2004 Results of Major Italian Banks

Transcription

1 2004 Results of Major Italian Banks Research Department May

2 Contents Trend in profitability and its main drivers 3 Credit quality 8 Capital adequacy 10 Conclusion 11 Appendix: reclassified financial statements and main financial ratios 13 Elisa Coletti Research Department - Banca Intesa Tel elisa.coletti@bancaintesa.it 1

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4 Italy s major banking groups reported sizeable growth in earnings in 2004, despite tough economic conditions. On average, net income was up 65%, boosted mainly by the fall in asset value adjustments, while revenues remained weak and operating costs continued to fall. On the credit quality front, the end-2004 figures did not show any new cause for concern, but nor did they show any let-up in the focus on the phenomenon. In terms of capital adequacy, the December 2004 figures confirmed the improvement in the solidity of the major Italian banks. Trend in profitability and its main drivers Italy s major banking groups 1 reported sizeable growth in earnings in 2004, after a generally poor On average, net income was up 65%, with nine out of ten groups showing a positive trend. The average ROE was 10% (equity includes net income for the period), up 3.6 percentage points on 2003, while the three largest Groups reported equity profitability of between 12% and 15%. An exception to the improving trend in profitability was BNL, whose result for the year registered a slight 34 million loss, due to the actions taken as part of the restructuring plan and the extraordinary interventions announced at end-2004 in order to improve loan quality. Return on Equity (ROE) 20% 15% 10% 5% 15.1% 11.8% 5.0% 7.9% 7.2% 11.1% 9.6% 6.2% 10.1% 0% -5% FY 2003 FY % -10% UCI SPIMI CAPI MPS BNL BPU BPVN Antonveneta BPL TOP10 Source: company data, Banca Intesa calculations. TOP10 = top ten listed Italian banks. Banca Intesa is not included in the chart. On balance, despite tough economic conditions, the results were positive, boosted mainly by the fall in asset value adjustments, while results on the operating side reflected the sluggish market situation. Revenues remained weak, growing by just 0.7%, while operating costs continued to fall. Taking 100 as the growth in net income from ordinary operations vs. 2003, 79% was generated by the fall in value adjustments, 12% from the reduction in operating costs and 9% from growth in revenues. The trends are therefore encouraging, but the dominant 1 The analysis is based on the consolidated results of the top ten Italian banking groups listed on the stock market. Averages are calculated using the sum of the ten groups. 3

5 theme remains cost cutting, including costs relating to bad loans and, in general, the loss of asset value. Thus, there is no doubt that the satisfactory 2004 results were buoyed by the restructuring plans implemented in recent years (cleaning up of finances and cost cutting) and the effects of mergers in terms of cost synergies, which, combined, enabled the banks to ride out the economic stagnation and the resulting low level of interest rates. Results as at 31 December Aggregate figures of top Italian listed bank Groups. Annual trend change % change FY04/FY03 Net interest margin -0.9 Dividends and income from investments carried at equity 38.2 Net interest income 0.7 Net commissions 3.3 Profits (losses) on financial transactions Other operating income, net 4.1 Total income 0.7 Administrative costs personnel costs other administrative expenses -0.3 Adjustments to tangible and intangible fixed assets -7.0 Operating costs -1.4 Gross operating income 4.2 Provisions and net adjustments to loans, financial fixed assets Pre-tax income on ordinary operations 53.7 Pre-tax income 59.0 Net income 65.1 Source: company data, Banca Intesa calculations. Relative to total income FY 2004 (a) FY 2003 (b) (a) - (b) To gain a deeper understanding of the dynamics at work in 2004, it is worth taking a more detailed look at the main determinants of the banks income statements, first and foremost revenues, which, in general, continued to languish, on the back of the decline in net interest income and profits from financial operations, offset by modest growth in commissions. The second half of the year nonetheless showed some signs of improvement in the interest margin, while commissions growth continued to slow. In detail, the individual revenue components performed as follows: - the weakness of net interest income was confirmed (-0.9% y/y), although the contraction was smaller than in 2003 and 1H04 (-2% and -3% respectively). The result continued to be dogged by low interest rates, while customer loans showed some signs of recovery, as mortgage loans to households and consumer credit continued to expand. On average, in the panel examined, customer loans increased by 3% vs. end-2003, on the back of the improvement in the last quarter (+2.6% q/q). Two banks were particularly dynamic on the lending front (UniCredit and BPVN), showing a double digit growth in loans (10.8% and 13.7% respectively), thanks to the positive trend in mortgages. As regards UniCredit, the customer loans increase was largely sustained by the 16.1% rise in the retail division and the growth in New Europe (up 18.6% on a nominal basis and 10.6% at constant exchange rates). On the contrary, in other cases the lending trend remained weak, even if recovering, due to low demand from corporate customers and, for BNL and Antonveneta, to loan portfolio restructuring (scaling back of activity with large and international accounts, scaling back of positions making a limited contribution to earnings). Thanks to a gradual shift in loans towards more remunerative positions, some groups were able to defend the spread and expand interest income. As mentioned before, on average, signs of a recovery in net interest margin (NIM) emerged in the final quarter. As for Capitalia, e.g., which registered a 4% fall in the full year net interest margin, the last quarter result showed a 1.6% q/q increase, driven by the rebound in lending volume, returning to positive growth (+1.6% y/y) on the back of retail 4

6 customer loans, after two years of an overall weakness. For BNL too, the fourth quarter confirmed the turning point in revenue performance, with a recovery in interest income which seems to have gotten past the low point in the negative trend linked to the reduction in loans. Net interest income FY04 decreased 9.9%, but the steady improvement during the second half (after dropping 15.7% y/y in 1H04) should be stressed. This improvement was accompanied by the gradual recovery in lending, returning to growth by yearend, recording an overall increase of 1.9% y/y, driven by the 4.2% increase in the domestic component, while the foreign component continued to decline. The best performer in terms of NIM annual trend was UniCredit (UCI), up 3.7% vs and 14.4% in 4Q04 vs. 4Q03, driven by the growth in volume, though in part attributable to the revaluation of the Polish zloty (up 1.9% and 8.9%, respectively at constant exchange rates); - profits from financial operations continued to fall (-14.1% y/y avg. for the panel), mainly due to the contraction in sales of hedging derivatives to corporate customers, compared with the boom in 1H03. With the exception of Antonveneta and Bipielle, most of the banks reported a fall in this item; - net commissions continued to slow, whilst the trend remained positive, reporting growth of 3.3% vs for the panel examined. Commissions made a positive contribution to the trend in revenues for almost all the banks examined, except for two banks which reported a slight reduction. In general, the trend in commissions benefited from the good result in recurrent revenues from asset management services (including Life assurance), as well as traditional banking services. However, in some cases, these positive drivers were partially offset by the decline in up-front commissions. UniCredit, e.g., showed an 8.5% increase in recurrent commissions while registering a sharp 37.7% decline in up-front commissions, the main factor in keeping net commissions virtually unchanged (down 0.5% vs. 2003). However, UCI s overall commissions rebounded in the final quarter, recording a moderate 1.4% increase vs. 4Q03, though a sharp 13.3% rise vs. the previous quarter. Results as at 31 December 2004 of the top ten Italian listed banks Annual % change vs UCI Sanpaolo IMI Capitalia MPS BNL BPU BPVN Antonveneta Bipielle Net interest margin 3.7% -4.0% -4.0% -2.2% -9.9% 2.1% -1.5% 1.6% 0.4% Dividends and income from investments carried at equity 16.2% 30.0% 99.8% 13.5% 1.3% 209.4% 172.7% -24.4% 311.6% Net interest income 4.3% -1.7% -1.8% -1.4% -9.4% 3.1% 2.7% 0.9% 11.0% Net commissions -0.5% 6.7% 3.7% 1.9% -2.0% 5.4% 8.0% 7.1% 3.7% Profits (losses) on financial transactions -22.8% -3.4% -3.9% -75.2% -3.3% -10.4% -27.1% 42.3% 71.8% Other operating income, net 2.8% -2.7% 10.6% -3.8% 10.3% -30.9% 6.3% 19.2% 34.0% Total income -0.7% 1.5% 0.8% -4.4% -5.4% 1.6% 2.8% 4.6% 13.3% Operating costs 3.5% -1.4% -1.3% -3.2% -2.2% -0.1% -0.7% -1.9% -7.2% Gross operating income -5.8% 6.9% 5.0% -7.0% -10.9% 4.9% 8.1% 15.0% 61.8% Provisions and net adjustments to loans, financial fixed assets -3.9% -7.9% -23.4% -35.0% 3.6% -42.0% -2.5% -67.9% -1.2% Pre-tax income on ordinary operations -6.7% 15.8% n.m. 73.2% n.m % 12.1% n.m % Pre-tax income -6.1% 26.9% n.m. 87.9% n.m % 26.1% n.m % Net income for the period 8.7% 43.3% n.m. 16.1% n.m. 45.0% 27.2% n.m % Source: company data, Banca Intesa calculations. There were no surprises on the costs front, which continued the decline reported in 9M04: on average operating costs were down 1.4% y/y, on the back of falls in all cost items. Particularly, personnel expenses fell by 1.1% avg.. Sluggish revenues and falling costs resulted in a moderate increase in gross operating income (+4.2% for the panel average). As shown in the next chart, three groups still reported a decline in operating income; at the opposite end, a virtuous combination of falling costs and rising revenues, though still modest in general, allowed most of the banks to report growth in operating income. 5

7 Trend in gross operating income and its components The size of the bubbles represents the % change in Gross operating income Operating costs: % change 2004/ % 5% 0% -5% A white bubble represents a reduction in gross operating income BNL MPS UCI Capitalia Top10 average BPU BPVN Sanpaolo IMI Antonveneta Bipielle A colored bubble represents a growth in gross operating income -10% -10% -5% 0% 5% 10% 15% Totale income: % change 2004/2003 Source: Company data, Banca Intesa calculations. Top10 = top ten listed Italian banks. Banca Intesa is not included in the chart. Accordingly, the improvement in operating efficiency was confirmed: the panel average cost / income ratio was 61.7%, 1.3% lower than Almost all the groups improved efficiency, except for three cases. 75% Cost / Income ratio (%) cost / income FY % 65% 60% 55% UCI BNL TOP10 average BPVN Antonveneta MPS Capitalia BPU Sanpaolo IMI Bipielle 50% 50% 55% 60% 65% 70% 75% cost / income FY2003 Source: company data, Banca Intesa calculations. Top10 = top ten listed Italian banks. Banca Intesa is not included in the chart. Within the general pattern, Banca Popolare di Lodi (in short Bipielle or BPL) stands out for its positive performance, with total income increasing by 13%, operating costs falling by 7% and gross operating income growing by 62%. More in detail, the increase in total income was mainly due to non recurrent components, while net interest margin remained flat and net commissions increased almost in line with the panel average. Taking 100 as the growth in total income vs. 2003, 38% was generated by the increase in dividends and 36% by the pick up in other operating income (net), while profits for financial transactions contributed for 9%. Operating costs benefited from the reduction in staff during 6

8 2003 and 2004 (-7% vs. end-2002 excluding the Area Group acquisition in 2004), leading to a 4.5% y/y decrease in personnel expenses for FY04, accompanied by the fall in other administrative costs (-9%) and depreciations (-11%). As a result, cost income ratio improved significantly, from 70.3% in 2003 to 57.6% for FY04. In general, for the panel examined, the impact of write-downs on the income statement was reduced, following the massive adjustments made in 2003 and Total net value adjustments on loans and financial assets, including prudent provisioning and the amortisation of goodwill, fell by an average of 26% y/y, or almost 3 billion for the sum of the ten groups. Their weight within the income statement thus fell, absorbing 16.8% of total revenues, 6.1 percentage points vs Particularly, net value adjustments on loans and loan risk provisioning fell by an average of 27% y/y, as 2003 had been affected by extraordinary provisions on Parmalat exposures. The cost of risk 2 also registered a significant improvement, falling to 71 bps on average, from 100 bps in 2003, with nine out of ten groups showing a positive trend. The year-on-year fall is 29 bps, although it is affected to some extent by the sharp reduction in the cost of risk reported by Antonveneta which in 2003 effected an exceptional asset clean-up. However, even excluding Antonveneta, the average cost of risk of the top Italian banks falls by almost 20 bps, to 68 bps from 88 bps in As mentioned before, part of the average reduction is due to Parmalat, which boosted the 2003 loans provisioning. Cost of risk (*) (bp) FY 2004 FY basis points UCI SPIMI Capitalia MPS BNL Source: company data, Banca Intesa calculations. TOP10 = top ten listed Italian banks. Banca Intesa is not included in the chart. (*) (Net value adjustments on loans + loan risk provisioning) / Net loans at end of period. BPU BPVN Antonveneta BPL TOP10 As regards individual groups performance, the most significant cases are as follows: BNL represents an exception to the general trend in cost of risk. Indeed, the BNL income statement was significantly impacted by the actions taken to improve loan quality, with overall write-downs and provisions amounting to billion, including the write-down to the equity investment on Albacom, completing absorbing the operating result. Particularly, net value adjustments to loans and provisions for possible loan losses increased by 29%, reaching a total of 849 million, including 443 million considered one-off. As mentioned before, BNL represents an exception to the improving trend in cost of risk, registering an increase to 149 bps (117 in 2003), more than half of which considered as extraordinary" (78 bps); 2 (Net value adjustments on loans + loan risk provisioning) / Net loans at end of period. 7

9 the Capitalia net result 2004 is largely explained by the overall decrease in write-downs and provisions, down 23.4% or 393 million, despite the devaluations regarding the equity investment in IPSE and of the loans that Capitalia reacquired from the Trevi securitisation vehicles. Excluding these two items from the 2004 total and the Parmalat write-down from 2003, it is still a significant decrease, amounting to about 20% for both total write-downs and provisions and for loans only. So the cost of risk has come down, though it is still at high levels, 96 bps in 2004, not much lower than around 100 in 2003, excluding the Parmalat effect (144 total); Antonveneta registered a sharp fall in value adjustments vs. 2003, which included the exceptional asset clean-up: risk and charge provisioning fell by 88% y/y and net loan adjustments by 64%. Nonetheless, the company s stance in loan assessment remained very prudent and the cost of risk was a tough higher than forecasted, on the back of weaker than expected economic conditions, extraordinary value adjustments on some specific large exposures and additional provisioning of small amount NPLs in view of the sale of bad loans planned for In fact, the cost of risk actually was equal to 123bp, lower than the 2003 exceptional 332bp but exceeding the management s target of below 100bp in At the conference call the management confirmed a prudent stance in loan assessment also for 2005, with an expected cost of risk of below 100bp and an improvement in recovery activity, as emerged in the final part of 2004; Bipielle cost of risk registered a slight reduction, from over 100 bps in 2003 to 92 bps in Although, it remained one of the highest in the panel examined, on the back of the sharp increase in bad loans in 2003 and 2004 (see below). Credit quality The average trend in the cost of credit risk appear to be consistent with indications deriving from the credit quality ratios, as measured in terms of stock. On average, at end-2004 the major listed Italian banking groups reported a stock of net doubtful loans slightly lower than the end-2003 figure, showing a decline of 2.3% y/y, after a slowdown in growth during previous quarters. The overall decline was due to a reduction in net substandard loans (-5.2% y/y) vs. a stabilisation in net NPL (+0.2% y/y). Since net loans in the panel were up by 3.1% y/y in December, the weight of net NPL eased to 2.53% (-0,07 bps vs. end-2003), while the weight of substandard loans declined to 1.62% from 1.76% at end Trend in credit quality Net NPLs / Net customer loans (%) Net substandard loans / Net customer loans (%) Net doubtful loans (1) / Net customer loans (%) Banking Groups 31/12/04 31/12/03 31/12/04 31/12/03 31/12/04 31/12/03 UniCredito Italiano Sanpaolo IMI Capitalia MPS BNL BPU BPVN Antonveneta Bipielle Top 10 average Source: company data, Banca Intesa calculations. (1) Doubtful loans = NPL, substandard loans, loans being restructured, restructured loans, loans to risky countries. 8

10 Basically, the December figures did not show any new cause for concern on the credit quality front, but nor did they show any let-up in the focus on the phenomenon, as borne out by the ongoing strengthening of specific and generic provisions in respect of credit risks, especially by the larger groups in the panel examined. Indeed, the coverage of doubtful loans increased by 1.8 percentage points to 48.8%, as total adjustments to doubtful loans grew by 5%. The performance of some individual Groups is described below with particular emphasis on the signs, both positive and negative, emerging from the latest figures: BNL registered a considerable improvement in problem loan coverage. As a result of the increase in write-downs in 2004, the ratio of non-performing loans coverage rose by ten percentage points during the year, from 46.1% at end-2003 to 56.3%. In tandem, net non-performing loans were reduced to a significant extent, both in absolute value (down 14.8%) and as a ratio to net loans (down from 4.2% at end-2003 to 3.5% at end-2004); Loan coverage NPLs coverage (%) Doubtful loans (1) coverage (%) Performing loans coverage (%) Banking Groups 31/12/04 31/12/03 31/12/04 31/12/03 31/12/04 31/12/03 UniCredito Italiano Sanpaolo IMI Capitalia MPS BNL BPU BPVN Antonveneta Bipielle Source: company data, Banca Intesa calculations. (1) Doubtful loans = NPL, substandard loans, loans being restructured, restructured loans, loans to risky countries. as for Capitalia, the decrease in provisions to loans is attributable to the decrease in new non-performing loans, coming down by almost half in gross terms in 2004 y/y including Parmalat, and down 22% excluding Parmalat. As for stock, gross non-performing loans increased 3.2% y/y, including a slower 0.5% rise in the fourth quarter. In view of the tight provisioning policy, net non-performing loans were reduced by 2.4% y/y and 1.3% q/q, and the degree of coverage was increased from 55.3% at end-2003 to 56.9% at end-september and to 57.7% at end Substandard loans, in turn, have been sharply reduced, down 28% y/y gross and 14.7% q/q. All told, these are comforting signs considering that banks normally load off most of their problem loans at the end of the year. Finally, after rising to 6.12% in September, the net non-performing loans/net total loans ratio ended the year at 5.8%, in part attributable to the increase in lending. Though still a high level, it is a significant improvement. A positive sign is also coming from the net substandard loans/total loans ratio, on a steady downward trend from 2.1% in September 2004 to 1.8% at year-end, so below the 2% level; Bipielle continued to record a sizeable increase in net NPL of +44.5% in value terms vs. end-2003, and of 57 bps relative to total net loans, taking the weighting to 1.73%, higher than the end-june 2004 figure of percentage points, but still below the system average thanks to the securitisations of the non-performing portfolio effected by Bipielle in 2000 and Total net doubtful loans increased by 24% on account of the NPL dynamics and despite the slight reduction in substandard loans (-0,1%), due to the switch between one category and another; Antonveneta asset quality remained an element of concern as doubtful loans grew again in 4Q04, after signs of stabilisation in the previous quarter. 9

11 In fact, at end-2004 gross NPL were up 6% q/q and almost 23% y/y, accompanied by an increase in gross substandard loans too (+18% q/q and +19% y/y). Considering the figures netted of value adjustments, the trend was similar. As a consequence, the ratio of net doubtful loans to net total loans increased to 7%, up 0.5 percentage points vs. end September and 1.4 vs. end Problem loans coverage remained high and almost flat vs. end- September Capital adequacy In terms of capital adequacy, the December 2004 figures confirmed the strengthening in the solidity of the major Italian banks, as almost all the groups improved their equity ratios vs. end Particularly, the Groups considered in the panel showed satisfactory levels of total capital ratios, ranging from 9.5% to almost 12%. Moreover, the two weakest Groups in terms of capitalisation (Antonveneta and Bipielle) registered an increase in their Tier 1 ratios by almost one percentage points, while remaining slightly under the 6% threshold. 12 Trend in capitalisation (%) Tier1 ratio Total capital ratio 10 Dec Dec 2003 Source: company data, Banca Intesa calculations. Of the groups which achieved a sizeable improvement in their equity ratios starting from weak positions, mention should be made of the following cases: BNL achieved a stronger capital base as a result of the capital increase and the reduction in risk-weighted assets (RWA). After the 1.2 billion capital increase in late 2004, the Tier 1 ratio improved from 6.21% at end-2003 and 6.39% in September 2004 to 7.67%. According to the bank, the level achieved is enough to absorb the impact of applying IAS-IFRS and to sustain the growth expected for In fact, it should be reiterated that, based on projections provided by the bank last November and confirmed during the conference call on the 2004 results, the further write-downs necessary to bring asset quality into line with best practice in the market and the requirements of the new accounting principles will have an around 800 million impact on equity in 2005, with the Tier 1 ratio coming in above 6.5% after application of the IAS; Bipielle aggressive acquisitions policy during past years has resulted in weak regulatory capital ratios. After the capital increases effected in 2003 ( 791 million by the parent company) and in 2004 ( 630 million by the subsidiary Reti Bancarie Holding), Tier 1 ratio was equal to 5.9% at end-2004, up almost one percentage point y/y, while total capital ratio increased to 9,51%, from 8.8% at end-2003; 10

12 As for Antonveneta, one definite positive is the ongoing improvement in capital adequacy towards the plan s 2006 targets. Particularly, the equity ratios also grew in the fourth quarter: the total capital ratio rose to 9.8%, slightly below the 2005 target (10%), registering a 1.5 percentage point increase vs. end-2003 and +46 bps vs. September 2004; in turn, the Tier 1 ratio climbed to 5.77% (+28 bps vs. September and +91 bps vs. end-2003), exceeding the target set for end-2004 (5.5%). Since the primary capital component still shows greater relative weakness, the company also confirmed the reinforcement measures envisaged in the plan for ; BPU s equity ratios showed a trend in line with the strengthening actions already planned. At end-2004, indeed, BPU s capital ratios remained almost at the same level achieved in 1Q04, consolidating the improvements vs. end Specifically, the core Tier 1 ratio remained at 6%, up almost 80 bps vs. end-2003, while the total capital ratio showed an improvement to 10%, up 25 bps vs. end Moreover, in first quarter 2005 the ratios should be strengthened further, on the back of the bancassurance agreement envisaging the further acquisition by Commercial Union Vita of minority stakes in the group s banks, in a total amount of 250m; Capitalia continued to improve its degree of capitalisation. In detail, the Tier 1 ratio rose from 6.9% at end-2003 and end-september 2004 to 7.3%, receiving a boost from the sale of part of the equity investment in Fineco Vita to CNP. According to Capitalia estimates, the coefficient level reached at end will allow the bank to absorb the impact from applying the IFRS, which should lower Tier 1 ratio to 6.5%-6.7%. Capital ratios Tier 1 Ratio Total Capital Ratio Primary capital / Risk-weighted assets (%) Regulatory capital / Risk-weighted assets (%) Banking groups 31/12/04 31/12/03 31/12/04 31/12/03 UniCredit Sanpaolo IMI Capitalia MPS BNL BPU BPVN Antonveneta Bipielle Source: company data, Banca Intesa calculations. Conclusion All in all, 2004 was a satisfactory year for major Italian bank Groups, as they achieved a significant improvement in profitability, despite tough economic conditions. On balance, once again, the dominant theme was cost cutting, including costs relating to bad loans and, in general, the loss of asset value. Thus, there is no doubt that the satisfactory results were buoyed by the restructuring plans implemented in recent years and the effects of mergers in terms of cost synergies, which, combined, enabled the banks to ride out the economic stagnation and the resulting low level of interest rates. Within this context, revenues remained weak and, for the time being, they represent the main challenge for Italian banks. 3 In October 2003 the EGM of Banca Antonveneta approved the issue of bonds convertible to shares and/or cum warrant, in a total amount of 500m, to be effected in

13 In conclusion, the next chart shows the considerations arising from the analysis of the credit quality and capitalisation profiles, providing an overview of the trends in 2004 and the relative positioning of the groups examined. The chart highlights situations that need monitoring, still characterised by credit quality problems (Antonveneta) even if improving (BNL and Capitalia) and/or affected by low capitalisation, such as Bipielle and Antonveneta, even if the latter showed a further strengthening in 1Q05 (Tier 1 ratio rose to 6.27% at end-march 2005 vs. 5.77% three months earlier and Total capital ratio increased to 10.39% from 9.8% in December 2004). As for the virtuous side of the chart, Sanpaolo IMI stands out as the best performer both in terms of credit quality and capitalisation, while UniCredit improved both profiles. In terms of dynamics, a generalised trend can be identified in the strengthening of capital adequacy, with the exception of Popolare di Verona e Novara (BPVN) whose capital ratios remained however satisfactory. Note that no group registered a worsened situation in both profiles. Credit quality: Net doubtful loans / Net customer loans (%) Degree of capitalisation and credit quality of top Italian bank groups at end-2004 Performance vs The right-hand arrow represents the virtuous trend, indicating an improvement on both credit quality and capitalisation. Antonveneta Bipielle MPS BPU Capitalia BPVN BNL 31/12/04 31/12/03 UniCredito Italiano SANPAOLO IMI 1 4,5 5,0 5,5 6,0 6,5 7,0 7,5 8,0 8,5 Capitalisation: Tier1 ratio (%) Source: company data, Banca Intesa calculations. 12

14 APPENDIX: RECLASSIFIED FINANCIAL STATEMENTS AND MAIN FINANCIAL RATIOS UniCredit 14 San Paolo IMI 16 Capitalia 18 MPS (Monte dei Paschi di Siena) 20 BNL 22 BPU (Banche Popolari Unite) 24 BPVN (Banco Popolare di Verona e Novara) 26 Antonveneta 28 BPL (Banca Popolare di Lodi) 30 13

15 UNICREDIT Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) Cash and deposits with central banks and post offices 2,083 1, % Due from banks 36,521 32, % Loans to customers 140, , % Securities 30,274 29, % Equity investments 3,536 3, % Tangible and intangible fixed assets 4,082 4, % Goodwill arising on consolidation and on application of the equity method 1,062 1, % Other assets 47,859 38, % Total assets 265, , % LIABILITIES AND SHAREHOLDERS' EQUITY Due to banks 37,702 44, % Customer deposits 156, , % Allowances with specific purpose 4,476 4, % Other liabilities 44,994 33, % Subordinated debt 6,541 6, % Minority interests 1, % Shareholders' equity 14,090 13, % Capital and reserves 11,905 10, % Reserve for general banking risks % Neg. goodwill arising on consolidation and on application of the equity method % Net income for the period 2,131 1, % Total liabilities and shareholders' equity 265, , % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 4,920 4, % Dividends and income from investments carried at equity % Net interest income 5,200 4, % Net commissions 3,289 3, % Profits (losses) on financial transactions 993 1, % Other operating income, net % Total income 10,375 10, % Administrative costs 5,469 5, % - personnel costs 3,388 3, % - other administrative expenses 2,081 1, % Adjustments to tangible and intangible fixed assets (1) % Operating costs 5,941 5, % Gross operating income 4,434 4, % Goodwill write-off % Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses 891 1, % Net value adjustments to financial fixed assets % Total provisions and net adjustments to loans, financial fixed assets (2) 1,446 1, % Pre-tax income on ordinary operations 2,988 3, % Extraordinary items, net % Income taxes 1,036 1, % Transfer to / (from) fund for general banking risks n.m. Minority interests % Net income 2,131 1, % (1) Net of goodwill amortisation. (2) Including goodwill amortisation. 14

16 UNICREDIT Main Financial Ratios OTHER INFORMATION Net non-performing loans (sofferenze ) ( million) 2,621 2,373 Employees (average number) 68,817 69,100 Branches (number) 4,442 4,563 FINANCIAL RATIOS Profitability ROE (Net income / Shareholders equity) 15.12% 15.00% ROE cash ((Net income + goodwill write-off) / (Equity - net income)) 20.13% 20.02% Gross operating income / Total assets 1.67% 1.98% Total income / Total assets 3.90% 4.39% Net interest margin / Total assets 1.85% 1.99% Efficiency Cost / Income (Operating costs / Total income) 57.3% 55.0% Provisions and net adjustments to loans and financial fixed assets / Total income 11.3% 11.9% Personnel costs / Number of employees ( 000) Total income / Number of employees ( 000) Structure Net commissions / Total income 31.7% 31.7% Loans to customers / Customer deposits 89.5% 93.7% Due to banks, net ( million) -1, ,469.0 Credit risk Net non-performing loans / Net loans to customers 1.87% 1.87% Net doubtful loans / Net loans to customers 3.49% 3.72% NPLs coverage (Total adjustments on NPLs / Gross NPLs) 60.2% 59.7% Doubtful loans coverage (Tot. adjustments on doubtful loans / Gross doubtful loans) 48.2% 47.1% Capital adequacy Core Tier 1 capital / Risk-weighted assets 7.36% 6.97% Tier 1 capital / Risk-weighted assets 7.94% 7.58% Total capital / Risk-weighted assets 11.64% 11.12% 15

17 SANPAOLO IMI Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) 31/12/ /12/2003 Cash and deposits with central banks and post offices 1,348 1, % Due from banks 23,777 22, % Loans to customers 121, , % Securities 29,344 25, % Equity investments 4,503 4, % Tangible and intangible fixed assets 2,093 2, % Goodwill arising on consolidation and on application of the equity method % Other assets 27,416 21, % Total assets 211, , % LIABILITIES AND SHAREHOLDERS' EQUITY 31/12/ /12/2003 Due to banks 28,198 28, % Customer deposits 135, , % Allowances with specific purpose 4,013 4, % Other liabilities 24,809 20, % Subordinated debt 6,955 6, % Minority interests % Shareholders' equity 11,804 10, % Total liabilities and shareholders' equity 211, , % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 3,569 3, % Dividends and income from investments carried at equity % Net interest income 3,920 3, % Net commissions 3,240 3, % Profits (losses) on financial transactions % Other operating income, net % Total income 7,912 7, % Administrative costs 4,565 4, % - personnel costs 2,803 2, % - other administrative expenses 1,762 1, % Adjustments to tangible and intangible fixed assets (1) % Operating costs 5,022 5, % Gross operating income 2,890 2, % Goodwill write-off % Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses % Net value adjustments to financial fixed assets n.m. Total provisions and net adjustments to loans, financial fixed assets (2) 937 1, % Pre-tax income on ordinary operations 1,953 1, % Extraordinary items, net n.m. Income taxes % Transfer to / (from) fund for general banking risks 2-9 n.m. Minority interests % Net income 1, % (1) Net of goodwill amortisation. (2) Including goodwill amortisation. 16

18 SANPAOLO IMI Main Financial Ratios OTHER INFORMATION 31/12/ /12/2003 Net non-performing loans (sofferenze ) ( million) 1,161 1, % Employees (average number) 43,102 44, % Branches (number) 3,336 3, % FINANCIAL RATIOS Profitability ROE (Net income / Shareholders equity) 11.80% 8.84% 2.96 ROE cash ((Net income + goodwill write-off) / (Equity - net income)) 15.29% 11.27% 4.02 Gross operating income / Total assets 1.37% 1.33% 0.03 Total income / Total assets 3.75% 3.85% Net interest margin / Total assets 1.69% 1.83% Efficiency Cost / Income (Operating costs / Total income) 63.5% 65.3% -1.9 Provisions and net adjustments to loans and financial fixed assets / Total income 9.3% 11.0% -1.7 Personnel costs / Number of employees ( 000) % Total income / Number of employees ( 000) % Structure Net commissions / Total income 41.0% 38.9% 2.0 Loans to customers / Customer deposits 90.2% 94.6% -4.4 Due to banks, net ( million) -4, , % Credit risk Net non-performing loans / Net loans to customers 0.95% 0.94% 0.01 Net doubtful loans / Net loans to customers 2.09% 2.04% 0.05 NPLs coverage (Total adjustments on NPLs / Gross NPLs) 74.9% 73.2% 1.70 Doubtful loans coverage (Tot. adjustments on doubtful loans / Gross doubtful loans) 61.6% 60.5% 1.05 Capital adequacy Core Tier 1 capital / Risk-weighted assets 7.39% 6.62% 0.77 Tier 1 capital / Risk-weighted assets 8.14% 7.35% 0.78 Total capital / Risk-weighted assets 11.97% 10.45%

19 CAPITALIA Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) Cash and deposits with central banks and post offices % Due from banks 18,760 17, % Loans to customers 76,446 75, % Securities 14,927 13, % Equity investments 2,780 3, % Tangible and intangible fixed assets 2,624 2, % Goodwill arising on consolidation and on application of the equity method % Other assets 16,258 15, % Total assets 132, , % LIABILITIES AND SHAREHOLDERS' EQUITY Due to banks 28,488 27, % Customer deposits 76,431 72, % Allowances with specific purpose 3,071 3, % Other liabilities 14,129 14, % Subordinated debt 3,255 3, % Minority interests % Shareholders' equity 6,737 6, % Capital and reserves 6,392 6, % Reserve for general banking risks % Neg. goodwill arising on consolidation and on application of the equity method Net income for the period % Total liabilities and shareholders' equity 132, , % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 2,345 2, % Dividends and income from investments carried at equity % Net interest income 2,455 2, % Net commissions 1,425 1, % Profits (losses) on financial transactions % Other operating income, net % Total income 4,826 4, % Administrative costs 2,851 2, % - personnel costs 1,782 1, % - other administrative expenses 1,069 1, % Adjustments to tangible and intangible fixed assets (1) % Operating costs 3,189 3, % Gross operating income 1,638 1, % Goodwill write-off % Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses 736 1, % Net value adjustments to financial fixed assets % Total provisions and net adjustments to loans, financial fixed assets (2) 1,282 1, % Pre-tax income on ordinary operations n.m. Extraordinary items, net % Income taxes % Transfer to / (from) fund for general banking risks % Minority interests % Net income % (1) Net of goodwill amortisation. (2) Including goodwill amortisation. 18

20 CAPITALIA Main Financial Ratios OTHER INFORMATION Net non-performing loans (sofferenze ) ( million) 4,436 4, % Employees (average number) 28,430 28, % Branches (number) 1,950 1, % FINANCIAL RATIOS Profitability ROE (Net income / Shareholders equity) 5.01% 0.47% 4.54 ROE cash ((Net income + goodwill write-off) / (Equity - net income)) 6.88% 2.18% 4.69 Gross operating income / Total assets 1.23% 1.22% 0.02 Total income / Total assets 3.63% 3.73% Net interest margin / Total assets 1.77% 1.90% Efficiency Cost / Income (Operating costs / Total income) 66.1% 67.4% -1.4 Provisions and net adjustments to loans and financial fixed assets / Total income 24.4% 32.6% -8.2 Personnel costs / Number of employees ( 000) % Total income / Number of employees ( 000) % Structure Net commissions / Total income 29.5% 28.7% 0.8 Loans to customers / Customer deposits 100.0% 103.2% -3.2 Due to banks, net ( million) -9, , % Credit risk Net non-performing loans / Net loans to customers 5.80% 6.04% Net doubtful loans / Net loans to customers 9.40% 10.61% NPLs coverage (Total adjustments on NPLs / Gross NPLs) 57.7% 55.3% 2.42 Doubtful loans coverage (Tot. adjustments on doubtful loans / Gross doubtful loans) 47.5% 43.6% 3.87 Capital adequacy Tier 1 capital / Risk-weighted assets 7.29% 6.85% 0.44 Total capital / Risk-weighted assets 10.65% 10.20%

21 MPS (MONTE DEI PASCHI DI SIENA) Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) Cash and deposits with central banks and post offices % Due from banks 11,356 8, % Loans to customers 74,394 70, % Securities 16,991 18, % Equity investments 2,785 2, % Tangible and intangible fixed assets 2,257 2, % Goodwill arising on consolidation and on application of the equity method % Other assets 20,152 18, % Total assets 129, , % LIABILITIES AND SHAREHOLDERS' EQUITY Due to banks 15,228 15, % Customer deposits 81,784 77, % Allowances with specific purpose 2,183 2, % Other liabilities 19,113 16, % Subordinated debt 4,561 4, % Minority interests % Shareholders' equity 6,465 6, % Capital and reserves 5,884 5, % Reserve for general banking risks % Neg. goodwill arising on consolidation and on application of the equity method % Net income for the period % Total liabilities and shareholders' equity 129, , % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 2,426 2, % Dividends and income from investments carried at equity % Net interest income 2,589 2, % Net commissions 1,341 1, % Profits (losses) on financial transactions % Other operating income, net % Total income 4,470 4, % Administrative costs 2,821 2, % - personnel costs 1,759 1, % - other administrative expenses 1,062 1, % Adjustments to tangible and intangible fixed assets (1) % Operating costs 3,097 3, % Gross operating income 1,373 1, % Goodwill write-off % Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses % Net value adjustments to financial fixed assets % Total provisions and net adjustments to loans, financial fixed assets (2) 712 1, % Pre-tax income on ordinary operations % Extraordinary items, net % Income taxes % Transfer to / (from) fund for general banking risks n.m. Minority interests % Net income % (1) Net of goodwill amortisation. (2) Including goodwill amortisation. 20

22 MPS (MONTE DEI PASCHI DI SIENA) Main Financial Ratios OTHER INFORMATION Net non-performing loans (sofferenze ) ( million) 1,564 1, % Employees (average number) 27,104 27, % Branches (number) 1,854 1, % FINANCIAL RATIOS Profitability ROE (Net income / Shareholders equity) 7.95% 7.19% 0.76 ROE cash ((Net income + goodwill write-off) / (Equity - net income)) 10.23% 9.55% 0.68 Gross operating income / Total assets 1.06% 1.20% Total income / Total assets 3.45% 3.80% Net interest margin / Total assets 1.88% 2.02% Efficiency Cost / Income (Operating costs / Total income) 69.3% 68.4% 0.9 Provisions and net adjustments to loans and financial fixed assets / Total income 13.8% 21.2% -7.4 Personnel costs / Number of employees ( 000) % Total income / Number of employees ( 000) % Structure Net commissions / Total income 30.0% 28.1% 1.9 Loans to customers / Customer deposits 91.0% 90.4% 0.5 Due to banks, net ( million) -3, , % Credit risk Net non-performing loans / Net loans to customers 2.10% 1.84% 0.26 Net doubtful loans / Net loans to customers 3.82% 3.75% 0.07 NPLs coverage (Total adjustments on NPLs / Gross NPLs) 49.2% 48.2% 0.94 Doubtful loans coverage (Tot. adjustments on doubtful loans / Gross doubtful loans) 38.9% 36.7% 2.18 Capital adequacy Core Tier 1 capital / Risk-weighted assets 6.52% 6.31% 0.21 Tier 1 capital / Risk-weighted assets 6.74% 6.46% 0.28 Total capital / Risk-weighted assets 9.95% 9.89% 0.07 Source: Company Data, Banca Intesa calculations 21

23 BNL Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) Cash and deposits with central banks and post offices % Due from banks 6,530 10, % Loans to customers 57,083 56, % Securities 5,510 3, % Equity investments % Tangible and intangible fixed assets 2,640 2, % Goodwill arising on consolidation and on application of the equity method Other assets 6,238 6, % Total assets 78,892 81, % LIABILITIES AND SHAREHOLDERS' EQUITY Due to banks 12,354 13, % Customer deposits 50,813 51, % Allowances with specific purpose 1,598 2, % Other liabilities 6,105 7, % Subordinated debt 2,669 2, % Minority interests % Shareholders' equity 5,252 4, % Capital and reserves 5,236 4, % Reserve for general banking risks % Neg. goodwill arising on consolidation and on application of the equity method % Net income for the period % Total liabilities and shareholders' equity 78,892 81, % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 1,496 1, % Dividends and income from investments carried at equity % Net interest income 1,573 1, % Net commissions % Profits (losses) on financial transactions % Other operating income, net % Total income 2,903 3, % Administrative costs 1,668 1, % - personnel costs 1,045 1, % - other administrative expenses % Adjustments to tangible and intangible fixed assets % Operating costs 1,881 1, % Gross operating income 1,022 1, % Goodwill write-off Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses % Net value adjustments to financial fixed assets % Total provisions and net adjustments to loans, financial fixed assets 1,043 1, % Pre-tax income on ordinary operations n.m. Extraordinary items, net % Income taxes % Transfer to / (from) fund for general banking risks % Minority interests % Net income n.m. 22

24 BNL Main Financial Ratios OTHER INFORMATION Net non-performing loans (sofferenze ) ( million) 2,009 2, % Employees (average number) 16,806 17, % Branches (number) % FINANCIAL RATIOS Profitability ROE (Net income / Shareholders equity) -0.65% 3.28% ROE cash ((Net income + goodwill write-off) / (Equity - net income)) -0.64% 3.39% Gross operating income / Total assets 1.30% 1.42% Total income / Total assets 3.68% 3.79% Net interest margin / Total assets 1.90% 2.05% Efficiency Cost / Income (Operating costs / Total income) 64.8% 62.6% 2.2 Provisions and net adjustments to loans and financial fixed assets / Total income 35.9% 32.8% 3.1 Personnel costs / Number of employees ( 000) % Total income / Number of employees ( 000) % Structure Net commissions / Total income 31.6% 30.5% 1.1 Loans to customers / Customer deposits 112.3% 108.1% 4.3 Due to banks, net ( million) -5, , % Credit risk Net non-performing loans / Net loans to customers 3.52% 4.21% Net doubtful loans / Net loans to customers 5.73% 6.63% NPLs coverage (Total adjustments on NPLs / Gross NPLs) 56.3% 46.1% Doubtful loans coverage (Tot. adjustments on doubtful loans / Gross doubtful loans) 47.6% 40.5% 7.16 Capital adequacy Tier 1 capital / Risk-weighted assets 7.67% 6.21% 1.46 Total capital / Risk-weighted assets 11.86% 10.60%

25 BPU (BANCHE POPOLARI UNITE) Financial Statements RECLASSIFIED CONSOLIDATED BALANCE SHEET ( million) ASSETS ( million) 31/12/ /12/2003 Cash and deposits with central banks and post offices % Due from banks 3,916 3, % Loans to customers 43,975 43, % Securities 8,677 9, % Equity investments % Tangible and intangible fixed assets 2,126 2, % Goodwill arising on consolidation and on application of the equity method % Other assets 4,199 3, % Total assets 63,885 62, % LIABILITIES AND SHAREHOLDERS' EQUITY 31/12/ /12/2003 Due to banks 4,755 5, % Customer deposits 46,722 46, % Allowances with specific purpose 1,213 1, % Other liabilities 4,206 3, % Subordinated debt 2,350 2, % Minority interests % Shareholders' equity 4,027 3, % Total liabilities and shareholders' equity 63,885 62, % RECLASSIFIED CONSOLIDATED STATEMENT OF INCOME ( million) Net interest margin 1,517 1, % Dividends and income from investments carried at equity % Net interest income 1,540 1, % Net commissions % Profits (losses) on financial transactions % Other operating income, net % Total income 2,506 2, % Administrative costs 1,420 1, % - personnel costs % - other administrative expenses % Adjustments to tangible and intangible fixed assets (1) % Operating costs 1,645 1, % Gross operating income % Goodwill write-off % Provisions for risks and charges % Net adjustments to loans and provisions for possible loan losses % Net value adjustments to financial fixed assets % Total provisions and net adjustments to loans, financial fixed assets (2) % Pre-tax income on ordinary operations % Extraordinary items, net % Income taxes % Transfer to / (from) fund for general banking risks % Minority interests % Net income % (1) Net of goodwill amortisation. (2) Including goodwill amortisation. 24