OPERATING PROFITABILITY

THE DEVELOPMENT OF OPERATING INCOME: THE COMPOSITION OF FINANCIAL AND INSURANCE INCOME

With reference to the development of income from financial and service business, in the first quarter of 2008 financial and insurance income stood at EUR 1,167.3 million approx., falling by about 6% year on year (abt.-8.8% including Biverbanca), with the “core” components (interest income + customers commissions) advancing by about 8.9% and confirming the structural growth recorded in Q4 2007.

The main aggregates developed as follows:

Interest income (in the amount of EUR 810.6 million) rose by abt. 15% with respect to 31 March 2007 (abt.11% including Biverbanca), with a quarterly level virtually in line with Q4 2007. The Commercial Areas contributed with a global increase of around 9.7% which benefited from the expansion of average volumes traded (more than 11%), and offset the modest reduction of the average spread of interest rates in comparison with the prior year. Positive contributions also came from the optimization of the management of liquidity and interest rates in a period of marked turbulence of the financial markets;

Total revenues: Quarterly trend

1.338,1 1.242,5 1.167,3 1.242,0 1Q08 4Q07 1Q07 € millions 2007 quarterly avg:

Net commissions totalled EUR 382 million, an amount slightly lower than Q4 2007 (-1.7%), dropping by 1.9% with respect to 31.03.2007. Income from traditional banking services advanced, but the commissions associated with funds management declined due to the crisis of the financial markets (e.g. decreasing volumes, lower turnover of funds under administration).

Dividends, similar income and Profits (Losses) from equity investments amounted to EUR 8.2 million, decreasing in comparison with EUR 60 million as of 31 March 2007. The amount as of March 2007 incorporated the capital gain in relation to the partial sale of the investment held in Finsoe (EUR 26.4 million) and the positive contribution of about EUR 30 million from the insurance companies, which was lower than 1 million in Q1 2008.

Net income from trading/valuation of financial assets showed a deficit of - EUR 29.6 million (EUR 88.2 million as of 31.03.2007), as the joint effect of the positive results achieved by MPS Capital Services - which exploited the opportunities associated with the market high volatility – and the negative results of the Parent Bank’s portfolio of financial assets, which was affected by the consequences of the crisis. In the months following the close of Q1, the equity and credit markets improved, thus enabling the Group to recover a portion of the losses recorded during Q1.

31/03/08 31/03/07

Net Profit from trading -51.8 79.2

Profit/loss from loans, available for sale financial assets and

financial liabilities 1.7 3.5

Fair Value financial assets and liabilities 20.4 5.5

Net result from realisation/valuation of financial assets

-29.6 88.2

gNet result from realisation/valutation of financial assets (in millions of euros)

THE COST OF CREDIT: NET VALUATION ADJUSTMENTS TO IMPAIRED LOANS AND FINANCIAL ASSETS

Net adjustments for impairment of loans: Quarterly trend

127,0 214,0 107,2 138,0 1Q08 4Q07 1Q07 2007 quarterly avg:

With reference to income resulting from loan disbursements, in the first quarter of 2008 the Group posted net valuation adjustments to impaired loans in the amount of EUR 127 million (EUR 107.2 million as of 31.03.2007; EUR 111 mln including Biverbanca). This is indicative of a provisioning rate of about 47 bp (52 bp as of 31 December 2007), which confirms the positive results achieved by the Group in terms of optimization of the quality of its loan portfolio and risk coverage.

Net valuation adjustments for impairment of financial assets showed a negative balance (EUR 69.4 million), mainly attributable to the updated valuation of the equity investment held in Hopa due to the capital loss resulting from the sale of the stake held by Hopa in Telecom S.p.A. in March 2008, with the share value coming to EUR 0.26. .

As a result, income from financial and insurance business totalled EUR 970.9 million (EUR 1,130.9 million as of 31 March 2007).

OPERATING EXPENSES: OPERATING CHARGES

In line of continuity with past years, the MPS Group continued to carry out initiatives for the structural containment of expenses during the first quarter of 2008. However, although in light of developing investments in technologies and communications, operating charges rose to EUR 708.7 million (+3.7% year on year; - 0.3% including Biverbanca and taking account of the portion of the non recurrent contractual increase at the end of 2007).

g Operating expenses (in millions of euros)

Abs. chg. vs % chg. vs 31/03/08 31/03/07 31/03/07 31/03/07

Personnel expenses 451.5 430.8 20.7 4.8%

Other administrative expenses 228.1 223.3 4.8 2.1%

Administrative expenses 679.7 654.2 25.5 3.9%

Net adjustments to the value of tangible and intangible fixed

assets 29.0 29.5 -0.6 -1.9%

Operating expenses 708.7 683.7 25.0 3.7%

In particular:

Operating expenses: Quarterly trend

809,7 683,7 708,7 725,2 1Q08 4Q07 1Q07 € millions 2007 quarterly avg:

A) Administrative expenses progressed in comparison with 31.03.07 (+3.9%; slightly higher than 1% including the expenses of Biverbanca), as a result of: • personnel expenses in the amount of EUR 451.5 million. These expenses

incorporated the increase contemplated by the renewal of the National Labour Agreement (enforcement of the new wage scales effective 1 January 2008) and advanced by about EUR 21 million (+4.8%) on a comparative accounting basis with 31 March 2007. A standardized comparison for operating purposes - adjusting the level of Q1 2007 with the values of Biverbanca for the period and the portion in relation to the higher impact of the non-recurrent contractual increase (posted at the end of 2007) - shows a slightly decreasing trend (-0.1%). This trend is mostly attributable to the structural benefits resulting from the reduction and re-mix of personnel, implemented in the second half of last year (huge outflow of human resources with high seniority and job position).

• other administrative expenses (EUR 228.1 million, net of recoveries of expenses and customers’ stamp duties) progressed by 2.1% (-0.4% including Biverbanca), due to the steady control of expenses and cost management actions undertaken.

B) Net valuation adjustments to tangible and intangible assets amounted to EUR 29 million, in line with 31 March 2007 (-EUR 29.5 million, -EUR 30 million including Biverbanca).

Accordingly, the Net Operating Profit stood at EUR 262.2 million (EUR 447.2 million as of 31.03.2007). The cost/income ratio was 60.7% (58.4% as of 31 December 2007), compromised by the lower than expected income from the finance area (- 3%). Excluding said components and the management of equity investments, the Net Operating Profit would grow by 8.3%.

Efficiency Ratio and Revenues/Costs Trend

Cost Income 60,7 58,4 55,0 03/2008 12/2007 03/2007 %

Revenues and Costs:

% chg. yoy -6,1% 3,7% -41,4% Financial and insurance income (loss)

2) EXTRAORDINARY ITEMS, TAXES AND NET PROFIT FOR THE PERIOD