BANCA MEDIOLANUM S.P.A. CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS AS AT JUNE 30, 2017

Transcription

1 CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS AS AT JUNE 30, 2017

2 Contents 3 Corporate Bodies of Banca Mediolanum S.p.A. 4 Scope of Consolidation as at June 30, Consolidated highlights as at June 30, Group profile 22 Half-Year Report on Operations of the Mediolanum Group 48 Reclassified Consolidated Income Statement as at June 30, Summary of Half-Year 2017 business performance 74 Condensed Consolidated Half-Year Financial Statements as at June 30, Notes 213 Certification of the Condensed Consolidated Half-Year Financial Statements 216 Independent Auditors Report 218 Glossary CONDENSED CONSOLIDATED AS AT JUNE 30,

3 CORPORATE BODIES OF Corporate Bodies of Banca Mediolanum S.p.A. Edoardo Lombardi Vice Presidente Ennio Doris Presidente Giovanni Pirovano Vice Presidente Massimo Antonio Doris Amministratore delegato Luigi Berlusconi Consigliere Bruno Bianchi Consigliere Consiglio di Amministrazione Luigi Del Fabbro Consigliere Annalisa Sara Doris Consigliere Paolo Gualtieri Consigliere Angelo Renoldi Consigliere Carlos Javier Tusquets Trias de Bes Consigliere Collegio sindacale Direttore generale Francesca Meneghel Adriano Angeli Marco Giuliani Presidente del Collegio Sindacale Sindaco Effettivo Sindaco Effettivo Gianluca Bosisio Dirigente preposto alla redazione dei Documenti contabili societari Segretario del Consiglio Angelo Lietti Luca Maria Rovere Società di revisione Deloitte & Touche S.p.A. CONDENSED CONSOLIDATED AS AT JUNE 30,

4 SCOPE OF CONSOLIDATION AS AT JUNE 30, 2017 Scope of Consolidation as at June 30, 2017 MEDIOLANUM FINANCIAL CONGLOMERATE - CORPORATE STRUCTURE AS AT 06/30/2017 Banca Mediolanum S.p.A. C Capogruppo Gruppo Bancario Capogruppo Gruppo Assicurativo Mediolanum Vita S.p.A. C 100% 100% Mediolanum Comunicazione S.p.A. Mediolanum Assicurazioni S.p.A. 100% 100% Mediolanum Gestione Fondi SGR p.a. Mediolanum International Life Designated Activity Company (Società irlandese) 100% 100% Mediolanum Asset Management Ltd (Società irlandese) 100% Mediolanum Fiduciaria S.p.A. 100% GAMAX Management (AG) (Società lussemburghese) 100% Fermi & Galeno Real Estate S.r.l. PI Servizi S.p.A. 100% 92% Mediolanum International Funds Limited (Società irlandese) 3% 100% Bankhaus August Lenz & Co. (Società tedesca) 0,74% Mediobanca 2,58% S.p.A. (*) 100% 5% Banco Mediolanum S.A. (Società spagnola) 99,998% Fibanc S.A. (Società spagnola) Gruppo Bancario Gruppo Assicurativo 99,999% Mediolanum Pensiones S.A., S.G.F.P. (Società spagnola) 99,999% Mediolanum Gestión S.G.I.I.C., S.A. (Società spagnola) (*) Since Mediobanca holds treasury shares, total shareholding amounts to 3.378% of voting rights. CONDENSED CONSOLIDATED AS AT JUNE 30,

5 Consolidated highlights as at June 30, 2017

6 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 The key results of the Mediolanum Group at the end of H ECONOMIC PERFORMANCE The Mediolanum Group closed the first half of 2017 with a net profit of Euro million (Euro million as at June 30, 2016). The half-year was characterised by a significant inflow under the scope of assets under management, which together with the positive performance by markets, enabled the generation of a constant rise in management fees on the comparative half-year. Please note that the period result was also influenced by two non-recurring events: on the one hand, the capital gain on the sale of the equity investment in Banca Esperia for Euro million; by contrast, greater contributions were booked to guarantee funds, in the amount of Euro 25.8 million, due to the impairment of the Atlante I Fund. CONSOLIDATED INCOME STATEMENT Key Items - Consolidated Income Statement 06/30/ /30/2016 /m 800 Commission income Net financial income Net insurance income Equity method valuation Net income (loss) on other investments Other revenues Network commission expenses Other commission expenses Total costs of which Guarantee fund contributions* Taxes Net income (32.5)(28.1) (5.7) (31.5) (32.6)(26.9) (223.3) (260.9) (284.9) (327.0) (*) The item also includes the write-down relative to the Atlante I Fund and Caricesena CONDENSED CONSOLIDATED AS AT JUNE 30,

7 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 Quarterly evolution of the key consolidated economic data Commission income Net financial income /m /m Q1 Q2 Total 06/30/2017 Q1 Q2 Total 06/30/2017 Total costs Net Result /m /m Q1 Q2 Total 06/30/2017 Q1 Q2 Total 06/30/2017 CONDENSED CONSOLIDATED AS AT JUNE 30,

8 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 Commission income: breakdown by nature 06/30/ /30/2016 /m Entry fees Management fees Performance fees Banking service fees and revenues Other fees Costs: breakdown by nature 06/30/ /30/2016 /m Administrative costs Guarantee fund contributions Amortization and depreciation Net provisions for risks CONDENSED CONSOLIDATED AS AT JUNE 30,

9 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 Commission income: breakdown by operating segments 06/30/ /30/2016 /m Banking Asset management Insurance Spain Germany Costs: breakdown by operating segments 06/30/ /30/2016 /m Banking Asset management Insurance Spain Germany CONDENSED CONSOLIDATED AS AT JUNE 30,

10 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 DATA FOR INFLOWS AND ASSETS 1 Net inflows 06/30/ /30/2016 /m ,500 2,000 2,500 3,000 Total net inflows 2, ,970.6 Banca Mediolanum Assets under management 1, ,280.5 Banca Mediolanum Assets under administration (312.8) 1,680.8 Spain Germany (0.4) 39.9 Assets under Administration 2 06/30/ /31/2016 /m 0 Total assets under administration Banca Mediolanum 72, , , ,343.1 Spain 4, ,880.3 Germany (1) It is specified that in order to standardise the comparison with the figures of the previous period, the portion of the contribution generated by Banca Esperia during 2016, has been excluded. (2) The figures relating to Assets under Administration and Net Inflows refer to Retail customers only. CONDENSED CONSOLIDATED AS AT JUNE 30,

11 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 CUSTOMERS Performance of the Customer Base Total Customers Italy 3 First holders No. account holders 4 Units (x 1,000) 1,200 1,100 1,077 1,066 1,040 1,043 1,082 1,128 1,180 1,198 1,010 1, , /31/ /31/ /31/ /31/ /31/ /31/ /31/ /30/2017 (3) Customers of the Italian market holders of a Group product. (4) Customers of Banca Mediolanum holders of bank account. Average assets per customer /t Average assets per customer /31/ /31/ /31/ /31/ /31/ /31/ /31/ /30/2017 (5) Average Assets related to customers in the Italian market and relating to first holder products. CONDENSED CONSOLIDATED AS AT JUNE 30,

12 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 ALTERNATIVE PERFORMANCE INDICATORS 6 Consolidated equity ratios as at June 30, 2017 Common Equity Tier % Tier % Total Capital Ratio 21.9% Evolution of Common Equity Tier 1 Ratio Data expressed in % /31/ /31/ /30/ /30/ /31/ /31/ /30/ /30/ /31/ /31/ /30/2017 (6) The values presented in this disclosure may be subject to updating when reporting to the Supervisory Authorities. As at the date of this Condensed Consolidated Half-year Financial Statements the equity coefficients have been determined considering the profits as at June 30, 2017, net of the dividends estimated at 80% of the consolidated profits of the Mediolanum Group. CONDENSED CONSOLIDATED AS AT JUNE 30,

13 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 Capital Adequacy - Financial Conglomerate 7 /m 06/30/ /31/2016 Bank-oriented financial conglomerate Equity 1,929 1,884 Banking capital requirements Insurance capital requirements Equity surplus (loss) Evolution of the equity Surplus of the Financial Conglomerate 8 Bank-oriented financial conglomerate /m /31/ /31/ /30/ /30/ /31/ /31/ /30/ /30/ /31/ /31/ /30/2017 Information on shares 06/30/ /31/2016 Number of ordinary shares (units) 739,802, ,191,968 Listing at the end of the period (Euro) Market capitalization (millions of Euro) 5,375 5,049 Shareholders equity (millions of Euro) 2,132 2,151 (7) Following the entry into force of the new Solvency II regime for insurance companies, it is noted that the data relating to the requirements of the insurance sector and the related portion of equity corresponding to the reconciliation reserve were calculated in accordance with the new sector regulations. (8) As from January 1, 2017, on the basis of Communication /16 of 27/12/2016, the new limits are in force as envisaged by the SREP process, equal to CET1 Ratio 6.7%, Tier 1 Ratio 8.6% and Total Capital Ratio 11.0%. It is specified that the data reported coincides with that sent to the Supervisory Authority as at the reference date. It is also specified that as at March 31, 2017, the figure published was 415 million. CONDENSED CONSOLIDATED AS AT JUNE 30,

14 CONSOLIDATED HIGHLIGHTS AS AT JUNE 30, 2017 Earnings per share Euro 06/30/ /30/2016 Basic earnings per share (basic EPS) Diluted earnings per share (diluted EPS) Consolidated risk indicators 06/30/ /31/2016 Loans to customers ( /t) Loans to customers - net impaired assets/ Loans to customers (values in %) Value adjustments on gross impaired assets/ Gross impaired loans to customers (values in %) Net non-performing/ Loans to customers (values in %) 8,000,951 8,623, % 0.78% 45.83% 45.86% 0.31% 0.25% Operational structure Resources 06/30/ /30/2016 Number of Employees 2,715 2,725 Number of financial advisors 5,242 5,283 For the definitions used in this summary of results, reference is made to the Glossary section at the end of the document. CONDENSED CONSOLIDATED AS AT JUNE 30,

15 Group profile

16 GROUP PROFILE History of the Group, highlights 1982 Ennio Doris founds Programma Italia S.p.A. in a partnership with the Fininvest Group. It is the first network in Italy to offer global consultancy in the investments sector Mediolanum S.p.A. is created, the holding company of all sector businesses, which is listed on the Milan stock exchange on June 3, Banca Mediolanum is created, an innovative multi-channel bank that exploits all the possibilities offered up by technology and multimedia solutions. Establishment of Mediolanum International Funds, management company with registered office in Dublin Mediolanum offers the first on-line trading services. Banca Mediolanum arrives in Spain and acquires the Fibanc Banking Group. Mediolanum joins the capital of Mediobanca and with it, thereafter jointly constitutes Banca Esperia, a joint venture and point of reference in the range of private banking services The Group s European growth continues with the acquisition of Bankhaus August Lenz & Co. in Germany and Gamax Holding AG in Luxembourg Mediolanum Channel, the Group s satellite channel, starts broadcasting. The PrimaFila Club is born, dedicated to customers with major assets. CONDENSED CONSOLIDATED AS AT JUNE 30,

17 GROUP PROFILE 2006 As the evolution of the Global Consultant, the figure of the Family Banker is created. In addition to the qualification of Financial Promoter, regulated by the Law, the figure of the Family Banker becomes the hallmark of the Bank s sales network and point of reference for its customers As from 30 December 2015, Banca Mediolanum becomes the Parent Company of the Mediolanum Group with a view to rationalising the Group structure and assigning the Bank an increasingly central role Mediolanum Corporate University becomes and operative reality of the Mediolanum Group, a primary training centre combining technology and high training capacity Mediolanum Assicurazioni S.p.A. is acquired - operative in the non-life sector - which thus joins the Mediolanum Group. Banca Mediolanum is the first to offer a money transfer service via smartphone ( ABI prize for innovation in banking services) Mediolanum S.p.A. becomes the Parent Company of the Banking Group. Banca Mediolanum is awarded the ABI prize for innovation in banking services Rationalisation of the Group structure continues. As, in recent years, Banca Mediolanum has accrued a specialisation in overseeing and competing more directly on the segment of customers with major assets, the need to maintain the joint venture with Mediobanca in the private sector, no longer applied. On November 16, 2016, an agreement was therefore stipulated with the latter for the sale of 50% of Banca Esperia. This agreement is subject to approval by the Supervisory Authority On April 4, 2017, once authorisation had been obtained from the competent authorities, ownership of shares relative to 50% of the share capital of Banca Esperia S.p.A., held by Banca Mediolanum S.p.A., was transferred to Mediobanca S.p.A. CONDENSED CONSOLIDATED AS AT JUNE 30,

18 GROUP PROFILE Vision, mission and our values Vision The Mediolanum Group brings a change to the market in banking tradition, which goes well beyond technology alone. We offer customers a new concept of relations with the Bank, hinged on freedom and human relations, baptising it Freedom in Banking. Mission Offering Freedom in Banking means adopting simple, user-friendly technological solutions to offer families increasingly customised responses and complete, reassuring financial solutions based on transparency. The concepts of identity expressed by Vision and Mission take the form of concrete values, applied day-in, day-out to all activities - both internally and externally - carried out by all Group companies and collaborators. CONDENSED CONSOLIDATED AS AT JUNE 30,

19 GROUP PROFILE The Banca Mediolanum values are: FREEDOM FREEDOM IS THE CORNERSTONE VALUE ON WHICH BANCA MEDIOLANUM IS BASED AND WHICH CONSISTS OF GRANTING CUSTOMERS ACCESS TO THE BANK AT ALL TIMES. More specifically, the freedom of having a Family Banker available, to best manage its savings and interests. REPORT THE RELATIONSHIP THAT PUTS CUSTOMERS AT THE HEART OF THE MODEL AND ATTENTION OF BANCA MEDIOLANUM. Everything is designed to optimise the customer s resources and satisfaction. The Family Banker is responsible for entertaining relations with the customer and represents the Bank in his regard. COMMITMENT THE COMMITMENT TO BE A LEADER AND POINT OF REFERENCE. Banca Mediolanum strives to produce excellent services in its products, solutions in training and in relationships. It focuses on ethics, responsibility, entrepreneurial spirit and knowledge to increase the corporate value and that of people, and thereby disseminate a new approach to opportunities. Banca Mediolanum invests in solidarity, emergencies and development projects, with tangible, wide-reaching interventions. INNOVATION INNOVATION INTENDED AS A CHANGE IN IDEAS AND TECHNOLOGIES TO GIVE ADVANCE LATENT NEEDS ON THE MARKET. The Bank controls and develops new instruments, processes and behaviour to ensure complete customer satisfaction through the efficient use of human, instrumental and financial resources. CONDENSED CONSOLIDATED AS AT JUNE 30,

20 GROUP PROFILE Mediolanum Group business model The Banca Mediolanum business model is developed to satisfy the extrinsic and intrinsic needs of each and every customer. Thanks to the numerous communication channels available, the customer can choose how to use his bank, deciding how and when he will communicate with it, as he prefers. Banca Mediolanum offers products and services that meet the needs of people and families, who are the main reference target, in a simple, easily-accessible fashion. Through the Family Bankers registered with the single list of financial consultants, Banca Mediolanum offers its customers assistance in managing assets and investment consulting, coupled with the products and services offered by the Bank itself. Banca Mediolanum does not simply sell products; it offers solutions. This principle allows it to operate in the various financial service business areas with the competence and flexibility necessary to best respond to the constant economic, tax, financial and regulatory changes. The investment strategy is the result of a careful study of the world markets and great skills developed by Mediolanum in asset management; the result is a limitation to the risk of concentration in investments. CONDENSED CONSOLIDATED AS AT JUNE 30,

21 GROUP PROFILE THE BANK BUILT AROUND THE CUSTOMER Integrated business model - Banca Mediolanum Insurance Bank Investment funds CASH POINTS (WHOLE NETWORK) APP FOR SMARTPHONES (ALL OPERATING SYSTEMS) AUTOMATED TELEPHONE SERVICES (VRU/SMS) PT Client WEBSITE AUTHORISED BRANCHES BANKING TELEPHONE CENTRE TELEVISION SERVICES TELETEXT AND SMART-TV FAMILY BANKER Information on customers shared in real time CONDENSED CONSOLIDATED AS AT JUNE 30,

22 Half-Year Report on Operations of the Mediolanum Group

23 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP Half-Year Report on Operations of the Mediolanum Group The Mediolanum Group closed H with a net profit of Euro million, compared to a net profit the first year of the previous year of Euro million. The result for the half-year, before taxes, instead amounted to Euro million compared to Euro million in the same period of the previous year, an increase of +16%. The period income statement is mainly characterised by two extraordinary events, which partly offset each other. On April 4, 2017, the sale was completed of 50% of the share capital of Banca Esperia S.p.A., which generated a capital gain for the Mediolanum Group of Euro 41.6 million (in the first half of 2016, capital gains from disposals, referring to CartaSi and Visa Europe, had respectively generated income of Euro 10.6 million and Euro 9.2 million). This positive effect on the period income statement has been partially balanced by the impairment applied by Banca Mediolanum to the Atlante I Fund (whose main investments are in Banca Popolare di Vicenza and Veneto Banca) for approximately Euro 23.3 million. This impairment was considered, as already when drafting the financial statements, as permanent and was therefore registered on the income statement. As regards core business, during the period under review, a constant rise was recorded in commission income, equal to Euro million, supported by the increase in management fees connected with the growth in assets (Euro million) and fund subscription fees (Euro +9.6 million). Net financial income instead records a decline of Euro -3.6 million; more specifically, net interest income drops by Euro million due to the reduction in the marginal profitability of the securities portfolio as a result of the decline in interest rates, whilst the items measured at fair value record an improvement of Euro million. CONDENSED CONSOLIDATED AS AT JUNE 30,

24 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP Network commission expenses increase by Euro 37.6 million, both as a consequence of the growth of commission income and due to the increase in incentive components linked to the growth of assets under management. Administrative expenses are basically stable (+2%). Contributions to Guarantee funds are up by approximately Euro 25.8 million on last year, due to greater costs relative to the Single Resolution Fund contribution, Euro +1.6 million, the impairment mentioned previously of the Atlante I Fund, equal to Euro 23.3 million and the impairment of the equity investment in Caricesena, of Euro 1.6 million. Net provisions for risks and charges are up Euro 7.6 million on the same period of 2016, with the change mainly due to the Spanish subsidiary, which, during the first half 2016, in consideration of a second instance ruling that was an improvement in the lawsuit, released a portion of approximately Euro 6 million of the provision originally established. THE MACROECONOMIC ENVIRONMENT During the first half of 2017, international political affairs characterised both financial markets and investment choices. Attention was turned to the monetary policy decisions of the main central banks, whose approach remained generally expansive, with the exception of the Federal Reserve, which has begun to increase interest rates. The world economy in the first half of 2017 showed signs of improvement, thanks to the reduced political risk in Europe, the rise in growth forecasts for corporate profits and recovering macro economic data. The political events that have involved many European countries resulted in widespread volatility in springtime financial markets: the Euro-sceptic movements, driven by the English vote that sanctioned the United Kingdom s exit from Europe (the Brexit vote) were somewhat dampened after the vote in Holland and in France. In the early June elections of the United Kingdom, a strengthening was seen of pro-eu forces in continental Europe, whilst the British conservative party, although retaining a relative majority, came out weakened by the elections called by Theresa May. In the United States, by contrast, the settlement of the Trump administration has increased political uncertainty, both on the domestic front and as regards international policy. Investors attention also remains focussed on the reduction in oil prices. On the European front, the monetary policies of the ECB influenced the trend of the financial markets in the Eurozone. Before the Dutch parliament, Governor Draghi once again defended the accommodating choices made by the Central Bank, stressing that the benefits easily outweigh the costs and progress is more solid and widespread than it was a few months ago, when it still looked CONDENSED CONSOLIDATED AS AT JUNE 30,

25 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP to be rather fragile and dishomogeneous. Growth forecasts by the European Commission stress that the Eurozone economy has now entered its fifth year of recovery and that this recovery involves all Member States. The growth trend looks to continue decisively in 2017 and The Eurozone gross domestic product is expected to grow by 1.7% in 2017 and by 1.8% in 2018 (the previous forecasts were respectively 1.6% and 1.8%). The growth of the global economy, with the exception of the Eurozone, should instead be expected at 3.7% in 2017 and 3.9% in 2018, as compared with the 3.2% of 2016; this is thanks to the contribution made by the Chinese economy and the recovery of commodity prices, which will help the economies of other emerging countries. It is expected that in the Eurozone, inflation will grow to 1.6% in 2017 (from 0.2% in 2016), before going back to 1.3% in The lack of inflation drivers for a prolonged period of time or any more restrictive decisions by the ECB with respect to those currently in place, may harshen market conditions and result in a sharp increase to uncertainty and volatility. As regards the Italian banking system, the government has launched the decree that will enable Intesa Sanpaolo to acquire Veneto Banca and Banca Popolare di Vicenza and to proceed with an orderly liquidation, with the approval of the European Commission. The operation will, however, be subject to parliament approval in July. Deposits remain fully protected thanks to the burden sharing procedure whereby holders of senior debt are not called to contribute towards the allocation of losses. The commitment made by Intesa Sanpaolo envisages the decree being transformed into law, without changes, which may result in greater costs for the Bank. As regards the Monte Paschi case, early July, the European Commission announced its approval of the precautionary recapitalisation project for a value of Euro 8.1 billion, of which 5.4 billion held by the Treasury, whilst the remainder of the conversion of subordinate bonds will take place in compliance with burden sharing, in view of a restructuring plan that envisages an institute focus on small and medium enterprises, improved efficiency and better credit risk management. The plan also envisages the sale, at arm s length conditions, of a portfolio of impaired loans, to a vehicle company financed by private funds (and partially by the Atlante II Fund). In relation to the matter of aid for Greece, the Eurozone Ministers of Finance reached an agreement at the Luxembourg Ecofin and released Euro 8.5 billion. In the monetary policy meeting of the Federal Reserve held on June 14, interest rates were increased in a range between 1 and 1.25%, as expected, after the rise of 25 basis points that took place during the December meeting and thereafter in March. More specifically, queries are raised as to the firm approach shown by Yellen in the last FOMC, showing the desire to continue with the normalisation, despite the lack of any decisive inflation boosts, as shown both by the last figure CONDENSED CONSOLIDATED AS AT JUNE 30,

26 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP relative to the May consumer price index and the cut to price growth forecasts for The Federal Reserve chose in any case to stress the imminent, gradual reduction of its assets, which will take place at a constant rate and which should lead gradually to a return to normality over the next few years. In turning our focus to Japan, the Bank of Japan (BoJ) held a meeting on June 16, in which the monetary policy was kept unchanged: considering the fact that inflation has come in at values that are still a far cry from the target, the governor of the BoJ, Kuroda, has declared that the monetary policy will continue to be accommodating, despite the fact that the Federal Reserve is pursuing its normalisation. The Governor then expresses his particular optimism over the economic prospects, stressing that private consumption will continue to support the country s economic growth. In the United Kingdom, June 19 marked the official start to negotiations regarding the conditions under which the country will leave the European Union. As regards the monetary approach adopted by the Bank of England (BoE), the June 15 meeting closed with a vote in favour of keeping official interest rates unchanged. However, a major split was recorded between the members, due to the performance of inflation, which was back to almost 3% in the United Kingdom in May. The alternation of this trend of weakness and strengthening of the English currency is doubtless linked to the evolution of Brexit negotiations. FINANCIAL MARKETS In the first half and, in particular, the second quarter of 2017, international stock markets recorded a comprehensive improvement of +9.43% and +3.38% (MSCI World Index in Dollars). In the USA, the S&P500 recorded positive performance of +8.24% and +2.57%, the Nasdaq Composite, positive of % and +3.87%; the European stock exchanges generically recorded a positive change in the first half (+4.97% and -0.46% STOXX Europe 600); in Asia, the Japanese market (+4.81% and +5.95% Nikkei 225 in JPY) outperformed the Australian stock market (+0.98% and -2.45% S&P/ASX 200 in AUD), whilst that of Hong Kong showed a positive change in the reference periods (+17.11% and +6.86% HANG SENG in HKD). Emerging stock markets achieved respectively a positive result of % and +5.47% (MSCI Emerging Markets index in dollars). The spread between Italian and German debt on the ten-year maturity went from an initial 161 basis points to 199 as at March 31 to 169 as at June 30, while on two-year maturity it went from an initial 65 basis points to 73 as at March 31 to 48 points as at the end of the half-year. In the periods under review, the Italian government curve registered the following variations in yields: -0.39% and -0.25% from -0.30% at 1 year, -0.13% and -0.06% from -0.19% at 2 years, 0.86% and CONDENSED CONSOLIDATED AS AT JUNE 30,

27 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP 1.10% from 0.60% at 5 years, 2.15% and 2.31% from 1.81% at 10 years, 3.29% and 3.27% from to 2.93% at 30 years. The spread between Spanish and German debt on the ten-year maturity went from an initial 119 basis points to 134 as at March 31 and 107 as at end June. During the last session of the quarter, the US government showed a two-year yield of 1.38% and 1.25%, an increase compared to 1.19% at the beginning of the year, while the ten-year yield was of 2.30% and 2.39% from 2.44% as at the beginning of the year. During the first half and second quarter of 2017, a general reduction was seen in returns on the high yield and emerging markets, despite June s recovery. Following the decline in the cross recorded during the second half of 2016, in the first half of 2017 and the second quarter of the year, the listing of the euro against the US dollar went from at the start of the year to as at March 31, and on June 30, with a low of recorded on January 3 and a peak of on June 29. As regards the ECB and Federal Reserve choices concerning monetary policy, the divergence continues between the two central banks, which began back in December with the first rise in interest rates by the Federal Reserve board taking the cost of money to the range of %. Thereafter, during the meeting held on March 15, as expected, a further rise was seen in rates, to The normalisation of the Federal Reserve monetary policy made a further step forward after the meeting held on June 14, through a new rise of 25 basis points (range %). In the periods under review, the list price of the euro versus the English sterling, went from at the start of the year to as at March 31 and as at June 30, recording a positive variation respectively of +2.76% and +3.37%. Since the start of the year, the sterling has oscillated considerably within the range of : the alternation of this trend of weakness and strengthening of the English currency is doubtless linked to the evolution of Brexit negotiations. The Euro-Yen exchange rate is mainly influenced by the monetary policy actions of the respective central banks, both characterised by an expansionary orientation: the exchange rate, also thanks to the positive valuations from the start of the year on the Japanese economic prospects, reached, from the region of at end January and mid-march, the low of on April 17. The intention of the BoJ to maintain the mass monetary stimulation programme, to reduce the political risk in Europe and to eliminate, after the last ECB meeting, the reference made to a potential additional reduction in the cost of money, were amongst the main recent drivers strengthening the single currency. The USD-JPY cross, from April s lows, returned, in the first two weeks of May, to the region of , before then, partly due to the weakness of the dollar against the single currency, settling during the first two weeks of June, at around an average value of CONDENSED CONSOLIDATED AS AT JUNE 30,

28 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP THE INSURANCE MARKET LIFE INSURANCE PRODUCTS 1 A first estimate prepared by ANIA in May suggests that the new production of individual life policies collected in Italy by Italian businesses and representatives of non-eu businesses, including additional single premiums, was Euro 7.4 billion, recording, for the first time since the start of the year, growth (+1.5%) on the same month of 2016; since January, the new life premiums issued have reached Euro 35.2 billion and the reduction has attenuated over time, at end May reaching -14.1% on the same period of last year. Also considering the new life premiums of the sample of EU businesses, of Euro 1.8 billion, up 8.3% on that collected in May 2016, total new life business in the month came to Euro 9.2 billion (+2.7% on the same month of 2016), whilst since the start of the year, they have reached Euro 42.7 billion, 12.0% less than the same period of As regards Italian and non-eu businesses, in May, the new class I premiums relating to individual policies, came to Euro 4.8 billion, 64% of the entire new life production (it was more than 70% in the corresponding month of 2016), recording an increase of 25.6% on the previous month, but still down 8.5% on May 2016 (the smallest reduction since the start of the year). Since January, class I premiums have reached a total of Euro 22.9 billion, down 27.2% on the same period of The performance of the inflow of new class V policy premiums is also negative, which in May, for the second month running, recorded a decline (-30.4%) on the same month of 2016, for an amount of Euro 105 million (1% of the entire new production), whilst since the start of the year, the decline is 17.1% as compared with the first five months of 2016, against a volume of premiums that totals Euro 672 million. The remaining portion of new life production regarded almost exclusively class III (in the unit-linked form), which in May, with a volume of new premiums that totals Euro 2.5 billion, also records a significant increase (+30.6%) on the same month of 2016; since January, the inflow of new business has come to Euro 11.6 billion, up 33.6% with respect to the same period of Inflows relative to new individual adhesions to welfare forms, equal to Euro 112 million (2% of the entire new life production), were down for the first time since the start of the year (-3.5%) on May 2016, reaching a total of Euro 529 million in the first five months of the year, 8.8% more than the same period of the previous year. (1) Source: ANIA TRENDS - Nuova Produzione Vita (Life New Production) - May 2017 CONDENSED CONSOLIDATED AS AT JUNE 30,

29 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP NON-LIFE PREMIUMS 2 At the end of the first quarter of 2017, total premiums (Italian businesses and representatives) of the Italian direct portfolio, were 8.9 billion, as in the first quarter of 2016, after nineteen consecutive quarters recording a negative trend. If on the one hand, in fact, the car sector (-2.0%) continues to show a decline, albeit limited, on the other, the premiums of the other non-life classes confirm the growth recorded in recent years. The overall invariance recorded by premiums in the entire non-life sector at the end of Q is the consequence of: a reduction in the car sector, whose premiums dropped by 2%; an increase in the other non-life classes, whose premiums grew by 1.8%. More specifically, in the car sector, a reduction was recorded of 3.5% in the third party liability cars and shipping vehicles class, and growth of 5.4% in the land vehicle bodies class. Other non-life classes are still positively influenced by the recovery of the general economic cycle and, with respect to comprehensive growth of 1.8%, an above average positive change was recorded in the following classes: Injuries (+3.5%), third party liability shipping vehicles (+4.4%), pecuniary losses (+5.4%), other damages to property (+6.0%), assistance (+7.1%), illness (+7.2%) and legal protection (+8.6%). THE BANKING MARKET 3 FUNDING According to the first estimates of the SI-ABI in May 2017, inflows from customers of all banks in Italy, represented by resident customer deposits (deposits in bank accounts, term deposits net of receivables sales, deposits repayable upon notice and repurchase agreements; deposits are net of operations with central counterparties) and bonds (net of those repurchased by banks) increased by about 4.2 billion on an annual basis, showing an annual change of +0.2% (-0.1% the previous month). More specifically, funding from resident customers amounted to Euro 1,714 billion; before the start of the crisis - in late the amount of bank deposits was about Euro 1,549 billion (+165 billion from the end of 2007 to date); as follows: 1,024.5 billion of customer deposits (+373 billion from the end of 2007 to date) and billion of bonds (-208 billion since 2007). (2) Source: ANIA TRENDS Quarterly non-life premiums - Q data (3) Source: ABI Monthly Outlook - June Summary. CONDENSED CONSOLIDATED AS AT JUNE 30,

30 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP The observation of the various components shows the clear gap between short-term and medium/long-term sources. Deposits of resident customers (in current account, deposit certificates, repurchase agreements net of operations with central counterparties, term deposits connected with sales of receivables) recorded a trend of +4.3% in May 2017, an increase in absolute value on an annual basis of over Euro 58 billion. The amount of deposits reached a level of 1,397.7 billion in May The annual change of the bonds 4 amounted to -14.5% (-14.3% in April 2017), showing a decrease in absolute value on an annual basis of approximately Euro 53.6 billion. The amount of bonds was equal to Euro billion. In April 2017, the trend for deposits abroad 5 was down: in particular, those of Italian banks totalled about Euro 296 billion, 6.8% lower than a year earlier (-5.9% the previous month). The portion of foreign deposits of total funding stood at 11.6% (12.2% a year earlier). The net flow of funding from abroad in the period between April 2016 and April 2017 was negative by about Euro 21.6 billion. In April 2017, net inflows from abroad (foreign deposits less foreign loans) amounted to about Euro 92 billion (-28.9% change in the trend). Of total domestic lending, it was equal to 4.9% (6.8% a year earlier), while foreign loans - also at the same date - amounted to about Euro billion. The ratio foreign loans/ foreign deposits amounted to 68.9% (59.2% a year earlier). The harmonized statistics of the European System of Central Banks observe that the average rate on deposits from customers (which includes the return of deposits, bonds and repurchase agreements in Euro applied to households and non-financial companies) was 0.95% in May 2017 (0.95% the previous month too; 2.89% at the end of 2007). The rate on deposits in Euro applied to households and non-financial companies was 0.40% (0.40% the previous month), that of bonds settled at 2.69% (2.67% in April 2017), and the rate on repurchase agreements at 0.82% (0.79% the previous month). On the secondary market for government securities, the Rendistato, i.e. the figure related to the basket of securities with a residual life over one year traded at the Italian Stock Exchange (MOT), stood at 1.33% in May 2017, 8 basis points lower than the previous month (0.66% in August 2016: record low) and 41 basis points above the value of May In May 2017, the gross yield on the secondary market for CCT amounted to 0.39% (4) Bonds (resident and not) are net of those repurchased by banks. (5) Indebtedness to non-residents: deposits of MFIs, Central Administrations, other Public Administrations and other residents in other Eurozone countries and the rest of the world. CONDENSED CONSOLIDATED AS AT JUNE 30,

31 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP (0.40% in April 2017, 0.31% in May 2016). With reference to the BTP 6, in the average of May 2017, average yield was 1.96% (1.45% in May 2016). Lastly, the annualized gross average yield on Treasury Bills went from -0.33% to -0.37% in the period April - May BANK COMMITMENTS The dynamics of bank lending demonstrated, in May 2017, a positive value; based on initial estimates, total loans to residents in Italy (private sector plus public administrations, net of repurchase agreements with central counterparties), was almost Euro 1,800 billion, marking an annual change - calculated to include loans not recorded in the bank financial statements insofar as securitised and net of changes in balances not connected with transactions (e.g. changes due to fluctuations in the exchange rate and value adjustments or reclassifications) - or +0.3% (+0.5% the previous month). At the end of before the start of the crisis - said loans amounted to 1,673 billion; since then marking a growth of Euro billion in absolute value. Loans to households and non-financial companies as at May 2017 amounted to Euro 1,403 billion. On the basis of our estimates, in turn based on the data published by the Bank of Italy, at May 2017, the calculated annual change in loans to households and businesses, including loans not recorded on the bank financial statements insofar as securitised and net of changes in balances not connected with transactions (e.g. changes due to fluctuations in the exchange rate and value adjustments or reclassifications), up +0.8%, consolidating the improvement seen to the overall trend of total loans in place. At the end of 2007, these loans amounted to 1,279 billion, with an increase in the period of over 124 billion in absolute value. In April 2017, the dynamics of loans to non-financial corporations amounted to +0.2% (+0.3% in March 2017, -5.9% in November 2013, the most negative value). Industrial and service businesses suggest that over the next few months, business will be supported above all by a consolidation of demand, particularly from abroad; the more favourable credit access conditions will also continue to make a positive contribution, albeit to a minor extent. Moreover, during the fourth quarter, net bond inflows of Italian businesses was, albeit only slightly, negative (-0.2 billion). The trend dynamics in total loans to households 7 grew (+2.4% in April 2017; -1.5% in November 2013). (6) The monthly average of the BTP interest rate is influenced by the different maturities of the securities to be issued each month. (7) Consumer households and family businesses. CONDENSED CONSOLIDATED AS AT JUNE 30,

32 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP Also in March 2017, the total amount of outstanding mortgages of households recorded a positive change of +2.4% against the end of April 2016 (when there had already been signs of improvement), also confirming on the basis of data on existing loans, the recovery of the mortgages market, initially with a peak in new mortgages. In May 2017, interest rates on loans stood at very low levels in Italy. The reports of the SI-ABI show that the weighted average rate on total loans to households and non-financial companies developed by ABI in May 2017 amounted to 2.79% (record low), 2.81% the previous month; 6.18% at the end of The rate on new loans in Euro to non-financial companies stood at 1.56% in May 2017 (1.53% the previous month; 5.48% at the end of 2007). The rate on Euro loans to households for house purchases - which summarizes the trend of fixed and variable rates and is also influenced by the change of the composition of disbursements based on the type of mortgage - amounted to 2.12% (2.13% the previous month and 5.72% at end 2007). Of the total new mortgages, almost two-thirds are fixedrate mortgages: in the last month, the portion of the flow of fixed-rate loans amounted to 74.5% (74.9% the previous month; 77% in March 2017). NON-PERFORMING BANK LOANS Net of impairment, as at April 2017 net non-performing positions stood at Euro 77.2 billion, below the previous month (77.8 billion) and lower than May 2014, a trend reducing sharply on the December 2016 figure (86.8 billion). The reduction of more than 13% in non-performing positions with respect to the peak of 89 billion at end November 2015, is therefore recorded. Compared to the same month the previous year, they decreased by about 6.7 billion (-8% annual change, down compared to +4.8% at year-end 2015). The ratio of net non-performing loans to total loans reduced to 4.42% (4.43% as at March 2017 and 4.67% as at April 2016). SECURITIES PORTFOLIO According to the estimated data of ABI, in May 2017 that securities portfolio of the Banks total, came in at Euro billion. HARMONISED INTEREST RATES IN ITALY AND THE EUROZONE As regards the interest rates applied in the Eurozone on the new loans to nonfinancial companies in the amount of up to a million euros, the latest data available (April 2017) gives this as 2.20% (2.20% in March 2017; 2.52% in April CONDENSED CONSOLIDATED AS AT JUNE 30,

33 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP 2016), a figure that is compared with the 2.18% applied in Italy (2.16% in March 2017; 2.57% in April 2016). The rates applied to new loans to businesses worth more than a million euros are, in April 2017, 1.41% of the Eurozone average (1.41% in March 2017; 1.46% in April 2016), a figure that is compared with the 1.06% applied by Italian banks (1.22% in March 2017; 1.46% in April 2016). Finally, April 2017 saw the rate on active current accounts and revolving loans to households come in at 5.19% in Italy, 5.23% in March 2017 (5.19% in April 2016), a level that compares with the 6.31% of the Eurozone (6.34% in March 2017; 6.54% in April 2016). NEW PRODUCTS AND MAIN INITIATIVES IN THE HALF-YEAR Banking Area During the first half of 2017, Banca Mediolanum renewed a personalised, calibrated offer on the promotional programme Mediolanum For You launched in 2016; this recognised, according to each customer s profile, a range of important benefits, including personalised offers on current accounts and compulsory services and matching accessories, such as credit cards and securities dossiers. As regard the offer of creditor rates, despite the continuation at all-time lows of the main reference rates on the market, during the first half of 2017, Banca Mediolanum kept creditor rates on free and restricted deposits competitive for more capitalised customers, aiming to facilitate and ease a diversification in the choice of how to allocate equity. Also with a view to offer differentiation and personalization, again for the first half of 2017, the equity offering was maintained regarding the Double Chance product, differentiated into brackets of amounts recognizing a creditor rate that grows as the amount invested increases. In terms of acquisition initiative, during the first part of the year, until April, the offer in acquisition on MyFreedom current accounts was enhanced with the proposal of co-marketing with Amazon purchase vouchers for new Bank current account holders. In May, at the same time as its participation as sponsor in the Giro d Italia 2017, the current account range was enhanced with the promotional initiative Pedala Sicuro, whereby the charges of the MyFreedom account were zeroed as was the Mediolanum MyFreedom Protection policy premium (Sections A Injuries and/or B Head of Family Third Party Liability ) until December 31, 2017, for all new current CONDENSED CONSOLIDATED AS AT JUNE 30,

34 HALF-YEAR REPORT ON OPERATIONS OF THE MEDIOLANUM GROUP accounts opened in May. June was instead characterised by the launch of a promotional initiative connected with the Securities Deposit: new current account holders were given the option of obtaining Amazon vouchers of increasing value according to the equivalent value of securities and/or funds of third parties transferred, in addition to free custodian fees for the whole of In both Mortgages and Loans, the first half of 2017 saw Banca Mediolanum record total supplies of Euro million, basically stable on the same half-year of the previous year (-0.9%), albeit with different signals: loans grow but new mortgages take a slight downturn. The trend revealed a constant monthly increase, with specific reference to the second quarter of the year, where it above all involved the disbursement of loans. As regards the opening of credit in current accounts, disbursements came to Euro million (-39% on 2016), in line with the Bank s strategy to focus on the transformation of overdrafts into loans, thereby facilitating monitoring and control. As regards Mortgages, during the first half, a series of initiatives were taken, aimed at maintaining and increasing the competitiveness of the offer as well as the reorganisation of the sales force, with the introduction of new specialised family bankers, both in credit and protection, dedicated training courses and interventions aimed at digitising processes to a greater extent, which will yield benefits in the second part of the year. More specifically, starting May, action has been taken to reduce the spread envisaged for the segment with Loan to Value in excess of 60% and maximum term of 20 years, from 2.45% to 1.95%. At the same time, in order to respond to the fixed rate market offers, the offer of Mortgages with caps has been re-launched, applying very competitive new rates, and the maximum term of straight-line mortgages has been altered, from 20 to 25 years. Moreover, in order to increase the Bank s appeal on the loans market, also in terms of active subrogation, the amount of active subrogation has been reduced from the limit of Euro 100,000 to Euro 75,000. Personal loans have also been considered with careful attention paid to pricing, which resulted in a reduction, arranged as from April, of the spreads applied to the capital-backed loans, for customers with total wealth of up to Euro 75,000. Numerous communication initiatives have also been implemented, also in relation to the seasonal nature of the loans product, which sees a disbursement cycle with peaks in the late spring and summer. CONDENSED CONSOLIDATED AS AT JUNE 30,