The consolidated income statement
2. Financial liabilities held for trading 13,176 (3,117) 10,059 9,
2.1 Debt instruments - 13,176 - (3,117) 10,059 9,146 2.2 Payables - - - - - - 2.3 Other - - - - - (3)
3. Financial assets and liabilities: exchange rate differences X X X X 475 4,143 4. Derivative instruments 285,391 197,942 (302,907) (183,209) 13,133 (103,715)
4.1 Financial derivatives 285,391 197,942 (302,907) (183,209) 13,133 (103,715) - on deb t instrum ents and interest rates 283,080 193,225 (300,367) (178,502) (2,564) 10,563 - on equity instrum ents and share indices 30 105 (257) (171) (293) 132
- on currencies and gold X X X X 15,916 (114,628)
- other 2,281 4,612 (2,283) (4,536) 74 218
4.2 Credit derivatives - - - - - -
Total 300,546 241,510 (311,197) (196,656) 50,594 52,504
Net hedging loss
Figures in thousands of euro 1H 2014 1H 2013
Net hedging loss (7,395) (4,634)
Profit from disposal or repurchase
Figures in thousands of euro
Financial assets
1. Loans and advances to banks - - - - 2. Loans and advances to customers 916 (1,803) (887) (324)
3. Available-for-sale financial assets 98,339 (473) 97,866 63,091
3.1 Deb t instrum ents 78,604 (367) 78,237 47,934
3.2 Equity instrum ents 13 (60) (47) 15,157
3.3 Units in UCITS 19,722 (46) 19,676 - 3.4 Financing - - - - 4. Held-to-maturity investments - - - - Total assets 99,255 (2,276) 96,979 62,767 Financial liabilities 1. Due to banks - - - - 2. Due to customers - - - -
3. Debt securities issued 982 (4,246) (3,264) (2,852)
Total liabilities 982 (4,246) (3,264) (2,852) Total 100,237 (6,522) 93,715 59,915
Net profit (loss) on financial assets and liabilities designated at fair value
Figures in thousands of euro 1H 2014 1H 2013
Net profit (loss) on financial assets and liabilities designated at fair value (272) 1,582
136,642 109,367 Profits Losses Net profit
1H 2014 1H 2013
Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value
1H 2013
In the wake of the improvement in conditions on financial markets in the second quarter, after the announcement of new expansionary measures by the ECB, which brought about a further fall in sovereign debt risk premiums, the result for financial activities recorded another improvement, rising to €136.6 million, up by €27.3 million compared with 2013. In detail:
•
trading generated €50.6 million (€52.5 million in the comparative period) consisting of €37 million from debt instruments, of which approximately €13 million of net gains and €24 million of profits from trading, inclusive of €10.1 million from uncovered short positions on debt instruments. Foreign exchange trading generated a profit of €16 million, while derivatives on debt instruments and interest rates produced a loss of €2.6 million.items hedged gave rise to a loss of €7.4 million, in relation largely to derivatives on AFS securities and to a lesser extent to the underlying mortgages/loans and bonds/deposits (-€4.6 million in 2013 resulting mainly from derivatives to hedge bonds);
•
the disposal of AFS instruments and the repurchase of financial liabilities made a large contribution of €93.7 million, as follows: €78.1 million from the sale of €3.8 billion of Italian government securities; €19.7 million from the disposal of units in UCITS (ETFs, i.e. European equity funds that passively replicate benchmark indexes); -€0.9 million from the disposal of packets of network bank and former B@nca 24-7 non-performing loans and from marginal deteriorated positions (restructured and impaired) relating to the former Centrobanca; and finally -€3.3 million from the repurchase of securities in issue as part of normal direct business with customers.In 2013, €59.9 million was earned as follows: €47.9 million from debt instruments (of which €49.7 million from government securities and -€1.8 million from the sale of bonds mainly issued by banks or relating to UBI Banca); €15.2 million from equity instruments (of which €11.4 million from Intesa Sanpaolo shares, €0.6 million from A2A shares and an addition of €1.5 million to the price of the disposal of Centrale Bilanci – Cerved Group – performed in 2008 – all these amounts have been normalised –, as well as €1.6 million from the complete disposal of the interest held in Unione Fiduciaria); -€2.9 million from the buyback of debt securities issued as part of ordinary business operations; and -€0.3 million from the disposal of unsecured non-performing loans by the network banks;
•
changes in fair value (relating to investments in Tages Funds, to the residual position in hedge funds and private equity investments held by the former Centrobanca classified as designated at fair value since the end of 2012) were negative by €0.3 million (+€1.6 million euro in 2013).Other net operating income/expense fell from €56.2 million to €51.5 million, the aggregate result on the one hand of positive
results by operating income (+€3.7 million), in relation to expense recoveries on current accounts and on finance lease contracts (a total of +€6.2 million, partly due to the seasonal nature of the charges) and on the other hand of an increase in operating expenses (+€8.4 million). This trend was due to reimbursements to Prestitalia customers amounting to approximately €12 million – relating to the company’s operations prior to its acquistion by the UBI Banca Group – recognised within prior year expenses (with a provision of €10 million already made in the first quarter within provisions for risks and charges, as the quantification was currently in progress).
Prior year income includes a fast credit
processing fee, up by €1.2 million compared with the comparative first half.
From a quarterly viewpoint, operating income (€882.5 million) compares with €852.4 million in the second quarter of 2013 and with €853.4 million in the first quarter of the year. In detail:
• net interest income remained almost unchanged at €454.1 million (compared with €454.5 million in the first three months), performing as follows: business with customers down by €3.2 million (even with one extra working day), affected by lower volumes of
business, notwithstanding the reduction in the cost of funding, in relation to repricing of short-term funding (moreover the spread widened slightly further); the contribution from the debt instrument portfolio was up by €1.8 million, while in reality the total portfolio fell by €0.9 billion quarter on quarter; interest expense on business with banks reduced by €1 million, benefiting from the lower cost of LTRO funding (0.15% from 11th June 2014);
• dividends – which related mostly to the Parent’s
Other net operating income
Figures in thousands of euro 1H 2014 1H 2013
Other operating income 86,085 82,404
Recovery of expenses and other income on current
accounts 10,493 6,319
Recovery of insurance premiums 12,221 13,144
Recoveries of taxes 94,468 76,012
Rents and other income for property management 2,487 3,243 Recovery of expenses on finance lease contracts 7,174 5,113 Other income and prior year income 53,710 54,585 Reclassification of "tax recoveries" (94,468) (76,012)
Other operating expenses (34,589) (26,177)
Depreciation of leasehold improvements (2,763) (2,226) Costs relating to finance lease contracts (4,100) (2,453) Expenses for public authority treasury contracts (2,325) (2,799) Ordinary maintenance of investment properties - - Other expenses and prior year expense (28,164) (20,925) Reclassification of depreciation of leasehold
improvements 2,763 2,226
Other net operating income 51,496 56,227
Quarterly net interest income
Figures in thousands of euro 2nd Quarter 1st Quarter Banking business with customers 357,667 360,853 Financial activities 107,536 105,766 Interbank business (11,089) (12,056)
Other items (58) (91)
Net interest income 454,056 454,472 2014
available-for-sale portfolio and to the shareholder meetings held by the issuer companies, although also to the Carime and BRE shareholdings, as reported above, rose to €8.1 million from €0.8 million in the preceding quarter;
• profits of equity-accounted investees, amounting to €9.8 million (down from €10.9 million before), continued to relate mainly to insurance
companies;
• net fee and commission income totalled €309.6 million (€300.1 million) and included, €0.5 million of performance fees, as reported above, relating to UBI Pramerica SGR (a similar amount in the first quarter). The growth recorded was composed as follows: +€2.7 million from management, trading and advisory services, mainly the result of performance by portfolio management (+€4.5 million), in the presence of a certain weakness on the part of both trading in financial instruments and placement; €6.8 million of the increase, on the other hand, is attributable to banking services and in particular to current account administration (+€3 million) and to other services (+€1.3 million, of which commitment fees were down by €0.7 million). The item relating to guarantees improved due to the partial redemption (€3 billion on 7th March) of government backed
issues, for which the cost therefore fell from €10.1 million in the first quarter to €5.6 million in the second quarter;
• finance activities again produced a positive result (€74 million compared with €62.6 million before), achieved mainly from the disposal of Italian government securities (€44.1 million), from the sale of European equity ETF’s (€19.7 million), from trading in debt instruments (€11.4 million) and from forex trading (€8.3 million). On the other hand losses were incurred on both hedging and fair value movements on assets designated at fair value amounting to €4.1 million;
• other net operating income/expense also
increased to approximately €27 million (€24.5 million), the aggregate result on the one hand of an increase in operating income (+€12.2 million, consisting of €4 million from expense
recoveries on current accounts and of €7.3 million of prior year income which included the “fast credit processing fee” up by approximately €5 million compared to the first three months of the year) and on the other hand of growth in expenses (+€9.8 million, of which €12 million for reimbursements to Prestitalia customers).
In the first half of the year operating expenses fell to €1,044.4 million (-€27.5 million compared with 2013), confirmation, moreover, of the extremely low level reached by costs, while maintaining the general and full operational functioning of the Group. In detail:
•
staff costs amounted to €647.9 million (+€1.7 million).As shown in the table, the increase is mainly associated with the item “other employee benefits” (+€3.8 million) and relates both to the release of a provision in 2013 and to expenses resulting from INPS (National Insurance Institute) recommendations concerning “safeguarded personnel” under the Fornero Reform8.
8 The INPS (National Insurance Institute) issued message No. 3591 of 26th March 2014 (Italian Banking Association Circular – Labour Series No. 30 – 16th April 2014) in which it furnished recommendations for application concerning both the effects of the credit pursuant to law No. 214 2011 on the operation of the “Solidarity Fund” and technical pension-related matters. While article 24 of the law mentioned (the “Fornero Reform”), raised the overall requirements in terms of maturity and access to a pension, it provided for the maintenance of prior regulations for pension holders as of 4th December 2011 concerning an extraordinary cheque from the
Quarterly net fee and commission income
Figures in thousands of euro 2nd Quarter 1st Quarter
Management, trading and advisory services
(net of the corresponding expense items): 161,021 158,322
trading in financial instruments 2,456 3,764
portfolio management 64,093 59,571
custody and administration of securities 239 326
placement of securities 46,511 47,113
receipt and transmission of orders 14,392 14,482
advisory activities 920 1,304
distribution of third party services 43,923 43,113 financial instruments, products and services
distributed through indirect networks (11,513) (11,351)
Banking services
(net of the corresponding expense items): 148,562 141,788
guarantees 6,663 4,319
foreign exchange trading 1,884 1,282
collection and payment services 25,336 25,412 services for factoring transactions 4,869 5,187 current account administration 50,562 47,566
other services 59,248 58,022
Net fee and commission income 309,583 300,110
2014
Figures in thousands of euro 2nd Quarter 1st Quarter
Financial assets held for trading 5,398 21,529 Financial liabilities held for trading 3,595 6,464 Other financial liabilities: exchange rate
differences (1,019) 1,494
Derivative instruments 8,535 4,598
Net trading income 16,509 34,085 Net hedging loss (3,207) (4,188)
Total assets 63,594 33,385 Total liabilities (1,994) (1,270)
Profit from disposal or repurchase 61,600 32,115 Net income (loss) on financial assets and
liabilities designated at fair value (871) 599
Net income 74,031 62,611
Quarterly performance by financial activities
Employee wages, on the other hand, continued to fall (-€1.6 million), incorporating a reduction in the average work force (-90), partly due to the effects of the exclusion of Banque de Dépôts et de Gestion from the consolidation and to the liquidation of UBI Capital Singapore Pte (-€5.9 million), as well as to reduced expenses on labour costs in relation to trade union agreements signed starting from 29th November 2012 and to the use of the “Ordinary Solidarity Fund”. This performance offset normal growth in wages;
•
other administrative expenses fell to €311.2 million, down by €24 million, comprised as follows: +€2.5 million from indirect taxation (registration mortgage relatedduties on credit recovery
procedures and local taxation on properties and services); -€26.5 million from current expenditure on which rigorous cost-cutting policies were pursued (-€3.9 million resulting from the exit from the consolidation of BDG and from the liquidation of UBI Capital Singapore Pte).
This reduction in costs involved the following: rent payable and the tenancy of premises (-€4.7 million, as a result of branch closures, renegotiations of contracts and
lower energy consumption);
telephone and data transmission services (-€6.2 million, in relation to the renegotiation of contracts); professional and advisory services (-€4.6 million, partly due to the absence of costs incurred for the validation of advanced internal methods); insurance premiums (-€4.2 million partly due to reduced volumes of business);
advertising and promotion
expenses (-€2.7 million as a result of the absence of the 2013 IW Bank radio advertising campaign
and of some sponsorships, including Assiom Forex 2013); postal expenses (-€2.1 million, due to less hardcopy mailing and lower unit costs). These savings were only partly offset by increased expenses relating to the outsourcing of services (+€2.7 million, for the start of a