Integration plan ...23
Noteworthy events after the balance sheet date ...25
Operational outlook ...29
Gruppo Banco Popolare di Verona e Novara Corporate boards, Management and Auditing Company as at June 30th, 2007 ... 33
Group structure ...34
Group financial highlights ...36
Group operating performance ...38
Financial statements ...41
Explanatory notes ...53
Accounting standards ...57
Operating results and performance ...72
Segment reporting ...90
Banco Popolare di Verona e Novara stock...96
Stock option plans ...97
Business combinations ...100
Transactions with related parties ...102
Noteworthy events after the balance sheet date ...106
Operational outlook ...106
Independent auditors’ report ...109
Attachments ...113
Gruppo Banca Popolare Italiana Corporate boards, Top Management and Auditing Company as at June 30th, 2007...125
Group structure ...126
Group financial highlights ...129
Report on Group operations ...130
Operating performance ...141
Income statement – quarterly evolution ...159
Operating performance of the main companies ...160
Noteworthy events after June 30th, 2007 ...184
Operational outlook ...184
Consolidated financial statements ...185
Notes to the consolidated accounts ...192
Notes to the consolidated balance sheet ...209
creation of the largest cooperative Banking Group. Banco Popolare:
x ranks third among Italian distribution networks, with about 2,200 branches and a 10% share of the market in Northern Italy;
x its global customer basis counts more than 3 million customers, mainly households and small to medium-sized companies in Northern Italy;
x it benefits from 89 billion direct customer funds and 80 billion net loans.
Since the merger’s legal and accounting effectiveness started on July 1st, 2007, the report on operations for the first six months of the year has been prepared separately, one for each of the two Groups being merged. The reports are presented in this document under the sections devoted to Banco Popolare di Verona e Novara and to Banca Popolare Italiana, respectively. This section shall report the pro-forma consolidated data of Gruppo Banco Popolare, the work-in-progress of the integration plan, as well as noteworthy events following the balance sheet date and the operational outlook.
Vice Chairman Maurizio Comoli
Directors Marco Boroli
Giuliano Buffelli
Guido Duccio Castellotti
Pietro Manzonetto
Maurizio Marino
Mario Minoja
Claudio Rangoni Machiavelli
Management Board
Chairman Divo Gronchi
Chief Executive Officer
with Vice-Chairman functions Fabio Innocenzi
Directors Franco Baronio (*)
Alfredo Cariello (*)
Vittorio Coda
Luigi Corsi
Domenico De Angelis (*) Maurizio Di Maio (*) Enrico Fagioli Marzocchi (*) Maurizio Faroni (*)
Massimo Minolfi (*) Roberto Romanin Jacur
(*) Directors with executive offices Board of Advisors
Standing Marco Cicogna
Luciano Codini
Giuseppe Bussi
Alternate Aldo Bulgarelli
Vittorio Cocito
Corporate General Manager
Massimo Minolfi
Banca Popolare di Verona - S. Geminiano
e S. Prospero
Banca Popolare di Lodi
Banca Popolare di Novara
Credito Bergamasco
Cassa di Risparmio di Lucca Pisa Livorno
Banca Caripe
Banca Popolare di Crema
Banca Popolare di Cremona
Banca Popolare di Mantova
Banca Popolare di Verona
e Novara (Luxembourg)
Banco Popolare Croatia
Banco Popolare Hungary
Banco Popolare Ceská Republika
Banca Aletti & C.
Banca Valori
Aletti Gestielle SGR
Bipitalia Gestioni SGR
Aletti Gestielle Alternative SGR
Bipitalia Alternative SGR
Banca Aletti & C. (Suisse)
Bipielle Bank (Suisse)
Efi banca / Aletti Merchant
Aletti Private Equity SGR
Efi gestioni SGR
Italfortune International Advisors
B.P.I. International (UK)
Aletti Fiduciaria
Nazionale Fiduciaria
Critefi SIM
Bipitalia Ducato
Easynetwork
Soluzioni Finanziarie
Bipielle International Holding
Bipielle Società di Gestione del Credito
Società Gestione Servizi
Bipielle Information Communication Technology
Holding di Partecipazioni Finanziarie Popolare di
Verona e Novara
Bipielle Real Estate
Immobiliare BPV
Tecmarket Servizi
P R O - F O R M A D A T A
Financial highlights Gruppo
BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma
Income statement (million euro)
Net interest, dividend and similar income 575.7 421.1 - 2.6 999.4
Net commission income 446.2 187.9 - - 634.1
Total income 1,225.6 811.0 - 0.9 2,037.5
Operating costs 660.6 568.4 - - 1,229.0
Profit from operations 564.9 242.5 - - 807.4
Income before tax from continuing operations 504.0 67.8 - 0.9 572.7
Net income for the period 252.5 17.8 - 0.9 271.2
Balance sheet (million euro)
Total assets 74,706.0 45,610.8 - 953.0 3,757.3 123,121.1
Loans to customers (gross) 50,261.0 32,166.2 - 47.6 - 82,379.6
Direct customer funds 56,092.1 32,812.6 - 0.3 - 88,904.4
Financial assets and hedging derivatives 11,652.6 3,804.6 - 0.8 - 29.8 15,426.6
Shareholders’ equity 4,559.4 3,555.0 - 2,358.1 10,472.5
Operational structure
Number of employees 13,158 8,632 - - 21,790
Bank branches 1,270 969 - - 2,239
Presentation of pro-forma data
In order to give an idea of the financial position and operating performance as at June 30th, 2007 of Gruppo Banco Popolare, this section shall illustrate the pro-forma consolidated data as at June 30th, 2007 that represent the effects from the Merger of Banco Popolare di Verona e Novara S.c.a r.l. (“BPVN”) and Banca Popolare Italiana Soc. Coop. (“BPI”), including the special dividend distribution by Banco Popolare.
Pro-forma consolidated data make reference to the financial statements under the Bank of Italy’s Circular n. 262 of December 22nd, 2005, prepared in compliance with the International Financial Reporting Standards (“IFRS”) adopted by the European Union. In keeping with Consob’s communication n. DEM/1052803 of July 5th, 2001, pro-forma data have been obtained by making the appropriate adjustments to actual data so as to retroactively reflect the effects from the above described transactions. In particular, said effects have been retroactively reflected in the pro-forma consolidated balance sheet as if the transaction had been performed at the balance sheet date (June 30th, 2007) and in the income statement as if the transaction had taken place at the beginning of the period covered by the income statement (January 1st, 2007). Pro-forma adjustments are shown separately in the tables below and are described analytically in this chapter.
Aggregates, that were obtained by adding up the consolidated data shown in the individual half-year reports of the two merging entities, have been adjusted to represent the effects from the merger and from the special dividend distribution. These same data have been adjusted also to eliminate the main financial and operating relations past and/or outstanding between the companies of Gruppo BPVN and the companies of Gruppo BPI
From an accounting viewpoint, the Merger entailed the bringing together of two separate corporate entities to form a new single reporting entity, and therefore it represents a “business combination” under the international accounting standards, to be accounted for using the purchase method under IFRS 3. To begin with, this method requires that the virtual acquirer is identified. To this regard, and only for accounting purposes, based on the elements and events indicated by IFRS 3 (a greater number of new common shares to be issued by Banco Popolare are going to be assigned to BPVN shareholders as compared with those to be assigned to BPI shareholders, the fair value spread between the two merging entities is in favor of Gruppo BPVN, the spread between the total assets and revenues of the two merging entities is in favor of Gruppo BPVN), the identified virtual acquirer was BPVN, while the virtual acquiree was BPI. The method of accounting provided for by IFRS 3 prescribes that, at the Merger effective date, the cost of the business combination must be measured and then allocated by recognizing at fair value the assets, liabilities and contingent liabilities of the acquiree identifiable at the Merger effective date. The cost of the business combination under examination was determined by measuring the new shares of Banco Popolare issued and assigned in exchange to BPI shareholders based on the Banco Popolare share price quoted on July 2nd, 2007 (first available share price after the Merger effective date). Upon preparing pro-forma data, this amount has been incremented with the accessory costs that had been already incurred by the acquirer, plus those that can be currently estimated. The final fair values of BPI’s assets, liabilities and contingent liabilities identifiable at the Merger effective date shall be defined within the term fixed for the preparation of the financial statements as at December 31st, 2007 or, should no final measurements be available yet by that date, within twelve months of the Merger effective date. For the preparation of the pro-forma data as at June 30th, 2007, BPI’s assets, liabilities and contingent liabilities were assumed to be equal to Gruppo BPI’s consolidated shareholders’ equity at the same date. The difference between the cost of the business combination as measured above and Gruppo BPI’s consolidated shareholders’ equity as at June 30th, 2007 was recognized in the pro-forma balance sheet under a specific item named “Merger Difference”. Said difference shall not be subject to amortization in the pro-forma income statement.
With regard to the accounting standards adopted by Gruppo BPVN and Gruppo BPI to prepare their consolidated data, please refer to the Half-year Reports on operations in the following chapters II and III.
Hence, pro-forma consolidated data include:
•
the consolidated data of Gruppo BPVN;•
the consolidated data of Gruppo BPI;•
the eliminations carried out to take account of the main intra-group relations;•
adjustments to represent the effects from the special dividend distribution through the distribution of the share premium reserve by BPI and the effects from the consolidation of Gruppo BPI.In order to give a correct interpretation of the information provided by these pro-forma consolidated data, it is necessary to take the following aspects into consideration:
•
pro-forma data do not reflect prospective data as they are prepared to represent only the identifiable and objectively measurable effects generated by the Merger, without taking into account potential effects caused by changes in corporate strategies and operating decisions ensuing from said transactions;•
the Merger accounting based on the purchase method shall require the identification of the fair value of BPI’s assets, liabilities and contingent liabilities and the allocation of the cost of the business combination at the Merger effective date. The pro-forma consolidated income statement does not include future income components that may derive from the allocation of the cost of the business combination as described above. Any surplus resulting from the difference between the cost of the business combination and the algebraic sum of the fair value of BPI’s assets, liabilities and contingent liabilities may be allocated to specific intangible assets with definite or indefinite useful lives, and a residual part may be allocated to goodwill. The intangible assets with indefinite useful lives and the goodwill resulting from the allocationprocess shall not be amortized, instead they shall be periodically assessed for impairment through the so called “impairment test”. If during the allocation process intangible assets with definite useful lives are identified, the future income statements of Banco Popolare shall include the annual amortization amounts of said intangible assets. The attached pro-forma consolidated income statement does not reflect any such possible amortization;
•
considering the different aims for which the pro-forma consolidated accounts have been designed as compared to past financial statements and the different methods of calculating the financial and operating effects of the Merger, the pro-forma consolidated accounts must be read and interpreted separately, without seeking accounting links between the two documents.Pro-forma consolidated balance sheet
Assets
(in thousand euro)
Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma
10Cash and cash equivalents 291,669 192,945 - - 484,614
20Financial assets held for trading 9,452,472 2,725,453 (497) - 12,177,428
30Financial assets measured at fair value 332,850 - (284) - 332,566
40Financial assets available for sale 1,023,282 870,620 - (29,784) 1,864,118
50Financial assets held to maturity 806,435 83,616 - - 890,051
60Due from other banks 9,038,353 3,490,108 (903,044) - 11,625,417
70Loans to customers 49,386,548 30,747,618 (47,615) - 80,086,551
80Hedging derivatives 37,518 124,899 - - 162,417
90Fair value change of assets
in hedged portfolios (5,614) - - - (5,614)
100Equity investments 665,744 146,895 - 44,510 857,149
120Property, plant and equipment 540,244 944,104 - - 1,484,348
130Intangible assets 490,792 2,222,864 - - 2,713,656
140Tax assets 704,355 1,155,438 - (13) 1,859,780
150Non-current assets held for sale and
discontinued operations 44,924 1,327,677 - - 1,372,601
160Other assets 1,896,451 1,578,582 (1,542) - 3,473,491
Merger difference 3,742,570 3,742,570
Liabilities and Shareholders’ equity
(in thousand euro)
Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma
10Due to other banks 7,398,291 4,556,313 (950,659) 1,399,370 12,403,315
20Due to customers 29,031,672 15,546,605 - - 44,578,277
30Debt securities in issue 21,108,499 17,265,998 (284) - 38,374,213
40Trading liabilities 2,646,405 511,716 (497) - 3,157,624
50Financial liabilities measured at fair value 5,951,969 - - - 5,951,969
60Hedging derivatives 56,471 197,497 - - 253,968
70Fair value change of liabilities in hedged
portfolios
in hedged portfolios (78,858) - - - (78,858)
80Tax liabilities 366,158 239,413 - (190) 605,381
90Liabilities associated with discontinued
operations - 1,507,063 - - 1,507,063
100Other liabilities 2,949,901 1,622,662 (1,542) - 4,571,021
110Employee termination benefits 291,116 167,689 - - 458,805
120Provisions for risks and charges 285,414 339,042 - - 624,456
140Valuation reserves 320,191 58,983 - (3,109) 376,065
160Common stock equivalents - 3,048 - - 3,048
180Share premiums 213,068 2,668,669 - 1,878,819 4,760,556
190Share capital 1,355,092 2,047,083 - (1,096,447) 2,305,728
200Treasury shares ( - ) (320,206) (458,907) - 779,113
-210Minority interest 139,616 101,830 - - 241,446
Reserves and net income for the period 2,991,224 (763,885) - 799,727 3,027,066
Pro-forma consolidated income statement
Income statement (thousand euro) Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma10Interest income and similar revenues 1,597,882 1,098,084 (4,571) - 2,691,395
20Interest expense and similar charges (908,596) (659,562) 4,571 - (1,563,587)
30 Net interest income 689,286 438,522 - - 1,127,808
40Commission income 500,241 230,584 (1,542) - 729,283
50Commission expense (54,045) (42,668) 1,542 - (95,171)
60 Net commission income 446,196 187,916 - - 634,112
70Dividend and similar income 112,010 17,969 - (1,702) 128,277
80Net trading income 22,337 35,815 - - 58,152
90Fair value adjustments in hedge accounting 690 2,644 - - 3,334
100Profit (Loss) on disposal or repurchase of: 14,917 88,531 - - 103,448
a) loans 2,971 - - - 2,971
b) Financial assets available for sale 11,023 87,415 - - 98,438
c) Financial assets held to maturity - - - -
-d) financial liabilities 923 1,116 - - 2,039
110Profit (Loss) on financial assets and liabilities
-designated at fair value 14,000 - - - 14,000
120 Total income 1,299,436 771,397 - (1,702) 2,069,131
130Net write-downs/write backs on impairment of: (67,043) (175,397) - - (242,440)
a) loans (64,212) (172,053) - - (236,265)
b) Financial assets available for sale (829) (6,563) - - (7,392)
c) Financial assets held to maturity - - - -
-d) other financial transactions (2,002) 3,219 - - 1,217
140 Net financial income 1,232,393 596,000 - (1,702) 1,826,691
170 Net financial and insurance income 1,232,393 596,000 - (1,702) 1,826,691
180G&A expenses: (669,519) (556,197) - - (1,225,716)
a) personnel expenses (412,897) (280,178) - - (693,075)
b) other administrative expenses (256,622) (276,019) - - (532,641)
190Net provisions for risks and charges (5,928) (32,915) - - (38,843)
200Net impairment / write-backs on property, plant and
equipment (24,891) (26,571) - - (51,462)
210Net impairment / write-backs on intangible assets (18,102) (13,426) - - (31,528)
220Other operating income (expense) 117,849 84,740 - - 202,589
230 Operating costs (600,591) (544,369) - - (1,144,960)
240Profit (Loss) on equity investments (132,254) 11,035 - 2,635 (118,584)
260Goodwill impairment - (1,024) - - (1,024)
270Profit (Loss) on disposal of investments 4,404 6,158 - - 10,562
280 Income before tax from continuing operations 503,952 67,800 - 933 572,685
290Tax on income from continuing operations (249,962) (24,062) - - (274,024)
300 Income after tax from continuing operations 253,990 43,738 - 933 298,661
310Income (Loss) after tax from discontinued
operations 2,693 (19,441) - - (16,748)
320 Net income for the year 256,683 24,297 - 933 281,913
330Minority interest (4,176) (6,467) - - (10,643)
Pro-forma consolidated reclassified balance sheet
Reclassified assets (thousand euro) Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-formaCash and cash equivalents 291,669 192,945 - - 484,614
Financial assets and hedging derivatives 11,652,557 3,804,588 (781) (29,784) 15,426,580
Due from other banks 9,038,353 3,490,108 (903,044) - 11,625,417
Loans to customers 49,386,548 30,747,618 (47,615) - 80,086,551
Equity investments 665,744 146,895 - 44,510 857,149
Property, plant and equipment 540,244 944,104 - - 1,484,348
Intangible assets 490,792 2,222,864 - - 2,713,656
Non-current assets held for sale and discontinued
operations 44,924 1,327,677 - - 1,372,601
Other assets 2,595,192 2,734,020 (1,542) (13) 5,327,657
Merger difference (provisional) 3,742,570 3,742,570
Total 74,706,023 45,610,819 (952,982) 3,757,283 123,121,143 Reclassified liabilities (thousand euro) Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma
Due to other banks 7,398,291 4,556,313 (950,659) 1,399,370 12,403,315
Due to customers and debt securities in issue 56,092,140 32,812,603 (284) - 88,904,459
Financial liabilities and Hedging derivatives 2,702,876 709,213 (497) - 3,411,592
Provisions 576,530 506,731 - - 1,083,261
Liabilities associated with discontinued operations - 1,507,063 - - 1,507,063
Other liabilities 3,237,201 1,862,075 (1,542) (190) 5,097,544
Minority interest 139,616 101,830 - - 241,446
Shareholders’ equity 4,559,369 3,554,991 - 2,358,103 10,472,463
- Share capital 1,355,092 2,047,083 - (1,096,447) 2,305,728
- Reserves and net income for the period 3,204,277 1,507,908 - 3,454,550 8,166,735
Pro-forma consolidated reclassified income statement
Reclassified income statement
(thousand euro) Gruppo BPVN Gruppo BPI Eliminations Merger adjustments BPVN-BPI pro-forma
Net interest income 712,603 424,777 - - 1,137,380
Profit (Loss) on equity investments carried at equity (136,871) (3,665) - 2,635 (137,901)
Net interest, dividend and similar income 575,732 421,112 - 2,635 999,479
Net commission income 446,196 187,916 - - 634,112
Other revenues 65,975 56,971 - - 122,946
Net financial income 137,666 144,959 - (1,702) 280,923
Other operating income 649,837 389,846 - (1,702) 1,037,981
Total income 1,225,569 810,958 - 933 2,037,460
Personnel expenses (412,897) (280,178) - - (693,075)
Other administrative expenses (200,597) (248,250) - - (448,847)
Net impairment of property, plant and equipment and
intangible assets (47,144) (39,997) - - (87,141)
Operating costs (660,638) (568,425) - - (1,229,063)
Profit from operations 564,931 242,533 - 933 808,397
Net impairment of loans, guarantees and commitments (63,243) (158,308) - - (221,551) Net impairment of other financial transactions (829) (3,344) - - (4,173) Net provisions for risks and charges (5,928) (32,915) - - (38,843)
Goodwill impairment - (1,024) - - (1,024)
Profit (Loss) on disposal of equity and other investments 9,021 20,858 - - 29,879
Income before tax from continuing operations 503,952 67,800 - 933 572,685
Tax on income from continuing operations (249,962) (24,062) - - (274,024)
Income after tax from continuing operations 253,990 43,738 - 933 298,661
Income (Loss) after tax from discontinued
operations 2,693 (19,441) - - (16,748)
Net income for the period 256,683 24,297 - 933 281,913
Minority interest (4,176) (6,467) - - (10,643)
Net income for the period attributable to the Parent
Methodological notes to pro-forma data
Purpose of the presentation of pro-forma data
As explained in the Introductory note, the aim of the pro-forma consolidated balance sheet and income statement is to represent the financial and operating accounting effects of the Merger, based on valuation methods consistent with historical data and compliant with the relevant regulations, as if the Merger had virtually taken place on June 30th, 2007 and, with regard to income statement effects alone, at the beginning of financial year 2007.
Assumptions underlying the calculation of pro-forma data
Described below are the main assumptions used to prepare the pro-forma consolidated data:
•
the above accounting charts have been obtained by aggregating the data shown in the consolidated half-year reports as at June 30th, 2007 of Gruppo BPVN and Gruppo BPI prepared in compliance with the IAS/IFRS standards adopted by the European Union and in keeping with the financial statement layouts under the Bank of Italy’s Circular n. 262 of December 22nd, 2005. The financial statement layouts shown in the half-year reports are subject to a limited audit by Reconta Ernst & Young S.p.A.;•
as of financial year 2005, both Groups have been applying the IAS/IFRS international accounting standards adopted by the European Union. Some differences, however, may exist due to the possibility of choosing among different options made available by the above standards, or due to different methodologies or parameters used to measure assets and liabilities. Said differences have not been taken into consideration when preparing the pro-forma accounts;•
the cost of the business combination, as explained in the introductory note, has been determined by taking the opening quotation of Banco Popolare shares on July 2nd, 2007, the first listing day after the merger effective date, and adding to it the costs associated with the transaction (professional fees, costs of expert reports and surveys, etc.), that at present are estimated to amount to about 20 millions.Elimination of mutual relations
The most significant reciprocal balance sheet and income statement items between Gruppo BPVN and Gruppo BPI have been eliminated, which referred to loan receivable and payable (on June 30th, 2007 they totaled 951 millions, mainly represented by repurchase agreements and deposits) and to the related interest.
Adjustment associated with the representation of the effects from the Merger and from the special dividend distribution
•
The effect was recognized, generated by the pro-rata distribution of part of the share premium reserve to BPI shareholders and POC bondholders, totaling 1,399 millions, which correspond to a unit distribution of euro 2.17 per BPI share (including shares from the conversion of convertible bonds) and the assignment of the amount fixed, under art. 7 letter c of POC’s regulation, for each non converted share;•
The cost of the business combination (5,902 millions) was compared with Gruppo BPI consolidated shareholders’ equity as at June 30th, 2007, and the resulting difference was 3,743 millions. As explained above, said difference has been preliminarily shown in the pro-forma balance sheet under a specific item named “Merger difference”, pending the precise allocation of the relevant balance sheet items at the•
The consolidation scope was changed to account for significant shareholdings held by both Groups in the same entities, whenever the cumulative share of ownership should qualify for the consolidation along the equity method (in no case did the cumulative share qualify for the line-by-line consolidation); in particular: - Arca SGR S.p.A.: based on its shareholding (20.71%), Gruppo BPI used to carry the company at equityin its consolidated financial statements; whereas Gruppo BPVN had a 7.57% share and therefore recognized the shareholding at fair value, since it was classified under financial assets available for sale. Upon preparing the pro-forma accounts, the total shareholding was carried at equity, generating a positive impact of 2.9 millions on the shareholders’ equity and of 0.1 millions on the pro-forma net income;
- Centrosim S.p.A.: similarly to what described for Arca SGR S.p.A., Gruppo BPI used to carry the company at equity, since it held a 22.35% share, while Gruppo BPVN, with its 2.5% share, recognized the shareholding at fair value since it was classified under financial assets available for sale; again, the total shareholding was carried at equity without significant impacts on the shareholders’ equity and on the pro-forma net income;
- Unione Fiduciaria S.p.A.: similarly to what described for Arca SGR S.p.A. and Centrosim S.p.A. (Gruppo BPI used to carry the company at equity, since it held a 24.00% share, while Gruppo BPVN, with a 5.20% share, recognized the shareholding at fair value since it was classified under financial assets available for sale), the total shareholding was carried at equity without significant impacts on the shareholders’ equity and on the pro-forma net income;
- Istituto Centrale delle Banche Popolari Italiane: based on its 22,09% shareholding, Gruppo BPVN used to carry the company at equity in its consolidated financial statements; whereas Gruppo BPI, with its 10.64% share, recognized the shareholding at fair value since it was classified under financial assets available for sale. Upon preparing the pro-forma accounts, the total shareholding was carried at equity, generating a positive impact of 14.1 millions on the shareholders’ equity and of 0.9 millions on the pro-forma net income;
- Evoluzione 94 S.p.A.: in the consolidated financial statements of both banks the company was carried at cost. The new entity, however, shall inherit the shareholdings of both Gruppo BPI (13.99%) and Gruppo BPVN (6.70%), and as a result upon preparing the pro-forma accounts its total shareholding (20.69%) was carried at equity, without major impacts on the shareholders’ equity and on the pro-forma net income.
I N T E G R A T I O N P L A N
In order to meet the goals defined in the Business Plan, following the approval of the Merger Plan, an Integration plan was launched, leveraging the experience accrued during the integration between Banca Popolare di Verona-S. Geminiano e Verona-S. Prospero and Banca Popolare di Novara, with the creation of a “double-axis” matrix:
•
axis of results: the value created by the Integration in terms of cost and revenue synergies is allocated to single projects focusing on a specific business area of the Group;•
axis of implementation: “Infra-structural Components” (Organization/ IT/ HR) are in charge of achieving single Project results. The Heads of the above functions must guarantee that the Integration Plan objectives are met by coordinating the same “components” across all projects.The Master Integration plan is comprised of about 40 projects, subdivided into the following areas:
•
Retail;•
Corporate;•
Res (Reti Esterne Specializzate – Specialized External Networks);•
Finance;•
Banks;•
Migration of Bank Systems;•
Holding functions.Each project shall be headed by an officer identified from within the Group Top Management, who shall be in charge of achieving the objectives set in the Integration Plan in line with the Master Integration Plan.
Right from the start, the Integration Plan called for the launch of projects aiming at putting Banco Popolare on stream as of July 1st, 2007, by implementing solutions in line with the model designed in the Business Plan. The following projects were launched already in the first months of 2007:
•
Kick-off of the Parent Company and of the New S.p.A. Banks BPL and BPV-BSGSP, aiming at managing in a very short period of time the complex bureaucratic courses leading to the formation of the above entities and to the listing of Banco Popolare on the Stock Exchange within the fixed deadlines, and at equipping the Parent company with the target information systems necessary for a correct operation. Since July 1st, when the merger and the formation of the new Gruppo Banco Popolare came into effect, the Parent company and the two new Spa banks have been fully operational, and no particular problem or criticality was encountered right from the start;•
Quick wins, aiming at speeding up revenue synergies at Group level, mainly acting on the Finance area, as well as cost synergies, mainly acting on the renegotiation of contracts with IT suppliers;•
IT Migration, aiming at carrying out in depth analysis and to plan all the activities for the migration of the former BPI Banks onto the target information system, to define the time schedule and the migration modality;•
Bancassurance, aiming at managing the choice of the strategic partner for the “non-life” and “life” businesses,whereby agreements were signed with Aviva and Fondiaria-Sai.
In the first six months of the year, in particular right after the shareholders’ meeting for the approval of the Merger Plan, other priority projects were launched to achieve the objectives defined in the Integration Plan:
•
Rationalization of Group Asset Management activities, to manage:The Bank of Italy has already approved the above transactions, granting its authorization in the first days of August. In line with the plan, on September 3rd the integration of Discretionary Managed Accounts in Banca Aletti was completed with success, so that now it will be possible to harmonize the investment choices and the product catalog and to rationalize management;
•
rationalization of the Finance Area at the Parent company’s;•
integration of Aletti Merchant in Efibanca and rationalization of Merchant Banking activities (merger planned for the beginning of October);•
detailed planning and implementation of IT and organizational activities to migrate BPI Group banks onto the Group systems along the following timetable:- “pilot” bank to test and validate the migration process; on September 7th the migration of Popolare Crema was completed with success;
- migration of BPL at the beginning of November 2007;
- migration of Cassa di risparmio di Lucca, Pisa e Livorno at the beginning of February 2008; - completion of the migration of the remaining banks within February 2008.
•
A manifold training and initial support plan was launched, with about 48,000 training days for the human resources of the former BPI Group, mainly focusing on the commercial network;•
plan to open 16 additional Banca Aletti branches specifically devoted to private banking, detached from the current private units existing in the banking networks of the former BPI Group, in compliance with the target organizational model covering the management of private customers;•
project to centralize the management of NPL recovery from the Banking networks into the “product factory” Bipielle Società di Gestione del Credito S.p.A.;•
rationalization of Back Office activities and specialization of geographical centers;•
analysis of Human Resource issues aiming at identifying the most adequate mechanisms to manage redundancies, mobility and personnel requalification / training.All the other projects aiming at putting the Parent company Banco Popolare on stream are being progressively launched, and their implementation is closely correlated to the migration of banks onto the target information system leading to the adoption of a single system throughout the whole group.
The governance of the Master Integration Plan is guaranteed by the Steering Committee, made up of the Group Top Management, which is in charge of governing, planning and controlling the Project:
•
it sets the strategic direction to meet the Integration Plan objectives;•
it solves strategic issues and any criticalities brought forward by the Head of Integration;•
it approves project budgets and the relevant changes proposed by the Head of Integration.A monthly monitoring of all Projects provides an appropriate control over the Master Integration Plan. At present the rolled out projects are in line with the planned implementation activities.
N O T E W O R T H Y E V E N T S A F T E R
T H E B A L A N C E S H E E T D A T E
Effectiveness of the Merger between Banco Popolare di Verona e Novara
and Banca Popolare Italiana
In the first place, as illustrated above, on July 1st, 2007 the deed of merger between Banca Popolare Italiana and Banco Popolare di Verona e Novara was registered with the Registrars of Companies of Verona and Lodi and as a result as of said date the transaction came into legal, accounting and fiscal effect. The dividend entitlement of Banco Popolare shares assigned in exchange started regularly on July 1st, 2007. On the same date, yet just before the finalization of the merger, the transfer came into effect, whereby BPVN and BPI transferred to “Banca Popolare di Verona San Geminiano e San Prospero” and to “Banca Popolare di Lodi”, respectively, part of their banking units mainly consisting of the branch networks located in their original franchise, and in the case of Banca Popolare di Lodi also the equity investments in the Lombardy cooperative banks and in Cassa di Risparmio di Pescara. The demerger of the above business lines shall strengthen the banks’ presence and ties on their territory of belonging.
Special dividend distribution
With value date on July 5th, 2007, Banco Popolare paid the special dividend amounting to 2.17 euro per share to the shareholders and convertible-bond holders of Banca Popolare Italiana. The total distributed amount was 1,399 millions.
Agreement with Trade Unions signed
On July 7th, an agreement with the Trade Unions was signed to manage the impact on employees of the formation of Gruppo Banco Popolare. The agreement governs many aspects, among which the possibility of voluntarily participate in the so called Solidarity Fund for eligible employees (no more than 60 months before the right for retirement has accrued), the adoption of an early retirement incentive scheme for employees who have already accrued the right for retirement, and the payment of a premium to all the employees of the new Group belonging to professional areas and to management on the special occasion of the merger.
Purchase of Auto Trading Leasing
On July 18th, following the authorizations granted by the competent Authorities, Banco Popolare and Holding di Partecipazioni Finanziarie Popolare di Verona e Novara finalized the purchase of 100% of the share capital of Auto Trading Leasing IFN s.a., with stakes of 99.80% and 0.20%, respectively. The new subsidiary is based in Bucharest (Romania) and the transaction shall entail a total investment of 5.8 million euro.
Commitment to subscribe the planned capital increase of Banca Italease
On July 20th, the Board of Directors of Banca Italease approved a capital increase of 600 millions, scalable up to 700 millions. The goal of the capital increase is to put the associate in a position to face the contingent situation with adequate capital resources and to carry on its business development projects in line with the new business plan that is now being defined. The shareholders who entered into the stability agreement, among which also Banco Popolare, confirmed their firm commitment to the associate, in particular with regard to the necessary financial support. Said shareholders confirmed their commitment to subscribe the share capital increase pro rata in relation to their respective shareholdings. Hence, Banco Popolare’s maximum commitment amounts to about 215 millions,
Sale of 79.7% of Banca Bipielle Net to Sopaf, Aviva Italia Holding and De
Agostini Invest
The transaction was finalized on August 1st, 2007, further to the authorizations granted from the Supervisory Authorities on June 25th, 2007. Sopaf S.p.A, De Agostini Invest S.A. and AVIVA Italia Holding S.p.A purchased 79.73% of the share capital of Banca Bipielle Net S.p.A. (a previous investee of the former Banca Popolare Italiana) from Banco Popolare for 104.7 million euro. Banco shall retain a stake of 19.90%. No Put and/or Call options in favor of the contract parties are envisaged.
The Company shall be managed by a Board of directors comprising nine members, of which two shall be designated by Banco. Of the two, one shall be an independent director. A business agreement between Banco e Banca Bipielle Net for the provision of services and products shall be implemented.
Again on August 1st, 2007, Banco Popolare signed an agreement for the sale to Sopaf and Aviva of 100% of the share capital of Area Life International Assurance Ltd for a base price of 23.5 million euro, while Finoa (a company held by 50% by Banco Popolare) signed an agreement for the sale to Sopaf and Aviva of 100% of the share capital of Aviva Previdenza SpA for 34.3 millions. Also these companies fell within the consolidation scope of the former Gruppo BPI.
The contracts should be performed by September 2007 and the payment shall be made in concomitance with the share transfer. The contract effectiveness is conditional to the granting of the required authorizations by the Supervisory Authorities under the current laws.
Asset management arm integration authorized by the Bank of Italy
At the beginning of August, the Bank of Italy authorized the rationalization of the asset management arm of Gruppo Banco Popolare, through the transfer of:
• Bipitalia Gestioni SGR’s business unit dealing with discretionary managed accounts invested in securities to Banca Aletti, which shall lead to the creation of a financial organization with total Assets under Management in excess of 30 billion euro;
• Bipitalia Gestioni SGR’s business unit dealing with managed accounts invested in mutual funds and supplementary pension products to Aletti Gestielle SGR, which shall give rise to an asset management firm with total assets in excess of 18 billion euro;
• Bipitalia Alternative SGR’s business unit dealing with managed accounts invested in speculative funds to Aletti Gestielle Alternative SGR, which shall give rise to an asset management firm with 3 billion euro worth of assets.
The transfer of the discretionary managed accounts to Banca Aletti came into effect on September 3rd, 2007. The transfer of the mutual funds and pension funds to Aletti Gestielle SGR shall be operational by yearend.
As a preliminary step to the transfer of the mutual fund arm to Aletti Gestielle, a plan for the rationalization and integration of the range of UCITS set up by the SGR with those currently managed by Aletti Gestielle SGR was submitted to the approval of the Bank of Italy. The plan envisages the merger of various mutual funds of the SGR with those set up by Aletti Gestielle and the harmonization of their regulations with Aletti Gestielle’s management regulations.
The significant organizational, product and professional synergies produced by the Group’s new asset management organization, which is on track to become operational along the timeline expected by the integration plan, shall lead to a further service quality enhancement, guaranteeing a management capability in line with the best market standards.
Purchase of 50% of BPV Vita from Società Cattolica di Assicurazione
On August 31st, having received the required authorizations, Banco Popolare purchased 50% of the share capital of BPV Vita by way of its subsidiary Holding di Partecipazioni Finanziarie Popolare di Verona e Novara from Società Cattolica di Assicurazione. The total investment amounted to 64.2 millions.
Sale of 50% of BPV Vita to Gruppo Fondiaria SAI
On September 7th, Banco Popolare and the group Fondiaria-SAI finalized a bancassurance strategic partnership agreement covering the “life and pension” business. Under said agreement, Fondiaria SAI purchased 50% of the share capital of BPV Vita from Banco Popolare and from the subsidiary Credito Bergamasco. BPV Vita is the special purpose vehicle through which the operational implementation of the partnership shall be achieved. The total purchase price paid by Fondiaria SAI was 530 million euro, which shall give rise to the recognition in the third quarter of a capital gain of 433 millions, net of fiscal effects and minority interest. Under the provisions of the shareholders’ agreement , Fondiaria SAI acquires a controlling interest in BPV Vita, and reciprocal put and call options are in place should the partnership be dissolved. In this event, the shareholding in BPV Vita shall be valued along the appraisal value method. On the same date, the parties signed an exclusive distribution agreement for “life-pension” insurance products, which shall have a ten year term and may be renewed every five years, starting from January 1st, 2008 (without prejudice to the existing distribution agreements with Aviva and Aurora).
Merger between the London Stock Exchange and Borsa Italiana
On August 8th, the Special Shareholders’ Meeting of the London Stock Exchange Plc. approved the merger with Borsa Italiana S.p.A., after the prior approval of the merger by the latter’s shareholders. Based on the merger plan, Borsa Italiana shareholders shall be offered 4.9 London Stock Exchange Plc. shares for each outstanding common share of Borsa Italiana S.p.A.. Banco Popolare holds 1,155,252 common shares, accounting for 7.119% of Borsa Italiana’s share capital. Based on the information available to date, the transaction’s finalization shall generate the recognition of a capital gain of about 100 millions, net of fiscal effect.
Approval of the merger of Aletti Merchant in Efibanca by the Special
Shareholders’ Meetings
On September 7th, 2007, the Special Shareholders’ Meetings of Efibanca and Aletti Merchant unanimously approved the merger by acquisition of Aletti Merchant into Efibanca. As a result of the merger, the acquiring company Efibanca shall carry out a capital increase of max. euro 16,720,000 – namely from euro 92,976,566.00 to euro 109,696,566.00 – by issuing max. 16,720,000 shares with a nominal value of Euro 1.00 each, to support the exchange ratio of 0.22 ordinary shares of the acquirer with a nominal value of euro 1.00 each for each 1 ordinary share of the acquiree with a nominal value of euro 1.00 each, as well as the transfer of the registered office from Rome to Lodi. The merger is expected to come into legal effect on October 1st next. Under the business plan of the newly formed Gruppo Bancario Banco Popolare, this transaction represents the rationalization and appreciation within one single entity of the group Corporate Finance & Merchant Banking structures and skills.
***
The international macro-economic scenario in the weeks following June 30th, 2007 was characterized by turbulences on the financial markets starting on August 9th with a liquidity squeeze, difficulty to issue debt instruments and falling stock prices. Most likely the origin of this crisis lies in the excessive leverage effects and maturity mismatches of subprime mortgages on the US market, in the presence of less accommodating monetary policies than in the past. The intervention of the Central Banks is aimed at gradually bringing financial markets back to their normal operating conditions. All in all, the summer financial crisis may cause a mild slowdown of the economic growth in the euro area.
The Italian financial sector (and specifically the banking sector) does not report major exposures to the risks caused by the subprime mortgage crisis in relation to its business volume, as shown by the updates specifically gathered by the Supervisory Authorities (Bankitalia, CONSOB, ISVAP).
The Banking Group Banco Popolare, which was formed on July 1st, 2007, is not affected by this phenomenon. In compliance with the issuers requirements published by Consob with letter dated August 30th, 2007, we provide the following information:
•
granting of subprime mortgages: Gruppo Banco Popolare has no lending exposures to subprime customers, since it is not a Group policy to grant loans to this class of customers;•
investment in financial products with subprime mortgages or associated instruments as underlying: the analysis of investments in financial products reported under the Group’s financial assets identified the presence of an indirect investment whose exposure to subprime mortgages was estimated to be about 1.7 millions;•
guarantees issued on subprime mortgages: based on our analyses, no guarantees have been issued in association with said products;•
total financial products with subprime mortgages as underlying, managed or held in custody by the Group on behalf of third parties: out of discretionary managed accounts, as at August 31st, 17.8 millions (equal to 0.02% of the Group’s aggregate indirect customer funds) were invested in the SICAV Axa World Fund - US Libor Plus.O P E R A T I O N A L O U T L O O K
The world economy is now going through a favorable business cycle, that is benefiting also our Country, despite some uncertainty. The tensions caused by last August’s liquidity crisis on financial markets, on the wake of the upheavals experienced on the US subprime mortgage market, may shave the growth outlook of real economy in the coming months and act as a mild brake on the development of financial and banking intermediation activities.
As of July 1st, 2007, in keeping with the Integration plan, the new operational structure of Banco Popolare is up and running, with a Parent Holding Company, called Banco Popolare, in charge of the management and strategic planning for the so called “Banche del Territorio” and “Product Companies” (operating companies) specialized by business areas. In the second half of the year, all the activities related to the implementation of the integration plan shall continue, among which the migration of the BPI group banks onto the Group information systems, expected to start at the beginning of September.
The second-half results shall therefore enjoy the full effects of the capital management actions, of the activities carried out under the integration plan and of the positive operating impact generated by some non-recurring events, such as the life and non-life bancassurance agreements respectively with FonSai and Aviva and the merger between Borsa Italiana and the London Stock Exchange.
Vice Chairman Alberto Bauli
Chief Executive Officer Fabio Innocenzi
Directors Marco Boroli,
Pietro Buzzi,
Valentino Campagnolo, Vittorio Corradi, Ugo Della Bella, Giuseppe Fedrigoni, Federico Guasti, Sergio Loro Piana, Maurizio Marino, Giuseppe Nicolò, Gian Luca Rana,
Claudio Rangoni Machiavelli, Fabio Ravanelli,
Luigi Righetti, Gian Carlo Vezzalini, Franco Zanetta
Board of Statutory Auditors
Chairman Flavio Dezzani
Standing auditors Giuliano Buffelli, Maurizio Calderini, Carlo Gaiani, Giovanni Tantini
Alternate auditors Bruno Anti,
Emilio Rossi Board of Advisors
Standing Marco Cicogna,
Luciano Codini, Sergio Mancini
Alternate Aldo Bulgarelli,
Vittorio Cocito
Credito Bergamasco
BPV Vita (1)
Novara Vita (1)
Linea (1)
Banco Popolare Croatia
BPVN (Luxembourg)
Banco Popolare Hungary
Banco Popolare Ceskà Republika
Aletti Merchant
Arena Broker
Società Gestione Servizi - BPVN
Holding di Partecipazioni Finanziarie
Popolare di Verona e Novara
BPVN Immobiliare
Immobiliare BPV
TacMarket Servizi
Altre Società
Banca Aletti & C.
Banca Aletti & C. (Suisse)
Aletti Gestielle SGR
Aletti Gestielle Alternative SGR
Aletti Fiduciaria
G R O U P F I N A N C I A L H I G H L I G H T S
Shown below are the Group’s main financial highlights and ratios.Financial highlights
(million euro) I H 2007 I H 2006 (*) Change
Income statement
Net interest, dividend and similar income 575.7 669.1 -14.0%
Net commission income 446.2 438.0 1.9%
Total income 1,225.6 1,297.8 -5.6%
Operating costs 660.6 664.2 -0.5%
Profit from operations 564.9 633.6 -10.8%
Income before tax from continuing operations 504.0 625.6 -19.5%
Net income for the period 252.5 387.1 -34.8%
(million euro) 30/06/2007 31/12/2006 Change
Balance sheet
Total assets 74,706.0 68,694.9 8.8%
Gross loans to customers 50,261.0 46,123.9 9.0%
Financial assets and hedging derivatives 11,652.6 10,771.0 8.2%
Shareholders’ equity 4,559.4 4,872.0 -6.4%
Customer financial assets
Direct customer funds 56,092.1 50,574.0 10.9%
Indirect customer funds 68,691.2 74,374.5 -7.6%
- Assets under management 30,502.1 31,144.1 -2.1%
- Mutual funds and Sicav 13,319.7 13,460.6 -1.0%
- Managed accounts in securities and funds 10,758.0 11,405.3 -5.7%
- Insurance policies 6,424.3 6,278.2 2.3%
- Assets under custody 38,189.1 43,230.4 -11.7%
Operational structure
Average number of employees (**) 12,964 12,677 2.3%
Bank branches 1,270 1,250 1.6%
(*) Adjusted for comparison to take account of changes in consolidation scope.
Group economic and financial ratios and other data
30/06/2007 31/12/2006 30/06/2006 (*)
Profitability ratios (%)
Annualized ROE 11.7% 26.9% 20.5%
Net interest, dividend and similar income / Total income 47.0% 54.0% 51.6%
Net commission income / Total income 36.4% 30.7% 33.7%
Operating costs / Total income 53.9% 48.4% 51.2%
Operational productivity (€/1000)
Customer loans (gross) per employee 3,877.0 3,638.4
Annualized total income per employee 189.1 217.1 207.8
Annualized operating costs per employee 101.9 105.0 106.4
Credit quality ratios (%)
Net NPLs / Customer loans (net) 1.11% 1.21%
Net watchlist loans / Customer loans (net) 1.04% 1.04%
G R O U P O P E R A T I N G P E R F O R M A N C E
The economic backdrop
In general, in first half 2007 global economy was characterized by a good growth rate. With regard to energy, Brent oil prices remained on the high end.
In the United States, after reporting a marked slowdown in the first quarter, in the following three months the economic cycle showed a good recovery. According to preliminary estimates, Gross Domestic Product grew by 3.4% annually, driven by the pick-up in exports, the recovery of fixed investments and expenditure by the Federal Government. In the first quarter, however, GDP had grown at a meager annual rate of 0.7%. In June, the unemployment rate had been kept down at contained levels (4.5%) and core inflation (net of energy and food) stood at 2.2%. Against this backdrop, the Federal Reserve kept the monetary policy target rate pinned at 5.25%.
In Japan, in the presence of a regular economic growth and a stable inflation rate, the central bank raised the interest rate by a quarter of a point, fixing the overnight call rate target at 0.50%. The Chinese economy kept flying on extremely high growth rates: +11.5% in the first six months of the year.
In Great Britain the strong economic growth (GDP: annual +3.0% in the first three months of the year) led the Bank of England, the British central bank, to raise the bank rate twice, up to 5.50% at the end of the first half (in July it raised it again to 5.75%). In the Euro area the business cycle is sustained and unemployment is at its historical lows: in the first quarter GDP increased by 3.1% annually, unemployment in June decreased to 6.9%. As a result, the European Central Bank could go on pursuing its “removal of monetary accommodation” policy, whereby it raised the benchmark rate up to 4% in June.
In Italy, GDP grew by +2.3%, driven by an export growth rate of +4.1%. Investments were buoyant only in the building and construction sector (+5.2%). In the meanwhile, in June inflation appeared contained at +1.9%, in line with the euro area average and not such as to further erode the competitiveness of the domestic economy. The Italian banking industry
In first half 2007, the dynamics of the banking business remained high, although slightly slower than the growth rate reported in the last few months of 2006. According to ABI, direct customer funds gathered by banks recorded a growth slowdown only towards the end of the period, with June standing at an annual +7.7% from +8.3% in December 2006. In particular, this slackening is attributable to deposits (checking accounts, savings deposits and certificates of deposit), whose growth rate went from +6.2% to +4.3%; in contrast, bonds increased their momentum from +11.6% to +12.9%. With regard to balance sheet assets, customer loans have been slipping slightly towards the end of the period, with June at +10.8% from +11.2% at year-end 2006; short term loans enjoyed a stable growth rate from +10.5% to +10.4% last June, while medium to long term transactions showed a more evident slowdown, from +11.6% in December 2006 to +11.0% in June 2007, as a result of the home mortgage pullback.
Harmonized interest rates on bank deposits increased by 33 basis points between December 2006 and June 2007, while interest rates on banking loans to households and non-financial businesses reported a parallel increase of 35 basis points as compared with the end of 2006, in the pursuit of the monetary policy signals coming from the European Central Bank.
Statement of conformity with international accounting standards
This consolidated half-year report, pursuant to art. 81 of Consob’s regulation approved with resolution n. 11971 of May 14th, 1999, was prepared in compliance with the IAS/IFRS standards approved by the European Union and effective at the time of its approval. This report aims at providing a timely indication of the Group’s general performance trend based on more easily and rapidly measurable financial and operating data.
The Report provides a consolidated representation of the financial and operating situation of Banco Popolare di Verona e Novara and of its subsidiaries. The financial statements used to prepare this consolidated half-year report were delivered by the subsidiaries and refer to their position on June 30th, 2007, adjusted when necessary to comply with IAS/IFRS; said accounting situations were prepared using also valuation methods other than the ones generally adopted for annual reports. More precisely, since by way of ordinary accounting methods it was impossible to determine the revenues and charges deriving from services provided and received, but not yet invoiced, relating to specific commission components and G&A expenses, some companies prepared their accounting statements based on forecast data inferred from their budgets.
The consolidated half-year report as at June 30th, 2007 is comprised of:
x balance sheet as of June 30th, 2007 compared with the balance sheet as of December 31st, 2006, namely the latest annual report to be published;
x income statement of the first half 2006 compared with the income statement for the same period of the year before;
x statement of changes in shareholders’ equity for first half 2007 and first half 2006;
x statement of changes in cash flows, showing the most significant cash flows in first half 2007, compared with the same period of the year before.
Changes in the application of accounting standards
As a result of the supplementary pension reform, pursuant to Legal Decree n. 252 of December 5th, 2005, depending on the choice made by employees, termination benefits accrued as of January 1st, 2007 shall be destined to supplementary pension schemes or transferred to a fund managed by the Italian Social Security Institute (INPS).
The coming into effect of this reform introduced a change in the method of accounting for the provision for Termination benefits compared with the financial statements as at December 31st, 2006 and the first quarter report on operations. Specifically, employee termination benefits accrued as of January 1st, 2007 are determined without applying any actuarial methodology, as the only charge to be borne by companies is the contribution they have to pay as provided for by the Civil Code (defined contribution plan under IAS 19). The provision for termination benefits accrued as at December 31st, 2006 continues to be accounted for as a defined benefit plan under IAS 19. However, the liability associated with the accrued termination benefits must be measured based on actuarial estimates without applying the pro-rata of the service provided as the benefit to be measured can be considered entirely accrued.
The change in the accounting method described above produced a reduction in the liability valued along the prior measurement procedures. The difference, which amounted to 35.5 million euro, was carried at income for the second quarter under the item “personnel expenses”.
Change in classification criteria
In the second quarter of 2006, following the replacement of the software application dedicated to the recognition of foreign currency transactions, it was possible to make the account-taking of exchange derivatives compliant. With respect to the former accounting standards, the spread between the spot exchange rate upon the contract finalization and the exchange rate agreed in the contract has been reclassified from “net interest income” to “net financial income”.
As of the second quarter 2006, the recognition in the reclassified income statement of dividends collected from equity securities classified as financial assets held for trading and financial assets available for sale has changed. Dividends are now shown under “net financial income”. The item “dividends and profit (Loss) from equity investments” now includes only the share of profit generated by the investee companies carried at equity. As of the second quarter 2007, the figurative cost to fund financial assets purchased by the Group investment bank to produce structured financial products for trading was recognized in the reclassified income statement under the item “Net financial income” instead of “Net interest income”. In order to have a like-to-like comparative basis, the same reclassification was extended to prior quarters. This new recognition criterion should provide a clearer representation of the evolution of results generated by the different operating areas of the Group.
Finally, note that the previous year’s quarterly data have been restated on a comparative basis, to take into account the changes in consolidation scope. In particular, the contributions made in 2006 by the subsidiaries that have been disposed of during that same year have been eliminated (Leasimpresa, Sestri, Sannitica Riscossioni, Compagnie d’Angely and Aletti International).
F I N A N C I A L S T A T E M E N T S
Consolidated balance sheet
Assets
(thousand euro) 30/06/2007 31/12/2006 Changes
10Cash and cash equivalents 291,669 360,546 (68,877) (19.1%)
20Financial assets held for trading 9,452,472 8,424,623 1,027,849 12.2%
30Financial assets measured at fair value 332,850 314,430 18,420 5.9%
40Financial assets available for sale 1,023,282 1,053,752 (30,470) (2.9%)
50Financial assets held to maturity 806,435 939,319 (132,884) (14.1%)
60Due from other banks 9,038,353 8,680,735 357,618 4.1%
70Loans to customers 49,386,548 45,244,563 4,141,985 9.2%
80Hedging derivatives 37,518 38,847 (1,329) (3.4%)
90Fair value change of assets in
hedged portfolios (5,614) (4,093) 1,521 37.2%
100Equity investments 665,744 796,935 (131,191) (16.5%)
120Property, plant and equipment 540,244 538,047 2,197 0.4%
130Intangible assets 490,792 447,753 43,039 9.6%
140Tax assets 704,355 661,465 42,890 6.5%
150Non-current assets held for sale and discontinued operations 44,924 239 44,685 n.s.
160Other assets 1,896,451 1,197,774 698,677 58.3%
Liabilities and Shareholders’ equity
(thousand euro) 30/06/2007 31/12/2006 Changes
10Due to other banks 7,398,291 8,116,144 (717,853) (8.8%)
20Due to customers 29,031,672 28,905,375 126,297 0.4%
30Debt securities in issue 21,108,499 16,334,515 4,773,984 29.2%
40Trading liabilities 2,646,405 1,844,528 801,877 43.5%
50Financial liabilities measured at fair value 5,951,969 5,334,143 617,826 11.6%
60Hedging derivatives 56,471 54,847 1,624 3.0%
70Fair value change of liabilities
in hedged portfolios (78,858) (57,936) 20,922 36.1%
80Tax liabilities 366,158 416,354 (50,196) (12.1%)
100Other liabilities 2,949,901 2,111,034 838,867 39.7%
110Employee termination benefits 291,116 350,079 (58,963) (16.8%)
120Provisions for risks and charges 285,414 269,073 16,341 6.1%
140Valuation reserves 320,191 240,820 79,371 33.0% 170Reserves 2,738,717 2,044,798 693,919 33.9% 180Share premiums 213,068 202,304 10,764 5.3% 190Share capital 1,355,092 1,351,182 3,910 0.3% 200Treasury shares ( - ) (320,206) - (320,206) 210Minority interest 139,616 144,761 (5,145) (3.6%)
220Net income for the period 252,507 1,032,914 (780,407) (75.6%)
Consolidated income statement
Income statement
(thousand euro) I H 2007 I H 2006 Changes
10Interest income and similar revenues 1,597,882 1,184,742 413,140 34.9%
20Interest expense and similar charges (908,596) (537,991) 370,605 68.9%
30 Net interest income 689,286 646,751 42,535 6.6%
40Commission income 500,241 488,216 12,025 2.5%
50Commission expense (54,045) (48,373) 5,672 11.7%
60 Net commission income 446,196 439,843 6,353 1.4%
70Dividend and similar income 112,010 58,298 53,712 92.1%
80Net trading income 22,337 43,279 (20,942) (48.4%)
90Fair value adjustments in hedge accounting 690 541 149 27.5%
100Profit (Loss) on disposal or repurchase of: 14,917 46,644 (31,727) (68.0%)
a) loans 2,971 38,147 (35,176) (92.2%)
b) Financial assets available for sale 11,023 7,548 3,475 46.0%
d) financial liabilities 923 949 (26) (2.7%)
110Profit (Loss) on financial assets and liabilities
designated at fair value 14,000 15,167 (1,167) (7.7%)
120 Total income 1,299,436 1,250,523 48,913 3.9%
130Net write-downs / write-backs on impairment of: (67,043) (65,154) 1,889 2.9%
a) loans (64,212) (64,127) 85 0.1%
b) Financial assets available for sale (829) (3) 826
d) other financial transactions (2,002) (1,024) 978 95.5%
140 Net income from banking activities 1,232,393 1,185,369 47,024 4.0%
170 Net income from banking and insurance activities 1,232,393 1,185,369 47,024 4.0%
180G&A expenses: (669,519) (677,282) (7,763) (1.1%)
a) personnel expenses (412,897) (428,904) (16,007) (3.7%)
b) other administrative expenses (256,622) (248,378) 8,244 3.3%
190Net provisions for risks and charges (5,928) (22,322) (16,394) (73.4%)
200Impairment / write-backs on property, plant and equipment (24,891) (23,431) 1,460 6.2%
210Impairment / write-backs on intangible assets (18,102) (17,892) 210 1.2%
220Other operating income (expense) 117,849 125,549 (7,700) (6.1%)
230 Operating costs (600,591) (615,378) (14,787) (2.4%)
240Profit (Loss) from equity investments (132,254) 35,612 (167,866)
270Profit (Loss) on disposal of investments 4,404 39,610 (35,206) (88.9%)
280 Income before tax from continuing operations 503,952 645,213 (141,261) (21.9%)
290Tax on income from continuing operations (249,962) (241,785) 8,177 3.4%
300 Income after tax from continuing operations 253,990 403,428 (149,438) (37.0%)
310Income (Loss) after tax from discontinued operations 2,693 3,045 (352) (11.6%)
320 Net income for the period 256,683 406,473 (149,790) (36.9%)
330Minority interest (4,176) (9,068) (4,892) (53.9%)