, 2 40128 Bologna T. +39 051 3544111 F. +39 051 3544100/101 www.ugfbanca.it
www.ugfbanca.it