2012 Consolidated Financial Report - UBI Banca

ubibanca.it

2012 Consolidated Financial Report - UBI Banca

Reports and

Accounts 2012

Translation from the Italian original which remains the

definitive version

10 th financial year

Joint stock co-operative company

Registered office: Bergamo, Piazza Vittorio Veneto 8

Operating offices: Bergamo, Piazza Vittorio Veneto 8; Brescia, Via Cefalonia 74

Member of the Interbank Deposit Protection Fund and the National Guarantee Fund

Tax Code, VAT No. and Bergamo Company Registration No. 03053920165

ABI (Italian Banking Association) 3111.2 Register of Banks No. 5678 Register of banking groups No. 3111.2

Parent of the Unione di Banche Italiane Banking Group

Share capital as at 5 th February 2013: euro 2,254,367,552.50 fully paid up

www.ubibanca.it


Contents

Letter to the registered and non-registered shareholders ........................................................ 5

UBI Banca: company officers .................................................................................................. 9

UBI Banca Group: branch network as at 31 st December 2012 ................................................ 10

UBI Banca Group: the main investments as at 31 st December 2012 ....................................... . 11

UBI Banca Group: principal figures and performance indicators ............................................. 13

The rating .............................................................................................................................. 14

Notice of call .......................................................................................................................... 16

CONSOLIDATED FINANCIAL STATEMENTS OF THE UBI BANCA GROUP AS AT AND FOR

THE YEAR ENDED 31 ST DECEMBER 2012

CONSOLIDATED MANAGEMENT REPORT ................................................................................... 19

▪ The macroeconomic scenario ............................................................................................ 20

▪ Significant events that occurred during the year ................................................................ 31

▪ Commercial activity ........................................................................................................... 41

▪ The distribution network and market positioning ............................................................. 59

▪ Human resources ............................................................................................................. 67

▪ The scope of consolidation ................................................................................................ 76

▪ Reclassified consolidated financial statements, reclassified income statement

net of the most significant non-recurring items and reconciliation schedules ..................... 86

▪ The consolidated income statement ................................................................................... 94

▪ General banking business with customers: funding ........................................................... 107

- Total funding ............................................................................................................................... 107

- Direct funding .............................................................................................................................. 108

- Indirect funding and assets under management ........................................................................... 114

▪ General banking business with customers: lending .......................................................... 117

- Performance of the loan portfolio ................................................................................................. 117

- Risk .............................................................................................................................................. 120

▪ The interbank market and the liquidity situation ............................................................... 126

Financial activities ........................................................................................................... 130

▪ Equity and capital adequacy ............................................................................................. 149

▪ Research & Development .................................................................................................. 153

▪ The system of internal control .......................................................................................... 154

▪ Transactions with related parties ...................................................................................... 155

Consolidated companies: the principal figures ................................................................... 158

▪ The performance of the main consolidated companies ....................................................... 162

▪ Other information ............................................................................................................. 193

- Treasury shares ........................................................................................................................... 193

- Litigation ...................................................................................................................................... 193

- Inspections .................................................................................................................................. 194

- Antitrust authority provisions ...................................................................................................... 196

- Tax aspects .................................................................................................................................. 196

- Investor relations and external communication ............................................................................ 205

- Social and environmental responsibility ....................................................................................... 207

- Compliance with personal data protection regulations .................................................................. 209

▪ Principal risks and uncertainties to which the UBI Banca Group is exposed ...................... 210

▪ Subsequent events occurring and the business outlook

for consolidated operations .......................................................................................... 218

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER

RESPONSIBLE FOR PREPARING THE COMPANY ACCOUNTING DOCUMENTS ............................. 219

1


INDEPENDENT AUDITORS’ REPORT ................................................................................ 221

CONSOLIDATED FINANCIAL STATEMENTS ........................................................................ 224

Consolidated balance sheet ............................................................................................... 225

Consolidated income statement ........................................................................................ 226

Consolidated statement of comprehensive income ............................................................. 227

▪ Statement of changes in consolidated equity .................................................................... 228

Consolidated statement of cash flows ............................................................................. 230

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ................................................... 232

▪ Part A – Accounting policies ............................................................................................. 233

- A.1 – General part ........................................................................................................................ 233

- A.2 – The main items in the financial statements .......................................................................... 250

- A.3 – Information on fair value ...................................................................................................... 276

▪ Part B – Notes to the consolidated balance sheet ............................................................... 281

- Assets ........................................................................................................................................... 281

- Liabilities ..................................................................................................................................... 313

- Other information ......................................................................................................................... 335

▪ Part C – Information on the consolidated income statement ............................................... 338

▪ Part D – Consolidated statement of comprehensive income ............................................... 359

▪ Part E – Information on risks and the relative hedging policies ......................................... 360

▪ Part F – Information on consolidated equity ...................................................................... 466

▪ Part G – Business combination transactions concerning companies or lines of business .... 474

▪ Part H – Transactions with related parties ......................................................................... 475

▪ Part I – Share-based payments ......................................................................................... 480

▪ Part L – Segment reporting ............................................................................................... 482

ATTACHMENT TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................................... 484

Disclosures concerning the fees of the independent auditors and for services other

than auditing in compliance with Art. 149 duodecies of Consob Issuers’ Regulations ......... 484

SEPARATE FINANCIAL STATEMENTS OF UBI BANCA SCPA AS AT AND FOR THE YEAR

ENDED 31 ST DECEMBER 2012

MANAGEMENT REPORT ............................................................................................... 1*

UBI Banca: principal figures and performance indicators ................................................. 2*

▪ The UBI Banca organisation chart ..................................................................................... 3*

▪ The macroeconomic scenario ............................................................................................ 4*

▪ Human resources ............................................................................................................. 4*

▪ Reclassified financial statements, reclassified income statement net of the most significant

non-recurring items and reconciliation schedules ............................................................. 6*

▪ The income statement ....................................................................................................... 14*

▪ General banking business ................................................................................................. 25*

- Funding ....................................................................................................................................... 25*

- Lending ........................................................................................................................................ 28*

- Operations on the interbank market ............................................................................................. 31*

Financial activities ........................................................................................................... 34*

▪ Equity and capital adequacy ............................................................................................ 42*

▪ Relations with Group member companies .......................................................................... 44*

▪ Research & Development .................................................................................................. 44*

▪ The internal control system .............................................................................................. 44*

▪ Transactions with related parties ...................................................................................... 45*

▪ Share performance and shareholder structure ................................................................... 46*

- Share performance ....................................................................................................................... 46*

- Report on corporate governance and the ownership structure ...................................................... 49*

2


- Treasury shares ........................................................................................................................... 51*

- Report on the admission of new registered shareholders ............................................................... 51*

- Report on mutual objects .............................................................................................................. 51*

- De jure and delegated powers of the corporate bodies .................................................................. 53*

▪ Other information ............................................................................................................. 54*

- Litigation ...................................................................................................................................... 54*

- Tax aspects .................................................................................................................................. 54*

- Compliance with personal data protection regulations .................................................................. 54*

- Complaints .................................................................................................................................. 54*

▪ Principal risks and uncertainties to which UBI Banca is exposed ....................................... 56*

Subsequent events and the business outlook for operations ............................................. 56*

▪ Proposal for the allocation of profit for the year and dividend distribution .......................... 57*

STATEMENT OF THE CHIEF EXECUTIVE OFFICER AND OF THE SENIOR OFFICER

RESPONSIBLE FOR PREPARING THE COMPANY ACCOUNTING DOCUMENTS ............................ 58*

INDEPENDENT AUDITORS’ REPORT ................................................................................ 60*

SEPARATE FINANCIAL STATEMENTS .............................................................................. 64*

▪ Balance sheet .................................................................................................................... 65*

▪ Income statement ............................................................................................................. 66*

▪ Statement of comprehensive income ................................................................................. 67*

▪ Statement of changes in equity .......................................................................................... 68*

▪ Statement of cash flows .................................................................................................... 70*

NOTES TO THE ACCOUNTS .......................................................................................... 72*

▪ Part A – Accounting policies ............................................................................................. 73*

- A.1 – General part ........................................................................................................................ 73*

- A.2 – The main items in the financial statements .......................................................................... 79*

- A.3 – Information on fair value ...................................................................................................... 103*

▪ Part B – Notes to the balance sheet .................................................................................... 105*

- Assets ........................................................................................................................................... 105*

- Liabilities ..................................................................................................................................... 142*

- Other information ........................................................................................................................ 163*

▪ Part C – Notes to the income statement ............................................................................. 166*

▪ Part D – Comprehensive income ....................................................................................... 188*

▪ Part E – Information on risks and the relative hedging policies .......................................... 190*

▪ Part F – Information on equity ........................................................................................... 286*

▪ Part G – Business combination transactions concerning companies or lines of business ... 293*

▪ Part H – Transactions with related parties ........................................................................ 295*

▪ Part I – Share based payments ......................................................................................... 303*

▪ Part L – Segment Reporting ............................................................................................... 305*

ATTACHMENTS TO THE SEPARATE FINANCIAL STATEMENTS ............................................... 306*

▪ List of real estate properties .............................................................................................. 307*

▪ Convertible bonds ............................................................................................................ 312*

▪ Disclosures concerning the fees of the independent auditors and services other than

auditing in compliance with Art. 149 duodecies of Consob Issuers’ Regulations ................. 313*

3


REPORT ON THE CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE OF UBI BANCA SCPA .... 1**

REPORT OF THE SUPERVISORY BOARD TO THE SHAREHOLDERS’ MEETING

in compliance with Art,153, paragraph 1 of Legislative Decree No. 58 of 24 th February 1998

and article 46, paragraph 1, letter h) of the Articles of Association .............................................. 73**

REPORTS ON THE OTHER ITEMS ON THE AGENDA OF THE SHAREHOLDERS’ MEETING................. 89**

GLOSSARY ..................................................................................................................................................... 135**

BRANCH NETWORK OF THE UBI BANCA GROUP

Calendar of corporate events of UBI Banca for 2013

DELIBERAZIONI ASSUNTE DALL’ASSEMBLEA DEL ........ 2012

CONTACTS

KEY

The following abbreviations are used in the tables:

- dash (-): when the item does not exist;

- not significant (n.s.): when the phenomenon is not significant;

- not available (n.a.): when the information is not available;

- a cross “X”: when no amount is to be given for the item (in compliance with Bank of Italy instructions).

All figures are given in thousands of euros, unless otherwise stated.

4


Letter to the registered and non-registered

shareholders

Dear registered and non-registered shareholders,

The Chairman of the Supervisory Board, Corrado Faissola, passed away on 20 th December 2012.

With his passing we have lost an immeasurably well-respected banker who was a driving force

behind the creation of UBI Banca and left a permanent mark on the history of the Group and the

Italian banking industry as a whole.

We would like to remember him in light of the friendship that flowered in the years spent working

together. This friendship was a precious gift reserved for those who worked alongside him on a daily

basis in developing programmes to shape the future. Indeed, his basic inclination was to open up

unreservedly to anyone who was prepared to exchange ideas freely and commit to working towards

shared goals with the same intensity that he himself demonstrated.

Corrado Faissola was an unwavering follower of a strict personal code, fundamentally geared

towards espousing an overall ethical position that governed both life and work based on the principle

that the common good should never be supplanted by the possibility of delivering a result, no matter

how desirable. He worked in banking for many years, and was a shining example of tenacity,

wisdom and acumen.

He was one of the leading advocates of the aggregation that gave birth to UBI Banca: he initially filled

the position of Deputy Chairman of the Management Board and subsequently became Chairman of

the Supervisory Board. In these roles we had the opportunity to perceive his talents as an enlightened

banker, an inspirational strategist, a source of knowledge and insight into the world of banking and

credit, a keen judge of programmes and of people.

As a token of our esteem and affection, and in recognition of his great contribution, we have created a

scholarship in his name to be granted to a deserving student of economy and finance at the University

of Brescia. We believe that this practical gesture aimed at honouring his memory through providing

assistance to the next generation is something he would have genuinely appreciated.

We would also like to take this opportunity to remember Giuseppe Camadini, a Member of the

Management Board of UBI Banca and a figure of authority in the business and financial world, who

died on 25 th July 2012.

As a young notary, he soon dedicated himself to a career in the banking sector, initially joining Banca

di Valle Camonica and then moving to Banca San Paolo, where he became Chairman. Following the

merger with CAB, he promoted Banca Lombarda, where he held positions on the Boards of Banco di

Brescia and Banca di Valle Camonica itself. He continued to fill important roles following the

formation of the UBI Banca Group, on the Management Board of the Parent from 2007, and on the

Boards of Banco di Brescia, Banca di Valle Camonica and Banca Regionale Europea.

A long-standing Director and then Chairman of Cattolica Assicurazioni, Giuseppe Camadini was first

and foremost a man of faith and culture.

A tireless instigator of and participator in good works and charity initiatives, he played a driving role

in the leading Catholic institutions in the Brescia area for decades. Many of these institutions were

entrusted to his supervision and became his responsibility.

As President of Fondazione Tovini and Istituto Paolo VI, and Vice-President of Editrice La Scuola, he

helped preserve the memory and continue the good works of Antonio Tovini (founder of Banca di Valle

Camonica and Banco Ambrosiano) and of Pope Paul VI, tasks which represented his life’s work.

We would like to remember him, not only for his constant and unstinting support for the decisions and

strategic direction of UBI Banca, but also for his human characteristics: Giuseppe Camadini was a

man of gentle ways and refined thinking, whose life was inspired by extraordinary values, a

constructive spirit and the harmonious manner in which he fulfilled the roles and responsibilities

entrusted to him.

5


Dear registered and non-registered shareholders,

It is hard to abandon our affectionate thoughts in recognition of those that have left us in order to talk

about the situation at the Bank, but this is the task that now lies before us.

In 2012, the real economy weakened further and Italy was hit particularly hard. Italian GDP shrank

for the sixth consecutive quarter, although pressure on sovereign debts nevertheless gradually eased

and the spread on government bonds reduced as a consequence.

In this context, the UBI Banca Group continued to focus further on internal reorganisation, with priorty

given to a strong balance sheet and a balanced capital structure, as the right foundations for stability

and above all for future growth.

GROUP REORGANISATION

The year 2012 saw a continuation of the process already begun in preceding years, with a series of

major initiatives aimed at bringing about immediate further cuts to structural costs:





simplification of how the Group functions, with an overall reduction in the size of the branch

network and streamlining of internal units with shorter lines of lines in the network banks, the

Parent and UBI.S;

following agreements signed with trade unions in November 2012 and February 2013, a voluntary

redundancy programme was implemented for 736 staff in the first quarter of this year, while an

additional programme to suspend work/reduce working hours was launched. Demand from the

workforce for both programmes far exceeded the company’s target.

As part of those same agreements, the Bank undertook to transform employment contracts from

temporary to permanent or to recruit 283 young people in order to support generation turnover;

changes to the service model for private and corporate banking customers, with unification of

operating units in order to serve both types of customer and the creation at the same time of

combined units (Private & Corporate Unity) that came into operation at the beginning of 2013;

the coporate structure of the Group was streamlined through a series of mergers completed during

the course of the year: Banco di San Giorgio was merged into BRE, B@nca 24-7 was merged into

UBI Banca (after the prior contribution to Prestitalia of the salary and pension backed lending

operations ); and SILF was merged into the Parent.

On 6 th February 2013 work was begun on the merger of Centrobanca into UBI Banca, which

should be completed by the end of June.

CAPITAL STRENGTH

Capital ratios improved significantly, as a result of the adoption of internal models for the calculation

of capital requirements (authorisation was received from the Bank of Italy for the corporate segment in

May 2012, while the validation process for the retail segment is ongoing), efforts made to optimise

risk weighted assets and capital management operations that were undertaken. The ratios now

remain more than adequate to support core banking activity: the core tier one ratio increased by +173

basis points to 10.29% and the total capital ratio increased by +251 basis points to 16.01%.

Moreover, as at 30 th June 2012 the Group had already achieved the ratios recommended by the

European Banking Authority (EBA), with a core tier one ratio of 9.16% at the end of the year, which

incorporated the impact of the fair valuation of government securities held in portfolio as at 30 th

September 2011 (-€868 million).

CUSTOMER FUNDING

Direct funding from retail customers – traditionally one of the Group’s strong points, but subject to

increasing competitive pressure – amounted to €80.3 billion at year end (+€0.8 billion over the twelve

months). This result was driven by bonds, term deposits (which are both types of funding that help to

stabilise liabilities) and also by online current accounts at IWBank.

Total customer funding comprises over 80% of the Group’s direct funding and finances 86.5% of its

lending.

On the institutional front, the healthy liquidity position ensured that the Group could manage its

financial position without needing to renew its maturing medium to long-term funding, both because

renewal was not needed to maintain the structural balance between assets and liabilities and

because the conditions for renewing this financing were still too expensive. It was not until October

that UBI Banca returned to the international markets with a benchmark issue of €750 million.

Indirect funding, influenced by the so-called market effect, or in other words by the volatility of

financial markets, was €70.2 billion (-2.6%), of which assets under management (consisting of mutual

investment funds, managed customer portfolios, insurance policies and units in pension funds)

6


exceeded €38 billion (+3.3%) as a result of the success of the new UBI Pramerica sicav, which was

placed on the market during the year.

CUSTOMER LENDING

At the end of December the loan book amounted to €92.9 billion, 70% of which was disbursed in

Lombardy and 72% of which came from medium to long-term lending.

The Group’s strong position was nevertheless affected by a reduction in volumes (-6.8% compared to

2011), attributable on the one hand to weak demand from households and businesses still in the grip

of a serious recession and on the other to the impact of action taken to focus activity increasingly on

network bank customers, thereby strengthening the Group’s traditional links with local areas and

their people.

The Group has in fact completed the disposal of third party networks, with a consequent reduction in

lending to non-captive customers which involved all of its product companies, especially UBI Leasing.

It also continued to reduce its exposure to the large corporate segment.

These initiatives allowed the group to rebalance its lending to funding ratio, which improved to 94%

(97% at the end of 2011).

LIQUIDITY AND THE SECURITIES PORTFOLIO

The easing of pressures on sovereign debt allowed the wholesale market to start functioning again,

although the situation is not yet back to normal.

UBI Banca – which was allotted €12 billion from the two LTRO auctions held by the ECB in December

2011 and February 2012 – made a series of investments in government securities, while also

increasing its liquidity reserves.

At the end of the year, the financial asset portfolio had reached €21.4 billion, 84% of which consisted

of Italian government securities, and the Group continued to shun any exposure to “at risk” countries

or product types. As an example, the deliberately limited use of derivative contracts is entirely

dedicated to hedging items carried on the balance sheet or to trading with customers as

counterparties, which are then adequately balanced on the market.

The stabilisation of the operating environment, together with actions taken over the last two years to

tackle the systemic crisis, have allowed the group to achieve a liquidity position that is more than

satisfactory and which already complies with the provisions of Basel III regulations.

GROUP PROFITS

The Group ended the year with profit of approximately €83 million, having incurred €152 million of

expenses for redundancy incentive schemes in relation to agreements signed with trade unions in

November 2012 and February 2013.

This result was achieved as a result of revenues from core banking activities holding up well, which

led to operating income of €3.5 billion (+2.6% compared to the previous year, partly due to the overall

contribution of €257 million from financial activities), while operating expenses were contained to

approximately €2.3 billion, down by 5.2%, with further improvements expected as a result of the

initiatives launched in 2012.

These trends have driven an increase of 20% in net operating income, which came to nearly €1.3

billion, and an increase of 15% in pre-tax profit from continuing operations to €323 million.

On the income side, however, pressure on net interest income continued (-7.7% to €1.9 billion), which,

despite the guaranteed support from interest on the securities portfolio, was affected by the persistent

decline in market interest rates (the average one month Euribor rate was 0.34% in 2012 compared to

1.19% in 2011) and lower volumes of lending caused by weak demand for credit and by the selective

policies already described previously. Fee and commission income performed well, more or less

unchanged at €1.2 billion.

All components of operating expenses recorded a year-on-year fall, to reach the lowest level in the last

six years.

The current recession is reflected in the loan loss rate (€847 million), which rose to 91 basis points

(from 61 bps in 2011). However, this nevertheless confirmed UBI Banca’s place as one of the best

Italian banks in terms of asset quality: net non-performing loans as a percentage of the loan book

stood at 3.18%, compared to an average of 3.35% for the sector nationally.

In compliance with supervisory authority recommendations, the Management Board has decided to

propose a dividend of €0.05 per share. The total dividend payment will be €45 million, to be drawn

from the profit of the Parent.

7


Dear registered and non-registered shareholders,

The Annual General Meeting of the Shareholders scheduled for 19 th and 20 th April will be called upon

to elect members of the Supervisory Board, which will subsequently appoint a Management Board for

the next three-years.

The outgoing Directors have presided over the formation and subsequent consolidation of a major

Group of co-operative origins and one of the leading banks in the country. The key features of this

legal and financial model are democratic governance, retail lending and retail funding, closeness to

local people and a strong sense of social responsibility towards the communities served. Even today

these still remain indispensable requirements for enuring that developments in the banking system go

hand in hand with providing meaningful concrete support to small and medium-sized businesses in

the community to enable balanced economic development that is still mindful of social growth. We do

this in the context of our fundamental principle of mutual assistance, which unfortunately not always

prevails.

These values, combined with a firm desire for independence and autonomy, will be passed on to the

new candidates, who will be selected and proposed by the Appointments Committee in a list

approved by the outgoing Supervisory Board. The list bears many new names, incorporating a more

modern outlook (with the presence of five female candidates) and new personal characteristics (the

average age of the candidates is 58) which will help enrich the composition of the next Supervisory

Board, ready to meet the challenges of an increasingly difficult and competitive market environment.

However, if it is to look to the future with confidence it must never overlook not only the basic tenets of

banking, but also the fundamental principles that underpin our identity and our local mission.

27 th March 2013

The Chairman

of the Management Board

Emilio Zanetti

Senior Deputy Chairman

of the Supervisory Board

Giuseppe Calvi

8


UBI Banca: company officers

Honorary Chairman

Giuseppe Vigorelli

Supervisory Board (appointed by a Shareholders’ Meeting on 24 th April 2010)

Chairman Corrado Faissola (*)

Senior Deputy Chairman

Giuseppe Calvi

Deputy Chairman

Deputy Chairman

Alberto Folonari

Mario Mazzoleni

Battista Albertani

Luigi Bellini

Mario Cattaneo

Silvia Fidanza

Enio Fontana

Carlo Garavaglia

Alfredo Gusmini

Pietro Gussalli Beretta

Giuseppe Lucchini

Italo Lucchini

Federico Manzoni

Enrico Minelli (**)

Toti S. Musumeci

Sergio Orlandi

Giorgio Perolari

Sergio Pivato

Armando Santus (**)

Roberto Sestini

Giuseppe Zannoni

Management Board (appointed by the Supervisory Board on 27 th April 2010)

Chairman

Deputy Chairman

Chief Executive Officer

Emilio Zanetti

Flavio Pizzini

Victor Massiah

Giampiero Auletta Armenise

Giuseppe Camadini (***)

Mario Cera

Giorgio Frigeri

Gian Luigi Gola (****)

Guido Lupini

Andrea Moltrasio

Franco Polotti

General Management

General Manager

Senior Deputy General Manager

Deputy General Manager

Deputy General Manager

Deputy General Manager

Deputy General Manager

Francesco Iorio

Elvio Sonnino

Rossella Leidi

Giovanni Lupinacci

Ettore Medda

Pierangelo Rigamonti

Senior Officer Responsible in accordance with

Art. 154 bis of the Consolidated Finance Act

Elisabetta Stegher

Independent auditors

DELOITTE & TOUCHE Spa

(*) Deceased 20 th December 2012.

(**) Appointed by a shareholders meeting on 28 th April 2012.

(***) Deceased 25 th July 2012.

(****) Appointed by the Supervisory Board on 30 th June 2010.

9


UBI Banca Group: branch network as at 31 st

December 2012

10


UBI Banca Group: the main investments as

at 31 st December 2012

11


UBI Banca Group:

key figures and performance indicators 1

31.12.2012 31.12.2011 31.12.2010 31.12.2009 31.12.2008

STRUCTURAL INDICATORS

Net loans and advances to customers/total assets 70.1% 76.8% 78.0% 80.1% 79.0%

Direct funding from customers/total liabilities 74.6% 79.2% 81.8% 79.5% 80.0%

Net loans and advances to customers/direct funding from customers 94.0% 97.0% 95.4% 100.8% 98.7%

Equity (including profit/loss for the period )/total liabilities 7.4% 6.9% 8.4% 9.3% 9.1%

Assets under management/indirect funding from private individual customers 54.3% 51.2% 54.6% 53.2% 53.1%

Leverage ratio

(total assets - intangible assets) /(equity inclusive of profit (loss) for the year + equity attributable to

non-controlling interests - intangible assets) 17.0 18.5 19.3 17.1 17.3

PROFIT INDICATORS

ROE (Profit for the year/equity including profit (loss) for the year) 0.8% 3.9% 1.6% 2.4% 0.6%

ROTE annualised

[profit for the year/tangible equity (equity inclusive of profit (loss), net of intangible assets)] 1.2% 5.9% 3.1% 4.6% 1.2%

ROA (Profit for the year/total assets) annualised 0.06% 0.27% 0.13% 0.22% 0.06%

Cost/Income ratio (operating expenses/operating income) 64.3% 69.5% 70.6% 64.4% 63.9%

Personnel expense/operating income 39.0% 41.4% 41.5% 37.5% 38.8%

Net impairment losses on loans/net loans to customers (loan losses) 0.91% 0.61% 0.69% 0.88% 0.59%

Net interest income/operating income 52.8% 61.7% 61.3% 61.5% 68.7%

Net fee and commission income/operating income 33.5% 34.7% 33.9% 31.1% 33.3%

Net result on financial activities/operating income 7.3% 0.2% 1.0% 3.2% -5.9%

RISK INDICATORS

Net non-performing loans/net loans to customers 3.18% 2.49% 1.91% 1.36% 0.88%

Net impairment losses on non-performing loans/gross non-performing loans

(coverage for non-performing loans) 42.60% 43.31% 48.69% 51.57% 54.58%

Coverage for non-performing loans, gross of write-offs of positions subject to bankruptcy

proceedings and relative impairment losses 57.63% 59.06% 63.62% 66.10%

Net non-performing + net impaired loans/net loans to customers 7.06% 5.03% 3.91% 3.24% 2.08%

Net impairment losses on non-performing and impaired loans/gross non-performing

loans+impaired loans (coverage) 29.26% 30.55% 34.89% 35.93% 38.22%

CAPITAL RATIOS Basel 2 AIRB as at 31st December 2012

Tier 1 ratio (tier 1 capital/total risk weighted assets) 10.79% 9.09% 7.47% 7.96% 7.73%

Core tier 1 ratio after specific deductions to tier 1 capital (tier 1 capital net of preference shares

and savings shares or privileged shares of non controlling interests/total risk weighted assets) 10.29% 8.56% 6.95% 7.43% 7.09%

Total capital ratio [(regulatory capital+tier 3/total risk weighted assets)] 16.01% 13.50% 11.17% 11.91% 11.08%

Regulatory capital (in thousands of euro) 12,203,619 12,282,153 10,536,200 10,202,555 9,960,812

of which:

Tier one capital after the application of prudential filters and specific deductions 8,263,720 8,276,278 7,047,888 6,816,876 6,944,723

Risk weighted assets 76,589,350 91,010,213 94,360,909 85,677,000 89,891,825

INCOME STATEMENT, BALANCE SHEET FIGURES (in thousands of euro),

STRUCTURAL DATA (numbers)

Profit (loss) for the period attributable to the shareholders of the Parent 82,708 (1,841,488) 172,121 270,099 69,001

Profit (loss) for the period attributable to the shareholders of the Parent normalised 97,324 111,562 105,116 173,380 425,327

Operating income 3,526,311 3,438,339 3,496,061 3,906,247 4,089,739

Operating expenses (2,266,660) (2,389,626) (2,468,564) (2,514,347) (2,611,348)

Net loans and advances to customers 92,887,969 99,689,770 101,814,829 98,007,252 96,368,452

of which: net non-performing loans 2,951,939 2,481,417 1,939,916 1,332,576 848,671

net impaired loans 3,602,542 2,533,780 2,032,914 1,845,073 1,160,191

Direct funding from customers 98,817,560 102,808,654 106,760,045 97,214,405 97,591,237

Indirect funding from customers 70,164,384 72,067,569 78,078,869 78,791,834 74,288,053

of which: assets under management 38,106,037 36,892,042 42,629,553 41,924,931 39,430,745

Total funding from customers 168,981,944 174,876,223 184,838,914 176,006,239 171,879,290

Equity (inclusive of profit/loss for the year) 9,737,882 8,939,023 10,979,019 11,411,248 11,140,207

Intangible assets 2,964,882 2,987,669 5,475,385 5,523,401 5,531,633

Total assets 132,433,702 129,803,692 130,558,569 122,313,223 121,955,685

Branches in Italy 1,727 1,875 1,892 1,955 1,944

Total personnel at the end of the period

(actual employees in service + workers on agency leasing contracts) 19,086 19,407 19,699 20,285 20,680

Total personnel average (*)

(actual employees in service + workers on agency leasing contracts) 18,490 18,828 19,384 20,185 20,606

Financial advisors 672 713 786 880 924

1 The indicators have been calculated using the reclassified figures contained in the section “Reclassified consolidated financial statements, reclassified

income statement net of the most significant non-recurring items and reconciliation schedules” in the Consolidated Management Report.

The profit indicators for 2011 were calculated on profit before impairment losses on goodwill and finite life intangible assets, which

amounted to €349,373 thousand.

Information on the share is reported in the relative section of the UBI Banca Management Report.

(*) Part time employees have been calculated within total average personnel numbers according to convention on a 50% basis.

13


The rating

As governments were perceived to fail to come to an agreement during the year over the reform

of European governance and over improvements to the mechanisms for managing the crisis in

the euro area, rising pressures on sovereign debts and the growing difficulties with the

macroeconomic environment led rating agencies to revise their ratings for Italy and Italian

banks, including UBI Banca, several times.

On 27 th January 2012, as part of action taken on six eurozone countries (set on rating watch

negative on 16 th December 2011), Fitch Ratings lowered its rating for Italy from A+ to A-

(down two notches), keeping it on outlook negative.

On the following 6 th February 2012, this agency removed its negative rating watches assigned

on 20 th December 2011 and made a series of cuts to the ratings of the main Italian banks. For

UBI Banca, its long-term and viability ratings were reduced from A-/a- to BBB+/bbb+ (-1

notch), again with a negative outlook.

On 14 th December Fitch confirmed its ratings and outlook negative for Italy 1 and on 29 th

January 2013 it revised its ratings for the four main Italian banks, including UBI Banca,

whose ratings (and the relative outlooks) all remained unchanged.

On 13 th July Moody’s intervened for the second time in 2012 on its Italian sovereign debt

rating, cutting it by two notches from A3 to Baa2 and maintaining its negative outlook. In

consideration of the magnitude of the changes already made to the ratings of Italian banks on

the preceding 14 th May, the adjustments that the agency made to take account of the new

ratings on sovereign debt were very limited and affected just ten banks, which did not include

UBI Banca.

As already reported, as part of extensive measures which affected the sovereign ratings of nine

European countries, on 13 th February 2012 this agency downgraded its rating on Italy’s longterm

debt from A2 to A3 (down one notch), again with a negative outlook and on the following

15 th February it announced a review for possible downgrading of 114 financial institutions

operating in 16 European countries.

This review was concluded for Italy on 14 th May and was accompanied by a general reduction

in the long-term ratings of 26 Italian banks, a reduction which in almost all cases reflected a

lower rating by Moody’s on the financial strength of single banks. In this context UBI Banca’s

bank financial strength rating was cut from C- (baa1) to D+ (baa3), while its long-term rating

fell from A3 to Baa2. In both cases the outlook was kept on negative.

On 3 rd August 2012, Standard & Poor’s released the results of a revision of the Italian

banking sector (which involved 32 financial institutions) that it performed to take account of

the deterioration of the outlook for credit risk in the context of a recession which is potentially

more severe than originally expected. In this context, the long-term rating for UBI Banca fell

from BBB+ to BBB (down by one notch), again with a negative outlook.

As a result of the sovereign debt downgrade of two notches announced on 13 th January (from

A to BBB+ with a negative outlook) and a consequent lowering of the Italian BICRA rating

(from three to four), this agency had already taken a series of negative measures on 10 th

February 2012 involving 37 Italian financial institutions, including UBI Banca, whose longterm

rating had been downgraded from A- to BBB+ (down one notch), with a negative outlook.

The tables below summarise the ratings currently assigned to the Group by the three

international agencies.

1 As a consequence of the results of the parliamentary elections, considered inconclusive and economic figures for the last quarter of

2012, which showed the Italian economy to be in one of the deepest recessions in Europe, on 8 th March 2013 this agency further

downgraded its sovereign rating to BBB+ again with outlook negative.

14


STANDARD & POOR’S

Short-term Counterparty Credit Rating (i) A-2

Long-term Counterparty Credit Rating (i)

Stand Alone Credit Profile (SACP) (ii)

Outlook

RATINGS ON ISSUES

Senior unsecured debt

Subordinated debt (Lower Tier 2)

Preference shares (former BPB-CV and former

BPCI)

BBB

bbb

Negative

BBB

BBB-

BB

French Certificats de Dépôt Programme A-2

(i) The issuer credit rating reflects the agency’s opinion of the

intrinsic creditworthiness of the bank combined with an

assessment of the potential for future support that the bank

might receive in the event of default (from government or from

the group to which it belongs).

Short-term: ability to repay short-term debt with a maturity

of less than one year (A-1+: best rating – C: worst rating)

Long-term: ability to pay interest and principal on debt with

a maturity of longer than one year (AAA: best rating – D:

default)

(ii) The SACP is a rating of the intrinsic creditworthiness of

the bank in the absence of external support (from government

or from the group to which it belongs). It is calculated on the

basis of an “anchor SACP”, which summarises economic and

industry risk for the Italian banking sector. This is then

adjusted to take account of bank-specific factors such as

capitalisation, market positioning, exposure to risk and the

funding and the liquidity situation, which are also assessed

from a comparative viewpoint.

MOODY'S

Long-term debt and deposit rating (I)

Short-term debt and deposit rating (II)

Baa2

Prime-2

Bank Financial Strength Rating (BFSR) (III) D+

Baseline Credit Assessment (BCA) (IV)

Outlook (deposit ratings)

Outlook (Bank Financial Strength Rating)

RATINGS ON ISSUES

Senior unsecured

Lower Tier 2 subordinated

Preference shares

(former BPB-CV and Banca Lombarda)

Euro Commercial Paper Programme

Covered Bond

baa3

Negative

Negative

Baa2

Ba1

Ba3(hyb)

Prime-2

A2

(I) The ability to repay long-term debt (maturing in or after one

year) in local currency. By using the JDA method (Joint

Default Analysis), this rating associates the financial strength

rating (BFSR – Bank Financial Strength Rating) with the

probability of intervention if needed by external support

(shareholders, the group to which it belongs or official

institutions).

(Aaa: best rating– C: default)

(II) The ability to repay debt in local currency maturing in the

short-term (due in less than one year).

(Prime -1: highest quality – not prime: speculative grade)

(III) This rating does not relate to the ability to repay debt, but

considers the bank’s intrinsic financial strength (by analysing

factors such as its geographical market presence, the

diversification of its activities, the financial basics, its

exposure to risk) in the absence of external support.

(A: best rating – E: worst rating)

(IV) The Baseline Credit Assessment represents the equivalent of

the Bank Financial Strength Rating on the traditional scale of

the long-term rating.

FITCH RATINGS

Short-term Issuer Default Rating (1)

F2

(1) The ability to repay debt maturing in the short-term (duration

of less than 13 months)

(F1+: best rating – D: worst rating)

Long-term Issuer Default Rating (2)

BBB+

Viability Rating (3)

bbb+

Support Rating (4) 2

Support Rating Floor (5)

BBB

Outlook (Long-term Issuer Default Rating) Negative

RATINGS ON ISSUES

Senior unsecured debt

BBB+

Lower Tier 2 subordinated

BBB

Preference shares

BB

Euro Commercial Paper Programme

F2

(2) The ability to meet financial commitments in the long-term,

independently of the maturity of individual obligations. This

rating is an indicator of the probability that an issuer will

default.

(AAA: best rating – D: default)

(3) An assessment of a bank’s intrinsic strength in the event that

it cannot rely on forms of external support (a: best rating - d:

default).

(4) A rating of the possibility of concrete and timely external

support (from the state or large institutional investors) if the

bank finds itself in difficulty (1: best rating – 5: worst rating).

(5) This rating gives additional information, closely linked to the

Support Rating, in that for each level of the Support Rating it

identifies the minimum level which the Issuer Default Rating

could reach if negative events were to occur.

Covered Bonds

AA-

15


Notice of call 1

An Ordinary General Meeting of the Shareholders of Unione di Banche Italiane Scpa is convened in first

call on Friday 19 th April 2013 at 5:00, p.m. at the registered address of the bank, at No. 8 Piazza Vittorio

Veneto, Bergamo, and in second call on Saturday 20 th April 2013 at 9:30 a.m. at the New Bergamo

Trade Fair, in Via Lunga, Bergamo to discuss and resolve on the following

agenda

1) Appointment of the members of the Supervisory Board and of the Chairman and Senior Deputy

Chairman for the three-year period 2013-2014-2015 and the determination of the related

remuneration in accordance with the Articles of Association.

2) Proposal for the allocation and distribution of profits, after first presenting the separate and

consolidated financial statements as at and for the year ended 31 st December 2012.

3) Report on remuneration.

4) Proposal for setting remuneration policies for members of the Management Board.

5) 2013 incentive scheme based on financial instruments:

proposal to pay a portion of the variable remuneration of “top management” and the “highest

management level of the control functions” by assigning ordinary shares of the Parent UBI Banca to

them.

***

The subscribed and paid up share capital of UBI Banca Scpa amounts to Euro 2,254,367,552.5 consisting of

901,747,021 shares with a nominal value of Euro 2.50 each. At the date of this notice UBI Banca possesses 1,700,000

treasury shares.

The total number of registered shareholders with the right to vote is 87,150.

Persons wishing to participate in Shareholders Meetings, to exercise voting rights and to be eligible for election to

corporate bodies must have been a registered shareholder for at least 90 (ninety) days from the date of registration in

the shareholders’ register.

Legitimate entitlement to participate in Shareholders’ Meetings and to exercise voting rights is certified by a

communication to the Bank, performed – pursuant to Art. 83-sexies of Legislative Decree No. 58 of 24 th February 1998

– by the relative intermediary, a member of the Monte Titoli Spa centralised management system, on the basis of its

accounting records, in favour of the party holding the right to vote. In this regard, Registered Shareholders for whom

the said communication has been made to the Bank by the end of the third market trading day prior to that set for the

Shareholders’ Meeting in first call may attend the Shareholders’ Meeting, in accordance with the law. The legitimate

right to attend and vote nevertheless remains, should the communications be received by the Bank later than the

aforementioned time limit, provided they are received before the commencement of the proceedings of each single

session of the shareholders’ meetings.

Registered shareholders holding shares that have not yet been dematerialised pursuant to the legislation and

regulations in force must deliver them in good time to an approved intermediary in order to perform the

dematerialisation procedure required and to make the communication mentioned above.

The communication performed by the intermediary shall contain a special section which may be used to authorise a

proxy by signing the said section.

Each registered shareholder has the right to one vote only no matter how many shares are held and it may not be

exercised by correspondence.

Each Registered Shareholder has the right to be represented by written proxy issued to another Registered

Shareholder entitled to attend the Meeting. Proxies may not be granted to any members of the Management Board or

the Supervisory Board, or to employees of the Bank, or to any of its subsidiaries or to any member of the management

or control bodies, or employees of the aforesaid subsidiaries, or to the firm of external statutory auditors appointed or

to the person responsible for the statutory audit of the Bank, or to parties to whom one of the other conditions of

incompatibility apply according to the law.

Each registered shareholder may act as a proxy for not more than 3 (three) other registered shareholders.

***

As concerns item 1) on the agenda, the election of the members of the Supervisory Board shall be performed in

accordance with the law and the Articles of Association by the Shareholders' Meeting on the basis of lists, which may

be submitted by registered shareholders or by the Supervisory Board, according to the following procedures.

The lists of candidates, signed by those submitting them, must be deposited at the registered offices of the Bank

between by the twentyfifth day prior to the Shareholders’ Meeting in first call and they must contain the names of at

1 Published on 14 th March 2013 on the corporate website www.ubibanca.it and also in the principal national newspapers, in local

newspapers in areas where the Group has a longstanding market presence and in the Official Journal No. 32 of 16 th March 2013.

16


least two candidates and also, where they are composed of at least three candidates, comply with the gender

proportions established by Law No. 120 of 12 th July 2011 in order to ensure that a balance is maintained between

them on the Supervisory Board. Submission of the lists may be performed by remote means of communication defined

by the Management Board in a manner, stated in the notice to convene, which allows those depositing the lists to be

identified. The signature of each Registered Shareholder submitting a list must be duly authenticated in accordance

with the law by employees of either the Bank or its subsidiaries specifically authorised by the Management Board.

The lists must also be accompanied by information concerning the identity of the registered shareholders who have

submitted them, with details of the number of shares and therefore the total percentage of the shares held by the

registered shareholders submitting them and, within the time limits set by the legislation and regulations in force, by

a communication which demonstrates ownership of the investment, as well as all other information required by the

regulations in force.

Exhaustive information must be deposited together with each list on the personal and professional characteristics of

the candidates as well as a declaration by the candidates themselves stating that they are in possession of the

requirements specified by the law and by regulatory and Articles of Association provisions and also that they accept

their candidature.

In cases where only one list has been presented within the time limit mentioned above, or in any event in the cases

provided for by the regulations in force, the Bank reports this immediately with a press release sent to at least two

press agencies. In this case lists may be presented up until the third day following the date of the time limit cited.

Again in this case the limits laid down in the subsequent paragraph are reduced by half.

The election of the members of the Supervisory Board shall take place on the basis of lists presented:

a) directly by at least 500 (fivehundred) Registered Shareholders who have the right to participate in and vote in the

Shareholders' Meeting called to elect the Supervisory Board, who provide documentary evidence of the right

according to the legislation in force, and that is by one or more registered shareholders who represent at least

0.50% of the share capital, calculated on the basis of the share capital existing 90 (ninety) days before the date set

for calling the Shareholders' Meeting and to be indicated in the notice given to call the meeting;

b) by the outgoing Supervisory Board on the basis of a proposal made by the Appointments Committee and with the

approval of the Supervisory Board passed with the votes of at least 17 (seventeen) of its members, and in any case

supported as reported in the preceding letter a) by at least 500 (fivehundred) Registered Shareholders who have

the right to participate in and vote in the Shareholders' Meeting called to elect the Supervisory Board, who provide

documentary evidence of the right according to the legislation in force, and that is by one or more registered

shareholders who represent at least 0.50% of the share capital, calculated on the basis of the share capital

existing 90 (ninety) days before the date set for calling the Shareholders' Meeting and to be indicated in the notice

given to call the meeting.

Each Registered Shareholder may participate in the presentation of one list only: if this rule is not observed, the

Registered Shareholder’s signature is not counted as valid for any list.

Each candidate may be included in one list only on pain of ineligibility.

Lists presented that fail to observe the procedures reported above are considered as not presented.

Each Registered Shareholder may vote for one list only.

The election of the Supervisory Board shall be performed as follows:

a) in the case of the presentation of more than one list and without prejudice to the provisions of the following letter

b), 22 (twentytwo) members of the Supervisory Board are taken from the list that obtains a majority of Registered

Shareholders' votes in the order of preference stated on it;

b) 1 (one) member of the Supervisory Board is taken from the list with the second highest number of votes which is

not connected within the meaning of the regulations in force with the list mentioned in letter b), and it is the name

of the first person on that list. If that list has obtained at least 15% of the votes counted in the Shareholders’

Meeting, in addition to the first name indicated on that list, a further 2 (two) members of the Supervisory Board

shall be taken from that list, and they shall be the second and third persons on that list. However, if that list has

obtained at least 30% of the votes counted in the Shareholders’ Meeting, in addition to the first name indicated on

that list a further 4 (four) members shall be taken from that list, and they shall be the second, third, fourth and

fifth persons on that list. Consequently 20 (twenty) or 18 (eighteen) members respectively of the Supervisory Board

shall be taken from the list that obtains a majority of Registered Shareholders’ votes in the order of preference

stated on it.

c) if the minority list mentioned in letter b) should contain the names of only two candidates, the third and if

necessary the fourth and fifth members of the board, where at least 30% of the votes are obtained, shall be taken

from the majority list consisting of the persons not already elected on that list in order of preference stated on it.

If, after identifying the candidates to be taken from the lists which received the majority of the votes on the basis of the

order in which they are indicated on the lists to which they belong, the gender proportions required under Law No.

120 of 12 th July 2011 are not complied with, then those members of the Supervisory Board taken last from the

aforementioned lists whose appointment would violate the said law are considered not elected. In this event the

number of those board members indicated on the same list to which they belong shall be appointed which allows

compliance with the composition requirements for the Supervisory Board in accordance with Law No. 120 of 12 th July

2011 and with the Articles of Association, again proceeding in the order in which those persons are indicated on the

list to which they belong. In particular, in this circumstance, the candidates to be appointed belonging to the gender

that is less represented on the basis of the results of the vote will be taken from each list in proportion to the total

number of candidates elected on each list according to the results of the voting. In this event, if the minority list

pursuant to letter c) has not complied with the gender proportions established by Law No. 120 of 12 th July 2011, the

candidates to be appointed belonging to the less represented gender will be taken from the list that obtained the

greatest number of votes only.

If only one list is validly proposed and this obtained the majority required for an ordinary Shareholders' Meeting, then

all 23 members of the Supervisory Board shall be taken from that list.

The Shareholders’ Meeting shall proceed by a relative majority vote to appoint those members of the Supervisory

Board, who for any reason whatsoever could not be elected by means of the procedures mentioned in the preceding

paragraphs or if no list at all is presented, again in compliance with the requirements for the composition of the

17


Supervisory Board pursuant to Law No. 120 of 12 th July 2011 and to the Articles of Association; in the event of a tied

vote the candidate more senior by age is elected.

If two or more lists obtain an equal number of votes, those lists must be voted on again until they no longer receive an

equal number of votes.

The positions of Chairman and Senior Deputy Chairman of the Board are reserved to the first and second members

respectively on the list that obtains a majority of votes, or on the only list presented or to the members appointed as

such by the Shareholders’ Meeting if no list is presented at all.

Furthermore, in accordance with article 44 of the Articles of Association, “the Members of the Supervisory Board must

be in possession of the requirements of integrity, professionalism and independence prescribed by regulations

currently in force. At least 15 (fifteen) of the members of the Supervisory Board must be in possession of the

requirements of professionalism required by the legislation currently in force for persons who perform functions as

directors of banks.

In particular, at least 3 (three) members of the Supervisory Board must be chosen from amongst persons enrolled in

the register of external statutory auditors who have exercised statutory auditing activities for a period of not less than

three years.

Furthermore, the composition of the Supervisory Board must ensure, in compliance with the provisions of Law No.

120 of 12 th July 2011, that a balance is maintained between genders for the period provided for by that law.

While mandatory regulations of the law, the Supervisory Authority or other regulations must be complied with,

persons already holding the office of full statutory auditor, or who are members of other supervisory bodies in more

than five listed companies and/or their parent companies or subsidiaries, cannot hold office as a member of the

Supervisory Board.

***

The lists of candidates, together with the related documentation required by the legislation in force and by the Articles

of Association, signed by those presenting them, must be deposited, in accordance with the provisions mentioned

above, by following one of the following procedures:

- at the “Management Board and Registered Shareholders Support Area” of the Banca at 8 Piazza Vittorio Veneto

Bergamo by 5:00 p.m. on 25 th March 2013;

- by sending them by certified electronic mail to the following address “soci.comunicazioni@pecgruppoubi.it”, by the

absolute deadline of 25 th March 2013 and by attaching the documents in pdf format with a digital signature.

In relation to the provisions of paragraph six of article 45 of the Articles of Association, the share capital outstanding

as at 19 th January 2013 amounted to €2,254,367,512.5 divided into 901,747,005 shares of €2.50 each.

The lists received by the ”Management Board and Registered Shareholders Support Area” will be progressively

registered and numbered on the basis of the day and time of receipt.

When lists are deposited, a record of receipt of the documentation shall be prepared, signed by at least one of the

presenters of the list and by a member of General Management or by senior managers or management staff of the

“Management Board and Registered Shareholders Support Area” of UBI Banca.

In compliance with the regulations in force, the lists submitted shall be made available to the public at least twenty

one days before the Shareholders' Meeting at the registered address of the Bank and also published on the website of

UBI Banca (www.ubibanca.it – registered shareholders section).

Those who intend to present a list of candidates for the Supervisory Board may contact the “Management Board and

Registered Shareholders Support Area” of the Bank.

In compliance with Bank of Italy recommendations concerning regulations governing the organisation and corporate

governance of banks, the ideal profiles of candidates for membership of the Supervisory Board are made available at

the Bank and on the corporate website at www.ubibanca.it in the corporate governance section.

In order to facilitate procedures for the presentation of candidates to the Supervisory Board, the following may be

downloaded from the UBI Banca website (www.ubibanca.it – registered shareholders section) as examples to follow:

- form for the presentation of lists

- form for candidates declarations that they accept their candidature and certifying that they possess the

requirements to take up office.

***

The documentation relating to the items on the agenda will be deposited and made available to the public at the

registered address of the Bank and on the website (www.ubibanca.it – registered shareholders section) and it will be

filed with Borsa Italiana Spa within the time limits and according to the procedures of the Law and regulations.

Registered Shareholders may view and obtain copies of the aforementioned documentation in accordance with the law

by applying in advance to the “Management Board and Registered Shareholders Support Area”.

Bergamo, 12 th March 2013

The Chairman of the Management Board

Emilio Zanetti

18


The macroeconomic scenario

In 2012 the decisions of the European Central Bank (ECB), domestic reforms and European

economic governance reform to a large extent dispelled the pessimism about the single

currency that had worsened the sovereign debt crisis and pushed risk premiums on

government securities to exceptionally high levels in some EU member states.

Specifically, in the second quarter the emergence of fresh tensions had fed a growing

contagion effect, further sustained by the perception of a lack of cohesion by governments in

orienting the reform of governance in Europe and in improving the crisis management

mechanisms within the euro area.

Alongside the persistence of Greece's financial woes there have been growing difficulties for

the Spanish banking industry, which required a substantial government bail-out, leading its

government to make a formal request to the EU for funds to recapitalise its banks. In the last

week of June Cyprus also made a formal request to the European authorities for aid for its

financial sector, which is burdened by the amount of Greek debt in its portfolio.

The first step towards preventing the risk of a break-up of the euro area, breaking the vicious

circle between sovereign debt and banks, came with the summit in Brussels on 28 th -29 th June

and the announcement of a joint, independent banking supervision system. This, along with

an anti-spread shield, strongly pushed for by Italy, joined the European Stability Mechanism

(ESM) which is purely for the rescue of member states in difficulty.

The official decision by the ECB to introduce the plan for outright transactions in the

secondary sovereign bond markets for bonds issued by member states experiencing difficulties

(outright monetary transactions, or OMT) played a major part in easing tensions, and dispelled

any doubts about the concrete introduction of an ‘anti-spread shield’.

In the last quarter further events took place that will restore confidence in the market:

• the ratification in October of the treaty establishing the European Stability Mechanism

(ESM) which became effective alongside the temporary European Financial Stability Facility

(EFDF);

• the concession to Greece of an additional two years (to 2016) to reduce its deficit to GDP

ratio to less than 3% 1 ;

• the positive outcome of the Greek government’s 2 operation to repurchase its debt in issue

(buy-back), which was accomplished in December and allowed approval of the second

payment of €49.1 billion by the EFSF 3 ;

• the payment of €37 billion in aid to Spain, to be used to recapitalise the four struggling

nationalised banks;

• the reaching of an agreement between the 27 EU member states on 12 th December in which

a single Europe-wide supervisory mechanism (SSM) was set up. This comprises the ECB

and national supervisory authorities of the member states (in the euro area and other EU

member states).

The agreement should be fully operational from 1 st March 2014. It divides tasks between the ECB,

which will directly supervise major banks (with assets in excess of €30 billion or 20% of GDP), and the

national central banks, which will monitor the other institutions, under the supervision of the ECB 4 . The

introduction of a single supervisory mechanism will allow direct recapitalisation of struggling banks by

the ESM, instead of bailing out member states with loans that have the effect of worsening their debt

position.

1 At the same time the target for public debt to GDP ratio for 2020 has been raised from 120% to 124%.

2 The operation involved securities with a nominal value of €31.9 billion, allowing the debt to be reduced by about ten percentage

points of GDP.

3 €34.3 billion was paid in December, €16 billion of which for the recapitalisation of the banking sector and €11.3 billion for the

buyback, while the remaining €14.8 billion will be paid during the first quarter of 2013.

4 It is estimated that under the planned division of tasks around 200 banks should be under the direct supervision of the European

Central Bank, while 5,800 banks will be supervised by the national regulatory bodies. The ECB will also have the power to intervene,

where necessary, even in the case of banks not falling within its remit of direct supervision, while the central banks, according to

their respective domestic legislation, will in any case retain their powers to obtain information and to carry out inspections of banks.

20


It was also decided at the summit that the ECB will retain its EU-level supervisory powers and the

voting mechanism was reformed with a dual-majority system designed to protect EU countries not part

of the euro area which will therefore not be part of the single supervisory mechanism.

Completion of the banking union should therefore continue, before the end of June 2013,

with the reaching of an agreement on the creation of a European bank deposit guarantee

fund and an agency for managing the liquidation of insolvent banks.

Again with reference to European banking regulation, at the beginning of 2013 the Basel Committee

reviewed bank liquidity standards, with specific reference to the definition of liquidity capital ratio (LCR),

with a more gradual introduction of the 100% standard measure and a widening of the assets that can be

used in calculating the ratio.

In line with what has already happened in the United States, on 28 th February 2013 the European

Parliament and Council reached a preliminary agreement, which will need to be approved by a majority of

the 27 EU member-states, postponing the gradual introduction of the new rules on capital introduced by

Basel III.

The interventions reported above have played a part in reducing government bond spreads in

countries at risk 5 . As the graph shows, after peaking at over 500 basis point in July, the BTP-

Bund spread has progressively fallen, ending the year at 322 6 . This improvement has

continued into the first few weeks of the new year, also as a result of a slowdown in the flight

to quality that has

benefited public debt

Ten-year BTP-Bund spread (2010-2012)

Graph No. 1

in the core countries

600

beginning in early

550

2011. There has been

a sharp reversal in

500

the trend after the

elections of 24 th -25 th

450

February.

400

Finally, the new

Fiscal Compact came

into force on 1 st

January 2013. This

requires member

states to:

- introduce a rule

requiring their

structural budgets

to be balanced and

not to deviate

Basis

points

significantly from

this, which is

Source: Thomson Financial Reuters

defined as a medium-term objective;

- gradually reduce the debt in excess of 60% of GDP 7 .

350

300

250

200

150

100

50

0

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M

2010 2011

Given the increasingly difficult economic climate and the fact that inflation forecasts are in

any case low, the monetary policies adopted in 2012 by the central banks of developed and

emerging countries continued to be oriented towards support for growth, both by intensifying

the use of non-conventional operations, and by further loosening monetary conditions where

possible 8 .

2012

2013

5 Reducing the cost of Spain's debt has meant that for the moment it is not strictly necessary for the Spanish government to request

aid from the ESM.

6 According to a study carried out by Consob in 2012 the contagion effect for Italy is estimated to be around 200 basis points.

7 Specifically, after ending of the procedures for excessive deficits the pact requires deficits to converge towards the “medium-term

objective” at a certain pace, and with reference to debt, requires the debt in excess of 60% of GDP to be reduced at an average rate of

one twentieth per year.

8 In July the ECB reduced the main refinancing rate by 25 basis points to 0.75%, while for non-conventional operations, it introduced

the aforementioned OMT, a programme to buy government bonds on secondary markets which will affect government bonds with a

residual life of between one and three years without restrictions on volume or duration. At the meeting in early December it was then

decided to extend all the refinancing operations by means of fixed-rate tender procedures with full allotment of all bids for as long as

deemed necessary, and in any case at least until early July 2013.

21


The volatility on the 1.62

financial markets 1.58

also affected the 1.54

foreign exchange

1.50

markets, especially

the euro, which,

1.46

1.42

compared with the

1.38

other leading

1.34

international

currencies,

weakened between

1.30

1.26

March and August

as the sovereign debt

1.22

1.18

crisis worsened, 1.14

picking up gradually 1.10

since then.

1.06

Graph 2 and the

table also show the

substantial

devaluation of the yen against

both the euro and the dollar

that took place during the last

quarter of the year, which was

identified by the Japanese

government as a possible

means of relaunching the

Japanese economy.

Euro-dollaro and dollaro-yen exchange rates (2009-2012)

The main exchange rates and oil (Brent) and commodities prices

Dec-12

A

Sep-12

B

€/$ $/Yen (right axis)

G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D

2009 2010 2011

2012

Jun-12

C

Mar-12

D

Dec-11

E

Graph No.2

% change

A/E

Euro/Dollar 1.3194 1.2858 1.2658 1.3343 1.2945 1.9%

Euro/Yen 114.46 100.13 100.97 110.47 99.57 15.0%

Euro/Yuan 8.2200 8.0776 8.0416 8.4028 8.1449 0.9%

Euro/Franc CH 1.2074 1.2078 1.2004 1.2035 1.2133 -0.5%

Euro/Sterling 0.8127 0.7950 0.8056 0.8331 0.8328 -2.4%

Dollar/Yen 86.74 77.90 79.77 82.79 76.94 12.7%

Dollar/Yuan 6.2301 6.2841 6.3530 6.2975 6.2939 -1.0%

Futures - Brent (in $) 111.11 112.39 97.80 122.88 107.38 3.5%

CRB Index (commodities) 295.01 309.30 284.19 308.46 305.30 -3.4%

103

101

99

97

95

93

91

89

87

85

83

81

79

77

75

Source: Thomson Financial Reuters

The macroeconomic background

In the course of 2012 the world economy weakened due to slower growth in the United States

and emerging countries and to Japan and the euro area entering into recession. Within the

euro area the contrast grew between Germany and France, which saw modest growth, and

peripheral countries such as Spain and Italy, which are in deep recession.

The major imbalances in the leading industrialised economies and continuing geopolitical

tensions in the Middle East means that the pace of growth will remain slow in the coming

months, especially in advanced countries, while it should be more dynamic in the emerging

markets 9 .

The Federal Reserve has been very active in carrying out non-conventional operations, with a view to making financial conditions

more accommodating, in order to deliver substantial improvements to the labour market: In June it decided to extend Operation

Twist until the end of the year, which involves purchasing government bonds with maturities of between six and thirty years, to be

financed through the sale of securities with maturities of less than three years. With the end of the previous programme it

announced the launch of outright buybacks of long-term treasury bonds at a rate of $45 billon a month. Furthermore, in September

it also launched a new programme for the purchase of mortgage-backed securities for $40 billion a month with no time limits. With

regard to interest rates the Fed linked the changes in official rates to set inflation and unemployment levels: reference rates will

remain between 0%-0.25% while unemployment remains higher than 6.5%. The inflation forecast for one-two years will not be more

than half a percentage point higher than the 2% target and long-term inflation forecasts will remain closely linked.

Also in Japan the central bank has progressively increased the purchase of government bonds from 70 billion yen to 101 billion yen,

extending it for the whole of 2013. It has also set a specific inflation target of 2%. For the time being the reference interest rate has

been confirmed at between 0% and 0.1%.

As far as the main emerging economies are concerned, China reduced compulsory reserves by 0.5 percentage points both in

February and May 2012, which now stands at 20%, while the bank lending rate underwent two reductions for a total of 56 basis

points to 6%. The Central Bank of Brazil was especially active, reducing the reference rate seven times between January and

October 2012 from 11% to the record low of 7,25%. The Reserve Bank of India cut its repo rate by 50 basis points and then made a

further cut of 25 basis points bringing it to 7.75% in January 2013. In contrast, the Central Bank of Russia implemented a 25 basis

point rise in September to 8.25%.

9 According to the January 2013 update to the International Monetary Fund estimates, this year the global economy is expected to

grow by 3.5% (3.2% in 2012), which is the combination of 1.4% growth for advanced countries and 5.5% growth for emerging

nations.

22


The economic situation was one of high unemployment levels, which rose further in Europe,

and moderate inflation during the summer months following the rise in commodities prices,

which then fell back as a result of reduced growth forecasts.

The price of Brent oil was especially volatile, under the influence of tensions in the oilproducing

countries and the embargo against Iran. After rising to over $125 a barrel in March,

prices fell sharply to

bellow $90 in June,

Brent oil prices (2009-2012) Graph No. 3

130

partly as a result of

125

increased crude oil 120

115

supplies, before picking

110

up again in July and 105

August and stabilising at

around $110 in the last

quarter.

100

95

90

85

80

75

70

According to initial

65

estimates, the US

60

economy seems to have

55

50

come to a standstill in

45

the fourth quarter. GDP

40

35

fell 0.1% year-on-year,

G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D

2009 2010 2011 2012

after rising 3.1% in the

previous quarter and

1.3% and 2% in the second and first quarters respectively.

On average US GDP rose 2.2% overall during the year compared with 1.8% in 2011, sustained

by domestic consumer and investment demand in which the property sector once more played

a positive part. In contrast the contribution from balance of trade was zero.

The situation on the jobs market appears to be slowly and gradually improving, with the

unemployment rate at 7.8% in December, the lowest level in the last four years. It has

remained more or less stable since August after falling continuously since the second half of

2011 (at the end of 2011 it was 8.5%). The 2012 average of 8.1% is lower than the previous

year’s average of 8.9%.

Inflation, which fell from 3% in December 2011 to 1.4% in July 2012, climbed rapidly back up

to 2.2% in October to then fall back again to 1.7% in December. Core inflation (net of food and

energy products) was slightly down from June and ended the year at 1.9% (compared with

2.2% at the end of 2011). The average figure for 2012 was 2.1% (compared with 3.2% in 2011).

During the year the negative balance of trade fell slightly to $540.4 billion (down 3.5%), mainly

benefiting from a smaller deficit with Opec countries and Africa. On the other hand the deficit

with China increased further.

The US growth prospects remain strongly conditioned by the need to balance the public

accounts. On 2 nd January a last-minute temporary measure was passed which avoided the

‘fiscal cliff’, the package of automatic increases in all the personal and corporate income tax

rates and cuts in public spending that would probably have pushed the US economy into

recession 10 . The failure to reach a parliamentary agreement at the end of February 2013 in

any case determined the automatic implementation of gradual spending cuts worth $85

billion, which according to estimates could lead to a potential loss of 750 thousand jobs during

the year, bringing about a 0.6% fall in GDP.

10 This agreement extends the tax relief introduced in 2001 and 2003 with the exception of relief for individuals with incomes in

excess of $400 thousand a year; the rate for the latter group has been increased from 35% to 39.6% and capital gains tax has been

increased from 15% to 20%. It was confirmed that the relief on social security contributions for workers would be abolished.

23


Actual and forecast data: industrialised countries

Percentages

Gross domestic product

Consumer prices

(average annual rate)

Unemployment

(average annual rate)

Deficit (+) Surplus (-) Public

sector (% of GDP)

Reference interest

rates

2011 2012 2013 (1) 2011 2012 2013 (1) 2011 2012 2013 (1) 2011 2012 2013 (1) Dec-11 12-dic-13

United States 1.8 2.2 1.9 3.2 2.1 1.8 8.9 8.1 7.6 10.1 8.5 6.6 0-0,25 0-0,25

Japan -0.6 1.9 1.0 -0.3 -0.1 0.2 4.5 4.3 4.3 8.9 9.1 9.1 0-0,10 0-0,10

Euro Area 1.4 -0.6 -0.3 2.7 2.5 1.8 10.2 11.4 12.2 4.2 3.5 2.8 1.00 0.75

Italy 0.4 -2.4 -1.0 2.9 3.3 2.0 8.4 10.6 11.6 3.8 3.0 2.1 - -

Germany 3.0 0.7 0.5 2.5 2.1 1.8 5.9 5.5 5.7 0.8 -0.1 0.2 - -

France 1.7 0.0 0.1 2.3 2.2 1.6 9.6 10.3 10.7 5.2 4.6 3.7 - -

Portugal -1.6 -3.2 -1.9 3.6 2.8 0.6 12.9 15.7 17.3 4.4 5.0 4.9 - -

Ireland 1.4 0.7 1.1 1.2 1.9 1.3 14.7 14.8 14.6 13.4 7.7 7.3 - -

Greece -7.1 -6.4 -4.4 3.1 1.0 -0.8 17.7 24.7 27.0 9.4 6.6 4.6 - -

Spain 0.4 -1.4 -1.4 3.1 2.4 1.5 21.7 25.0 26.9 9.4 10.2 6.7 - -

United Kingdom 0.9 0.2 0.9 4.5 2.8 2.6 8.0 7.9 8.0 7.8 6.3 7.4 0.50 0.50

, ,

(1) Forecasts Source: European Economic Forecast and Official Statistics

Strong growth in China, the world’s second largest economy, continued during 2012, although

at a slower pace than in previous years. GDP rose 7.8% year-on-year (+9.3% in 2011), after a

gradual slowdown in the first three quarters (8.1%, 7.6% and 7.4%) and an improvement in

the last quarter (7.9%).

All the key indicators of domestic demand made important contributions during the year.

Fixed investments rose 20.6%, driven by manufacturing (up 22%). Retail sales of consumer

goods were up 14.3%. Industrial production rose 10% with peaks of 12% for the chemicals

and computer components industries.

As regards trade, exports increased more than imports (7.9% and 4.3% respectively), creating

a surplus of $231 billion which further strengthened the currency reserves, which rose to

$3,310 billion at the end of 2012, over a third of which is invested in US government

securities.

Inflation slowed from 4.5% in December 2011 to 1.7% in October, regaining momentum at the

end of the year at 2.5% (the 2012 average was 2.6%) driven by foodstuffs (up 4.2%).

Actual and forecast data: the principal emerging countries

Gross domestic product

Consumer prices (average

annual rate)

Unemployment (average

annual rate)

Reference interest

rates

Percentages 2011 2012 2013 (1) 2011 2012 2013 (1) 2011 2012 2013 (1) Dec-11 Dec-12

China 9.3 7.8 8.1 5.4 2.6 3.0 4.1 4.1 4.1 6.56 6.00

India 8.0 4.7 6.0 8.9 9.3 9.6 n.a. n.a. n.a. 8.50 8.00

Brazil 2.7 0.9 3.5 6.6 5.4 4.9 6.0 5.5 6.5 11.00 7.25

Russia 4.4 3.6 4.1 8.4 5.1 6.6 6.6 5.7 6.0 8.00 8.25

, , , , , ,

(1) Forecasts Source: Prometeia, IMF and official statistics

Economic performance in the other emerging nations continued to slow. Growth rates are expected to

increase in the immediate future, albeit remaining below pre-crisis levels.

In the third quarter India’s GDP rose 2.9% year-on-year (compared with 3.8% and 5.6% in the first and

second quarters respectively), affected by domestic consumer and investment demand and by the negative

balance of trade resulting from stronger imports over exports. In November industrial production fell,

confirming the mainly negative trend of recent months. Inflation went back up to 10.6% in December due to

increased food prices, but is expected to fall in 2013.

Brazil reacted to the slowdown in the global economy by introducing barriers to the movement of capital in

order to curb currency appreciation, while some domestic prices were regulated in order to keep inflation

under control (it stood at 5.8% in December) and incentives for the industrial sector were tied to

interventions in the labour market. At the end of 2012 GDP had risen 0.9% year-on-year.

In the third quarter Russian GDP had risen 0.8% compared with the previous quarter (0.4%), thanks to the

rise in investments and stable consumption, which supported import growth (up 6.3% compared to the

second quarter). Exports also rose again slightly after falling in the first two quarters. High oil prices meant

the trade surplus remained substantial, while inflation has remained relatively stable since September

(6.6% in December). In December the unemployment rate was 5.3% (6.1% at the end of 2011).

24


Japan is experiencing another recession. In the fourth quarter GDP fell by 0.1%, for the third

consecutive quarter (down 1% and 0.2% in the two previous quarters and up 1.5% in the first

quarter), although it did show some signs of recovery in consumption. However, this was more

than offset by the fall in investments (except for the residential sector) and inventories, as well

as by the still negative contribution from foreign demand, even if this was improving.

In December industrial production rose 2.4% compared to the previous month, but the yearon-year

change worsened, falling for the seventh consecutive month (down 7.9%). December’s

Tankan report showed that the forecast for the entire industrial sector, especially

manufacturing, is still negative, with a small improvement for SMEs only.

Unemployment remained stable until April, and fell in the following months to 4.2% in

December (4.5% at the end of 2011), while price deflation continued (down 0.1% in December).

Despite a high level of public debt (estimated at 221.2% of GDP in 2012), the new government

that came into power in the autumn introduced an impressive programme of public works

worth a total of 20 thousand billion yen focusing on seismic prevention and reconstruction,

measures designed to boost competitiveness and welfare.

The euro area also remained in recession, with GDP falling 0.6% in the fourth quarter

compared with the previous quarter (down 0.1% and 0.2% in the two previous quarters and

unchanged prior to that). All the major economies in the euro area saw a slowdown between

October and December, including Germany (down 0.6%).

Overall GDP fell by an average of 0.6% during the year (compared with a rise of 1.4% in 2011).

This was due to a fall in fixed investments and consumption, which contrasted with an

increase in the trade surplus brought about by a significant fall in imports.

In December the monthly trend for industrial production went back into positive figures (up

0.7%), thanks to recovery in Germany and Italy. However, the year-on-year trend remains

negative, but improving (down 2.4%).

The unemployment rate rose steadily to reach 11.7% (10.7% at the end of 2011), with the

situation critical in some of the countries worst hit by the debt crisis: Greece (26.8% in

October), Spain (26.1%), Portugal (16.5%) and Ireland (14.7%).

As far as prices are concerned, in the last few months of 2012 the inflation rate measured by

the “Harmonised Index of Consumer Prices” stood at 2.2%, the lowest point of the year, after

the temporary rise during the summer months (2.6% in August and September and 2.7% at

the end of 2011). Net of foodstuffs and energy products it has been stable at 1.6% since

September, after slowly falling from 2% at the end of 2011. The average inflation for the year

was 2.5% (compared with 2.7% in 2011).

The economic prospects for the euro area are still conditioned by the risks involved in the slow

rate of implementation of structural reforms, potential impact of tensions in countries that

produce raw materials and imbalances existing in the leading industrialised nations. These

factors could delay the recovery of private investment, employment and consumption.

Of the leading euro area economies, Italy is one of the least dynamic. In the last quarter GDP

fell for the sixth consecutive quarter by 0.9% (after falls of 0.2%, 0.7% and 0.8% in the

previous quarters).

Overall GDP fell by an average of 2.4% in 2012 (compared with a rise of 0.4% in 2011),

reflecting particularly poor consumption figures and a persisting weakness in fixed

investments, despite a good performance by net foreign demand.

The poorer macroeconomic background in 2012 was mainly due to the increased cost of

borrowing and reduced credit facilities, brought about by the worsening sovereign debt crisis

and higher spreads. The measures taken to correct public finances in the second half of 2011

in order to avoid conditions on the financial markets spiralling out of control had a negative

effect on demand, which can be estimated as more than one percentage point of annual

growth. The slowdown in the international economy and global trade were responsible for

subtracting a further 0.6 of a percentage point from the annual growth figure, while

approximately another half a percentage point was lost due to the increase in uncertainty and

loss of confidence among households and businesses, which impacted on consumption and

investments.

GDP is expected to contract further in 2013 as a result of the slowdown in the global economy

and foreign demand as well as the impact of budget measures.

25


Production continued to fall as the (seasonally adjusted) industrial production index shows,

which was down 6.6% year-on-year in December (for the sixteenth consecutive time). On

average industrial production fell 6.7% in 2012 compared with 2011, with contractions in all

sectors, particularly the ‘manufacture of rubber and plastic products’ (down 10.4%), 'electrical

equipment manufacturing' (down 10%), the 'wood, paper and printing industry' (down 9.9%)

and 'textiles' (down 9.4%).

The situation on the labour market also appears to be continuing to worsen, the

unemployment rate having risen to 11.2% from 9.5% a year earlier. The 15-24 age range has

been the most seriously affected age range (36.6% 11 ). The general figure has also benefited

from the input of state unemployment schemes, with a 12.1% increase in the use of the

government’s temporary lay-off benefits scheme (CIG). The total number of hours authorised

in 2012 was 1,090.6 million, compared with 973.2 million in 2011, close to the peak of

1,197.8 million reached in 2010 12 .

As far as prices are concerned, the inflation rate measured by the Harmonised Index of

Consumer Prices remained at over 3% until September, peaking at 3.8% in April, and then fell

to 2.6% in November and December (compared with 3.7% at the end of 2011), partly because

the statistical effects relating to the increase in VAT in autumn 2011 were no longer making

themselves felt. Average inflation for the year was 3.3% (2.9% in 2011), with significant

increases in ‘housing, water, electricity and fuel’ (up 7.1%) and ‘transport’ (up 6.5%).

The balance of trade accumulated a surplus of €11 billion, the biggest since 1999 (in 2011

there was a deficit of €25.5 billion), benefiting from the significant surplus generated by nonenergy

products (+€74 billion), two thirds of which are classified as plant and equipment.

Exports were driven by trade with non-EU countries, and rose by 3.7% (compared with a rise

of 11.7% in 2011), while imports fell overall by 5.7% (up 9.3% in 2011), especially from EU

countries.

Based on initial estimates from ISTAT, the benefits from higher tax revenues reduced the

deficit to GDP ratio (net of property sales and EFSF loans) to 3% (compared with a revised

figure of 3.8% in 2011). This was in line with the commitment made to Europe to balance the

structural budget in 2013. However the debt-to-GDP ratio rose by more than six percentage

points to 127% (compared with a revised figure of 120.8% in 2011), also as a result of the

sharp fall in production.

Financial markets

The trend for Italian yield curves reflects the

gradual reduction in the perceived risk of

Italian government securities during 2012. In

the first half of the year the downward slope in

the curve benefited from the liquidity

generated by LTROs carried out by the ECB –

mainly used by intermediaries to buy

government securities – and from corrective

measures taken by the government in the

expectation that the European reference rate

would be reduced, as was the case in early

July. The further reduction in the second half

of 2012 reflects the markets' renewed

confidence after the ECB governor's

announcement that there was no going back

11 The figure shows the percentage of unemployed young people out of the total of young people in work or seeking work.

12 Between January and November 2012 1,285,299 unemployment applications (up 14.5% compared with the same period in 2011),

and 133,052 redundancy applications were made (up 17.8%).

26


on the euro last July, and the announcement in September of a new programme of

government security purchases on the secondary market.

As the table shows, the performance of equity markets varied considerably during the year,

despite a positive overall trend. The positive first quarter was followed by heavy losses in the

second. A slow recovery began from July, which became stronger in the latter months of the

year and the first few weeks of 2013. In the US the agreement reached to avoid the fiscal cliff

actually allowed the indices to return to pre-crisis levels. In the euro area banking shares in

particular benefited from the looser and postponed tigher liquidity requirements of Basel III,

and for banks in peripheral countries in particular, from the downward pressure on

government bond yields. The outcome of the Italian government elections at the end of

February brought fears of a fresh ‘contagion effect’ to the markets, leading Fitch to downgrade

Italy’s sovereign rating.

After the heavy falls suffered in 2010 and 2011, the Italian markets managed by Borsa

Italiana ended the year with an annual gain of around 8%, despite taking a battering in the

second half of the year.

Despite this positive performance, trading was down both in terms of volumes (57.6 million,

down 15.9%) and value (€506.1 billion, down 28.7%) compared with the previous year.

However, the fixed income market (MOT and ExtraMOT) achieved its best ever trading

volumes, with approximately 6.5 million contracts (up 37.4%) worth €326.1 billion (up 57.7%).

This was partly due to three issues of the BTP Italia, the first inflation-linked Italian bond,

which brought in a total of more than €27 billion 13 .

The principal share indices in local currency

Borsa Italiana also confirmed its

Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 % change

leading position in Europe for

A B

C D

E A/E contracts traded electronically

Ftse Mib (Milan) 16,273 15,096 14,274 15,980 15,090 7.8% on both the ETF Plus and MOT

Ftse Italia All Share (Milan) 17,175 15,999 15,185 16,999 15,850 8.4%

markets.

Xetra Dax (Frankfurt) 7,612 7,216 6,416 6,947 5,898 29.1%

Cac 40 (Paris) 3,641 3,355 3,197 3,424 3,160 15.2% At the end of the year listed

Ftse 100 (London) 5,898 5,742 5,571 5,768 5,572 5.9%

companies on the Italian Stock

S&P 500 (New York) 1,426 1,441 1,362 1,408 1,258 13.4%

DJ Industrial

Exchange numbered 323, down

(New York) 13,104 13,437 12,880 13,212 12,218 7.3%

Nasdaq Composite (New York) 3,020 3,116 2,935 3,092 2,605 15.9% from 328 twelve months before

Nikkei 225 (Tokyo) 10,395 8,870 9,007 10,084 8,455 22.9%

as a result of eight new

Topix (Tokyo) 860 737 770 854 729 18.0%

MSCI emerging markets 1,055 1,003 937 1,041 916 15.2% admissions and thirteen

withdrawals. Total market

Source: Thomson Financial Reuters

capitalisation however was up at

€365.5 billion, from €332.4 billion at the end of 2011, equivalent to 22.5% of Italian GDP.

As a result of the lower value of the shares traded while capitalisation was higher, turnover

velocity 14 fell during the year to 138% from 214% at the end of 2011.

Despite a generally unfavourable context for assets under management, mutual funds ended

the year with positive net inflows of €1.2 billion 15 , showing an increasingly clear distinction

between foreign-registered funds (up €15 billion), which now represent 69% of managed

assets, and Italian-registered funds (down €13.8 billion).

Looking at net inflows by type, bond funds recovered strongly (up €23 billion) while flexible

funds remained essentially stable (up €0.4 billion) and other categories of funds fell, albeit at

different rates: monetary funds down €12.6 billion, equity funds down €7.1 billion, hedge

funds down €2.5 billion and balanced funds down 1.3 billion 16 .

Thanks to the recovery in prices, in December assets under management reached €482.2

billion, up from €421.7 billion at the end of 2011 (a 14.4% rise). In terms of the product mix

bonds did well, rising from 43.4% to 51.6%, while monetary funds fell from 11.6% to 6.7% and

equity funds also fell, from 22.3% to 20.6%.

13 The third issue, in October 2012, was Europe’s biggest ever bond placement, with over €18 billion paid in the first four days of

subscription on the MOT.

14 An indicator which, as the ratio of the value of the shares traded to the stock market capitalisation, gives a measure of the

turnover of the shares traded.

15 Assogestioni, “quarterly map of assets under management”, fourth quarter 2012.

16 Net inflows over the year also included an additional €1.3 billion into ‘non classified funds’.

27


Principal long-term interest rates (2010-2012)

Graph No. 5

7.50

7.00

6.50

US Treasury 10 anni BTP 10 anni Bund 10 anni

6.00

5.50

5.00

4.50

4.00

3.50

3.00

2.50

2.00

1.50

1.00

0.50

G F M A M G L A S O N D G F M A M G L A S O N D G F M A M G L A S O N D

2010 2011 2012

The banking system

The easing of tensions on the sovereign debt markets helped to improve funding conditions for

Italian intermediaries, although these have not yet normalised. However, the unfavourable

economic conditions continued to manifest in terms of weak demand for credit from

households and businesses, and poorer credit quality.

Based on figures provided by the Bank of Italy 17 , at the end of December the year-on-year

change in direct funding (deposits of residents and bonds) continued to rise from the lowest

levels of the year (down 0.8% in May and July), despite remaining moderate (rising 1.6%

compared with 1% at the end of 2011). Within the mix the contrast between funding from

bonds (down 6.8%; up 3.2% 18 ) and other forms gradually increased (up 6.2%; down 0.2% 19 ).

The latter include deposits with a fixed term of up to two years, which grew considerably (up

87%), and repurchase agreements (up 34.1%).

Bank of Italy figures show that loans to residents in the private sector fell 1.8% in over the

year (whereas they had risen 2.9% at the end of 2011), after the lowest point in November,

when they were down 2.4%. In terms of recipients overall loans to households weakened (down

1.4% compared with a rise of 4.4% in December 2011), as did the various types of lending:

consumer credit (down 6.9% compared with an increase of 2.7%), mortgages (down 0.6%

compared with an increase of 4.4%) and other loans (down 1% compared with an increase of

4.9%).

The year-on-year trend for loans to businesses appears to be even worse (down 3.3%

compared with a rise of 3.1%), as the result of an across-the-board fall that has affected both

17 Bank of Italy, supplement to the statistics bulletin Moneta e Banche, March 2013.

18 The changes were calculated excluding the investments included in the securities portfolio (item “Other securities”) from the

funding from bonds. Including this component, at the end of December the funding for Italian banks from bonds had grown by an

annual rate of 5% (compared with a rise of 13.4% in December 2011).

19 The changes were calculated excluding sums related to disposals of loans and transactions with central counterparties from the

deposits. Including these components, at the end of December the funding consisting of the different types of deposit had grown by

an annual rate of 8.3% (compared to a fall of 3.8% in December 2011)

28


short-term loans (down 1.9% compared with a rise of 5.2%) – especially in the first half of the

year – and medium to long-term loans (down 4.1% compared to a rise of 1.9%), especially in

the second half of the year.

From the point of view of risk, after a stable first quarter, non-performing loans in the private

sector gross of write-downs rose sharply – especially those with non-financial companies,

reaching €124.7 billion in December (up 16.6% for the year and up 10.5% from June), €40.4

billion of which were to households and €83.5 billion to businesses. The ratio of gross nonperforming

loans in the private sector to loans to the private sector rose by one percentage

point during the year, ending at 7.24% (6.24% at the end of 2011), while the ratio of gross

non-performing loans in the private sector to share capital and reserves rose to 33.45% (from

28.15%).

Net non-performing loans, at €64.6 billion rose (by 25.6% year-on-year; up 19.5% from June),

after reaching their lowest level of the year in March (48.3 billion). Consequently the ratio of

net non-performing loans to total loans rose to 3.35% from 2.69% at the end of 2011, while

the ratio of net non-performing loans to capital and reserves rose to 17.34% (from13.55%).

Securities issued by residents in Italy in the portfolios of Italian banks reached €873.9 billion

in December, an increase of €203.3 billion over the year (up 30.3%), 60% of which consisted of

investments in Italian government securities (up €121.5 billion, €106.6 billion of which in the

first half of the year), which benefited from the injection of liquidity generated by two long-term

refinancing operations by the ECB in December 2011 and February 2012. Purchases were

mainly of medium to long-term government securities, (BTPs and CCTs; up €90.1 billion,

€67.9 billionof which in the first half of the year) and to a lesser extent of short-term securities

(BOTs and CTZs; up €29.7 billion).

“Other securities” also increased (81.9%), also driven by bank bonds (up €87 billion), which

accounted for over 70% by year end.

In December, the average interest rate on bank funding from customers calculated by the

Italian Banking Association ABI 20 (which includes the yield on deposits, bonds and repurchase

agreements in euro for households and non financial companies) stood at 2.08% (compared

with 2% at the end of 2011). The weighted average rate on loans to families and businesses

and non-financial companies gradually fell to 3.78% after peaking between December 2011

and January 2012 (4.23%).

* * *

In addition to the developments in international regulations mentioned above, a number of changes were

introduced into the legislative framework for Italian banks in 2012:

• on 5 th April the Constitutional Court issued ruling 78 declaring that article 2, paragraph 61 of Decree

Law No. 225 of 29 December 2010 (known as the “Thousand extensions”) on banks compounding

interest was unlawful. The Decree had introduced an authentic interpretation of article 2935 of the

Civil Code which, with the regard to the statute of limitations for legal actions relating to current

account transactions, set the ten-year period as running from the date on which the relevant

transaction was recorded on the account rather than from the day the account was closed;

• Law No. 62 of 18 th May 2012 set up an observatory within the Ministry of Finance and the Economy

to monitor the credit and terms granted by banks to customers, especially micro, small, mediumsized,

young people's and women's enterprises, and the implementation of agreements and

procedures to support their access to credit. The observatory monitors the trend in funding provided

by the banking and finance industry along with the relative terms and conditions, and it has the right

to apply to the Bank of Italy on a regular basis if required for information about the granting of loans

and their terms and conditions. The law also gives prefects the right to report specific problems

relating to banking and financial transactions and services to the Banking and Finance Ombudsman;

• from 1 st June banks are obliged to offer the ‘basic’ bank account introduced by Decree Law No.1 of

20 th January 2012 – converted into Law No, 28 of 24 th March – after the MEF, ABI, Poste Italiane

and Italian association of payment agencies and electronic payment services drew up an agreement

on 28 th March specifying the features it should offer;

20 ABI Monthly Outlook, “Economia e Mercati Finanziari e Creditizi”, February 2013.

29


• on 22 nd October MEF and ABI signed an agreement granting banks and financial intermediaries

access to the electronic platform for certifying payables due from public administration. This makes it

possible to check the status of the payable instantly, streamlining and accelerating the advance

payment or discount procedures for public administration suppliers;

• Law No. 134/2012, which converted Decree No. 83/2012 (the “Growth” Decree), introduced

numerous changes to company reorganisation, completing the Bankruptcy Law reforms introduced in

2005 by adding many provisions to make settlement procedures for struggling businesses more

efficient. The new regulations should therefore play a major part in helping crises to be identified

earlier and managed more carefully, as well as expanding recourse to arrangements with creditors

and restructuring agreements in accordance with article 182-bis of the Bankruptcy Law, as these

tools help foster a negotiated settlement to crises;

• in December the Bank of Italy published a measure containing regulatory provisions regarding

penalties and the procedure for administrative penalties. The document came into force on 1 st

February 2013. Its target includes banks and it establishes rules designed to communicate the

procedure for penalties followed by the Authority when exercising its regulatory powers in the proper

and prudent management of banking and financial activities, correct conduct and prevention in the

use of the financial system for laundering the proceeds of criminal activities and funding terrorism.

With reference to listed entities in particular, the following is also noted:

• Legislative Decree No. 91/2012, which came into force on 17 th July (implementing Directive

2007/36/EC on the exercise of certain rights of shareholders in listed companies), which changed

some regulations in the Civil Code and the Consolidated Finance Act in order to facilitate and

therefore provide an incentive for shareholders to take part in company life;

• Legislative Decree No. 184/2012, which came into force on 13 th November (implementing Directive

2010/73/EU harmonising transparency obligations for listed issuers), and abolished article 120,

paragraph 2 of the Consolidated Finance Act, meant that it was no longer necessary to inform the

investee company and Consob about the acquisition of investments of more than 10% in unlisted

S.p.A.s or S.r.l.s. The obligations for parent companies of listed issuers to provide the public with the

relevant information and to keep a record of the people with access to privileged information were also

abolished.

30


Significant events that occurred during the

year

Strategic and organisational change in the UBI Banca Group

In line with the work that has been under way since 2010 (e.g. changes to the branch network,

revision of the marketing and distribution model, simplification of the customer service model,

the disposal of non-strategic assets, and rationalisation of the ownership structure) and in a

year that was once again a complex one in terms of the economy, the Group has implemented

the new mechanisms designed to further reduce overhead costs with immediate effect.

On 18 th July 2012, with the goal of simplifying operations so as to streamline them and make

them better respond to market needs, as well as to make them less of a burden both in terms

of costs and in terms of procedures and practices, we announced a change in strategy and

organisation for the entire Group, which is centred around the following key guidelines:

a) the implementation of a series of organisational changes designed to simplify the

functioning of the Group, which is to be achieved by way of the following:

- changes to the overall size of the branch network, including the closure of regular and

mini-branches, the transformation of ordinary branches into mini-branches, actions to

rationalise and simplify the internal structure of the network banks, of the Parent, and

of UBI Sistemi e Servizi, and more effective methods for the Parent and the network

banks to interact;

- a reduction in staff numbers estimated at approximately 1,500 full-time equivalents

through the use of provisions contained in labour contracts and labour law currently in

force, including the use, above all, of “solidarity funds” for early retirement and greater

flexibility with regard to working hours;

b) a reduction of at least 20% in governance expenses by reducing the number of members of

the various corporate bodies as well as their respective fees;

c) the revision of the service model for private-banking and corporate clients through the

creation of single operating units for both types of client with the creation of new “Private-

Corporate Centres” (approximately one for each Local Department), designed to provide an

integrated range of products and services for the Group’s core business clients on its local

markets and to facilitate the development of additional income opportunities.

A structural reduction in the cost of labour

On 28 th August 2012, in a letter sent to the various trade unions, the legally and contractually

required procedure concerning the strategic and technical evolution of the Group officially

began.

The letter contained an explanation of the main mechanisms needed in order to achieve a

significant recovery in both efficiency and profitability through rigorous cost controls, and of

structural staff costs in particular. Without these mechanisms, such costs would no longer be

sustainable given both the current trend in revenues and the changes made to the social

security system introduced by way of the Salva Italia (Save Italy) decree 1 , which are affecting the

full achievement of targets for staff numbers called for in the 2011/2013-2015 business plan.

1 Italian law No. 214 of 22 nd December 2011 based on Italian Law Decree No. 201 of 6 th December 2011: In short, this reform

established that, as of 1 st January 2012, the retirement age for all employees is to be 66 years of age. The requirement for retirement

rose to 62 years of age in 2012 for employees, to 63 years 6 months in 2014, to 65 in 2016 and, finally, to 66 beginning in 2018. The

reform also changed the pension system by removing the possibility of retiring with quotas and introduced the possibility of early

retirement. Practically speaking, one may retire before old age only after the age of 41 years 1 month for women – increased to 41

years 2 months in 2013 and 41 years 3 months in 2014 – and 42 years 1 month for men – increased to 42 years 2 months in 2013

31


Trade union talks were held from 7 th September to 17 th October 2012 – the technical deadline

for the procedure, which was completed without agreement between the parties being reached

– and then continued on 21 st November in an effort to find possible areas of agreement. In the

meantime, UBI Banca did, nonetheless, begin work to optimise the Group's operations, as

described in greater detail below.

On 29 th November 2012, talks with the trade unions came to a close with the signing of a

framework agreement for the Group, which established the regulatory, financial and

operational solutions to be implemented in order to reach the stated objective, while also

calling for the introduction of an early retirement plan concerning all personnel at all levels

and affecting at least 650 staff throughout the various Group companies.

In order to mitigate the socio-economic impact of these changes, it has also been agreed that

the income support mechanisms established by way of Italian ministerial decree no. 158 of

28 th April 2000 as amended (i.e. the Bank Employee Solidarity Fund) would also be taken

advantage of, including:

• voluntary early retirement for employees meeting the requirements set by law granting

them the right to receive a pension by 1 st January 2014 (INPS “window” of no later than 1 st

January 2014 inclusive) and for employees that will obtain the right to receive a pension

after 1 st January 2014 and by no later than 1 st January 2018 (INPS “window” of no later

than 1 st January 2018 inclusive);

• the suspension of work or a reduction in working hours of up to 220,000 working days to

be implemented during the period 2013-2015, with a corresponding reduction in wages and

including the use of the ordinary services under Article 5(1° comma, lett a), point 2, of the

aforementioned ministerial decree No. 158/2000.

Overall, the targets set at the

Group level have been amply

achieved, as was seen during the

verification process with the trade

unions that signed the framework

agreement reached on 12 th

February 2013.

During the established sign-up

period, 920 requests for voluntary

early retirement were received.

Given the greater demand, a

supplement to the agreement was

signed by the trade unions that

allows for additional requests to

be accepted for a total of 736 early

retirements during the first

quarter of 2013, of which roughly

600 had already been carried out

by the end of January.

UBI Banca Group early retirement plan

Retirements

No. of employees

as per

framework

Company

agreement

29 11 2012

Retirements

as per

framework

agreement

annex

12 2 2013

UBI Banca 41 55

UBI Sistemi e Servizi 103 131

Banco di Brescia 39 48

Banca Popolare di Bergamo 106 116

Banca Popolare Commercio e Industria 39 55

Banca Regionale Europea 57 83

Banca Popolare di Ancona 72 68

Banca di Valle Camonica 6 14

Banca Carime 187 150

Centrobanca - 7

UBI Leasing - 3

UBI Factor - 5

UBI Banca Private Investment - 1

Total 650 736

As for the reduction of hours or the suspension of work, here, too, demand amply surpassed

the target of 220,000 working days. As such, the trade unions agreed to accept requests for a

total of no more than 377,459 days over the course of 2013-2015, which are to be financed, as

agreed, using the “National Income Support Fund”.

In order to support generation turnover, with the agreement of 29 th November 2012, a plan

was agreed to render contracts permanent and to hire 240 young people over three years

starting from 2013, taking advantage, amongst other things, of the opportunities afforded by

the “National Employment Fund”, recently established when the national labour contract was

renewed. The trade union agreement document signed on 12 th February 2013 called for

and 42 years 3 months in 2014. These age limits are to be increased further based on the mechanism linking retirement age to life

expectancy.

32


increasing this number by a further 43 young people in order to take account of the greater

number of early retirements than originally expected.

The one-off charges for the early retirements totalled €143.5 million, which was charged in its

entirety to the consolidated income statement during the fourth quarter of 2012.

On the whole, these initiatives (redundancies and suspension/reduction of working hours)

defined together with the trade union organisations will allow gross savings to be achieved,

beginning in 2013, estimated when fully phased-in in 2014 at over €100 million.

***

In parallel with these trade union proceedings and in an effort to achieve the same goals, UBI

Banca defined a “managerial manoeuvre” aimed at reorganising both the number of senior

executives and their related remuneration, for which the one-off charge for the Group is

estimated at €4.5 million not including the costs related to the personnel involved in the early

retirement plan. This expense has already been charged to the income statement in the third

quarter of 2012 and the consequent benefit in terms of the cost of labour is estimated at

roughly €7 million.

The optimisation of Group functioning

From a structural point of view, the reduction of administrative costs falls within the scope of

a broader programme referred to as the “Optimisation of Group Functioning”, which has been

organised and implemented in three stages.

Effective as of 5 th November 2012, the organisation of UBI Banca, UBI Sistemi e Servizi and of

the various network banks has been revised and the procedures for interaction between the

Parent and the network banks have been updated in order to further increase focus and

specialisation in their respective roles. In this respect the Parent is committed to providing

guidance, co-ordination, monitoring and support with an increasing focus on operations and

the network banks, within the scope of their respective prerogatives of governance, are keenly

focused on managing their local markets, optimising their distribution capacities and

controlling risks, with a particular emphasis on credit and operational risk.

The launch of stage one of the programme (roll-out) included the following actions:

• the organisational changes at the Parent, UBI Banca, with the following objectives:

- simplification through streamlining units and shortening reporting lines;

- redistribution and aggregation of activities in order to achieve greater synergies and

improve the management of the individual processes;

- standardisation and adaptation at the same time to innovations introduced to the

organisational structure of the network banks, with regard above all to commercial

functions;

- a change of focus by management with regard to risk and credit;

• the adoption of a new organisational model for UBI Sistemi e Servizi, with the following

objectives:

- simplification of the organisational structure, which now consists of divisions,

departments and sectors, with the creation of a specific Business Services Division

based on the same operational areas as those in the Parent, in order to constitute the

primary interface with it;

- organisation of work in teams and improvements to some internal processes in order to

achieve greater fluidity in operations;

• the revision of the organisational structure of the network banks in the following areas:

- commercial, with the elimination of commercial retail/corporate/private-banking staff

units and the centralisation at the same time of the activities at the Parent, by creating

network support units for each market (retail and private banking/corporate);

- governance and support, with the creation of two new units: “General Management

Support”, to optimise the operations of all management support activities, and “Human

resources and organisation”, the latter along the same lines of that in the Parent and

complementary to it in order to promote greater co-ordination in the integrated

33


management of employee mobility within the Group and more effective implementation

of the projects developed.

On 10 th December 2012, stage two of the programme (branch network optimisation) began. This

stage focused on the scheduled series of actions involving the distribution network as follows:

the closure of branches and mini-branches where there was geographical overlap; and the

transformation of smaller branches into mini-branches. These actions affected Banca Popolare

di Bergamo, Banco di Brescia, Banca Popolare Commercio e Industria, Banca Regionale

Europea, Banca Popolare di Ancona, Banca Carime and Banca di Valle Camonica.

For a more detailed analysis, see the related section below, “Action undertaken on the branch

network of the Group”, where all of the changes that took place during the year are described.

Finally, on 7 th January 2013, stage three of the programme (completion) was implemented,

including the final part of the actions affecting the commercial processes of the network banks

in order to simplify coordinating activities and related roles and to enhance cross-market

coverage by developing a dedicated range of products and services and providing the new

specialist skills needed for our business and corporate customers.

The following actions were taken in particular: elimination of the commercial area, with the

Local Departments now reporting directly to General Management; elimination of the Retail

Co-ordination Staff Units of the Local Departments; the revision of the distribution network

with the introduction of integrated “Private & Corporate Unity” points of sale and the

elimination at the same time of the previous corporate-banking and private-banking units;

and, in the retail area, the revision of the branch groups (for the banks that adopt the

Head/Group model) and the consequent redistribution of the small-business and SME

customer portfolios among the former “Group” banks.

UBI Banca is the first Italian bank to unify its private

and corporate banking markets. From this integration,

we created UBI Banca Private & Corporate Unity, a

single unit for the management, custody and

development of the wealth of both businesses and

individuals. This range of products and services meets

the need to combine consulting services for individuals

with a specialist approach towards businesses, made

possible by the creation of specific units and the use of

expert teams. From the point of view of the

businessman-corporate client, value will be created by

way of the innovative, integrated advisory approach: for

personal wealth (Pro-Active Wealth Advisory®); for

generation turnover (Family Business Advisory®); and

for businesses (Corporate Advisory).

The new structure currently includes over 600

specialist bankers working in branches throughout

Italy.

Private & Corporate Banking Units

31.1.2013

Private & Corporate Banking Units 131

Private & Corporate Banking Units (PCUs) (*) 50

Banca Popolare di Bergamo 13

Banco di Brescia 9

Banca Popolare Commercio e Industria 7

Banca Regionale Europea 7

Banca Carime 5

Banca Popolare di Ancona 7

Banca di Valle Camonica 2

"Corners" 81

Banca Popolare di Bergamo 26

Banco di Brescia 12

Banca Popolare Commercio e Industria 9

Banca Regionale Europea 4

Banca Carime 6

Banca Popolare di Ancona 22

Banca di Valle Camonica 2

(*) The figure do es no t include s ix units o f UB I Banca P rivate Inves tment dedicated to

private banking cus to mers o nly.

The reduction of governance costs

The process of strategic organisational change for the Group as announced last July also

called for efforts to optimise governance costs. This commitment, which is to include a

reduction in both the number of and the fees paid to the members of the various corporate

bodies, was also expressed in a statement included in the framework agreement of 29 th

November 2012.

In line with the above, and as proposed by the Remuneration Committee, the Supervisory

Board authorised a proposal to be presented at the 2013 Shareholders Meeting to appoint the

new Supervisory Board for a reduction in the annual fees paid to members of that Board and

in the total annual remuneration paid to the Board Members vested with special powers, roles

and responsibilities. The Board has also prepared a proposed guideline for a reduction in the

remuneration of the Management Board, which is then to be promptly confirmed and finalised

by the newly appointed Supervisory Board.

34


As for the other Group companies, the Management Board has conducted an analysis of the

Articles of Association of the various subsidiaries with regard to the composition of the Boards

of Directors and related specific appointments. In light of this study, the Board then approved

a reduction in the number of members on the corporate boards of some companies and

consequent changes to their articles of association where necessary.

Therefore, in the first months of 2013, the Board took steps to initiate the process and

submitted the related documentation to the Supervisory Board where necessary.

The planned actions described above will result in a significant reduction in the total fees paid

throughout the Group and this will be implemented gradually as the terms of office of the

current Boards of Directors expire naturally.

Action undertaken on the branch network of the Group

In 2012, the distribution network of the UBI Banca Group underwent numerous actions

related mainly to the need to further rationalise the Group’s geographical presence in markets

that are either saturated or show limited room for growth, including changes to the units that

do not show sufficient current and/or potential profitability and at the same time to

strengthen both the branches that are close to those that are undergoing these changes and

those that show the greatest potential for growth.

In this context, two mass actions were carried out that affected all of the network banks and

made it possible to contain operating costs by eliminating several costly lease agreements.

The actions taken, effective as of 27 th February 2012, resulted in:

• the closure of 32 branches 2 and 46 mini-branches;

• the transformation of 40 branches into mini-branches and one mini-branch into a branch;

• the partial transfer of customers belonging to one branch and transformations into parent units for three

mini-branches.

The subsequent rationalisation, effective as of 10 th December, was achieved through:

• the closure of 34 branches and 33 mini-branches;

• the transformation of 80 branches into mini-branches;

• transformations into parent units for four mini-branches.

At the same time, work was done within the broader efforts to simplify the Group’s

organisation and better focus geographical coverage, including the merger of Banco di San

Giorgio into Banca Regionale Europea (BRE), effective as of 22 nd October.

Action taken on the branch network of the Group in Italy in 2012

Openings/Merger acquisitions: Closures: Transformation of

branches into

branches mini-branches branches mini-branches

mini-branches

Transformation of

mini-branches

into branches

UBI Banca Scpa (*) 1 - - - - -

Banca Popolare di Bergamo Spa 3 - 4 4 16 -

Banco di Brescia Spa - - 33 9 24 -

Banca Popolare Commercio e Industria Spa - - 10 6 25 1

Banca Regionale Europea Spa (*) 45 8 7 16 17 -

Banca Popolare di Ancona Spa 1 - 5 14 21 -

Banca Carime Spa - 1 6 34 15 -

Banca di Valle Camonica Spa - - - - 2 -

Banco di San Giorgio Spa (*) - - 48 9 2 -

UBI Banca Private Investment Spa - - 1 - - -

B@nca 24-7 (*) - - 1 - - -

TOTAL 50 9 115 92 122 1

(*) The changes take into account the effects of the mergers of B@nca 24-7 into UBI Banca and of Banco di San Giorgio into BRE.

2 For logistics and organisational reasons, the closure or two Banca Popolare di Bergamo branches could only be performed after the

preparatory stage for the transformation into mini-branches. These branches have therefore been counted among transformations

into mini-branches in the table for 2012 changes and subsequently among closures of mini-branches.

35


The general economic landscape, on the other hand, called for a prudent revision of our short

and medium-term strategy regarding new branch openings, limiting them to tangible business

opportunities that should arise in a given area, although this does not affect the policy of

ongoing development and innovation in other commercial channels as alternatives to the

bricks-and-mortar variety. In 2012, the network banks opened six new branches in Italy (four

branches and two mini-branches). In January 2013, five BPB treasury branches were

transformed into mini-branches.

The ongoing rationalisation process also involves the logistical transfer of operating units

within the towns and cities where they are currently located with a view to a more appropriate

sizing of units and also to optimising costs.

A detailed report on closures and openings in the branch network of the Group that occurred in 2012 is given in the

subsequent section “The distribution network and positioning”.

Action to streamline the ownership structure and areas of

business

During the year, a series of actions were undertaken which sought to simplify and streamline

the Group’s structure and its areas of business. The strategic aspects of these initiatives,

which were approved in part by the UBI Banca Management Board on 14 th November 2011,

are summarised below, whereas the subsequent section “The scope of the consolidation”

provides details regarding the legal and corporate aspects of these operations and their impact

on the consolidation scope.

An important banking centre has been created in the North-West of the country:

- on 22 nd October 2012, the merger of Banco di San Giorgio into Banca Regionale Europea

became effective. The operation, based on clear and natural connections and synergies

existing between Liguria, Piedmont, Valle d’Aosta and the nearby France, was designed to

safeguard the recognised high quality of the activities and services which had been provided

by BSG, as well as its strong roots in local communities. The brand name of this Ligurian

bank has therefore been left on signs at branches and also on many documents. With the

merger, central units of BSG have been integrated into their counterparts at BRE on the

basis of the organisational model of the surviving bank, while branch network units have

been renamed and in some cases also transformed.

The process to streamline consumer credit business has been completed:

- on 1 st July 2012, the contribution of the “salary and pension backed loans and payment

authorisations” line of business by B@nca 24-7 to Prestitalia became effective. The

beneficiary company, which received approximately €3 billion of loans and receivables,

therefore became the Group company which specialises in this business sector;

- on 23 rd July 2012, the merger of B@nca 24-7 into UBI Banca became effective. The Parent

took full ownership of all assets, liabilities, rights, obligations and contractual

relationships, and it assumed the role of credit card issuer and will manage the remaining

outstanding non-captive mortgages and personal and special purpose loans of B@nca 24-7

(approximately €7 billion of loans). Operations for new disbursements for captive personal

loans had already been transferred to the Group’s network banks in May 2012;

- on 21 st December 2012, the merger of the Società Italiana Leasing e Financing Spa (SILF) into

UBI Banca was completed. In addition to helping to optimise overhead costs, this operation

represented the final act, from a corporate point of view, in the broader project of reorganising

the consumer credit segment, which, in April 2012, had already led to bringing a halt to

disbursements of non-captive personal loans, the origination of which was SILF’s sole

business. The company was therefore no longer operational (all the agent mandates having

been revoked) and the outstanding loan portfolio is now managed by UBI Banca following the

merger into it of B@nca 24-7.

36


An IW Bank business unit has been transferred to UBI.S:

- the transfer of an IW Bank business unit to UBI.S was completed on 30 th November 2012.

This business unit includes:

• information technology (application management, facility management and relations

with software vendors and providers of IT infrastructures) and back office activities

(limited to the financial services segment, i.e. regulations, securities custody, and back

office activities for funds and derivatives);

• security (both physical security and fraud) and logistics.

The operation will allow IW Bank to focus more on its business activities, conserving and

strengthening its specific online character operating with its own brand. At the same time,

the transfer of these activities to UBI.S has integrated internet banking within the Group’s

service model, thereby providing numerous benefits in terms of:

• aligning the operational model with existing operations at other Group banks;

• providing support to major operational areas with the expertise already present at UBI.S

(which has, for said purpose, made the changes needed to integrate the organisationsal

units constituting the operations contributed. This included the creation of a new unit

named “IWBank and Innovative Channels”, while the assets and personnel related to the

real estate and security areas have been allocated to the UBI.S units that handle those

areas of business);

• extending oversight of IT governance by UBI.S;

• creating cost synergies when fully operational as a result of geographical and

technological convergence of the basic IT infrastructures.

Also during the year, the Group completed the following operations with the same goal

specified above:

- on 1 st August 2012, InvestNet International was merged into IW Bank;

- on 3 rd September 2012, the process resulting from exercising our right to withdrawal on the

shares in Arca SGR was completed;

- on 25 th October 2012, the voluntary liquidation of Barberini (which until January 2011 had

a controlling interest in Prestitalia) was completed;

- On 21 st December 2012, UBI Insurance Broker was sold with the goal of both optimising our

insurance brokerage services and realising cost savings.

Ten-year co-operation agreements were signed on an exclusive basis as part of the

operation, which involve maintaining all the current commercial relations of the company

and growth in the capacity to provide services to the corporate clients of the UBI Banca

Group.

-

On 6 th February 2012, the merger of Centrobanca into UBI Banca began and should be

completed during the first half of the year. Authorised by the Bank of Italy on 20 th February

2013, the merger had already been announced in November 2011 and is a part of the ongoing

process to simplify the Group’s organisation.

-The specialised lines of business currently handled by Centrobanca, particularly those in the

areas of corporate and investment banking, will continue to be managed by units within the

Parent and/or in tandem with other areas of its operations. UBI Sistemi e Servizi has already

selected the IT architecture needed to provide the necessary support for the specialist needs of

the activities to be migrated to the target system.

In the same way, the financial service activities conducted by Centrobanca will be allocated to

UBI Banca as part of the existing model, which already calls for a clear separation between

finance for the bank and finance for our customers.

37


The recapitalisation plan requested by the EBA

On the capital front, on 20 th January 2012 UBI Banca submitted a plan to the domestic

Supervisory Authority to achieve a core tier-one ratio of 9% by the end of June 2012, as

required by the European Banking Authority on the basis of the results of the capital exercise

conducted on 30 th September 2011 (pursuant to the recommendation of 8 th December 3 ).

In consideration of the temporary nature of the requested increase, the UBI Banca plan fully

excluded the option of new resort to the market following the substantial operation conducted

in the spring of 2011. It relied primarily, on the one hand, on the adoption of advanced

internal models for the calculation of capital requirements for corporate credit risk and on the

other, on further action to optimise risk weighted assets and on self funding.

With Bank of Italy measure No. 423940 of 16 th May 2012, the UBI Banca Group obtained the

authorisations needed to use advanced internal rating based (AIRB) systems to calculate capital

requirements for credit risk – i.e. the corporate (“exposure to businesses”) segment of the

network banks and Centrobanca – and for operational risk (using the Advanced Measurement

Approach, or “AMA”) for UBI Banca, UBI.S, Centrobanca and the network banks. 4

With the reduction in risk-weighted assets allowed by using these internal models, the Group’s

core tier one capital had already improved by 92 basis points by 30 th June 2012 (84 basis

points resulting from the use of the advanced approach to measure corporate credit risk and

eight basis points from using the AMA to measure operational risk).

In the second half of 2012, another phase of the Basel 2 project began. This phase calls for

extending the use of AIRB systems for credit risk to the retail segment for the portfolio

segments of “exposures backed by residential properties” and “other retail exposures towards

small businesses”. Within this context, the application of these models to the corporate area

will also be expanded to include UBI Banca.

Subject to prior authorisation by the supervisory authority, the goal is to use the retail models

for regulatory purposes in 2013.

The use of valuation reserves from revaluations of properties as authorised by prior year

special laws falls within the scope of the initiatives undertaken. They were used to perform no

cost increases to the share capital with the objective of increasing the core tier one ratio of

both the banks concerned and the Group.

The inclusion of those reserves within capital (pursuant to Art. 2442 of the Italian Civil Code)

does in fact involve the transfer of capital resources from the tier two capital to the tier one

capital, with a consequent improvement in the quality of the latter.

This action affected the following two banks:

Banca Popolare di Ancona Spa: on 26 th June 2012, the bank approved an increase in share

capital in the amount of €24,958,090.32 by increasing the par value of its stock from €5.00

to €6.02 per share;

3 The recommendation concerning the creation of a temporary capital buffer to restore the confidence of the markets was issued by

the Board of Supervisors of the EBA on 8 th December 2011 in order to address the difficult situation facing the banking system in

the European Union, especially with regard to sovereign debt risk, and to restore stability to markets. The recommendation formed

part of a series of measures agreed within the EU, and it invited national supervisory authorities to ask banks included in a sample

to create an exceptional and temporary capital buffer to bring their core tier-one ratios up to at least 9%, by the end of June 2012.

Banks were also requested to form an exceptional and temporary buffer to cover exposure to sovereign debt, sufficient to reflect the

valuation at market prices at the end of September 2011. Despite the fact that prices significantly improved in the meantime, the

amount of the capital buffer required to cover the sovereign debt was not changed.

The initial sample of the banks that took part in the capital exercise consisted of 71 banks. The six Greek banks were treated

separately to take account of Greek participation in a programme of joint European Union and International Monetary Fund

assistance. Another four banks belonging to the original sample (Oesterreichische Volksbank AG, Dexia, WestLB AG and Bankia) are

monitored separately, because they are involved in significant restructuring processes. The final results published therefore involved

61 banks.

4 Compliance with qualitative and quantitative requirements set by the regulations for the advanced internal rating based (AIRB)

approach for the calculation of capital requirements for corporate credit risk and recognition of it for prudential purposes, as well as

validation of the advanced measurement approach (AMA) for the calculation of capital requirements for operational risk.

38


Banca Regionale Europea Spa: on 27 th June 2012, the bank approved an increase in share

capital in the amount of €117,220,087.01 by increasing the par value of its stock from

€0.52 to €0.65 per share.

The impact of these actions on the consolidated core tier one capital was approximately €34

million.

Finally, following the revision of supervisory regulations concerning redemptions and the

repurchase of liabilities that qualify for inclusion in regulatory capital – which eliminated the

replacement obligation that put limits on liability management – the Group performed a

repurchase operation in February and March 2012 by launching a public tender offer on its own

institutional liabilities, consisting of preference shares.

The offer generated a gain of approximately €15 million (net of taxes and the expenses

incurred) recognised in the first quarter of 2012. It also made it possible to generate higher

quality capital and to benefit from lower interest expense of over €7 million per year.

The action described above was taken together with measures to reclassify and rationalise risk

weighted assets, with regard above all to loans and advances to customers, performed in

selective terms, without prejudice to the Group’s traditional support to local economies and its

core customers.

As confirmed by the EBA and by the Bank of Italy on 3 rd October 2012 (when the final result

for the year was published), the UBI Banca Group has fully complied with the

recommendation of reaching a core tier one capital ratio of greater than 9%, including the

sovereign-debt securities buffer, by achieving a ratio of 9.24% as at 30 th June 2012 and 9.16%

at year end.

That ratio not only included the fair valuation of sovereign-debt risk as at 30 th September 2011 (€868 million), but it

also comprises, in accordance with EBA instructions, a minimum capital requirement of 80% of capital requirements

calculated on the basis of Basel 1 rules.

Action taken on the liquidity front

During the first half of the year, the Group carried out important actions to strengthen

liquidity reserves and also to achieve sustainable funding from customers, which are basic

and necessary conditions to be able to provide financial support to economies in our local

markets.

On the liquidity front, while on the one hand the funds obtained from the European Central

Bank from two long-term refinancing operations (€12 billion) provided greater stability to the

structure of balance sheet liabilities, on the other hand, given the weak demand for credit from

the economy, they allowed new investments to be made in government securities with a view

to supporting net interest income, which increased Group liquidity reserves at the same time,

consisting of assets eligible for refinancing operations. These assets have nearly tripled

compared to December 2011, going from €11.6 to €29.4 billion, having benefited, in part, from

two government-backed issues in the first part of the year for a total nominal value of €6

billion.

Given the ample pool of segregated assets available to back the covered bonds, three selfretained

issuances were carried out in February for a total nominal value of €750 million as

part of the residential programme. At the same time, a second programme backed by

commercial loans intended solely for self-retained issues was structured and two issues have

already been carried out for a total nominal value of €2.3 billion (€1.8 billion in May and €0.5

billion in October).

Furthermore, and again with regard to initiatives designed to increase assets eligible as

collateral with the ECB, three new special-purpose vehicles (SPVs) were formed in accordance

with Law No. 130/1999 to be the purchasers of the new portfolios of loans eligible as

underlying collateral for Eurosystem monetary policy operations. On 8 th December 2011, one

39


of the measures decided by the ECB to support the bank liquidity was the extension of the

type of asset backed securities eligible for refinancing that can be securitised to include

performing loans to approved parties such as SMEs as defined in EU regulations.

Consequently, on 19 th April the following special purpose vehicles were formed: UBI SPV BBS

2012 Srl, UBI SPV BPCI 2012 Srl and UBI SPV BPA 2012 Srl.

On 26 th June 2012, the network banks involved sold loans for a total remaining principal

balance of €3 billion to their respective SPEs: €889 million for Banco di Brescia; €852 million

for Banca Popolare Commercio e Industria; and €1,017 million for Banca Popolare di Ancona.

On 30 th October 2012, securities were issued for a total of €1.93 billion in class A notes (€1.25

billion net of haircuts) and €829 million in class B notes.

40


Commercial activity

In 2012, the UBI Banca Group launched a project to optimise Group functioning, designed, amongst other

things, to streamline the distribution network, to create synergies between services to private and corporate

banking customers and to standardise network bank branch units in order to simplify support activities

(the previous section “Significant events that occurred during the year” may be consulted in this respect).

The commercial performance of the Group continued to be focused on growth in direct funding, consistent

with the maintenance of high standards of structural balance.

Products such as bond issuances, new ranges of “welcome edition” deposit accounts and a specific

commercial campaign entitled “Risparmi Premiati” (rewarded savings) were employed to achieve this

objective. The campaign included the offer of a check-up to customers on their savings by account

managers, intended to enhance the UBI Banca services model on financial planning and advice as its main

distinguishing feature compared to the competition.

From the viewpoint of funding and current accounts in particular, the following were introduced: a “basic

account” designed specifically for customers in the socially most vulnerable groups, with reduced charges

for a limited number of transitions; and the “QUBÌ” account, a modular account for customers who wish to

combine the different services offered on the basis of needs and normal patterns of use on a flexible basis.

The approach to customers with regard to investments has become increasingly more advisory (“Pro-Active

Wealth Advisory” and “Family Business Advisory” for private banking customers; UBI Gold for Top Affluent

customers, in addition to the other investment advisory service model provided on the “Financial Planning

and Advisory Platform” in the “UBI Light” version) and was facilitated by the greater number of training

programmes for affluent account managers. At the same time the range of investment solutions was

diversified with new types of Sicav’s, including versions which pay a coupon and those linked to gradual

savings plans.

With regard to the range of insurance products, the range of non-life policies was broadened with the

launch of two new products (Blufamily xl for the health sector and Blucasa for the property sector) and it

was also enhanced with initiatives for potential customers conducted at the same time from sales outlets

and through direct channels (direct marketing campaigns using banners for selected customers on home

banking services).

These initiatives for private individual customers were accompanied by action taken to improve funding

products for businesses, especially in the corporate segment, while the specialisation of the range of

advisory services for subsidised loans continued again in 2012 for the small business segment.

Initiatives concerning direct funding were accompanied by a strategy to manage lending designed to ensure

full support for medium to small-size and core corporate firms by developing customer relations across a

broad spectrum together with re-pricing action, to take account of the deterioration of credit risk and

funding conditions. Additional action was also taken to rationalise lending to the large corporate segment,

with careful management of trends for both volumes and pricing and also for the lowest credit rating

classes.

A strong focus was also maintained on the range of advisory services (“Corporate Advisory”) for mid and

large corporate clients.

Action to strengthen the multichannel strategy continued at the same time through the provision of

multichannel bank services on an innovative and complete platform which combines all the direct channels

available to private individual and business customers (internet and mobile banking, customer services,

self-service channels - ATMs and kiosks – evolved payment systems and POS terminals).

Action was taken in particular to improve the platform for online sales of the Enjoy and Qui UBI cards. New

and more powerful consultation functions were added to the platform for private individual and small

business customers and the release of free apps for smartphones, tablets and Blackberry phones were

completed. Direct marketing initiatives were also intensified through customer services activities.

Numerous changes were also introduced on the cards front, favoured by the technological advances for

these tools, with the objective of simplifying customer payment transactions. Various initiatives were

started for the Enjoy card, including some using smartphones and the Facebook social network to involve

greater numbers of potential customers.

Action also continued during the year to upgrade payment systems to comply with the European directive

on payment services (PSD) and the relative subsequent provisions, and to migrate onto SEPA payment

instruments.

Finally, the Group increased its commitment for support to the third sector with the new service model for

the church and non-church nonprofit world, named UBI Community.

41


The retail market 1

The retail market is composed of 3.6 million customers, of which 3.3 million are private

individuals (mass market and affluent), 250 thousand are legal entities (small to medium-sized

enterprises and small economic operators) and 30 thousand are authorities, associations and

nonprofit organisations. Approximately 6,600 professional staff work in customer services

consisting of branch managers, account managers and customer contacts.

“Anti Crisis” measures to support small to medium-size enterprises 2 and

families

During the year the banks in the Group participated in a series of measures to help families

and business on their respective markets, both locally and nationally, co-operating with public

institutions (chambers of commerce, regional and provincial governments) and guarantee

bodies 3 .

Activities also continued, started back in 2009, to support families and small to medium-sized

enterprises with action taken, amongst other things, under the “Avviso Comune” (joint

announcement) of 3 rd August 2009 4 , the “Accordo per il Credito alle PMI” 5 (Agreement on Loans

to SMEs) of 16 th February 2011 and the agreement of 20 th January 2010 as part of the “Piano

famiglie” (families plan) organised by the Italian Banking Association.

“New measures for Credit to Small and Medium-Sized Enterprises” Accord

With regard to SMEs, in 2012 the Group adhered, on 29 th March, to the “New measures for Credit to

Small and Medium-Sized Enterprises Accord” signed on 28 th February 2012 by the Italian Banking

Association, the Ministries of the Economy and Finance and Economic Development and by other

business associations.

This agreement involves the following:

1. deferments of up to twelve months on the capital repayments on medium to long-term mortgages and

unsecured loans (ordinary and subsidised) and up to twelve or six months for the repayment of the

capital portion implicit in property and non-property lease instalments, respectively;

2. extension of the terms of medium to long-term mortgages and unsecured loans (ordinary and

subsidised) for a maximum period of two years for unsecured loans and three years for mortgages;

3. extension of the maturities of short-term loans to 270 days to support cash flow requirements, for

advances on amounts that are certain, liquid and payable in cash (excluding import finance and

advances on contracts);

4. extensions for a maximum of 120 days of the terms for agricultural working capital credit pursuant to

Art. 43 of Legislative Decree No. 385/1993, granted with or without bills of exchange.

1 The retail market is composed of the following customers: mass market customers (private individuals with financial wealth – direct

and indirect funding – of less than €50,000 thousand), affluent customers (private individuals with financial wealth – direct and

indirect funding of between €50,000 thousand and €500,000 thousand) and small businesses (small economic operators with

turnover of less than €300,000 and businesses with turnover between €300,000 and €15,000,000).

2 According to the definition in EU regulations, small-to-medium size enterprises are considered entities which carry on a business

and regardless of their legal status employ fewer than 250 persons, with an annual turnover of not more than €50 million or with

total assets of less than €43 million.

3 The Group participated in various initiatives to provide subsidies to businesses, including the following: measures in the Piedmont

Region for development and the promotion of co-operation with backing from the Regional Guarantee Fund; measures in the

Lombardy Region to support businesses backed by the following Fondi di Rotazione (rotation funds) funds, “FESR Sottomisura 2”

funds for the “Industrial application of the results of research” and “FRIM Linee 1, 4 e 5” funds for “company development”, “growth

in size” and the “transfer of company ownership” and also measures to support farms for investments under the “Extraordinary

Programme for the implementation of the Nitrates Directive” (e.g. biogas co-generation plants); measures in the Apulia Region to

support businesses in accordance with the new regulations under the Regional Operational Programme.

4 This agreement, which became operational on 28 th September 2009 is for SMEs that were in temporary difficulty but which reported

good operating prospects and were going concerns. It enabled them to benefit from four measures: i) the deferment for twelve months

of principal repayments on mortgages; ii) the deferment for twelve or six months of the principal repayment portion of property or

equipment leasing instalments respectively; iii) an extension to 270 days for the repayment of bank advances on short-term

receivables; iv) special finance designed to strengthen capital.

5 This agreement, which became operational on 21 st March 2011, involved the following: i) the extension until 31 st July 2011 of the

time limit for the presentation of applications to defer loans to banks in accordance with the Avviso Comune; ii) the extension of the

repayment schedules for medium to long-term loans which had benefited from the deferment under the Avviso Comune by up to a

maximum of two years (three years for secured loans). The deadline that had been set for the presentation of applications for

extensions by businesses was 31 st December 2011. The Group agreed to maintain the existing contractually agreed interest rate if

the extension had benefited from backing made available by the Cassa Deposito e Prestiti (CDP – state controlled fund and deposit

institution) on the basis of a special agreement signed on 31 st May 2011, which involved the assignment of a budget of up to a

maximum of €54,529,000.

42


By signing that agreement, the Group is committed to maintaining the contractually agreed interest rate

if, amongst the other conditions, the deferment or extension benefits from backing from the Guarantee

Fund for SMEs or the ISMEA (agricultural food market services institute) fund.

Again, in accordance with the agreement, the offer was renewed by Group banks to provide funding to

promote the recovery and development of economic activities by an amount proportional to increases in

owners’ funds made by businesses.

The deadline set for the presentation of applications, which was originally 31 st December 2012, was

extended until 31 st March 2013.

Approximately 20,700 applications were processed by the Group for deferments under the “Avviso

Comune” (joint announcement) and subsequent agreements – mainly on medium to long-term loans – for

a total of €6.8 billion and for deferred capital repayments of €850 million. Almost all the applications

meeting the requirements for eligibility were accepted.

In accordance with the agreements cited, approximately 350 applications were presented to extend

repayment schedules for loans where the remaining principal totalled €107 million.

Initiatives for populations hit by the earthquake in Emilia Romagna, Lombardy and Veneto

In order to assist the people and businesses damaged by the earthquakes which hit Emilia Romagna,

Lombardy and Veneto on and after 20 th May 2012, UBI Banca promptly applied the measures of Decree

Law No. 74 of 6 th June 2012 and subsequent amendments and additions which, with regard to loans,

established deferment – initially until 30 th September 2012 and subsequently until 30 th November 2012

of repayments on mortgages and loans of any kind granted by banks to individuals and businesses who

were resident or located on 20 th May 2012 in the area of the towns hit by the earthquakes.

The deferment was on repayments due in the period between 8 th June 2012 and 30 th November 2012.

However, in order to further meet the needs of its customers, UBI Banca decided to apply the deferment

period immediately from 20 th May 2012. Loans in default were also included in the deferment.

On the basis of that action, repayments on approximately 4,480 loans were deferred on a total remaining

debt of approximately €283 million.

In addition to the measures reported above, UBI Banca also took two additional measures as follows:

- the deferment for a maximum of 12 months (at the contracted interest rate for the loan) of

repayments on unsecured loans (businesses only) and on mortgages (businesses and individuals) to

the following:

• individuals and businesses operating in all economic sectors inclusive of nonprofit organisations,

holders of ordinary mortgage loans backed by residential, commercial and industrial property

located in the municipalities hit by the earthquakes who suffered even partial, but significant

damage;

• businesses with operational premises located in the municipalities hit by the earthquakes

(including provincial capitals), holders of ordinary unsecured medium to long-term loans.

- the creation of a loan pool totalling €60 million (distributed among the Group banks operating in the

areas hit) for the grant of medium to long-term unsecured loans under particularly competitive terms

and conditions to businesses and individuals who have suffered material damage attributable to the

earthquake. As at 31 st December 2012, over €6.5 million of this loan pool had been used with 115

loans to both businesses and private individuals. The time limit for use was extended by six months

until 30 th June 2013.

Again for SMEs located in the zones hit by earthquakes, UBI Banca has also taken action on the basis,

amongst other things, of measures taken by Mediocredito Centrale, which involve the intervention of the

Fondo di Garanzia per le PMI (Guarantee Fund for SMEs) free of charge and with processing and approval

priorities over other actions. The maximum amount that may be guaranteed for a single business is €2.5

million with maximum backing equal to 80% of each loan.

UBI Banca also promptly adhered to the Convention signed on 5 th November 2012 by the Italian Banking

Association and the Cassa Deposito e Prestiti (CDP – state controlled fund and deposit institution), as

added to on 18 th November, for the grant of loans to population groups hit by earthquakes (private

individuals and legal entities) pursuant to Decree Law No. 174 of 10 th October 2012. These loans with a

term of 24 months backed by central government guarantees are for the payment in instalments of tax,

social security and welfare obligations deferred until 30 th November 2012 (on the basis of legislation for

earthquake victims) and they are due from 1 st December 2012 until 30 th June 2013.

The beneficiaries of the loans are either private individuals or legal entities that earn business income –

located (with registered offices or operating headquarters) in the municipalities hit by the earthquakes

and who suffered damages from those events – and that earn ordinary income as employees, who are the

owners of a damaged housing unit which is their principal dwelling (the latter only for the payment of

taxes due from 16 th December 2012 until 30 th June 2013).

Considering that the CDP funds allocated for the loans – a maximum loan pool of €6 billion – have hardly

been used in the sector nationally, a repeat of the subsidised loan procedure is planned.

Following the applications made by customers in the set period between 19 th November 2012 and 30 th

November 2012, the Group concluded 35 transactions for more than €2 million (additions may be

43


equested by the beneficiaries on the basis of the amount of the actual tax to be paid to the tax

authorities).

The beneficiaries of the loans will only repay the principal, while the interest accruing will be paid to the

Bank through a tax credit granted to it.

“Italy Investment Projects” and “Public Administration Receivables” Loan Pool

Again under the Accord “New measures for Credit to SMEs”, UBI Banca has already decided to adhere to

two new memorandums – signed on 22 nd May 2012 again by the Italian Banking Association, the

Ministry of the Economy and Finance, the Ministry of Economic Development and by representatives of

other business associations – to assist with financing for the investment projects of SMEs (“Italy

Investment Projects”) and to facilitate the payment of amounts due to companies from public

administrations (“Public Administration Receivables”).

By signing those memorandums, the Italian Banking Association is committed to promoting the

establishment of two specific loan pools for those initiatives amounting to €10 billion for each or them:

• the first entitled “Italy Investment Projects” is designed to support SME investment projects in assets

for use in operations;

• the second entitled “Public Administration Receivables” is designed to support SMEs who find

themselves in temporary difficulty due to delays in the payment of receivables from public

administrations by paying advances on those receivables. Those receivables may be unfrozen by

paying advances on them backed by the sale with recourse of receivables certified as “certain, liquid

and payable in cash” (in accordance with article 9 paragraph 3-bis of Decree Law No. 185/2008), by

the public administration debtor with compulsory indication of the agreed date of payment.

UBI Banca decided to contribute to the formation of those loan pools by allocating €600 million to each

one.

The legislative framework for the launch of the two initiatives was not completed until the end of

December 2012 and they therefore became operational in January 2013.

Loans to SMEs drawn from Cassa Deposito e Prestiti (CDP – state controlled fund and deposit

institution) funds

Again as part of “anti crisis” action taken, the grant of loans continued to support planned and/or

existing investments or to increase working capital by drawing on CDP funds resulting from post office

savings.

In this context, UBI Banca adhered to the “fourth convention” for loans to SMEs, signed by the Italian

Banking Association and the CDP on 1 st March 2012, by which the CDP made a loan pool of €10 billion

available to banks for medium to long-term loans to SMEs following the almost total use of the loan pool

of €8 billion under the three previous conventions on the matter.

The new loan pool of €10 billion is divided into an “Investments Pool” of €8 billion to facilitate access to

loans for investments by SMEs and a “Public Administration Receivables Pool” of €2 billion, designed to

mitigate the negative effects of late payments by public administrations and they will come into operation

in the first months of 2013.

The Group has decided to use the CDP funds available from the “investments pool” for unsecured loans

with a term of between 13 months (19 months if backed by the Guarantee Fund for SMEs pursuant to

Law No. 662/1996) and 60 months, for investments to be made and/or being made and to increase

working capital.

A total of 300 loans worth over €13 million have been concluded, drawn from the “investments loan pool”

established for the “fourth convention” and they became operational in the Group from November 2012.

The CDP “third convention”, signed on 17 th December 2010 involved the following:

- a “ten year loan pool” usable for loans with a maturity of from seven to ten years, with funding for the

banking sector nationally of €1 billion;

- a “Stable loan pool” to finance the growth of SMEs, into which the funds not fully used by the

previous pools gradually flowed, and which comprises all maturities (three, five, seven and ten years).

In June 2012, when the funds had been fully drawn on, Group banks had granted approximately 5,700

loans amounting to €320 million.

Guarantee fund for SMEs pursuant to Law No. 662/1996

At the same time, with a view to facilitating access to credit by SMEs in the current difficult economic

environment, use of public sector instruments such as the Guarantee Fund for SMEs pursuant to Law No.

662/1996 to mitigate credit risk continued.

Outstanding loans in the Group backed by the guarantee pursuant to Law 662/1996 amounted to €753

million, while disbursements in 2012 totalled €312 million. Banca Carime and Banca Popolare di Ancona

are the banks involved most in the use of this form of guarantee, however in 2012, the other network

banks contributed to a greater extent because the internal process for the relative applications also

became fully operational in those banks too.

44


“Memorandum of Intent” of 23 rd November 2011

On 12 th January 2012, the Group adhered to the “Memorandum of Intent” at national level, signed on

23 rd November 2011, by the Italian Banking Association and various employers’ associations: Alleanza

delle Cooperative Italiane (Alliance of Italian Co-operatives), Assoconfidi (association of loan guarantee

consortiums), Confagricoltura (the farmers association), Confedilizia (confederation of builders), CIA

(Italian farmers confederation), Coldiretti (the direct small farmers’ association), Confapi (the SMEs’

association), Confindustria (confederation of industry) and Rete Imprese Italia. It regarded regulatory

changes introduced to the time limit for reporting receivables past due, which was reduced to 90 days

from 31 st December 2011. Following applications made by businesses belonging to the associations

listed, positions to be classified within past due loans were examined on the basis of the relationship

between the amount of the credit lines agreed and amounts drawn on them, with particular reference to

the size and duration of the amounts past due. This was done with a view on the one hand to educating

business members of the association on the new regulations and, on the other, to preventing possible

inconveniences arising due to possible reports of late payments.

This agreement followed a similar memorandum of 22 nd September 2011, signed in the Region of

Lombardy by the Regional Commission of the Italian Banking Association and by Assolombarda (a

Lombard employers’ association), to which the Group had similarly adhered.

Initiatives designed to support families hit by the economic crisis

In addition to the those already mentioned to help people hit by the earthquake in Emilia, initiatives to

support families hit by the economic crisis included the continuation in 2012 of the various institutional

initiatives started in previous years. These included the following:

• the “Italian Banking Association moratorium”, which forms part of the “Families Programme” 6 ,

extended until 31 st March 2013, enabled 848 customers to defer mortgage repayments during the

year (on a total debt of almost €70 million);

• the “solidarity fund for the purchase of a main dwelling” 7 , which was created as the result of an

initiative by the Ministry of the Economy and Finance and became operational at the end of 2010,

enabled 24 customers to benefit in 2012 from the deferment of repayments amounting to over €2.5

million;

• the “Loan of hope” 8 , which as a result of amendments made in 2010 by the Italian Banking

Association and the Italian Episcopal Conference, further increased its effectiveness with the

disbursement of 300 loans for a total of €1.7 million;

• the “New Babies Loan”, which involves the creation of a guarantee fund to facilitate access to credit

for families with a child born or adopted between 2009-2011, and subsequently extended to include

those children born between 2012-2015. It has allowed 262 families to obtain a guaranteed loan for a

total of over €1.2 million;

• the agreement signed between the Italian Banking Association and the CDP for the grant of loans to

support Abruzzo families hit by the 2009 earthquake, saw the overall grant of 14 loans for a total of

€1.6 million;

• “Give them a future”, an initiative of the Italian Banking Association and the Youth Ministry, which

the Group adhered to in September 2011, to grant subsidised loans to young students, which follows

on from the previous “Give them credit” programme, saw the grant during the year of almost €200

thousand to 38 students;

• finally, in February 2012, the Group adhered to the Italian Banking Association’s “Young Couples’

Fund” initiative to provide the guarantees needed to obtain a mortgage for the purchase of a first

home by young couples or even single parent families with young children, with “atypical” or

temporary employment contracts. Ten loans for a total of €1.2 million were recorded in 2012.

To confirm the Group’s closeness to its traditional local markets, it also intervened, through Banco di

Brescia and the former Banco di San Giorgio, to support towns in the Veneto and Liguria regions

respectively, hit by flooding in October 2010 and November 2011, by adhering promptly – both for

6 Briefly, the agreement involves the deferment for at least twelve months of repayments on mortgages of up to €150,000 taken out for

the purchase, construction or renovation of a main dwelling even with arrears in payments of up to 180 consecutive days for

customers:

- with taxable annual income of up to €40,000;

- who have suffered from particularly negative events (death, job-loss, becoming non self-sufficient, becoming eligible for state

redundancy benefits).

7 For mortgage contracts for the purchase of a main dwelling for borrowers, this gives the possibility for a customer, if certain

conditions are met, to apply for the deferment of repayments not more than twice, for a maximum period of not longer than 18

months in the life of the mortgage.

8 For families that have lost all income from work, have no unearned income or income other than that generated by the ownership of

a home or ordinary or extraordinary state redundancy benefits. It is designed to implement projects for the return to work or the

start of small businesses.

45


families and for SMEs – to the measures of the Ordinances of the President’s Office of the Council of

Ministers No. 3906 of 13 th November 2010 and No. 3974 of 5 th November 2011 (deferral of mortgage

repayments).

Private individuals

Again in 2012, the commercial strategy for the private individual segment gave priority to the

capacity to attract and develop new direct funding in observance of customer needs and

characteristics, in order to improve the overall funding capacity of the Group consistent with

the objectives of overall financial structural balance.

A particular focus was placed on the capacity to satisfy customer needs in terms of proper

diversification of savings, especially in the asset management sector, and also on meeting

growing demands for capital and family protection.

With regard to commercial action taken to develop new funding, in addition to offers of

specialist products such as bond issuances and the new range of “welcome edition” deposit

accounts, a specific new campaign entitled “Risparmi Premiati” (rewarded savings) was

launched.

This campaign, which has become an important annual appointment for the Group, was

designed to encourage customers to carry out a check-up on their savings with their account

managers and to take the opportunity at the same time to enhance the UBI Banca customer

service model on financial planning and advice, as the main distinguishing feature of the

Group compared to its competitors.

In order to strengthen customer loyalty, the campaign was developed in combination with an

advertising initiative as part of the “Formula UBI” programme, which involved giving additional

points to the customers enrolled in it on the basis of new savings.

In the asset management sector, the ability to offer a range of diversified investments was

improved with new types of Sicav, including those which pay a coupon and those linked to

fund-based savings plans. The new range of Sicav’s was received very positively by customers

and helped reverse the trend in terms of net inflows for this type of business compared to

2011. Significant growth was also recorded in 2102 in fund-based savings plans, especially

after the launch of a special advertising initiative in the third quarter of 2012.

In accordance with the introduction of the UBI Gold customer service model and with the

strategic goal of deploying an increasingly advisory approach with customers on investments,

a specific training programme was implemented for affluent account managers, which will also

continue in 2013. It is designed to improve the ability of staff to assist customers in the

formulation of investment proposals and is oriented towards efficient allocation of their

portfolios.

Initiatives were started with regard to protection, designed to improve the range of non-life

policies, not only in the auto sector, but also in the health and property sectors which saw the

launch of two new products (Blufamily xl for health and Blucasa for properties).

The capacity to sell non-life policies in branches was strengthened by the introduction of more

co-ordinated action between staff responsible for family customers, both at the stage of

acquiring lists of potential customers and also when making proposals to potential target

customers. The activity of making commercial proposals was also accompanied by direct

marketing action through both email and banner channels targeted at customers selected

from those that use the home banking service (Qui UBI).

Finally, on a commercial level, a specific advertising campaign was commenced in the second

quarter of 2012, linked to a competition with monthly prizes for all customers who took out a

policy or requested an estimate.

46


CURRENT ACCOUNTS

Basic Account

On 28 th March 2012, the Ministry of the Economy and Finance, the Italian Banking Association, the

Italian Post Office and payment services associations – consistent with and in compliance with the time

limits set by article 12, paragraph three of Decree Law No. 201/2011 – concluded a Convention to define

the features of a Basic Account: a current account designed for financial inclusion purposes, which

constitutes an effective instrument for the full and real participation of all consumers in the single

market, constituting an instrument for broad social inclusion. The account also forms part of the

framework of initiatives taken by government in the fight against the use of cash and the promotion of

more efficient payment tools, by offering pensioners an ideal product for the receipt of pensions, which

can no longer be paid in cash.

In compliance with the provisions of that Convention, marketing of Basic Accounts commenced in the

Group on 1 st June 2012. They are available to all consumers, with a limited number of transactions at

reduced charges.

Basic Accounts are designed in particular for disadvantaged customer groups in society, with an annual

ISEE (equivalent economic status indicator) income of less than €7,500, who can make the same annual

transaction and use the same services provided for consumers, without charges and with exemption from

stamp duty. Those with the right to a pension of up to €1,500 per month, who do not belong to socially

disadvantaged groups, may as an alternative request a bank account to be opened to be used solely for

certain types of services and a limited number of transactions.

QUBÌ

On 2 nd July 2012 marketing of QUBÌ commenced, the new modular solution which allows customers to

combine different services offered on the basis of their needs and habitual use of banking services, with

the certainty of knowing in advance how much they will spend each month for the products they have

chosen.

QUBÌ enabled UBI Banca to win first place in the family category of accounts in the special classification

table of the best banking products selected by the financial newspaper Milano Finanza.

At present QUBÌ is composed of four modules:

• Semplicity, the basic version which provides the main current account services, with all transactions

exempt from registration and account management fees, Qui UBI services and Bancomat international

Libramat debit cards;

• Liberty, which, depending on the option chosen, eliminates charges on transactions;

• Convenience, for those who make purchases using payment cards, benefitting from the advantages of

frequent use;

• Protection, which comprises accident insurance cover for customers.

There is a monthly charge for each module. The total cost is the sum of the charges for the individual

modules and services purchased and the amount may vary as a consequence of discounts and

promotions there may be.

Small Businesses

The commitment to support small to medium-sized enterprises continued in 2012, especially

towards firms which have demonstrated innovative capacities and the ability to adapt to the

market context, a context that has continued to impose a pricing policy strictly linked to the

risk profiles of businesses.

Great attention was paid to foreign services, to qualified growth in short-term loans, to the

ability to attract and manage the liquidity of firms and entrepreneurs and to the design of tools

for use by account managers to improve their knowledge and management of customers.

A very large training project started in 2011 was completed in 2012, designed to further

increase the expertise of Small Business Account Managers on matters of interest to

businesses: choice of sources of funding, treasury management, internationalisation

processes, knowledge of opportunities for access to subsidised access to finance and different

forms of guarantee.

Financial consulting

Profitable co-operation is in place between network banks and the associate company SF Consulting,

controlled by the Finservice Group. This company specialises in providing consulting services on

subsidised finance: assessment of the eligibility of companies for subsidies, the preparation of investment

47


projects, the assessment of investment plans and general assistance in making and processing

applications for subsidised loans.

Commercial interaction with the network banks resulted in more than 1,160 new potential applications

with over 5,800 visits to firms (small businesses and corporates).

UBI Banca, SF Consulting and Finservice have also signed a convention agreement for support and

advisory activities in relation to formalities for the issue of guarantees under Law No. 662/1996

(Guarantee Fund for SMEs), which has been operational since February 2011.

The purpose of the convention is to support account managers with activities required to obtain

guarantees issued by the Fund, ranging from feasibility assessment (inclusive of assessment of the

subjective and objective requirements of the client firm) to the acquisition of guarantee certification.

Businesses can benefit from the Fund for any type of operation, provided it is directly linked to the

operating activities of the business. Depending on the nature of the eligible operations, the type of

beneficiaries and their location, the guarantee covered 85%, 80% or 60% of the loan with a maximum

amount guaranteed per firm of €1.5 million. These percentages and limits were changed and improved by

the new fund regulations which came into operation in December 2012 and were immediately

implemented by the UBI Banca Group.

As part of the convention, SF Consulting has created a special IT platform, implemented by the Group,

which allows account managers to interact with the company while applications to the manager of the

Guarantee Fund are being processed.

In 2012, UBI Banca signed a further agreement with SF Consulting, in addition to the established cooperation

for medium to long-term loans, which governs this company’s activities for the preparation and

filing – in the name of and on behalf of BPB, BPCI, BBS, BRE and Banca di Valle Camonica – of

applications for access to the Fund pursuant to Law No. 662/1996 also for short-term loans approved for

customers.

Sector products

The small business service model is also based on the development of distinct product ranges

focused on business sectors. By taking account of the principal financial needs and the

specifics of the “value chain” which characterise them, these ranges are designed to

strengthen the role of UBI Banca as a “partner bank”.

Action for farms

The farming sector, which varies greatly in terms of specialisation in its production, is of great

importance to regional economies and to the national economy, partly because of its connections with

the food industry and it represents an economic sector of interest to the Group.

Purchase of supplies – livestock

A new product was made available in 2012 specifically designed for livestock farms – the first of other

similar products that will be developed for other farming sectors of interest such as the wine sector – to

meet the demand for liquidity resulting from the introduction of regulations (article 62 of Law No.

27/2012) designed to govern commercial relations between farmers, the food processing industry and the

mass retail industry.

These regulations concern the sale of goods and they establish definite and stringent time limits on

payments with fines and penalties for failure to observe them. Farms are therefore required to meet the

deadlines for paying their suppliers.

This special new product, named “Purchase of supplies – livestock”, is designed to meet the resulting

needs of farmers for liquidity and it is based on a general farm loan contract for a total maximum

amount set on the basis of the planned spending for the purchase of animal feed for raising livestock.

This credit line can be used by taking out individual short-term loans, granted up to the maximum

authorised amount set in the general contract, with a term based on the livestock cycle financed.

Direct guarantee from SGFA - Società di Gestione Fondi per l’Agroalimentare Srl

In 2012 the Group took advantage of the new regulations governing the issue of SGFA direct guarantees 9

and extended its business to include unsecured farm loans with a term of less than 18 months.

In order to further educate the distribution network on the use of that form of guarantee, promotional

and training meetings were organised with the branches in areas where farming is more important to the

economy, with the participation of representatives from SGFA, an important trade association in the

sector and from the major farming guarantee bodies.

9 A first level or direct guarantee granted by SGFA: this is the same as a standard unsecured guarantee issued by SGFA to the bank

on behalf of the borrowing business, after independent risk assessment has been performed. This “direct” guarantee covers 70-80%

of the amount of the loan concerned and is recognised as an appropriate credit risk mitigation instrument because that company is

covered by a guarantee of last resort from the Italian government.

48


Again, in this respect co-operation was and is being established with trade associations and guarantee

bodies that operate in the sector in order to provide assistance to account managers in the preparation of

applications to SGFA for that guarantee.

Authorities, Associations and the third sector

The year 2012 saw the progressive consolidation of the service model for authorities and third

sector associations launched in 2011 with the following objectives: to meet the specific

demands of these customers more effectively; to grasp opportunities provided by market

trends; to adapt products and services to changes in the legislative and regulatory context.

More specifically, important activity to acquire data on counterparties was carried out

designed to provide a more accurate classification of the different types of authority (which

differ in terms of type of legal status and organisational model, which are often specific). The

reclassification of approximately 20 thousand counterparties will allow targeted commercial

policies to be set through a more accurate interpretation of their needs and the launch of

dedicated initiatives in 2013.

Associations and guarantee bodies

In order to support businesses and firms on the Group’s local markets and with a view to

facilitating access to credit by SMEs under competitive conditions in an economic and

financial environment which has been difficult for some time now, a central role continues to

be reserved to relations between Group Banks and guarantee consortiums and trade

associations as well as to the use of public sector instruments to mitigate credit risk, such as

the Guarantee fund for SMEs (pursuant to Law No. 662/1996) and the fund managed by

SGFA (Fund Management Company for the agricultural and food sectors) for farms.

As a result of new loan disbursements – €1,258 million for over 17,700 loans – total

outstanding loans backed by guarantee bodies and guarantee funds amounted at year-end to

approximately €3.7 billion.

The broad range of existing products was updated to incorporate the main initiatives organised

in co-operation with trade associations and local public institutions (chambers of commerce,

regions and provinces), in addition to specific initiatives launched at local level by individual

network banks.

More specifically, with a view to supporting local businesses and providing a concrete answer

to strong concerns in the sector nationally in Italy over credit rationing for the real economy,

in the second half UBI Banca launched the project T 2 Territorio per il Territorio (C 2 The

Community for the Community), which involved the acquisition of funding – through the issue

of dedicated bonds – to be put back into circulation by making credit lines available under

competitive conditions destined to support communities in the Group's local markets. The

following initiatives were promoted as part of that project – designed to help channel funding

acquired directly into a local market to support SMEs operating in that local area – by the

Parent or by Group banks in co-operation with local organisations and associations (consisting

for example of trade associations):





the first, launched in July, involved BBS, BPB and Banca di Valle Camonica in partnership with the

Associazione Industriali di Brescia (Brescia Association of Industrialists) with the issuance of bonds

for a total of €23 million and the subsequent creation of a loan pool of €46 million;

the second, which saw the issuance of bonds for a total of €16 million by BPB, BBS and Banca di

Valle Camonica and the subsequent creation of a loan pool of €32 million for the benefit of member

companies of the Bergamo Confindustria (confederation of industry);

there then followed an issuance of bonds, listed on the MOT (electronic bond market), for a total of

€18.55 million by UBI Banca – placed by BPCI, BPB and BBS – with the subsequent creation of a loan

pool of up to €37.1 million for the benefit of member companies of Assolombarda (an employers

association in the Milan area);

this was again followed by the issuance of bonds for a total of €5 million by BPB and the subsequent

creation of a loan pool of €10 million for the benefit of businesses registered with the Lecco Chamber

of Commerce and of member companies of the main local trade associations.

Further initiatives will be added to these in 2013, including those of BRE to assist business

members of the Cuneo Confartigianato (artisans’ association) and of BPB to assist businesses

registered with the Brianza Chamber of Commerce, Monza Brianza which are members of the

main local trade associations.

49


In the light of the increased competition between guarantee bodies and ownership changes

that have occurred in recent years (company reorganisations and mergers between guarantee

bodies and the transformation of some guarantee bodies into intermediaries supervised by the

Bank of Italy), activity to revise existing convention agreements with guarantee bodies (to bring

them into line with Bank of Italy prudential supervisory provisions in order to further reduce

regulatory capital requirements) has continued and is almost complete.

Third sector

The UBI Community customer service model for the church and non-church nonprofit world

became firmly established in 2012. It was launched in the second half of 2011 with the

objective of providing rapid and effective responses to emerging needs in the third sector,

thereby further enhancing ties between the network banks and local communities.

Relations with nonprofit organisations (NPOs) are of strategic importance due to the

considerable growth in this sector over the last two decades. According to the latest – and still

provisional – Istat (national office for statistics) data (third nonprofit census), today there are

over 470 thousand NPOs active in Italy and they involve individuals linked to them –

employees, volunteers and helpers – which total at least five million people. UBI Community

was been positively received because it is considered a commercial proposal that is calibrated

to meet real needs and is able to support growth plans, thanks to its range of products and

services specially designed to provide banking and credit support for the management of daily

activities, projects and investments.

The range of commercial products and services has been progressively added to as follows:

• in April 2012, UBI Community social bonds were launched, an important innovation in the sector

nationally, which brought Italy into line with the more evolved European countries in the area of

finance for nonprofit organisations. UBI Community social bonds provide subscribers with the

opportunity to obtain a return on their investment (in line with the rates offered by the Bank with

respect to similar investments) and at the same time to help support high social value and impact

projects organised by public and private sector organisations in local communities. More specifically,

the Bank donates part of the funding acquired to support those initiatives, or it injects it into a loan

pool to disburse funds to third sector initiatives.

The reception by customers was very positive, which bears witness to the extent to which the Bank,

with its values and objectives as the issuer, is in tune with local communities: from April until the

end of the year, the UBI Banca Group issued 17 social bonds (14 by the network banks and three by

the Parent), which in many cases were fully subscribed well before the issue period came to an end.

Social bonds were issued worth €198.54 million, which resulted in charitable donations of over €1

million to institutions operating in the following sectors: social and welfare (8), public utility

infrastructures and services (5), universities and research (1), education and training (1) and

community and economic development (2).

Particularly important among these were the social bonds “UBI Comunità per l'imprenditoria sociale del

sistema CGM” issued by the Parent, which enabled a loan pool of €17.552 million to be created to be

used to grant medium to long-term loans under competitive terms and conditions to consortiums,

firms and social co-operatives that are members of the Consorzio Nazionale della Cooperazione Sociale

Gino Mattarelli (CGM – the Gino Mattarelli national consortium of social co-operation). Further

issuances of social bonds are planned for 2013;

• marketing of a new bundled product was launched in June 2012 entitled “Non Profit On Line”,

specially for organisations that prefer to use internet channels.

At the same time, the road show for the presentation of UBI Community to operators in the

sector, which had visited Milan, Genoa, Bergamo, Pavia and Jesi the year before continued. In

March and April Banca Popolare di Bergamo organised meetings at Varese, Monza and Erba

and in November Banco di Brescia and Banca di Valle Camonica held a joint event at Concesio

(BS).

Important agreements have been concluded in the UBI Community context with major

nonprofit organisations and representatives of operators in the sector – the CGM Co-operative

Group, Federazione Italiana Scuole Materne di Bergamo e Brescia (the Bergamo and Brescia

Italian Federation of children’s nurseries) and Accademia Teatro alla Scala (La Scala theatre

academy) – designed to make products and services available to stakeholders under

competitive terms and conditions, with particular reference to access to sources of finance.

A fundamental requirement of the UBI Community customer service model is thorough

assessment of the creditworthiness of nonprofit organisations. Special tools have been created

for this purpose, able to value them on the basis of their specific characteristics and testing

was carried out during the year by some network banks to verify their effectiveness, with a

view, therefore, to adopting them as additional tools for assessing nonprofit counterparties.

50


With technical assistance from AICCON (Italian Association for the promotion of a co-operation

and nonprofit culture), UBI Banca has created the first national observatory on finance and

the third sector, a tool for processing and divulging information annually on the financial

requirements of the third sector. The observatory’s first publication was on the results of a

survey of the financial requirements of a sample of social co-operatives in Italy.

Authorities

The “authorities” segment comprises public authorities and those institutions for which the

banks in the Group provide treasury management and payment and collection services (1,894

services of this type were managed at the end of December).

Commercial guidelines were drawn up during the year to define the terms and conditions to

apply to the treasury management and payment and collection service for public authorities

on core services with the objective of standardising the approach by network banks. The

significant regulatory changes that occurred in 2012, and in particular the changeover of

many authorities managed to a “Single Treasury” – which involved an outflow of funds of

approximately €430 million as a result of the centralisation of all funds held in special

accounts opened in the name of the authorities with the Bank of Italy – placed a question

mark over the operating and financial balance underlying existing treasury and cash services,

which resulted in the increasing use of a “cost to serve” approach to this type of business. The

implementation of commercial guidelines will continue in 2013 for non-core services.

The year 2012 was also one of significant changes in the collection and payment service

provided for schools. The Group worked profitably with the MIUR – Ministry of Education,

Universities and Research – participating in the preparatory stages for the launch of a project

to adopt the “IT Ordinance” in schools and it created a special task-force to provide schools

with expert and professional assistance to help them with the changeover to a paperless

system.

The attention paid to the computerisation of treasury management and collection and

payment services provided to authorities also led to the proposal of a “substitute record

keeping” service for the relative documentation, which enables authorities, together with the

“IT Ordinance” to benefit from an efficient service which reduces operating risks and is

compliant with regulations for the digitalisation of public administrations.

A customer satisfaction survey was conducted in May and June on treasury and payment and

collection services provided to public authorities. This was also used for the certification of the

system for the management of the “quality of treasury services provided to public authorities”

(UNI EN ISO standard 9001:2008). The over 800 authorities interviewed gave very high

satisfaction scores for the service delivered by the Group, both in terms of expertise and

efficiency (see the following sub-section on customer care in this respect).

PattiChiari Consortium: Commitments to Quality

The involvement of Group banks in the PattiChiari Consortium continued during the year in

question with the application of “Commitments to Quality” and the dissemination of financial

education.

As concerns “Commitments to Quality” (some of which were subject to specific action to

update them in consideration of the very many changes in the regulatory framework),

monitoring of results confirmed the increasingly higher levels of compliance, with positive

repercussions on the standard of service actually provided to customers.

Further action was planned in the second half of the year to enable customers, even as early

as 2013, to see even more clearly the areas in which self-regulation of the industry is

developing (current accounts compared, the transferability of services, the security of

transactions, credit assistance), thereby enhancing the commitment of member banks.

The network banks also continued to take action with regard to the dissemination of financial

education, above all with didactic activities for students. The brilliant results achieved, both in

numerical and qualitative terms, were again explicitly acknowledged by the consortium.

The contribution already made for many years by the Group to broadening knowledge on

financial subjects is designed to represent not only a concrete response to the growing demand

for financial education in society, but also a new tool for developing customer relationships

that are increasingly more open and positive on the Group’s markets.

51


The Private-Corporate Banking Market 10

UBI Banca carried out an in-depth analysis in 2012 of the needs of private and corporate

banking customers, which led to the definition of a new organisational model and a new

commercial range (Value Proposition) differentiated for each customer segment (cluster).

In consideration of the strategic focus on the development of stable funding, on a range of high

value added products and on the need to increase the customer base, the integration of private

and corporate banking markets was assessed positively. It is closely bound together by an

organisational “fabric”, a range of products and services and an expert professional team able

to satisfy the needs of the most evolved customers, both individuals and businesses, in a

complete, synergetic and innovative manner.

The private and corporate banking markets were therefore the protagonists of the birth of a

new customer service model in November 2012 entitled UBI Banca Private & Corporate Unity.

The new model involved the identification of three distinct customer segments served by 50

operating units (Private & Corporate Unity) and 81 “corners”:

- Private Individuals not Entrepreneurs and not Linked to Companies: 36,500 customers

with financial wealth of €20 billion, served by 200 Private Bankers or Private Banking Coordinators;

- Private Individuals Entrepreneurs or Linked to Companies: approximately 22,500

customers with financial wealth of €15 billion, served by 100 Wealth Bankers;

- Corporates: approximately 32,000 customers with capital of €35 billion, served by

approximately 600 Corporate Bankers and Assistants supported for “foreign commercial”

activities by 212 specialists operating in 37 Foreign Centres, in addition to the

Centrobanca, UBI Factor and UBI Leasing specialist centres.

Given the specific nature of each cluster, the range of advisory products and services was

standardised in parallel and currently comprises the following services:

1. the Pro-Active Wealth Advisory Service: a customised financial advisory service which performs

thorough assessments of the characteristics and needs of family groups, analysing estates and

proposing the best investment solutions available on the market. It is designed for:

a) private individuals of high financial standing;

b) businessmen and professionals linked to businesses who are offered integrated financial advice

(business and personal);

2. Corporate Advisory, designed for businessmen or companies;

a) Corporate Advisory: carries out outlook analyses on financial statements, sector performance and

benchmarking. At the same time it highlights risk factors to be included in analyses of a

businessman’s personal investments. This activity also allows proposals to be made to optimise

the balance in financial management between the personal wealth of the businessman and the

funding costs of the company;

b) the “Family Business Advisory Service: this is designed to meet specific customer requirements for

generation turnover, capital protection, family and corporate governance and estate control

structures.

3. Pro-Active Wealth Advisory Institutional: this is a customised financial advisory service which

performs thorough assessments of the characteristics and needs of institutional customers (Church

institutions, Charities and Onlus nonprofit organisations, Banking Foundations, Building Funds,

Trade Association Funds, Guarantee Body Consortia, Bank Treasuries), by analysing their capital and

making investment proposals consistent with their institutional objectives and with the presence of

regulatory constraints.

10 The “Private-Corporate Banking Market” comprises customers with financial wealth (direct and indirect funding) of greater than

€500,000 and firms with turnover of greater than €15 million. More specifically, customers with financial wealth of greater than

€2 million are defined as “high net worth” and firms with turnover of over €250 million are defined as “large corporate”.

52


The following action was taken with regard to commercial activity in the first ten months of

2012 – before the definition of the new model – on the individual private and corporate

banking markets.

The process continued with regard to services for “private banking” customers to develop a

planning and financial consulting platform which is used, on the basis of customer data

analyses acquired from answers to the MiFID questionnaire, to formulate financial solutions

which match customers’ requirements.

The following activities were performed with regard to products in 2012:

the “UBI Pramerica asset management” range of products was broadened:

- the launch of the new “GP Top Selection” which, in the context of open customer portfolio

managements, allows customised lines of investments to be created on the basis of the

expectations and the risk profile of each subscriber;

- expansion of the range of Sicav classes dedicated to the private banking market;

the range of banc assurance products was revised by:

- the launch of two new external fund unit policies, that can be selected from 21 different and

prestigious asset management companies to ensure the maximum ability to diversify in terms of

asset class.

As concerns corporate customers on the other hand, in consideration of the negative

macroeconomic scenario, a commercial policy differentiated by customer segment, already

launched in 2011 was continued. Its objective was to maintain the Group’s traditional “local

community banking” vocation and to develop the large corporate segment selectively, with the

continuation of repositioning action designed to maximise asset returns. This objective was

pursued in a context of rigorous monitoring of the portfolio, which resulted in de-risking

actions (withdrawal from high risk sectors and positions), while ensuring support at the same

time to the core segment. Given the risk of the economic context, a particular focus was placed

on the management of pricing in relation to the actual credit ratings for single positions.

As concerns the foreign commerce sector, the Group maintained its market position within an

economic environment of general crisis which had a negative impact on international trade in

2012. This activity gave rise to stable results, where a moderately positive rise in the exports

curve was accompanied by a sharp fall in imports (especially net of energy items).

The results for export business were unchanged compared with the year before and with the

performance of Italian exports which was positive, although in a negative economic situation,

which confirmed that Italian companies that are more open to international markets were

better able to manage the crisis experienced by the country.

The Group’s import business performed negatively in line with the fall in the country’s

imports, due to the collapse of domestic sales and the consequent failure to turn over stocks.

Even in this context, the Group never relaxed its focus on the quantity and quality of business

volumes intermediated on behalf of corporate clients.

The harmonisation of the single European payments market (SEPA), introduced by further

PSD regulatory developments during the year, did in fact lead to a remarkable rationalisation

of operations with positive repercussions in favour of customers in terms of charges.

On the other hand, the Group is focused on and committed to providing greater assistance to

Italian customers on markets outside Europe. Its presence in BRIC countries for example with

representative offices in each of them is providing confirmation of an increasingly more

effective response to company needs and is an optimum method of making a positive impact

on the standard of service and advice provided. The focus on business with emerging

economies (Turkey, India, China, Brazil, Russia, Middle East) is therefore continuing in order

to identify – with the assistance of commercial agreements and partnerships with major

international operators – business areas with high value added connected with the world of

trade finance.

The Group is also continuing to pursue policies set in recent years, by investing in:

a) initiatives designed to strengthen its image and that of its individual local banks. UBI International

Open Day, a genuine international trade fair open to businesses, has now become a regular event.

After the success of the initiatives organised in 2010 at the Kilometro Rosso in Bergamo and in 2011

at the Brescia Trade Fair, the initiative was held in Milan this year (as part of the “Security 2012

53


trade fair) and in Bari (organised by UBI Banca and Banca Carime to reach businesses in southern

Italy). The large numbers attending the events confirmed the validity of the format, which involves the

participation of professional firms operating directly on emerging markets as exhibitors;

b) constant monitoring of the quality of the service provided by the dedicated distribution network,

combined with the search for new technical and organisational solutions to render processes

increasingly more efficient. The efforts made were rewarded by customer satisfaction surveys which

recorded a flattering opinion from the corporate clients interviewed;

c) an increase in the professionalism of personnel, achieved as a result of a continuing commitment to

the commercial and technical training of the personnel involved in the delivery of foreign commercial

services.

Initiatives in co-operation with the European Investment Bank (EIB)

Having fully disbursed the first tranche in 2011, the UBI Banca Group continued to use the second

tranche of the “EIB covered bond” loan of €250 million, subscribed on 11 th November 2011 and used to

fund businesses operating in industrial, agricultural, tourism and service sectors, in order to implement

investment projects in the Republic of Italy and the European Union. The companies funded (some in the

form of finance leases) are SMEs with personnel numbering fewer than 250 employees or businesses with

employees numbering between 250 and 2,999 (mid caps).

Approximately 200 loans or leases had been disbursed for a total of €190 million as at 31 st December

2012.

As concerns new initiatives on the other hand, UBI Banca and Centrobanca signed agreements on 15 th

October 2012 with the EIB for four loan pools for a total of €130 million as follows:

− a “Mid Cap IV” loan pool, amounting to €50 million, for firms with between a minimum of 250 and a

maximum of 2,999 employees (Mid Cap) to finance any type of project in agriculture, industry and

services for the purchase/renewal of tangible assets, investments in intangible assets and support for

working capital;

− a “Business Network” loan pool, amounting to €25 million, to finance initiatives in industry, services

and the tourist sector by SMEs and Mid Caps belonging to a “business network” 11 ;

− an “Industry 2015” loan pool, amounting to €30 million, for firms of all types and sizes operating in

agriculture, industry and services for expenditure programmes for research, development and

innovation approved as admissible for “Industrial Innovation Projects” (Industria 2015) implemented

by the Ministry for Economic Growth;

− an “Emilia Romagna Earthquake Victims” loan pool, amounting to €25 million, for public authorities

and/or private sector companies hit by the earthquake last May located in Emilia Romagna or the

Lombard and Venetian provinces affected by the earthquake.

The disbursements and authorisations of funds drawn from those pools – which can only be used

through Centrobanca, but which are available to all Group customers – started to run from January

2013.

In addition to those credit lines, a further debt was subscribed on 28 th November 2012 (a “Global Loan”)

for €250 million, directly available to all Group banks. The purpose of this loan pool is to finance the

medium to long-term working capital requirements and investments of SMEs, MidCaps and private

sector businesses with more than 3,000 employees. Disbursement of loans drawn from that loan pool

runs from March 2013.

Finally, in view of the positive collaboration that has been established, the Group is currently preparing

new initiatives with the EIB for companies, and these should be operational in the second half of 2013.

11 Businesses which sign a network contract with which a group of companies can pursue the objective of increasing their ability to

innovate and to compete on the market (article 42, Decree Law No. 78/2010, converted with amendments by Law No. 22 of 30 th

July 2010).

54


Customer Care

Following on from previous years “customer care” consultation activities continued, with the

level of satisfaction surveyed for approximately 130,000 customers of the network banks

(private individuals and corporate customers) and analyses of the competition conducted,

involving over 12,000 customers of competitors.

The research measured satisfaction on basic issues regarding bank-customer relationships:

relationship with the branch, products and services, image and corporate social responsibility

(CSR). The UBINDEX, an index which measures the quality perceived by customers in relation

to each operational unit found the following for 2012: a stable score of 56 compared to the

previous year for the retail market; a fall of four points to 50 for the corporate orate market, which is

nevertheless consistent with the difficult economic context; and an increase to a score of 56 for

private banking customers.

In addition to the usual subject areas surveyed, the Group decided to focus in-depth on issues

regarding the following: affluent customers, in consideration of the launch of UBI Gold; mini-

branches, after the organisational changes; and on lost customers, in order to improve

management of account closure processes.

Surveys were also carried out on “Treasuries” and public authorities and also on customers

who operate abroad:

• with regard to treasury services delivered to public authorities, 806 customers were

interviewed, representing municipalities, health institutes and hospitals, schools and

consortia, which recorded very high satisfaction scores on the service as a whole (UBINDEX

score of 74, higher than for the previous survey in 2010). The strengths declared were

expertise and efficiency, to the extent that the authorities would choose UBI Banca again.

Authority customers appreciate dealing with the same person in daily contacts with the

treasury office and short response times, but above all a service which meets their needs.

Excellent judgements were made on all services provided and in particular on the security

of the service and on compliance with the conditions set in the tender documents. These

customers said they received satisfactory answers to requests for regulatory and

operational information and when problems were raised or complaints made, these were

resolved in most cases;

• the 500 corporate clients interviewed who operate abroad making use of UBI Banca services

and products were generally ly more satisfied than ordinary customers (UBINDEX 58), with a

satisfaction score that increased with the number of services used (the most satisfied

55


customers where those who use advisory services). Those who use local “Foreign Centre”

services recorded the highest satisfaction scores (UBINDEX 69) and they particularly

appreciated the ease of contact, the speed with which transactions were performed and the

advice offered.

One initiative deployed in the retail market was measurement of satisfaction for small

business customers in the retail market after a “check-up” with the branch manager: the

extremely positive result of the survey confirmed the knowledge that frequent contact is a

primary condition for the high quality of customer relationships and user satisfaction. The

score recorded after the meeting was in fact eleven points higher than the total for small

businesses.

The diffusion of a “quality” culture and of customer satisfaction is of fundamental importance,

amongst other things, in training. Consequently a remote training course was organised in

2012 on customer satisfaction which reached staff throughout the Group. The course was

taken by over 11,000 employees.

Education on quality is also provided with sections on the subject inserted in standard

training programmes, such as that for future branch managers, or within specific programmes

designed to enhance human resources.

Consultation activity also involved internal customer satisfaction (CSI) surveys, which involved

“internal customers” (i.e. the distribution network staff in contact with the final customers of

bank) and the suppliers of services to the distribution network (i.e. units at the Parent, UBI

Sistemi e Servizi and the product companies).

The purpose of the CSI surveys is to understand the level of satisfaction experienced with the

various services available to the distribution network, which could determine the level of

customer satisfaction experienced by the final customer.

An initial survey was carried out in 2011 to measure satisfaction with services provided to the

distribution network, such as the Contact Centre, the Help Desk, Training, QuiUBI Business

and Companies and also UBI Pramerica. Following a series of actions taken on the basis of

the results, the same subjects were proposed again at the end of 2012 to measure the

effectiveness of the action taken. Improvements were found on all services in terms of

simplicity and speed, with particularly positive judgements given for UBI Pramerica and the

Help Desk on most aspects surveyed.

An additional survey was commenced during the year to measure distribution network

satisfaction with 16 software applications in daily use (these included management of

customer details, applications to support the grant of loans and credit monitoring, product

sales and credit transfers). Each survey was carried out on over 11,000 staff to whom a total of

75 thousand questionnaires were distributed (they were sent via mail using the Computer

Assisted Web Interviewing – CAWI – method). These initiatives were received positively and the

percentage of staff who completed the interview was close to 60%. Over 46 thousand

completed questionnaires were analysed.

Complaint management in the network banks

The management of claims and complaints constitutes a fundamental tool for the UBI Banca

Group, in support of customer satisfaction management. Reports made by customers allow the

efficiency of processes to be investigated and constitute a tool for verifying the quality of

services provided and a guide to consequent corrective action where necessary. Careful and

prompt complaints management is also used as a tool to reduce potential “reputational risk”

connected with manifestations of dissatisfaction, when it is badly managed.

The process is strongly rooted locally: the network banks respond to complaints made by

customers through their own operating units. Centralised specialist units on the other hand

are involved in technical investigations of complaints and carry out administrative formalities.

This is all carried out in full compliance with the time limits set for processing complaints by

legislation and regulations and the aim is to work well within those time limits where possible.

Moreover, the entire process is co-ordinated by a unit specifically assigned at the Parent which

works in customer care.

56


Distribution of complaints received by the network

banks in 2012 by channel of reipt

Hardcopy 62.7%

In 2012 a total of 4,551 complaints were

received by the Group’s network banks,

down by 1.5% over the previous year..

The total percentage of solutions in

favour of customers was 35% (slightly

down compared to 39% in 2011). No

Website 7.9%

backlogs existed at the end of the year

in the processing of complaints.

The profiles of customers complaining

again consisted – by over 93% – of

customers with active accounts with the

network banks. The frequency of

customer complaints is a little over

eleven complaints for every 10,000 customer relationships.

The policy pursued for years now by the Group (to make conditions easy for customers to

make complaints) is translating into an increasingly greater use of remote communications

tools: emails and official complaint forms on the network bank websites, which total 37% of

complaints communicated.

An analysis of complaints by product or service confirm the composition that has been

established in the past with a prevalence for current accounts and savings deposits (39% of

the total), a reduction in the percentage for securities and investment services (10%) and an

increase in complaints over mortgages and loans (19%).

As concerns reasons, yet again for the year just ended, the main reason was the execution of

transactions (31% compared to

32% in 2011), followed by items

relating to the management of

terms and conditions, which as a

whole accounted for 27% of

complaints.

Verbale / telefonico

0,2%

Email 29.2%

Current accounts and savings

deposits

Securities and investment services

Complaints by product/service

0% 10% 20% 30% 40% 50%

In addition to initial complaints

and the relative repeat

complaints, the picture for

complaint management in 2012 is

completed by mediation

procedures initiated by customers

in accordance with Legislative

Decree No. 28/2010 and by

appeals to alternative mediation

bodies: 642 applications for

mediation were made for the

network banks. A total of 71

mediation processes were

concluded with a settlement

during the year.

A hundred and one cases were

presented to the Financial

Banking Arbitrator with 92 cases

concluded, 32 of which in favour

of customers. The Banking

Ombudsman who specialises in

complaints concerning investment

instruments dealt with six

applications, two of which settled

in favour of customers.

A total of 127 complaints were

Loans and mortgages

Collection and payment services

Credit and debit cards

Insurance products

Other

General aspects

Execution of transactions

Application of conditions

Other

Frauds and losses

Communication and information to

customer

Conditions

Compounding of interest

Creditworthiness or similar

Reports to the centrale rischi (central

credit bureau)

Organisational aspects

Personnel

Equipment malfunctions

Complaints by underlying grounds

0% 10% 20% 30% 40%

2012

2011

2012

2011

57


filed with the supervisory authorities (122 with the Bank of Italy and five with the Consob –

Italian securities market authority).

Distribution of complaints received in 2012

by operating unit

An analysis of statistics for complaints show that

21% of local operating units received no complaints

and 23% received one complaint only in 2012 12 .

23%

15%

21%

41%

Operating units with more than 2 complaints per year

Operating units with 2 complaints per year

Operating units with 1 complaint per year

Operating units with no complaints

***

Again with regard to complaints, we report that the

merger of B@nca 24-7 into UBI Banca resulted in

769 complaints being recorded in the Complaints

Register of the Parent along with the related ADR 13

files (28 mediations, 59 applications to the Financial

Banking Arbitrator).

The complaints related to credit card business,

where UBI Banca has become the direct issuer, and

to retail loans, already in the portfolio of the merged

bank.

The cases entered in the register relate both to

matters which migrated from this consumer bank

and to complaints managed directly after the merger took effect (23 rd July 2012).

12 The data is not comparable with 2011 because of the massive restructuring performed on the branch network during the year.

13 ADR is an acronym for alternative dispute resolution and therefore relates to bodies responsible for providing this service, such as

the Financial Banking Arbitrator and the Banking Ombudsman.

58


The distribution network and

positioning

The branch network of the Group

As at 31 st December 2012 the UBI Banca Group had 1,735 branches (which numbered 1,740

at the date of this report) as compared to the 1,884 at the end of 2011.

The branch network of the UBI Banca Group in Italy and abroad

number of branches

31.12.2012 31.12.2011 Change

UBI Banca Scpa 3 2 1

Banca Popolare di Bergamo Spa 353 358 -5

Banco di Brescia Spa 322 364 -42

Banca Popolare Commercio e Industria Spa (1) 219 235 -16

Banca Regionale Europea Spa (2) (3) 259 229 30

Banca Popolare di Ancona Spa 220 238 -18

Banca Carime Spa 255 294 -39

Banca di Valle Camonica Spa 66 66 -

Banco di San Giorgio Spa (3) - 57 -57

UBI Banca Private Investment Spa 25 26 -1

Centrobanca Spa 6 6 -

IW Bank Spa 2 2 -

B@nca 24-7 Spa - 1 -1

UBI Banca International Sa - Lussemburgo 3 3 -

Banque de Dépôts et de Gestion Sa - Svizzera 2 3 -1

TOTAL 1,735 1,884 -149

Total Branches in Italy 1,727 1,875 -148

Financial advisors 672 713 -41

ATMs 2,337 2,451 -114

POS TERMINALS 60,049 61,224 -1,175

(1) The figures do not include nine units dedicated exclusively to pawn credit operating under the Banca Popolare

Commercio e Industria brand.

(2) The figures include three foreign branches.

(3) The change takes into account the effect of the merger of Banco di San Giorgio into Banca Regionale Europea

which became effective on 22 nd October 2012.

As already reported in the previous section “Significant events that occurred during the year”,

the changes that occurred compared to the end of 2011 mainly reflect two important actions

taken to rationalise the branch network which took place over the twelve month period.

- The first step implemented and effective from 27 th February 2012 involved the closure of 32 branches

and 46 mini-branches, as well as the transformation of 40 branches into mini-branches and one minibranch

into a branch.

- A second step effective from 10 th December 2012 involved the closure of 34 branches and 33 minibranches

as well as the transformation of 80 branches into mini-branches.

A summary is given below of the changes that occurred from the beginning of the year until

the date of this report which affected Italian branches :

UBI BANCA, following the merger into it of B@nca 24-7, it opened a branch in Via Stoppani in

Bergamo in July to support operations to manage the outstanding loans, while at the same

time it closed the existing branch of the merged bank;

• BANCA POPOLARE DI BERGAMO closed a branch in Como in Via dei Mille in February 2012,

while in March 2012 it opened a new branch for business in Rome in Via dello Statuto. In

July and September it closed mini-branches operating in Milan at the Centrobanca and in

Luino (Varese) in Via Vittorio Veneto, while the Ciampino (Rome) branch became

operational in October. In December one branch opened in Lurago D'Erba whereas 5

59


anches were closed 1 . In January 2013, the treasury branches in Camerata Cornello, Riva

di Solto, Roncola (Bergamo), Lozza and Castelseprio (Varese) were transformed into minibranches;

• BANCO DI BRESCIA closed 22 branches in February and 20 in December 2 ;

• BANCA POPOLARE COMMERCIO E INDUSTRIA closed ten branches in February and four in

December 3 and another two mini-branches at the beginning of November in Milan,

respectively in Via Trivulzio and in Via Grassi;

• BANCA REGIONALE EUROPEA opened the mini-branch at the Santi Antonio e Biagio hospital at

Alessandria in January, while in February five mini-branches were closed down located on

Via Margarita at Cuneo, Casteldelfino and Crissolo (Cuneo), in Via Lega Lombarda at

Valenza (Alessandria) and Ghiffa (Verbania). In December 18 other closures took place 4 ;

• BANCA POPOLARE DI ANCONA opened a new branch in March at San Salvo (Chieti) and closed

13 units in February and six in December 5 ;

• BANCA CARIME opened a mini-branch at the University of Bari in May, while it closed 24

branches in February and 16 in December 6 ;

• BANCO DI SAN GIORGIO, before its merger into the Banca Regionale Europea, had closed two

mini-branches in La Spezia in Corso Nazionale and in Sarzana (La Spezia) in Via Pietro Gori

and branches in Albenga (Savona) in Via Cesare Battisti, Vado Ligure (Savona) and

Ventimiglia (Imperia) in Via Roma in October;

UBI BANCA PRIVATE INVESTMENT lastly closed a branch in Florence in Via Ricasoli, in February.

A full list of all Group branches in Italy and abroad is given in the final pages of this publication.

As at 31 st December 2012, the Italian distribution network of the Group was completed by

units dedicated specifically to private banking customers (private banking units and the

associated “corners”) and to corporate customers (corporate banking units and the associated

“corners”).

As can be seen from the table, at the end of the year, 104 private banking facilities were

operational, a decrease of three units, together with 98 corporate banking facilities,

unchanged on aggregate 7 .

1 Varese at 106 Viale Borri; Monza in Via Pesa del Lino; Gallarate (Varese) in Via Torino; Tradate (Varese) in Corso Bernacchi and

Besozzo (Varese) at 24 Via XXV Aprile.

2 In February: Barghe; Chiari in Via Maffoni; Gussago in Via Richiedei; Leno in Via Garibaldi; Lumezzane in Via Montini in the San

Sebastiano district and in Via Bixio in the Pieve district; Manerbio in Via Cremona; Ospitaletto in Via Rizzi; Salò (Brescia) in Piazza

Vittoria; Soncino (Cremona) in Largo Manzella; Lodi in Via Fissiraga; Codogno (Lodi) in Via Roma; Mantua in Via Bertani; Quistello

(Mantua) in Via Europe in the Nuvolato district; Cologno Monzese (Milan) in Via Cavallotti; Paderno Dugnano (Milan) in Via Tripoli;

Arta Terme (Udine); Viterbo in Via Cattaneo and in Via San Lorenzo; Venezia; Verona in Piazza Simoni and Storo (Trento) in the

Lodrone district.

In December: Brescia in Via San Rocchino, in Via Volturno and in Via Orzinuovi; Bedizzole in Via Sonvigo, Capriano del Colle in the

Fenili Belasi and Milzano district (Brescia); Bergamo in Via Borgo Palazzo; Milano in Via Staro, in Via Marche and in Via Muratori;

Cremona in Piazza Risorgimento; Rubano (Padova) in the Sarmeola district; Verona in Via Salgari; Castel d’Azzano and San Giovanni

Lupatoto (Verona); Altavilla Vicentina (Vicenza); Pieve di Soligo and Resana (Treviso); Magnano in Riviera (Udine) and Vasanello

(Viterbo).

3 In February: Milan in Via Pirelli, in Piazza Siena and in Via Saffi; Gorgonzola (Milano); Brallo di Pregola (Pavia); Voghera (Pavia) in

Via Sant’Ambrogio; Imola and San Giovanni Persiceto (Bologna); Formigine (Modena) and Colorno (Parma).

In December: Milan in Via Astesani; Vimodrone (Milano); Pavia in Piazza Duomo and Cassolnovo (Pavia).

4 Torino in Corso Trapani; Chianocco (Torino); Cuneo in Piazza Europa; Alba (Cuneo) in Piazza Savona; Alessandria in Piazza Marconi;

Casale Monferrato (Alessandria); Tortona (Alessandria) in Via Sacro Cuore, in Corso Don Orione and in the Rivalta Scrivia district;

Novara in Via Canobio; Borgomanero in Piazza Martiri della Libertà and Gozzano (Novara); Asti in Piazza 1° Maggio; Biella in Via XX

Settembre; Cossato (Biella) in Via Pajetta; Genova in Via Merano; Rapallo (Genoa) in Via Diaz and La Spezia in Corso Cavour.

5 In February: Belvedere Ostrense and Ostra Pianello (Ancona); Appignano (Macerata); Piobbico (Pesaro Urbino); Riardo (Caserta);

Naples in Piazza del Gesù Nuovo; Terzigno (Naples); Rimini in Via Caduti di Marzabotto and Pennabilli (Rimini); Guidonia Montecelio

(Rome) in Piazza Buozzi; Perugia in Via dei Filosofi; Collazzone and Fossato di Vico (Perugia).

In December; Fossombrone (Pesaro Urbino) in the Isola di Fano district; Treia (Macerata) in the Passo Treia district; Falerone (Fermo)

in Piazza della Concordia; Gualdo Cattaneo (Perugia); Pescara in Via Latina and Limatola (Benevento).

6 In February: Carolei, Francavilla Marittima, Grimaldi, Rocca Imperiale Marina (Cosenza); Squillace (Catanzaro); Cutro (Crotone);

Bovalino, Delianuova, Gioiosa Ionica, Molochio (Reggio Calabria); Briatico (Vibo Valentia); Matera in Via Dante Alighieri; Maratea

(Potenza); Atena Lucana and Sapri (Salerno); Bari in Corso Italia and in Via M. Cristina di Savoia; Fasano (Brindisi) in the Pezze di

Greco and Montalbano districts; San Pietro Vernotico (Brindisi); San Severo (Foggia) in Corso Garibaldi; Gallipoli and Ruffano

(Lecce); and Taranto in Via Battisti.

In December: Rende (Cosenza) in Piazza degli Eroi; Guardavalle and Nocera Terinese (Catanzaro); Crotone in Via Cutro; Stilo (Reggio

Calabria); Bernalda in the Metaponto and Pisticci (Matera) and Marconia districts; Avigliano (Potenza); Buccino, Buonabitacolo,

Corbara and Sarno (Salerno); Bari in Via Dalmazia; Monopoli (Bari) in Via Fra’ Ippolito; Brindisi in Via Commenda and Copertino

(Lecce).

60


Following the integration of the private

banking and corporate markets,

mention of which is made in the

previous section “Significant events

that occurred during the year”, in

January 2013 the new UBI Banca

Private & Corporate Unity facility was

established to unify and rationalise the

already existing private and corporate

facilities. The new unit will include 131

centres (50 PCUs and 81 corners)

throughout Italy.

The distribution network of the Group

was also supported by a network of

672 financial advisors reporting to UBI

Banca Private Investment, consisting

of 392 operating in the Central and

Northern Division and 280 in the

Central and Southern Division.

The decrease compared to the 713

advisors operating at the end of 2011

continues to reflect the dynamics of

appointments and departures designed

to progressively increase the size or

average profitability per capita of the

customer portfolios under

management 8 .

Private and corporate banking units as at 31st December 2012

31.12.2012 31.12.2011 Change

Private Banking Units 104 107 -3

Private Banking Units (PBUs) 55 58 -3

Banca Popolare di Bergamo 14 14 -

Banco di Brescia 7 7 -

Banca Popolare Commercio e Industria 8 8 -

Banca Regionale Europea 7 6 1

Banca Carime 5 5 -

Banca Popolare di Ancona 7 7 -

Banca di Valle Camonica 1 2 -1

Banco di San Giorgio - 3 -3

UBI Banca Private Investment 6 6 -

Private banking "corners" 49 49 -

Banca Popolare di Bergamo 21 21 -

Banco di Brescia 6 6 -

Banca Popolare Commercio e Industria 4 5 -1

Banca Regionale Europea 2 1 1

Banca Carime 7 7 -

Banca Popolare di Ancona 9 9 -

Corporate Banking Units 98 98 -

Corporate Banking Units (CBUs) 63 64 -1

Banca Popolare di Bergamo 19 19 -

Banco di Brescia 10 11 -1

Banca Popolare Commercio e Industria 9 9 -

Banca Regionale Europea 11 8 3

Banca Carime 5 5 -

Banca Popolare di Ancona 7 7 -

Banca di Valle Camonica 2 2 -

Banco di San Giorgio - 3 -3

Corporate banking "corners" 35 34 1

Banca Popolare di Bergamo 2 2 -

Banco di Brescia 11 11 -

Banca Popolare Commercio e Industria 5 5 -

Banca Regionale Europea 3 2 1

Banca Carime 3 3 -

Banca Popolare di Ancona 9 9 -

Banca di Valle Camonica 2 2 -

In a highly concentrated sector (the four largest companies occupy approximately 65% of the market), the

data for December published by Assoreti (national association of stock brokerage companies) place UBI

Banca Private Investment in tenth place in terms of total assets (ninth in terms of banking groups), with a

substantially stable market share of 2.20%.

The international presence

At the date of this report the international presence of the UBI Banca Group was structured as

follows:

• two foreign banks: Banque de Dépôts et de Gestion Sa (with two 9 branches in Switzerland

at Lausanne and Lugano) and UBI Banca International Sa (with headquarters in

Luxembourg and branches in Munich and Madrid);

• three foreign branches of Banca Regionale Europea in France (at Nice, Menton and

Antibes);

• representative offices in Sao Paolo in Brazil, Mumbai, Shanghai, Hong Kong and Moscow;

• investments (prevalently controlling interests) in four foreign companies: UBI Trustee Sa

and UBI Management Co. Sa, UBI Capital Singapore Pte Ltd 10 , Lombarda China Fund

Management Company 11 ;

7 The following changes occurred during 2012:

- with regard to private banking facilities, in July Banca Popolare Commercio e Industria closed a private corner at Roma Parioli,

while Banca di Valle Camonica closed a PBU at Franciacorta. In October, when Banco di San Giorgio was merged into Banca

Regionale Europea, the PBU at Ponente ceased operations, while the PBU at Levante was transformed into a corner;

- as concerns corporate centres, in January, Banco di Brescia transformed its two CBUs at Iseo (Brescia) and Bergamo into corners

at the same time as it opened a new CBU at Brescia. The Banca also closed two corners at Milan Lambrate and Montebelluna in

October and December. Banca Regionale Europea did, however, open a new CBU at Turin whereas, in July ,it transformed a CBU

in Milan into a corner. In October the Banca lastly amalgamated the three CBUs into the Banco di San Giorgio.

8 The average size of financial advisors’ portfolios increased from approximately €6.2 million to €6.6 million of assets administered

over twelve months.

9 BDG closed its Geneva branch in June 2012.

61


• a Branch of UBI Factor Spa in Krakow in Poland;

• 37 commercial co-operation agreements with foreign banks (covering more than 50

countries), two “Trade Facilitation” agreements with the European Bank for Reconstruction

and Development (EBRD) and with the International Financial Corporation (IFC) and also a

“product partnership” in the Middle East and in Asia with Standard Chartered Bank to

ensure corporate customers receive effective assistance on all the principal markets in

those areas.

Again in 2012, the UBI Banca Group sponsored events of national and international

importance in order to increase the visibility of its brand in Italy and abroad and to

consolidate its closeness to customers who operate on international markets. It also organised

conventions, meetings and events 12 .

Remote channels

The current progressively deteriorating economic environment has advised optimisation of

geographical market coverage by rationalising the branch network and pursuing a more

prudent policy for opening new units. In this context, the continuous growth and technological

improvement in direct distribution channels is therefore increasingly becoming a strategic tool

for the acquisition of new customers and for the management of relationships with the current

customer base, which also ensures savings on operating costs at the same time.

Therefore, in parallel with targeted closures of conventional bricks and mortar facilities, the

Group is extending multichannel bank services provided through a single platform that

combines all the direct channels available to the private individual and corporate customers of

the network banks: internet and mobile banking, customer services, self service branches

such as ATMs and kiosks, cards and evolved payment systems and POS terminals.

In addition to the attractiveness of the economic conditions compared to standard conditions

available at branches, the integrated multi-channel service provides increasingly broader

guarantees in terms of security, accessibility 24 hours a day, seven days a week and the

ability to customise to suit the characteristics of the users.

Channels available to customers include:

• the QUI UBI internet banking service for information on banking positions (current

accounts, securities deposits, payment cards, mortgages, insurance policies, etc.) and to

10 An operation to transfer control of this company from its previous parent company, Banque de Dépôts et de Gestion Sa, to UBI

Banca International Sa was completed on 30 th May 2012. Following this, the company changed its name from BDG Singapore

Private Ltd to UBI Capital Singapore Pte Ltd, its present name.

11 The company will change its name to Zhong Ou Fund Management Co.

12 The very many initiatives included the following:

- sponsorship by the representative office in Mumbai of the 8 th annual Indian Trade & Export Finance Conference held in

February;

- the contribution made by UBI Banca to the organisation of the twelfth International Conference of Russian Bankers and

Businessman, held in Rome on 23 rd and 24 th February. Staff members of the UBI Banca addressed issues regarding the economic

situation in the euro zone and relations between Italy and Russia, with a focus on the corporate market;

- collaboration by the representative office in Moscow in the organisation in March of the business mission in Russia, dedicated to

the food and agriculture sector, designed to organise meetings between companies from Brescia and Russia;

- participation on 19 th March as the exclusive banking sponsor in the 9 th edition of the China Trader Award, an important and

prestigious prize for Italian companies that have excelled in the development of business relations with Hong Kong and China;

- the presence of the Group's representative in Moscow as speaker at the convention, “Doing Business in Russia: what

opportunities for Italian companies with the entry of Russia into the WTO?" held in Milan on 28 th March 2012. The speech

focused on the local financial system, on the presence of the Italian banking system, on the methods of financing and on the

means of payment and risk hedging instruments;

- participation in May by the representative office in San Paolo in the multi-sector, joint Government-Regions-Chambers of

Commerce mission in Brazil, organised by the Ministry of Economic Development in co-operation with the Agency for the

Promotion Abroad and the Internationalisation of Italian businesses (ICE);

- the participation of the Group as main sponsor of INDIA DAY, an event organised by the MIP-Polytechnic of Milan held on 27 th

September to describe the country's economic situation, the main legal and financial problems and the services for Italian

companies;

- the third edition of the ”International Open Day” initiative designed to promote the internationalisation of Italian businesses. The

event was held at the Milan Trade Fair in Rho from 7 th to 9 th November and in Bari on 12 th November.

62


perform numerous payment and investment transactions autonomously, with maximum

security, speed and savings. The “Affari” (business) version for small business customers

provides access to specific additional functions for single bank management of a company,

which include the payment of single or multiple bills of exchange and the management of

commercial portfolios. The “Imprese” (Companies) version, which operates using the

services of the corporate banking interbank (CBI) platform, allows corporate clients to

consult their accounts remotely and to make payments with many advantages. These

include considerable savings in time, the optimisation of cash flows, improved organisation

of administrative activities, the automation of record making processes and the verification

and reconciliation of bank transactions. The authorised users may also see and operate on

the accounts of all the companies belonging to its particular group of companies;

• Customer Services, contactable on a toll free number even outside normal branch opening

times, available to customers less likely to use the internet or who do not have a

connection; 13 ;

• the Mobile Banking service for customers who wish to use the main internet banking

functions directly from their tablets, Blackberrys and smartphones, in the latter case

including the optimised version of the website (www.quiubi.it/m);

• a network consisting of over 2,300 self service facilities (ATMs and kiosks), which are

decreasing in number due to the rationalisation of the branches over the course of the year,

including over 300 able to deposit payments in cash and cheques using a “Bancomat” debit

card or the free-of-charge VersaQuick card (evolved ATMs) 14 .

At the end of the year the number of QUI UBI service customers grew by 15% to 1.07 million

(there were 928 thousand in 2011). This performance was driven by encouraging trends for

internet banking (up by 19.7% to 927 thousand users compared to 775 thousand at the end of

2011) including QUI UBI Business, for which users were over 112 thousand in December, up

from over 90 thousand twelve months earlier (+24.3%).

As concerns mobile banking, the number of monthly accesses to the site optimised for cell

phone navigation increased more than twofold to over 230 thousand (approximately 100

thousand in 2011), while approximately 100 thousand dedicated apps were downloaded.

The popularity with customers was also confirmed by the results for use over twelve months:

• +35%, to over 8.1 million, for payment and reload transactions;

• 54% of securities trades on regulated markets performed via internet;

• over a fifth of payments made using evolved ATMs;

• more than 2.8 million commercial contacts (2 million incoming and 800 thousand outgoing)

and over 37 thousand e-mails managed by customer services.

The initial results for the online sales platform launched in October 2011 are encouraging,

with 9,800 requests completed online and approximately 2,500 products sold.

These results were also assisted by continuous improvements made as follows:

• the trends on the platform for online sales of the Enjoy card and of QUI UBI from the

ubibanca.com commercial website and the quiubi.it site;

• the launch of numerous commercial initiatives to support the online sales of the prepaid

Enjoy card: including "Enjoy Your Summer", "Enjoy Your Card", “Enjoy & Fly” and “Enjoy &

Win”, the latter by using the Facebook social network to involve the greatest number of

potential customers;

• the expansion of the platform for small business and private customers with new

consultation functions (overall viewing of the commercial portfolio and “RiBa” automatic

electronic payment due date notification), payment functions (refusal to pay Ri.Ba.s) and

functions dedicated to increasing the security level of payment cards (e-mail alerts on

denied transactions);

13 Customer relationship and consultation activity was further expanded in the first half of 2012 with the opening of a new centre at

Varese, in addition to those already in operation at Brescia and Milan.

14 A new experimental software application “Qui Multibanca plus” will be piloted in 2013. It will enable new consultation and payment

services to be developed on the Group’s Bancomat debit card ATMs and will also allow marketing messages to be sent, matched to

customer profiles.

63


• the release of a virtual assistant (avatar) available in the area reserved for QUI UBI and QUI

UBI affari business internet banking, used for marketing initiatives to customers;

• the launch of the "Come over to QUI UBI and win!" competition to encourage QUI UBI Light

information service users to go over to the QUI UBI profile;

• the completion and development of free apps for all the main instruments on the market

(smartphones, tablets and BlackBerrys);

• the improvement in the graphics and the extension of the functions available on the mobile

site www.quiubi.it/m;

• the development of the "My accounts" service with the availability of new documents on safe

deposit boxes 15 .

New initiatives are also planned for 2013, designed to generally improve the services on offer.

These include the following: the development of the online sales platform with an increased

range of products that can be purchased (such as the QUBI’ modular account and non-life

banc assurance products); the development of an innovative demo of the multichannel bank

designed to help customers become familiar with the various channels available for banking

services; the development of a virtual assistant and the ability to provide reply to customers’

questions via an innovative semantic engine and the launch of a new site dedicated to UBI

Banca Private & Corporate Unity.

Cards and payment systems

Despite the continuing difficult economic market conditions, the UBI Banca Group continues

to be very active in the payment card business, on the one hand by seeking the most up-todate

technological solutions and, on the other, by conducting an effective campaign to support

the products offered.

The total number of Libra credit cards issued by UBI Banca and CartaSi amounted to

approximately 723 thousand. This decrease of 3.9% compared to the more than 752 thousand

units of the previous twelve months also marks the effect of the migration towards cards with

microchips which occurred in 2011, leading to a contraction in the numbers of inactive cards.

The negative performance of the economy was reflected in the 3.8% fall in the use of cards.

The range currently offered by the UBI Group is differentiated by type of user:

• private individual customers can choose between charge cards and revolving or flexible

cards (with repayment either of the balance or in instalments) of different varieties

according to the market (retail or private banking);

• companies, on the other hand, are offered business and corporate cards which vary

according to the credit limit and the services.

The merger by incorporation of B@nca 24-7 into UBI Banca on 23 rd July brought about the

internalisation in the Parent of the management of the existing cards and activities to issue

new Libra and Kalìa cards. This guaranteed continuity of the service offered to customers

which even improved in the areas reserved for the www.cartalibra.it and www.cartakalia.it

sites, which became accessible through direct connection from QUI UBI banking.

THE good performance by prepaid cards continued with total exceeding cards in December

which exceeded 269 thousand, a 21% increase over twelve months, mainly due to the success

of the Enjoy card, the prepaid card associated with an IBAN number and to the connected

commercial initiatives. In detail:

• Enjoy Special Edition, the card for Group employees issued in December 2011, which

allows a donation to be made to charitable projects;

15 As at the end of December the number of customers who had agreed to forgo receipt of hardcopy correspondence reached

approximately 598 thousand (+48% compared to 404 thousand at the end of 2011), while the number of ordinary and deposit

accounts using the “My accounts” service increased by an equally significant number (+51% to 837 thousand).

64


• Enjoy UBI Community, the card with a customised design and special terms and conditions

reserved for employees of non-profit organisations;

• Enjoy Pension, a card with special terms and conditions designed for pensioners who do

not have current accounts. Pensions can be credited to these with no limits on the amount;

• Enjoy S.I.P., the card dedicated to members of the Italian Paediatric Association featuring

customised graphics with special terms and conditions, sold both in branches and via

remote selling.

The positive reception by the public of prepaid cards is also seen in the increase by over 15%

in their use.

The number of debit cards issued by the Group was around 1.43 million with an increase of

6% over December 2011. The use of card also increased (+7.5% for purchases with

PagoBancomat debit cards and +4.6% for withdrawals).

Over the year the Group continued with its commercial initiatives aimed at consolidating its

current user base and at attracting new potential customers. Some of them were founded on

the principles of integrated multichannel services, resorting in sequence to other channels for

contacting customers (texting, newsletter, banners in the QUI UBI reserved section, phone

calls from customer services) 16 .

Action was also taken to support people affected by the earthquake in Emilia Romagna, Veneto

and Lombardy which took the concrete form of deferment of repayments on the Libra cards

with instalment options and on the Libra Extra/Extra Plus cards as well as the exemption

from commissions for withdrawals at ATMs made using Libramat debit cards both in Italy and

abroad.

The most significant technological innovation launched in 2012, however, was the realisation

of the pilot project "Enjoy Mobile Payments" presented to the market in January 2013. It

involves the virtualisation of a card (Enjoy) on a telephone SIM and the ability to make

payments using NFC smartphones on contactless POS terminals 17 .

As concerns payment systems, the Group also has over €60 thousand POS terminals installed

in retail outlets, slightly down on the previous year (-2%), the result of streamlining the

geographical market coverage of the network banks on the one hand and of the unfavourable

economic situation on the other. By contrast, volumes of business remained stable

(Visa/MasterCard) or increased slightly (PagoBancomat).

The necessary adjustments were completed over the twelve months to comply with legal

provisions requiring the elimination of commissions on petrol refuelling for amounts lower

than €100.

During the year in particular, in accordance with Regulation No. 260/2012 (the European

regulation issued with immediate effect on 30 th March 2012, which establishes the technical

and commercial requirements for credit transfers and direct debits in euro and amends

Regulation EC 924/2009):

• the commissions on all “foreign” credit transfers in the EEA 18 have been set at the same

level as those for domestic transfers, regardless of the amount of the transaction;

• activities continued for the migration by February 2014, as required by the Regulation, of

all domestic payment instruments (direct debits and credit transfers) to the corresponding

SEPA payment instruments (Sepa Direct Debit 19 and Sepa Credit Transfer respectively).

In addition to its constant technological improvement of existing products, 2013 will see the

Parent Company also engaged in:

- the launch of a new prepaid card with microchip technology which will change part of the

typical additional functionalities of the Enjoy card but this will be offered to customers who

are minors, to non-residents and to business customers;

16 The “Experience the magic of Paris” and “A weekend for a true connoisseur” competitions and the commercial campaigns were used

to increase cross selling with the offer of Libramat and Libra Classic cards and free membership for the first year.

17 See the section “Research & Development” for further details.

18 In addition to the 27 countries of the European Union, the European Economic Area also includes Iceland, Norway and

Lichtenstein.

19 In order to complete the range of services provided for businesses, marketing of the Sepa Active Direct Debit service will be

launched in the first half of 2013. The service will allow these customers to present payment collection instructions in euro to its

debtor customers within the SEPA area.

65


- in the progressive extension of the Contactless payment methods to other types of cards

(currently this opportunity is basically limited to the Enjoy card), and in the start-up of

replacement of the current POS terminals with equipment for Contactless technology;

The positioning of the Group

The table summarises the

market positioning of the UBI

Group in terms of branches,

conventional funding (excluding

bonds) and lending, both with

respect to the national and to

the regional and provincial

markets where the banks

operating in the Group have a

more significant presence.

The information is based on the

most recent data made available by

the Bank of Italy: 30 th September

2012 for branches and 31 st

December 2012 for the balance

sheet items, considered in relation to

branch location.

Despite the action taken to

rationalise the distribution

network in February 2012,

marginal differences can be

seen in terms of market share

for branches compared to end of

2011 data.

More specifically, the market

share of the Group at national

level was 5.4%, with market

shares again higher than 10%

in 15 Italian provinces, together

with a substantial presence in

Milan (9%) and Rome

(approximately 4%).

As concerns market share for loans,

the decrease for the Province of

Bergamo and, to a lesser degree, for

Lombardy is due mainly to

outstanding loans of the former

B@nca 24-7 contributed to the

Parent in July, affected by both an

organic reduction and by the

absence of grants of non-captive

loans, following the discontinuation

of distribution through indirect

networks.

UBI Banca Group: market share (*)

30.9.2012

Branches

Funding

(**) (***)

Lending

(***)

Branches

Funding

(**) (***)

Lending

(***)

North Italy 6.3% 5.9% 6.6% 6.4% 6.3% 6.8%

Lombardy 12.8% 10.0% 9.8% 12.9% 10.7% 10.0%

Prov. of Bergamo 21.2% 30.3% 40.6% 21.0% 32.3% 43.1%

Prov. of Brescia 22.4% 36.1% 35.7% 22.8% 35.8% 35.8%

Prov. of Como 5.8% 5.4% 8.3% 6.0% 5.8% 8.0%

Prov. of Lecco 5.9% 5.7% 7.2% 5.8% 5.1% 6.7%

Prov. of Sondrio 8.1% 1.7% 3.3% 8.1% 1.7% 3.6%

Prov. of Mantua 5.1% 3.3% 3.7% 5.6% 3.6% 4.3%

Prov. of Milan 9.1% 4.8% 3.8% 9.2% 5.1% 4.0%

Prov. of Monza Brianza 8.3% 7.1% 9.8% 8.2% 8.0% 8.8%

Prov. of Pavia 15.1% 15.1% 11.4% 15.6% 16.6% 11.9%

Prov. of Varese 23.3% 28.3% 20.7% 23.0% 30.3% 21.1%

Piedmont 8.3% 5.3% 6.3% 8.3% 5.6% 6.3%

Prov. of Alessandria 12.0% 7.6% 10.4% 11.7% 8.4% 10.0%

Prov. of Cuneo 23.8% 21.3% 16.5% 24.2% 22.3% 16.9%

Prov. of Novara 4.6% 3.5% 6.6% 4.6% 3.2% 7.0%

Liguria 6.0% 5.0% 7.8% 6.0% 5.2% 8.2%

Prov. of Genoa 4.9% 4.4% 7.2% 4.8% 4.6% 7.7%

Prov. of Imperia 6.0% 3.4% 9.1% 5.8% 3.6% 9.2%

Prov. of Savona 6.6% 3.5% 9.4% 6.3% 3.5% 10.1%

Prov. of La Spezia 9.0% 11.1% 7.0% 10.1% 12.2% 7.2%

Central Italy 3.3% 2.6% 2.5% 3.5% 3.1% 2.5%

Marches 7.8% 8.8% 8.8% 8.1% 9.4% 9.0%

Prov. of Ancona 9.5% 13.3% 11.8% 10.0% 14.1% 11.8%

Prov. of Macerata 8.4% 9.7% 8.8% 8.8% 11.5% 9.7%

Prov. of Fermo 10.8% 10.5% 15.0% 10.8% 9.5% 14.0%

Prov. of Pesaro and Urbino 6.2% 3.7% 4.6% 6.9% 4.1% 4.8%

Latium 4.2% 2.5% 2.6% 4.2% 3.2% 2.6%

Prov. of Viterbo 14.0% 11.9% 11.1% 14.7% 13.4% 11.5%

Prov. of Rome 3.9% 2.4% 2.5% 3.9% 3.2% 2.5%

South Italy 7.8% 6.5% 5.3% 8.2% 6.9% 5.3%

Campania 5.6% 4.3% 4.2% 5.8% 4.4% 4.2%

Prov. of Caserta 8.7% 6.9% 7.7% 9.0% 6.9% 7.0%

Prov. of Salerno 7.5% 5.3% 5.9% 7.9% 5.7% 6.3%

Prov. of Naples 4.6% 3.8% 3.4% 4.8% 3.9% 3.3%

Calabria 20.6% 20.8% 14.3% 22.1% 21.3% 14.1%

Prov. of Catanzaro 13.6% 16.1% 9.9% 14.2% 16.0% 10.1%

Prov. of Cosenza 24.2% 27.1% 19.5% 25.7% 27.8% 19.1%

Prov. of Crotone 16.2% 11.8% 7.5% 18.9% 11.8% 7.1%

Prov. of Reggio Calabria 20.6% 16.1% 11.3% 22.4% 17.1% 11.3%

Prov. of Vibo Valentia 24.3% 28.2% 19.0% 26.3% 28.4% 18.6%

Basilicata 13.8% 11.8% 8.8% 14.3% 11.8% 8.9%

Prov. of Matera 15.0% 10.8% 7.5% 15.7% 10.5% 7.3%

Prov. of Potenza 13.3% 12.5% 9.6% 13.7% 12.7% 9.8%

Apulia 7.7% 6.7% 4.9% 8.1% 7.2% 4.8%

Prov. of Brindisi 9.9% 8.1% 5.4% 12.0% 9.5% 5.9%

Prov. of Bari 9.8% 7.9% 5.4% 10.0% 8.6% 5.4%

Prov. of Barletta Andria Trani 6.5% 5.7% 4.9% 6.4% 6.4% 5.1%

Prov. of Taranto 8.0% 7.1% 5.3% 8.4% 7.3% 5.4%

Total Italy 5.4% 5.0% 5.4% 5.6% 5.3% 5.6%

(*) The financial data is taken from Bank of Italy statistics.

31.12.2012

31.12.2011

(**) Current accounts, certificates of deposit, savings deposits.

As a result of the characteristics (***) Market share by location of the branch.

of the two original groups, in

some areas where the Group’s presence is stronger, it continues to have a market share of

conventional funding and/or lending that is greater than the percentage of branches.

66


Human Resources

The composition of Group staff and changes in 2012

Group personnel

Employees actually in service

31.12.2012 31.12.2011 Changes 31.12.2012 31.12.2011 Changes

Number A B A-B C D C-D

Banca Popolare di Bergamo Spa 3,697 3,723 -26 3,787 3,795 -8

Banco di Brescia Spa 2,555 2,584 -29 2,577 2,594 -17

Banca Carime Spa 2,143 2,183 -40 2,278 2,320 -42

Banca Regionale Europea Spa 1,899 1,932 -33 1,982 1,996 -14

Banca Popolare Commercio e Industria Spa 1,676 1,713 -37 1,859 1,896 -37

Banca Popolare di Ancona Spa 1,675 1,711 -36 1,762 1,798 -36

UBI Banca Scpa * 1,412 1,465 -53 2,328 2,359 -31

Banca di Valle Camonica Spa 346 348 -2 341 345 -4

Centrobanca Spa 300 316 -16 310 316 -6

IW Bank Spa 202 280 -78 210 296 -86

UBI Banca Private Investment Spa 163 165 -2 149 153 -4

UBI Banca International Sa 101 98 3 93 93 -

Banque de Dépôts et de Gestion Sa 62 68 -6 62 67 -5

TOTAL FOR BANKS 16,231 16,586 -355 17,738 18,028 -290

UBI Sistemi e Servizi SCpA 2,061 2,021 40 762 676 86

UBI Leasing Spa 244 255 -11 223 245 -22

Prestitalia Spa * 170 104 66 83 96 -13

UBI Factor Spa 151 153 -2 138 144 -6

UBI Pramerica SGR Spa 145 142 3 117 120 -3

UBI Fiduciaria Spa 22 24 -2 17 17 -

UBI Academy SCRL ** 16 - 16 - - -

UBI Capital Singapore Pte Ltd 10 18 -8 10 16 -6

BPB Immobiliare Srl 9 9 0 4 4 -

UBI Gestioni Fiduciarie Sim Spa 7 7 - 4 4 -

Centrobanca Sviluppo Impresa SGR Spa 6 6 - 2 2 -

Coralis Rent Srl 4 5 -1 - - -

UBI Trustee Sa 4 4 - 4 4 -

UBI Management Company Sa 3 3 - 3 3 -

S.B.I.M. Spa 1 1 - - - -

TOTAL 19,084 19,338 -254 19,105 19,359 -254

Workers on staff leasing contracts 2 31 -29 2 31 -29

TOTAL PERSONNEL 19,086 19,369 -283

Employees on the payroll

On secondment outside the Group

- out 28 30 -2

- in 7 9 -2

TOTAL WORKFORCE 19,114 19,399 -285 19,114 19,399 -285

* On 1 st July the contribution to Prestitalia of the B@nca 24-7 line of business consisting of salary backed lending operations became effective. On the

following 23 rd July Banca 24-7 was merged into UBI Banca.

** In July 2012 UBI Academy was formed, without staff transfers. Staff from the consortium company, previously working in the Training Service were

transferred.

The table above gives details for each company of the actual distribution of employees (workers on permanent and temporary contracts,

and on apprenticeship contracts) within the Group as at 31 st December 2012, adjusted to take account of secondments to and from other

entities within or external to the Group (column A) compared with the position at the end of 2011 (column B) restated on a consistent basis.

Column C, on the other hand, gives details for each company of the number of employees on the payroll as at 31 st December 2012

compared with the end of 2011 also restated on a consistent basis (column D).

Compared to the figures published in the previous annual report, staff numbers as at 31 st December 2011 were adjusted as follows:

staff numbers at Banca Carime and Banca Popolare di Ancona increased by one including two reinstatements in the first quarter, due to

INPS (National Insurance) failing to recognise pension entitlements following retirement;

the UBI Banca workforce was restated to include the B@nca 24-7 and Silf mergers effective 23 rd July and 21 st December 2012. The total

figures also include a limited number of staff transfers to Prestitalia on 1 st July 2012, following the contribution of salary backed

operations;

the IW Bank workforce was restated to include the InvestNet International merger, effective 23 rd July 2012;

the Banca Regionale Europea workforce was restated to include the Banco San Giorgio merger, effective 22 nd October 2012;

UBI Insurance Broker was not included in the Group workforce due to the disposal of the company effective 31 st December 2012.

67


At the end of 2012, the total workforce of the UBI Banca Group numbered 19,086, compared

to 19,369 in December 2011 1 a decrease of 283.

These trends are the result of the almost complete elimination of workers on staff leasing

contracts (-29 contracts, almost all in the network banks), but is principally due to the

reduction in the workforce in terms of employees (-254), nearly half of which concentrated in

the fourth quarter.

Reductions in staff numbers reflects the efforts made to generate generalised efficiencies in all

Group companies, at the same time as the geographical and operational reorganisations that

accompanied the two large-scale branch rationalisations undertaken last year (in February

and December), in addition to the changes to units at the Parent, in the network banks and

the Service Companies.

The apparent exception of Prestitalia (+66 employees) was due to the contribution to that

company of B@nca 24-7 operations consisting of salary and pension-backed loans which

required an increase in the workforce using internal Group staff from governance and

operating units.

Furthermore, the increase recorded in staff numbers at UBI Systems and Services (+40

employees), is to be seen in relation to the transfer to that Company of the IW Bank operations

consisting of IT, Back Office, Security and Logistics operations, which involved the transfer of

78 employees, effective from 1 st December.

The decline in staff numbers includes 60 staff leaving after accepting leaving incentive

proposals for employees covered by the safeguards of the "Salva Italia" (Save Italy) decree,

launched in March, and completed within the following three months.

The table gives details of changes in the

type of employee contract, with a total

decrease in employees on the pay-roll over

twelve months of 254 (228 of which on

permanent contracts).

This change is due to:

- 456 staff leaving, of which 112

voluntarily, 109 retired (100 early

on incentive schemes) and 143 for

end-of-contract;

Employees on the payroll

Number 31.12.2012 31.12.2011 Change

Total employees 19,105 19,359 -254

of which:permanent 19,010 19,238 -228

on temporary contracts 87 104 -17

apprentices (*) 8 17 -9

(*) Contract for young people between the ages of 18 and 29, by which they acquire a

qualification through training at work which provides them with specific

occupational skills. The duration varies from a minimum of 18 months to a

maximum of 48 months.

- 202 new appointments composed of 61 permanent contracts and 141 temporary

contracts. The latter include the quota of 44 seasonal employees at BPB Immobiliare,

with the remainder being temporary staff hired to support company operations in

2012.

Apart from company

mergers, 586 employees

were involved in

intragroup transfers.

As shown in the table no

significant changes in the

composition of personnel by

rank occurred.

Composition of personnel in Group Banks by rank

Number 31.12.2012 % 31.12.2011 %

Senior managers 379 2.2% 391 2.2%

Middle managers 3rd and 4th level 3,250 18.3% 3,264 18.1%

Middle managers 1st and 2nd level 3,904 22.0% 3,886 21.5%

3rd Professional Area (office staff) 9,992 56.3% 10,256 56.9%

1st and 2nd Professional Area (other staff) 213 1.2% 231 1.3%

TOTAL FOR BANKS 17,738 100.0% 18,028 100.0%

1 The figures published in the consolidated Financial Statements as at 31 st December 2011 (19,405 employees) included 38 staff

working in UBI Insurance Broker, sold in 2012; but on the other hand, did not include the 2 employees (from the Banca Carmine

and Banca Popolare di Ancona) re-employed during the first quarter of 2012.

68


As at 31 st December 2012 the average age of Group employees was 45 years and two months,

compared to 44 years and four months at the end of 2011, reflecting lower staff turnover,

while the average length of service was between 18 years and six months, compared to 17

years and seven months a year before.

The percentage of part-time employees was 8.6% (7.9% at the end of 2011). Female staff made

up 36.9% of the total, unchanged compared to 36.8% the year before.

Further details in trends and in the composition of the Group workforce are given in the 2012

Social Report, which may be consulted.

***

As concerns the fourth quarter, staff numbers fell by 128 which mainly affected employees (in

total -126), due also to a number of temporary contracts coming to an end (28). Staff on

agency leasing contracts were also affected by contracts ending, with a reduction of two in the

quarter.

Redundancies for the period do not include staff leaving under the trade union agreement of

29 th November 2012 and the subsequent agreement signed on 12 th February 2013, for a total

of 736 staff at Group level, of which approximately 600 had already left in January.

Remuneration and incentive policies

Details of remuneration and incentive policies are reported in the Remuneration Report which

is given in another part of this document.

The report has been prepared in accordance with the “Supervisory Provisions on remuneration

and incentive policies and practices in banks and banking groups” issued by the Bank of Italy

on 30 th March 2011 and with articles 123-ter of the Consolidated Finance Act and 84-quater of

the Issuers’ Regulations. Reference is also made to public disclosure requirements under Pillar

III published in July 2011 by the Basel Committee on Banking Supervision as regulated by

Bank of Italy Circular No. 263 of 27 th December 2006 and subsequent amendments.

Further information is given on the matter in the UBI Banca report on corporate governance,

again in an attachment to this document.

Personnel management policies and instruments

In a particularly difficult economic context like that of the present, the combined skills and

professional abilities of each staff member represent a fundamental and strategic asset to the

Group. Now more than ever, fostering professional development means growing the intellectual

capital of the Group to create competitive advantages which will provide stability and reliability

to the Group's performance in the long term. We strongly believe that the strength of the

Group is its people and their value, and for this very reason, we have an on-going commitment

to the development of our human resources, their professional skills, and abilities, to ensure

that at every opportunity we nurture these skills and confirm the strategic importance of each

role. To achieve these objectives in a more uniform and synergetic manner, a shared vision of

management development and policies was outlined and implemented, taking into account the

individual requirements of each member company.

With this in mind, all the Group member companies have now adopted a standard role

system, and tools for skill assessment, performance assessment, and measurement of

69


potential. These tools are used to increase knowledge of human resources and to define

actions consistent with supporting their career growth and development in terms of training

requirements, horizontal and vertical mobility, financial rewards, as well as cross company

transfers inside the Group structure.

Yearly measurement of potential and skill assessments were carried out respectively on 98.7%

and 91.2% of the Group staff.

In 2012, over 200 interviews were carried out using these "managerial appraisal" tools to

protect key roles in terms of new marketplace challenges and to promote the identification of

managers, consistent with the Group strategic goals in terms of organisational change. These

interviews are also an important instrument in identifying targeted career paths and to allow

for management engagement with the Group's key human resources.

Similarly, in order to foster opportunities for professional development, over 300 staff were

assessed in terms of their professional potential, 50% of which were Branch network

commercial managers. The results of these assessments will determine access to career paths

for future Branch Managers.

On the basis of these results, and during the year, in partnership with the Polytechnic of

Milan, an advanced career development course focused on the young talent within the Group

was launched, whereby they enrolled in a two year post-graduate Masters course. (the

following section specifically on training programmes may be consulted in this respect). At the

same time, and as happened in the past, specific career development training courses were

launched for other staff that were also assessed with the aim of strengthening their weakest

skills and competencies.

Trade Union relations

At the beginning of 2012 a process was implemented with the aim, on the one hand, of

rationalising the Group branch network, and on the other of revising the distribution model in

Banca Popolare Commercio e Industria, involving the introduction of the "Head Branch-Group

Branch” model, already effective in all Group companies, and fully and finally implemented in

February. The impact on staff working conditions only involved some limited geographical

mobility requirements.

As part of finalising the agreed procedures, on the 20 th April two trade union Memorandums of

Intent were signed relating to the B@nca 24-7 merger into UBI Banca, following the

contribution to Prestitalia of the B@nca 24-7 line of business consisting of salary backed

lending operations:

with regard to the B@nca 24-7 merger into UBI Banca, the parties shared the joint mission

of identifying appropriate solutions to minimise the impact on employees affected, by

introducing specific policies relating to insurance cover, supplementary pension benefits,

part-time contracts, and geographic mobility. Mobility itself was limited through identifying

opportune organisational actions to ensure that the distribution of the activities across

various geographic areas was optimised. With the aim of maximising human and

professional capital, particular importance is attributed to retraining and professional

development programmes for staff involved in occupational mobility processes and also for

staff required to work on a different IT system;

a memorandum of intent was signed with trade unions, to regulate overall treatment under

labour agreements with regard to both pay and conditions, for staff involved in the transfer

to Prestitalia, in relation to the contribution to Prestitalia of B@nca 24-7 salary and pension

backed loan operations.

In May 2012 the process commenced of transferring the training and managerial professional

development activities of Group companies to the consortium company UBI Academy. The

70


implementation of this programme involved transferring activities previously undertaken by

the UBI Banca Training Department and launching them at the same time at UBI Academy.

This operation which commenced on the 10 th of July did not impact on the relevant staff

involved, neither in terms of geographical mobility, nor in terms of their legal or professional

status.

Again in May negotiations commenced relating to the merger of Banco di San Giorgio into

Banca Regionale Europea and they were concluded with the signing of a trade union

memorandum of intent on 30 th of May. This operation formed part of a broader project

designed to strengthen the position of the UBI Banca Group both in terms of commercial

effectiveness and operational efficiency and its purpose was to simplify the Group structure

through the creation of a single operational unit focused on the north west of the country. This

required adopting limited geographic mobility measures, some transitory, in conjunction with

suitable professional qualification courses and retraining programmes for certain staff.

Agreements were signed at the end of June and the beginning of July at the network banks,

the Parent UBI Banca and UBI Sistemi e Servizi with trade union organisations for the

payment of company bonuses (“employee value added”) relating to 2011. It was agreed during

these negotiations, having examined company performances for the period and with account

taken of the overall economic situation and specifically in relation to the credit sector, to

introduce new, innovative instruments with, in addition to a cash payment, also a “welfare

plan” option which will allow staff to allocate their remuneration to finance services of a social

nature (e.g. educational expenses). Similar discussions commenced in July with the trade

unions at the product companies resulted in the signing of relevant agreements.

In October procedures commenced for the merger of Silf Societa Italiana Leasing and

Finanziamenti Spa into UBI Banca, with the signing of a trade union agreement on the 12 th of

November. The company integration, within the framework of the overall reorganisation of the

consumer lending arm, did not in itself cause any job losses, nor was any geographical

mobility required of the staff.

Again in October procedures for the transfer of the IW Bank operations to UBI Sistemi e

Servizi took place, concluding with the trade union agreement on the 6 th of November. The

transfer, consistent with the Group service model which involves assigning support and

service activities to UBI.S for all companies in the consortium group, will allow IW Bank to

better focus on its own business activity.

This did not create any job losses at IW Bank and did not have any significant impact on the

staff involved, except to a limited degree in terms of geographical mobility.

In December the Trade Unions were sent the legislative information regarding UBI Banca’s sale

of the controlling share packet in UBI Insurance Broker to Marine & Aviation JTL Spa.

This operation did not have any impact on the working conditions of UBI staff transferred to

the company.

Finally negotiations were commenced on 28 th February 2013 in relation to the merger of

Centrobanca into the Parent.

Training

UBI Academy, the corporate university of the UBI Group, was established on the 2 nd of July 2012. It was

formed as a consortium between UBI Banca, the network banks, UBI.S and the main product companies, to

study, plan, advise and provide training and professional managerial development programmes for staff

employed in the Companies of the UBI Banca Group.

Therefore, from the second half onwards, all activities relating to planning and management of professional

training programmes of the Group were carried out by UBI Academy.

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The key elements of its mission are:

- the clear link between the training courses and overall company strategy in terms of the company's

culture of quality and customer-focus, with the consequent support and involvement extending to all the

main players on the corporate management team;

- forward-thinking and innovation;

- the creation of partnerships with national and international institutes of learning (universities, business

schools, consultancy businesses, research centres) adding value to the In-house School of Teachers;

- the use of training practices that complement classroom-based programmes in terms of offering

innovative distant learning and experience-based training channels;

- a focus on adding value to local communities, fostering social promotional initiatives in addition to

promoting cultural events and activities, research and third-level training.

Based on the key strategies of the Parent, UBI Academy proposes the launch of training and professional

development initiatives based on the virtuous balance of three fundamental elements: "Knowledge"

(continued growth of overall knowledge, information, etc., specialisms), "Know-how" (development of skills

for the practical implementation of the acquired Knowledge) and "Will do" (fostering and developing

exemplary behavioural models leading to efficient delivery of services)

Training activities by subject areas in 2012

Subject area

Classroom

Remote

training

Internship

Total

person/days

of training

Insurance 14,353 14,280 - 28,633 28.8% 29,716 28.7%

Commercial 14,861 - 489 15,350 15.4% 9,409 9.1%

Finance 5,172 18 157 5,347 5.4% 4,836 4.7%

Credit 5,277 956 1,111 7,344 7.4% 11,380 11.0%

Managerial-Behavioural 9,531 2,903 - 12,434 12.5% 9,732 9.4%

Regulatory 3,991 16,091 - 20,082 20.2% 26,891 26.0%

Operational and other subjects 1,613 1,304 7,351 10,268 10.3% 11,476 11.1%

TOTAL 54,798 35,552 9,108 99,458 100.0% 103,440 100.0%

%

2011

Total %

person/days

Over 100 thousand days (between classroom training, distance learning and development

programmes) with an average of 5.4 training days per employee (5.6 in 2011, 5.2 in 2010),

were allocated to training activities aimed at promoting, developing and adding value to the

technical and professional knowledge-bases as well as to the experience and managerial skillbases,

in addition to the ethical and cultural behaviours within the Group.

The main initiatives implemented in 2012 were as follows:

the extension of the "Value Programme" 2 to other strategic functions in the business; small

business managers, Corporate Account Managers and private bankers;

training programmes to support the launch of the Branch service model "Mass Market

Team", for employees and referred clients;

the training project aimed at honing the skills for new programme developer roles, a focus

point of the new service model for the branch network;

initiatives relating to "Optimising the anti-Money-Laundering Model" to improve employee

knowledge when dealing with customers on anti-money-laundering legislation;

strengthening and educating employees in areas relating to "pricing excellence" and

"customer satisfaction";

strengthening the financial capabilities of the branch network by focusing on financial

markets and asset allocation analyses.

Almost one third of the whole training activity focused on the technical-professional

competencies (commercial, credit and finance operations) of branch staff.

Insurance topics continued to represent a significant proportion of the training programmes

allocated for the year (29%), with programmes differentiated per market and per client

2 These training programmes, already positively implemented with Bank Managers, over the two years from 2010-2011 involve

assessment workshops to identify exemplary behavioural models and the concrete actions required to improve on-going

performances and client relationships.

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segment (private, company) focusing specifically on training and up-skilling employees

involved in insurance brokering activities in accordance with the ISVAP 5/2006 Regulation.

Updates on legislation (20% of the total training) is, as in the past, focused on areas relevant

to banking operations, such as "Transparency", "Enforcing health, and safety in the

workplace" and "anti-money-laundering" as previously mentioned.

The managerial training programme targeting roles of responsibility, not only focused on the

professional development of the whole organisation and managerial spectrum, but specifically

concentrated on employee management and motivation in order to foster a greater sense of

team spirit. Staff were also given access to a programme which allowed them the opportunity

to meet with leading managers, businessmen, academics, and university luminaries to

improve their knowledge in the areas of economics, politics, and sociology.

In a period of enormous shake-ups and changes in the competitive landscapes, it is important

for Management to become involved in these programmes, to ensure they are up to date with

changes in the real world, as well as offering them opportunities to reflect and take stock. This

is a strategic resource for the UBI Banca Group.

With regard to initiatives involving young talent within the Group, forty-five young employees

enrolled in the level II two-year University Masters programme in "Management of banking

companies,” developed in partnership with the Polytechnic Institute of Milan School of

Business.

The entire in-house training team, made up of over 400 employees spent a total of almost 30

thousand days on training (almost 54% of the total training was delivered in the classroom).

The preparation and the up-skilling programmes were structured in the form of training

courses aimed at developing and refining teaching techniques, classroom management, and

the skills of imparting best-practice behavioural models. The trainer's role is not simply one of

transferring knowledge, but the sharing of experiences, positive examples and exemplary

behaviours, so that a shared language, company culture, and values can become embedded

throughout the whole region coupled with a sense of belonging to the Group.

***

The 2013 programme based on the "lifelong learning" model (i.e. continuous learning) is

expected to involve a total investment of 90,000 training days, mainly delivered in classroombased

settings and supported by distance learning and "on the job" training programmes.

Amongst the initiatives planned for the current business are:

the "Quality in the Bank" project, which envisages a programme of initiatives aimed at creating a

greater sense of appreciation throughout the "sales network" of the importance of the quality of the

service offered;

the strengthening of performance, maximising and re-launching of Affluent Managers (Value

programme). This operation is aimed at endorsing exemplary commercial behaviours and at

strengthening the distinctive competencies and performances of Affluent Managers within the

commercial and financial areas;

the strengthening of "excellent competencies" in the new UBI Private and Corporate Unity, with high

level training courses focused on the competencies of Managers and Wealth Bankers;

consolidating the training programme aimed at supporting the Mass Market team and dedicated to

employees and customer service employees, focused on refining the new service model and the

commercial behaviours expected;

consolidating the training programme for new business development employees, in terms of

competency training and competency up-skilling;

continuation of the training programme on the new credit monitoring tools, to support the

rationalisation of loan performance monitoring processes, launched at the end of 2012;

activities undertaken to outline the 2013 commercial objectives, concentrating on prioritising certain

segments and aimed at educating the Branch Managers on performance management of their own

staff;

developing the Branch Managers and the Managers of the new Private and Corporate units knowledge

of compliance procedures within the Group in relation to operational risks and controls, in addition to

MiFID legislation and Financial planning and consultancy to reinforce exemplary behavioural models

73


elating to controls, and linking these to the management and to the development of the commercial

activities;

maximising the Group's talents through the pursuit of the aforementioned level II University Masters

in "Management of banking companies" and the launch of further initiatives in partnership with other

Universities in the region;

Other specific initiatives in the area of Diversity Management, aimed particularly at

maximising the value of the over 55 groups, on which the Group has focused particular

attention in light of changes relating to pension legislation, to facilitate reintegration

operationally and within the context of staff on long term absences.

The development of the management culture will continue through a renewed workshop

programme organised with leaders from the world of business and academia as well as the

development of knowledge in the field of management and great company strategies offered by

qualified centres of excellence (Business schools, Universities etc.)

A new initiative aimed at developing "entrepreneurial skills,” strategic goals and leadership

qualities will accompany the 2013 management training programme and the on-going

refresher courses.

With the purpose of involving and empowering staff to assume personal responsibility for

maintaining their skills up to date, as well as developing their own competencies, during the

course of 2013 a new e-Learning interface will be launched allowing each individual employee

to assess their own yearly learning goals, specific to each role and to monitor their own

achievement of these goals.

Internal Communications

The new "UBILife" Corporate Group Portal, which went online in the first half of 2012, has

moved on to become a consolidated space permanently accessed by Group employees, with a

total number of 100,000 page views per week.

During the year and after a trial period, the "Job Posting" tool became live in all the banks and

Group companies, advertising all vacant professional positions so that employees, potentially

interested in these roles, could apply automatically, thereby not only promoting internal

mobility but also broadening the candidate pool to cover the roles.

As had already occurred in the two previous years, an easy to consult electronic magazine was

created and inserted in the home page of UBILife in order to provide all Group employees with

prompt information on the UBI Banca Annual General Meeting held on 28 th April 2012. It

contained the main news on the subjects addressed in the meeting, a few photos of the day and

videos of interviews with the Chairmen of the Management and Supervisory Boards and with

the Chief Executive Officer of UBI Banca.

Internal Communication activity also involved the use of institutional videos (UBIClick) to

furnish updates on Group life and strategies.

Multimedia videos were also produced, not only to support daily operations (e.g. the new credit

transfer procedure introduced in February 2012), but also for reports on specific projects and

internal communication initiatives (e.g. the results of the first suggestions box on the

“simplicity programme” and on charitable initiatives undertaken by the Group in 2011).

Of significant importance and greatly used by the Group employees were the information

videos on the reorganisation (November 2012) and leaving incentive scheme and the

suspension/reduction of working hours (December).

In terms of publications, the first edition of the Almanacco YOUBI was printed in April, with

news of the main events involving the Group as a whole as well as individual banks and

companies occurring in 2011 and at the beginning of 2012. The publication was distributed

not only to all employees of the UBI Banca Group, but also to registered shareholders who

attended the UBI Banca Annual General Meeting.

74


In addition the creation of the three monthly "We, UBI trainers”, for employees who took on

training roles within the organisation.

On the 19 th and 20 th of April two annual conventions were held in Vigevano of the Associations

of Retired Personnel of the former BPB-CV and the former BPCI, which saw the overall

participation of over 500 people and provided the opportunity to give updated information on

the consolidated business results for 2011.

In mid-December the solidarity Christmas lunch was organised for disadvantaged people and

families. This is a traditional event for those most in need and made possible thanks to the

commitment across all Group companies and banks. The event took place in every town and

city where the banks and companies have offices, with the involvement of the Bari Bitonto

Caritas Diocese (for the Bari offices) and the Exodus Foundation (for all the other offices). Over

150 employees volunteered to serve lunches to over one thousand guests, including numerous

children.

Finally, on 20 th December, at the New Bergamo Fair, a convention on the subject "

Opportunities in crises" brought together over 1,400 colleagues from all areas of the Group

structure.

In 2013 the range of internal communication tools and initiatives described above, was further

enhanced by several initiatives such as:

UBIPod, or the regular "radio transmissions" that can be heard on the UBILife, intranet

portal, including brief informative discussions on company topics;

the trial launch by the developers, of the first "professional community" space, a special

area of the UBILife portal, to share documents, activities and experiences, specific to groups

of professionals;

the development of UBILife consistent with the organisational transformation of the Group,

through the redefinition of the structure of some of the Portal pages, as well as the on-going

functional improvements to the tools that support work activities.

The working environment and staff welfare

The section “Principal risks and uncertainties to which the UBI Banca Group is exposed” may

be consulted for information on matters regulated by Legislative Decree No. 81 of 9 th April

2008 (health and safety at the workplace), while information on environmental responsibility is

given as part of the information on corporate social and environmental responsibility

contained in the section “other information”.

The main initiatives carried forward in the field of welfare are reported as part of the

information given on corporate social responsibility contained in the section “Other

information.”

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The scope of Consolidation

The companies included in the consolidation as at 31 st December 2012 are listed below,

divided into subsidiaries (fully consolidated), and associates (accounted for using the equity

method).

The percentage of control or ownership attributable to the Group (direct or indirect), their

headquarters (registered address or operating headquarters) and the share capital is also

indicated for each of them.

Fully consolidated companies (control is by the Parent of the Group where no other indication is

given):

1. Unione di Banche Italiane Scpa – UBI Banca (Parent)

registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €2,254,367,552.50 1

2. Banca Popolare di Bergamo Spa (100% controlled)

registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €1,350,514,252

3. Banco di Brescia San Paolo CAB Spa (100% controlled)

registered address: Brescia, Corso Martiri della Libertà, 13 – share capital: €615,632,230.88

4. Banca Popolare Commercio e Industria Spa (75.0769% controlled)

registered address: Milano, Via della Moscova, 33 – share capital: €934,150,467.60

5. Banca Regionale Europea Spa (74.7159% controlled) 2

registered address: Cuneo, Via Rome, 13 – share capital: €587,892,824.35

6. Banca Popolare di Ancona Spa (92.9711% controlled)

registered address: Jesi (Ancona), Via Don A. Battistoni, 4 – share capital: €147,301,670.32

7. Banca Carime Spa (92.8371% controlled)

registered address: Cosenza, Viale Crati snc – share capital: €1,468,208,505,92

8. Banca di Valle Camonica Spa (74.2439% controlled and BBS holds 8.7156%)

registered address: Breno (Brescia), Piazza Repubblica, 2 – share capital: €2,738,693

9. Banque de Dépôts et de Gestion Sa (100% controlled)

registered address: Avenue du Théâtre, 14 - Lausanne (Switzerland) – share capital: 10,000,000

Swiss francs

10. UBI Banca International Sa (91.1959% controlled and 5.4825% held by BBS, 3.1598% held by

BPB and 0.1618% by BRE)

registered address: 37/A, Avenue J.F. Kennedy, L – Luxembourg – share capital: €70,613,580

11. UBI Trustee Sa (100% controlled by UBI Banca International)

registered address: 37/A, Avenue J.F. Kennedy, L – Luxembourg – share capital: €250,000

12. UBI Capital Singapore Pte Ltd (100% controlled by UBI Banca International)

registered address: 47 Scotts Road # 06-01/02, Goldbell Towers, 228233 Singapore – share capital:

10,600,000 Singapore dollars

13. Prestitalia Spa (100% controlled)

registered address: Bergamo, Via A. Stoppani, 15 – share capital: €153,997,228

14. IW Bank Spa (75.3750% controlled and 23.4960% held by Centrobanca) 3

registered address: Milano, Via Cavriana, 20 – share capital: €18,404,795

15. UBI Banca Lombarda Private Investment Spa (100% controlled)

1 This is the share capital as at 5 th February 2013, modified following the exercise of conversion rights.

As at 31 st December 2012, the share capital amounted to €2,254,367,512.50, an increase of €615 compared to €2,254,366,897.50

as at 31 st December 2011, the result of a similar conversion which occurred on 4 th July 2012.

2 The percentage of control relates to the total share capital held.

3 In reality the Group fully controls this online bank, because the remaining shares, amounting to 1.1290% of the share capital, are

held in portfolio by IW Bank (and as treasury shares do not pay a dividend).

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egistered address: Brescia, Via Cefalonia, 74 – share capital: €67,950,000

16. Centrobanca Spa (94.3231% controlled and BPA a 5.4712% interest held)

registered address: Milano, Corso Europa, 16 – share capital: €369,600,000

17. Centrobanca Sviluppo Impresa SGR Spa (100% controlled by Centrobanca)

registered address: Milano, Corso Europa, 16 – share capital: €2,000,000

18. UBI Pramerica SGR Spa (65% controlled)

operating headquarters: Milano, Via Monte di Pietà, 5 – share capital: €19,955,465

19. UBI Management Company Sa (100% controlled by UBI Pramerica SGR)

registered address: 37/A, Avenue J.F. Kennedy, L – Luxembourg – share capital: €125,000

20. UBI Insurance Broker Srl (100% controlled) 4

registered address: Bergamo, Via f.lli Calvi, 15 – share capital: €3,760,000

21. UBI Leasing Spa (98.9927% controlled)

registered address: Brescia, Via Cefalonia, 74 – share capital: €241,557,810 5

22. Unione di Banche Italiane per il Factoring Spa - UBI Factor Spa (100% controlled)

registered address: Milan, Via f.lli Gabba, 1 – share capital: €36,115,820

23. BPB Immobiliare Srl (100% controlled)

registered address: Bergamo, Piazza Vittorio Veneto, 8 – share capital: €185,680,000

24. Società Bresciana Immobiliare Mobiliare - S.B.I.M. Spa (100% controlled)

registered address: Brescia, Via A. Moro, 13 – share capital: €35,000,000

25. Società Lombarda Immobiliare Srl - SOLIMM (100% controlled)

registered address: Brescia, Via Cefalonia, 74 – share capital: €100,000

26. BPB Funding Llc (100% controlled)

registered address: One Rodney Square, 10 th floor, Tenth and King Streets, Wilmington, New Castle

County, Delaware, USA – share capital: €1,000,000

27. BPB Capital Trust (100% controlled by BPB Funding Llc)

registered address: One Rodney Square, 10 th floor, Tenth and King Streets, Wilmington, New Castle

County, Delaware, USA – share capital: €1,000

28. Banca Lombarda Preferred Capital Company Llc (100% controlled)

registered address: 1209, Orange Street the Corp. Trust Center, Wilmington, New Castle County,

Delaware, USA – share capital: €1,000

29. Banca Lombarda Preferred Securities Trust (100% controlled)

registered address: 1209, Orange Street the Corp. Trust Center, Wilmington, New Castle County,

Delaware, USA – share capital: €1,000

30. BPCI Funding Llc (100% controlled)

registered address: One Rodney Square, 10 th floor, Tenth and King Streets, Wilmington, New Castle

County, Delaware, USA – share capital: €1,000,000

31. BPCI Capital Trust (100% controlled by BPCI Funding Llc)

registered address: One Rodney Square, 10 th floor, Tenth and King Streets, Wilmington, New Castle

County, Delaware, USA – share capital: €1,000

32. UBI Fiduciaria Spa (100% controlled)

registered address: Brescia, Via Cefalonia, 74 – share capital: €1,898,000

33. UBI Gestioni Fiduciarie Sim Spa (100% controlled by UBI Fiduciaria)

registered address: Brescia, Via Cefalonia, 74 – share capital: €1,040,000

34. Coralis Rent Srl (100% controlled)

registered address: Milano, Via f.lli Gabba, 1 – share capital: €400,000

35. UBI Sistemi e Servizi SCpA 6 – Consortium Stock Company (70.3592% controlled and 4.3154%

held by BRE; 2.8769% held by: BPB, BBS, BPCI, BPA and Banca Carime; 2.8757% held by IW

Bank; 1.4385% held by: Banca di Valle Camonica, UBI Banca Private Investment, UBI Pramerica

4 The company was sold on 21 st December 2012 and was consolidated at year-end for income statement items only.

5 Following the increase in the share capital subscribed by the Parent in January 2013, the share capital rose to €541,557,810.

6 The Group holds a 98.49% controlling interest in the share capital of UBI.S; 1.44% is held by UBI Assicurazioni and the remaining

0.07% by UBI Insurance Broker.

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SGR and Centrobanca; 0.7192% held by UBI Factor; 0.0719% held by Prestitalia; and 0.0097% held

by UBI Academy)

registered address: Brescia, Via Cefalonia, 62 – share capital: €36,149,948.64

36. UBI Academy SCRL – Limited Consortium Company (68.5% controlled and 3% held by: BPB,

BBS, BPCI, BPA, Banca Carime, BRE and UBI.S; 1.5% held by: Banca di Valle Camonica, IW Bank,

UBI Banca Private Investment, UBI Pramerica SGR, UBI Leasing, UBI Factor and Prestitalia)

registered address: Bergamo, Via f.lli Calvi, 9 – share capital: €100,000

37. UBI Finance Srl 7 (60% controlled)

registered address: Milano, Foro Bonaparte, 70 – share capital: €10,000

38. UBI Finance CB 2 Srl 8 (60% controlled)

registered address: Milano, Foro Bonaparte, 70 – share capital: €10,000

39. Albenza 3 Srl 9

40. Orio Finance Nr. 3 Plc 9

41. 24-7 Finance Srl 10

42. Lombarda Lease Finance 4 Srl 11

43. UBI Finance 2 Srl 12

44. UBI Finance 3 Srl 13

45. UBI Lease Finance 5 Srl 14

46. UBI SPV BBS 2012 Srl 15

47. UBI SPV BPCI 2012 Srl 15

48. UBI SPV BPA 2012 Srl 15

Companies consolidated for using the equity method (the investment is by the Parent where no

other indication is given):

1. Aviva Vita Spa (50% interest held) 16

registered address: Milan, Via Scarsellini, 14 – share capital: €155,000,000

2. Aviva Assicurazioni Vita Spa (formerly UBI Assicurazioni Vita Spa) 16 (49.9999% interest held)

registered address: Milan, Via Scarsellini, 14 – share capital: €49,721,776

3. Lombarda Vita Spa (40% interest held)

registered address: Brescia, Corso Martiri della Libertà, 13 – share capital: €185,300,000

4. UBI Assicurazioni Spa (49,9999% interest held)

registered address: Milano, via Tolmezzo, 15 – share capital: €32,812,000

7 A special purpose entity in accordance with Law No. 130/1999, this company, enrolled on the general list of intermediaries

pursuant to Art. 106 of the consolidated banking act, was formed on 18 th March 2008 to allow UBI Banca to implement a

programme to issue covered bonds on residential mortgages.

8 A special purpose entity in accordance with Law No. 130/1999, this company, enrolled on the general list of intermediaries

pursuant to Art. 106 of the consolidated banking act, was formed on 20 th December 2011 to allow the UBI Banca to implement a

second programme to issue covered bonds on commercial non residential mortgages.

9 Special purpose entities formed in compliance with Law No. 130/1999 for the securitisations performed in 2001 and 2002 by the

former BPB-CV Scrl (Albenza 3 Srl) and by BPU International Finance Plc Ireland – subsequently closed down – (Orio Finance Nr. 3

Plc). They were consolidated because they are in reality controlled, since their assets and liabilities were originated by Group

member companies. The consolidation only concerns those assets subject to securitisation and the relative liabilities issued.

10 A special purpose entity used in compliance with Law No. 130/1999 for the B@nca 24-7 securitisations performed in 2008. It was

consolidated because this company is in reality controlled, since its assets and liabilities were originated by a Group member

company. UBI Banca holds a 10% stake.

11 A special purpose entity formed in accordance with Law No. 130/1999 when a securitisation was performed in 2005 by SBS

Leasing. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by a

Group member company. UBI Banca holds a 10% stake.

12 A special purpose entity used in accordance with Law No. 130/1999 for the securitisation of a portfolio of performing loans

performed by Banco di Brescia at the beginning of 2009. It was consolidated because this company is in reality controlled, since its

assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake.

13 A special purpose entity used in accordance with Law No. 130/1999 for the securitisation of a portfolio of performing loans

performed by Banca Popolare di Bergamo at the end of 2010. It was consolidated because this company is in reality controlled,

since its assets and liabilities were originated by a Group member company. UBI Banca holds a 10% stake.

14 A special purpose entity formed in accordance with Law No. 130/1999 for the securitisation of performing loans by UBI Leasing in

November 2008. It was consolidated because this company is in reality controlled, since its assets and liabilities were originated by

a Group member company. UBI Banca holds a 10% stake.

15 A special purpose entity formed in accordance with Law No. 130/1999 for the securitisation of the performing loans to SMEs of

some network banks (Banco di Brescia, Banca Popolare Commercio e Industria and Banca Popolare di Ancona). They were

consolidated because they are in reality controlled, since their assets and liabilities were originated by Group member companies.

UBI Banca holds a 10% stake in each of them.

16 The companies in the Aviva Group transferred their registered offices and operating headquarters with effect from 1 st November

2012.

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5. Polis Fondi SGRpA (19.6% interest held)

registered address: Milano, Via Solferino, 7 – share capital: €5,200,000

6. Lombarda China Fund Management Company 17 (49% interest held)

registered address: 8F, No.66, BEA Finance Tower, Huayuanshiqiao Road, Pudong New Area,

Shanghai (China) – share capital: 120,000,000 yuan/renminbi

7. SF Consulting Srl (35% interest held)

operating headquarters: Mantova, Via P.F. Calvi, 40 – share capital: €93,600

8. Sofipo Sa (30% interest held by Banque de Dépôts et de Gestion)

registered address: Via Balestra, 12 - Lugano (Switzerland) – share capital: 2,000,000 Swiss francs

9. SPF Studio Progetti Finanziari Srl (25% interest held by BPA)

registered address: Roma, Via National, 243 – share capital: €92,960

10. Prisma Srl (20% interest held)

registered address: Milano, Via S. Tecla, 5 – share capital: €120,000

11. Siderfactor Spa – in liquidation (27% interest held by UBI Factor) 18

registered address: Milano, Via f.lli Gabba, 1/A – share capital: €1,200,000

12. Capital Money Spa (20.6711% interest held)

registered address: Milano, Via Lausanne, 16 – share capital: €2,042,955

13. BY YOU Spa – in liquidation (former Rete Mutui Italia Spa, 10% interest held) 19

registered address: Milan, Viale Vittorio Veneto, 2/A – share capital: €650,000

14. UFI Servizi Srl (23,1667% interest held by Prestitalia)

registered address: Roma, Via G. Severano, 24 – share capital: €150,000

Changes in the consolidation scope

No changes were made to the scope of the consolidation compared to 31 st December 2011,

except for those reported below. Details of the changes are grouped on the one hand into

action taken to rationalise the ownership structure of the Group (consistent with that which

has already been reported in the section “Significant events that occurred during the year”)

and changes which involved shareholdings in banks and other companies.

The following action already announced to rationalise Group structure and activities was

completed in 2012:

• the creation of a single banking operation in the North West

The merger of Banco di San Giorgio into Banca Regionale Europea (decided by the Boards of

Directors of the two banks on 21 st December 2011):

- on 27 th March 2012, the Management Board of UBI Banca and, on 2 nd and 3 rd April

2012, the Boards of BRE and BSG approved the modifications to the parameters for the

merger to take account of the results of impairment tests conducted at the end of 2011.

Those modifications resulted in a new exchange ratio of 2.33 ordinary shares of BRE for

each ordinary share of BSG;

- on 16 th May 2012 the Bank of Italy (with a subsequent addition on 25th May) issued its

authorisation, in accordance with Art. 57 of Legislative Decree No. 385/1993 (the

consolidated banking act), for this business combination transaction, while on 30 th May

2012 the merger plan was filed with and entered into the Register of Companies;

- on 23 rd August, BRE acquired all the shares held by UBI Banca in BSG at a price per

share of €4.344 (as a preliminary step to the merger): 26,001,474 shares (38.1927% of

the share capital) therefore changed hands for €112.9 million;

17 The company will change its name to Zhong Ou Fund Management Co.

18 The company was removed from the Company Register on 3 rd January 2013 following the completion of the liquidation procedures,

for which the accounting allocation took place on 21 st December 2012.

19 The company is consolidated because UBI Banca holds 20% of the voting rights and a pledge on a further 10% of the share capital.

79


- on 17 th September, the resolution of an Extraordinary Shareholders' Meeting of Banco di

San Giorgio (held on 7 th September) which approved the bank’s merger into BRE was

filed with the Company Registrar of Genoa.

- in the period from 17 th September to 2 nd October 2012, a put option, and that is the right

to have one’s shares purchased, was exercised on the basis of valuable consideration

calculated using the same criteria as those used for withdrawal from the company

(article 2437-ter of the Italian Civil Code) and set at €4.40 for each share sold. The put

option, granted by the surviving company in accordance with Art. 2505-bis of the Italian

Civil Code, resulted in the purchase of 1,748,855 shares, with a payout of approximately

€7.7 million, which brought control of BSG by BRE up to 98.2616%. Shareholders who

did not exercise their put option were allotted 2,757,522 newly issued ordinary shares

(inclusive of actual rounded fractions) of the surviving company, on the basis of an

exchange ratio of 2.33 ordinary new BRE shares with a nominal value of €0.65 per

share for each share of BSG held, with a nominal value of €1.50 per share, there being

no provision for cash settlements;

- on 22 nd October 2012 the merger of Banco di San Giorgio into Banca Regionale Europea

became effective, while for accounting and tax purposes the transaction took effect from

1 st January 2012. As a result of the merger, BRE acquired the stakes previously held by

BSG in UBI Banca International (0,1618% of the share capital) and in UBI Sistemi e

Servizi (1,4799%) in its investment portfolio;

- Banco di San Giorgio has no longer been included in the consolidation since 31 st

December 2012.

Banca Regionale Europea Spa: as a result of the above, the share capital of BRE rose by

€1,136,755.75 to €587,892,824.35 (€468,880,348.04 at the end of 2011, with account

taken of the increase in the share capital carried out free of charge described later in this

report), while at the end of the year, the total stake held by UBI Banca stood at 74.7159%

(74.9437% twelve months before) and in particular at 79.8256% of the ordinary shares, at

26.4147% of the privileged shares and 59.1400% of the savings shares.

During the course of the year, private individual shareholders sold 6,012 savings shares to

UBI Banca, which increased its percentage stake from 59.1270% as at 31 st December 2011

to 59.1400% at the end of the year.

• rationalisation of the consumer credit sector

The merger of B@nca 24-7 into the Parent (approved by the Board of Directors of the merged

bank on 26 th March 2012 and by the Supervisory Board on 28 th March 2012) and the

specialisation of Prestitalia in salary backed loans.

Prestitalia Spa:

- on 23 rd May 2012 an extraordinary shareholders’ meeting approved the following:

the replenishment of losses recognised in the balance sheet as at 31 st March 2012,

amounting to approximately €7 million. While not subject to the provisions of Art.

2446, paragraph one of the Italian Civil Code (reduction of the share capital for losses)

it was nevertheless considered advisable before increasing the share capital to first

reduce it from €46,385,482 to €39,359,617, by cancelling 8,085 shares (nominal

amount of €869 per share);

an increase in the capital by a total of €145 million in order to equip the company

with adequate regulatory capital to support its acquisition of B@nca 24-7’s “salary

and pension-backed loans and deduction authorisation” (hereinafter “salary-backed”)

operations. Consequently, 90,625 shares were issued with a nominal value of €869

each, offered with option rights to B@nca 24-7, the sole shareholder, at a price of

€1,600 per share, which brought the share capital up from €39,359,617 to

€118,112,742 (equivalent to 135,918 shares). The total increase in the capital

(€145,000,000) therefore consisted of €78,753,125 allocated to the share capital and

€66,246,875 recognised within the share premium reserve;

- on 25 th June 2012 an Extraordinary Shareholders’ Meeting passed the following

resolutions:

a further increase in the share capital of €35,884,486, to bring that capital up from

€118,112,742 to €153,997,228, through the issue of 41,294 new ordinary shares for

a nominal amount of €869 each, to be offered with option rights to B@nca 24-7, the

80


sole shareholder and to be paid for in kind by the contribution of its salary-backed

loan operations;

the transfer for operational and organisational purposes of the registered address

from 131/L via Ostiense, Rome, to 15 via Stoppani, Bergamo.

B@nca 24-7 Spa:

- on 25 th June 2012 (with effect, for legal, accounting and tax purposes from 1 st July

2012), in full subscription of and payment for the shares issued, B@nca 24-7

contributed to Prestitalia its salary-backed operations, consisting of all the assets,

liabilities and contractual relationships relating to the aforementioned operations,

concerning the processing, approval, completion and after sales management of the

salary-backed loans contributed, on the basis of the value estimated using the dividend

discount model performed by an independent appraiser. In detail, the balance sheet as

at 31 st March 2012 recorded total assets of €3.2 billion, of which €3.060 billion

consisting of loans and advances to customers.

In return for the contribution, B@nca 24-7 was assigned 41,294 new shares with a

nominal value of €869 each in the recipient of the contribution, fully paid-up, with a

total nominal value of €35,884,486;

- on 5 th July 2012, the deed of merger of B@nca 24-7 into UBI Banca was signed, in

implementation of resolutions approved by the respective Boards and in compliance with

the legal authorisations obtained. As B@nca 24-7 was wholly owned, the merger fell

within the scope of application of the simplified procedure pursuant to Art. 2505 of the

Italian Civil Code;

- on 23 rd July 2012, the merger of B@nca 24-7 into UBI Banca took effect legally, while for

accounting and tax purposes it was effective from 1 st January2012.

As a result of the transaction, the Parent acquired in its portfolio the stakes previously

held by the merged bank in Prestitalia (100% of the share capital) and in UBI Sistemi e

Servizi (1.4799%);

- this consumer credit bank has not been included in the consolidation since 30 th

September 2012.

SILF Spa:

- on 17 th October 2012, the Bank of Italy authorised the merger of Società Italiana Leasing

e Finanziamento Spa (SILF) into UBI Banca which held full control of it;

- on 23 rd November an extraordinary shareholders’ meeting of SILF and the Supervisory

Board of the Parent approved the business combination transaction, to be carried out by

means of the simplified procedure pursuant to Art. 2505 of the Italian Civil Code;

- on 21 st December 2012 the merger of SILF into UBI Banca became effective (with effect for

accounting and tax purposes from 1 st January 2012).

As a result, the Parent acquired the stake previously held by the merged company in UBI

Sistemi e Servizi (0.074%) in its equity portfolio;

- the company has not been included in the consolidation since 31 st December 2012.

Barberini Sa – in liquidation:

- on 30 th March 2012, a Shareholders' Meeting of this Belgian registered company (100%

controlled) passed a resolution to close it down in advance and to put it into liquidation

(deed filed on the 24 th April with the Brussels Court of Commerce). The sole purpose of

Barberini (both in Belgium and abroad) was the management of the equity investment in

Prestitalia Spa, sold in January 2011 to B@nca 24-7. Since it held no other investments

in portfolio, the governing bodies passed a resolution to wind it up and prepared

liquidation financial statements as at and for the period ended 31 st January 2012. The

company was removed from the Company Register on 25 th October 2012, with the

preparation by the receiver appointed of a document entitled “Décisions Ecrites de

l’Actionnaire Unique”, which completed the liquidation procedures for the company, on

the basis of the Belgian commercial and company law applicable;

- the company has not been included in the consolidation since 31 st December 2012.

• optimisation of foreign subsidiary activities

UBI Banca International acquires UBI Capital Singapore Pte (formerly BDG Singapore Pte).

81


On 30 th May 2012, the acquisition of the former BDG Singapore Pte by the Luxembourg

bank was completed for consideration of 170,000 Singapore dollars, calculated on the basis

of an expert appraisal. In detail:

- UBI Banca International Sa: on 2 nd April 2012, an increase in the share capital of

€11,542,830 was performed raising it from €59,070,750 (December 2011) to

€70,613,580. This operation, which saw the issue of a total of 22,633 new shares with a

nominal value of €510 each, was achieved partly as a no cost issue, by freeing up

available reserves (€7,090,530 equivalent to 13,903 new shares, allotted on a pro-rata

basis to all shareholders) and partly through an issue against cash payment fully

subscribed by UBI Banca, the majority shareholder (for €7,909,380, of which a share

premium of €3,457,080, with the issue of 8,730 new shares – nominal value of €510 per

share and a share premium of €396). Strengthening the capital not only allowed the

bank to maintain a solvency ratio above the minimum level recommended by the

Luxembourg Supervisory Authority (9%), but it was also designed to support the

acquisition of the entire investment in the former BDG Singapore Pte.

Following that ownership transaction, at the end of the year the percentage interests

held by the investors involved had changed as follows: UBI Banca controlled UBI Banca

International with a 91.1959% interest (90.6031% in December 2011), while BBS held

5.4825% (5.8519% at the end of year), BPB held 3.1598% (down from 3.3723% before)

and BRE held 0.1618% (down from 0.1727%);

- UBI Capital Singapore Pte Ltd: on 30 th May 2012, UBI Banca International acquired the

entire interest held (100%) in BDG Singapore Pte Ltd from Banque de Dépôts et de

Gestion 20 .

On 5 th June 2012, following approval by shareholders, the company changed its name

from BDG Singapore Pte Ltd to UBI Capital Singapore Pte Ltd. As authorised by

shareholders in the same meeting, the Directors then approved an increase in the share

capital, fully subscribed by the sole shareholder UBI Banca International, amounting to

five million Singapore dollars, bringing it up from 5,600,000 SGD in December 2011 to

10,600,000 SGD at the end of the year.

• contribution of IW Bank operations to UBI Sistemi e Servizi

On 30 th November 2012 the contribution of IW Bank operations took effect. It was approved

on 8 th October 2012 by the Board of IW Bank and on 11 th October 2012 by the Board of the

service company.

UBI Sistemi e Servizi SCpA:

- on 26 th November 2012, an extraordinary shareholders’ meeting took account of the

valuation of the operations (pursuant to Art. 2343 of the Italian Civil Code) performed by

an independent expert and approved an increase in the share capital of €1,013,548.64.

The share capital was therefore raised from €35,136,400 (December 2011) to

€36,149,948.64 (consisting of 69,519,132 shares), by the issue of 1,949,132 ordinary

shares with a nominal value of €0.52 each and a premium per share of €0.24, at the

service of the contribution made by IW Bank of its operations termed “ICT and

Organisation”;

IW Bank Spa:

- on 26 th November, the contribution agreement was signed which involved the

assignment to IW Bank of new shares (1,949,132) issued by UBI.S, with full recognition

of the value of the operations contributed within the equity of the company in receipt of

them (share capital and reserves not distributed). On completion of the transactions just

reported, the stake held by the internet bank in the service company had risen from

0.074% in December 2011 to 2.8757% at the end of 2012.

• share capital increases: use of valuation reserves

Free of charge capital increases were performed in June 2012, using reserves that had been

formed following property revaluations pursuant to prior year special laws:

20 With regard to Banque de Dépôts et de Gestion, a letter of 21 st December 2012 from the Federal Supervisory Authority for

Financial Markets officialised the return of this Swiss bank to ordinary supervision after the implementation of corrective action in

response to recommendations made by that authority in the first half of 2012.

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Banca Popolare di Ancona Spa: on 26 th June 2012, an extraordinary shareholders’

meeting approved an increase in the share capital free of charge by making use of

revaluation reserves amounting to €24,958,090.32. The operation – which did not

involve the issue of new shares, but the increase from €5 to €6.02 of the nominal value

of each of the 24,468,716 outstanding shares – increased the share capital of this

Marches bank to €147,301,670.32 (€122,343,580 as at 31 st December 2011);

Banca Regionale Europea Spa: on 27 th June 2012, an extraordinary shareholders’

meeting approved an increase in the share capital at no cost by making use of

revaluation reserves amounting to €117,220,087.01. The operation – which did not

involve the issue of new shares, but the increase from €0.52 to €0.65 of the nominal

value of each of the 901,692,977 outstanding shares – increased the share capital of this

Piedmont bank to €586,100,435.05 (468,880,348.04 as at 31 st December 2011).

• increase in securitised assets eligible for refinancing with the ECB

UBI SPV BBS 2012 Srl – UBI SPV BPCI 2012 Srl – UBI SPV BPA 2012 Srl: on 19 th April

2012 three new special purpose vehicles were formed for the respective network banks. The

companies each have share capital of €10,000 and the Parent holds a 10% stake in each of

them, while the remaining 90% of each is held by three different Dutch registered

foundations (stichting).

The following changes in the percentages of shares held in Group banks occurred during the

year:

• Centrobanca Spa: in the first months of 2012, UBI Banca continued to purchase shares

held by non-controlling shareholders (mainly banks), acquiring 173,608 shares for a total of

approximately €300 thousand;

UBI Banca’s investment therefore rose from 94.2715% as at 31 st December 2011 to

94.3231% at the end of 2012, while Group control increased over the same period from

99.7427% to 99.7943%;

Banca Popolare di Ancona Spa: UBI Banca made further purchases from non-controlling

shareholders for a total of 9,071 shares, which brought its controlling interest up from

92.9340% at the end of 2011 to 92.9711% as at 31 st December 2012;

Banca Carime Spa: over the twelve month period the Parent acquired 54,194 shares from

non-controlling shareholders, bringing its control of the subsidiary up to 92.8371%

(92.8332% at the end of 2011);

• IW Bank Spa: on 3 rd April 2012 Centrobanca and Webstar Sa terminated the contracts they

signed in 2009 and gave instructions, also in the interest of UBI Banca, to complete the

transfer of ownership of the investment in IW Bank held by Webstar. The Parent therefore

acquired 7,609,144 shares in the online bank from this Luxembourg counterparty,

corresponding to 10.3358% of the share capital of IW Bank, in return for a total payout of

€15.5 million. After that transaction, the investment held by the Parent increased from

65.0392% in December 2011 to 75.3750% at the end of the year (Centrobanca’s investment

was unchanged at 23.4960%).

At the end of the year the Group therefore held 98.8710% control of IW Bank (up from

88.5352% in the previous December). It must also be considered that the percentages

reported do not include the treasury shares held by IW Bank (831,168 shares accounting

for 1.1290% of the total). If these are included, control of the share capital is total.

We report the following with regard to other companies:

• Arca SGR Spa: on 14 th March 2012 the UBI Banca Group disclosed that it had informed

this company of its desire to withdraw from the share capital of that company, with respect

to all the shares held. The right of withdrawal arose, in accordance with Art 2347 of the

Italian Civil Code, because the Group did not vote in favour of the resolution passed by an

Extraordinary Shareholders’ Meeting which, on 20 th February 2012 (filed with the Company

Registrar of Milan on 5 th March 2012), had made amendments to the Articles of

Association.

83


On 3 rd September 2012, the procedures resulting from the exercise of that right were

completed. The withdrawal involved 13,354,000 shares (11,562,000 held by UBI Banca and

1,792,000 by Banca Popolare di Ancona), corresponding to 26.708% of the share capital,

valued at an average of €2.09 per share. Following the exercise of that right, the Group had

the right to cash payment for the shares held, at a price of €2.70 per share, for total

consideration of approximately €36 million, as determined according to the law by the

Board of Directors of Arca SGR. The investment was recognised within assets held for sale

from 31 st March 2012, while on 30 th September 2012 it ceased to appear in the list of equity

accounted investees and the accounts only recorded movements in the income statement,

quantified as a gain (net of taxes and non-controlling interests) of €7.6 million;

UBI Finance CB 2 Srl: on 20 th March 2012, following the issue of the authorisation from the

Supervisory Authority for acquisition of control of the Company, UBI Banca, which already

held 10% of the share capital, acquired a further 50% of UBI Finance CB 2. The company –

whose sole purpose is the issue of covered bonds in accordance with Art. 7-bis of Law No.

130 of 30 th April 1999 – was formed in December 2011 for the purpose of commencing a

second programme for the issuance of covered bonds backed by non-residential commercial

mortgages. The remaining part of the share capital (40%) is held by the Dutch registered

company Stichting Viola.

UBI Academy SCRL: this consortium company was formed on 2 nd July 2012 for the

managerial training and development of staff who work in the UBI Banca Group (corporate

university). The share capital of UBI Academy, amounting to €100,000, had initially been

divided as follows: 70% to the Parent, 3% to the network banks (BPB, BBS, BPCI, BPA,

Carime, BRE) and to UBI.S and 1.5% to Banca di Valle Camonica, UBI Banca Private

Investment, IW Bank, UBI Leasing, UBI Factor and UBI Pramerica SGR.

On 19 th December 2012, the Parent transferred 1,500 shares to Prestitalia to allow it to

become a consortium member with a 1.5% stake. The percentage of the share capital

controlled by UBI Banca had therefore fallen at the end of year to 68.5%;

• InvestNet International Spa: on 17 th July the deed was signed for this company’s merger

into IW Bank and it was filed with the Company Registrar of Milan on 23 rd July 2012. The

merger became effective on 1 st August 2012, while it is effective for accounting and tax

purposes from 1 st January 2012. The company was therefore excluded from the

consolidation from 30 th September 2012.

• BY YOU Spa: on 13 th August the documents were filed with the Company Register to put

the company into voluntary liquidation, in view of the changed market context.

The Board of Liquidators is considering more appropriate measures to reach agreement on

a solution to the problems of this company, with account also taken of the new instruments

introduced to the Bankruptcy Act with Decree Law No. 83 of 22 nd June 2012, in a context of

greater satisfaction of creditor interests.

In this respect, in order to ensure better protection of the UBI Banca Group’s interests, in

relation, amongst other things, to the prior business relations with this company and with

its majority shareholders, negotiations were started with both the latter and with the Board

of Liquidators, designed to seek possible solutions to carry out the liquidation in a positive

manner;

UBI Insurance Broker Srl: on 21 st December, this 100% controlled insurance brokerage was

sold to Marine & Aviation JLT Spa (75% controlled by Marine & Aviation and 25%

controlled by Jardine Lloyd Thompson) for over €19 million, of which approximately €5.8

million consisting of a gross consolidated gain and excluding the €3.2 million of dividends

received.

UBI Insurance Broker is still included in the consolidation (but for income statement items

only), because the Group continued to manage operations until the end of the year;

UBI Leasing Spa: in order to streamline the organisational structure of the Group by

centralising, amongst other things, intragroup equity investments, on 21 st December UBI

Banca acquired the stake in UBI Leasing held by Banca Popolare di Ancona (7,647,921

shares accounting for 18.9965% of the share capital) for €29.9 million. The direct control

exercised over this leasing company by the Parent therefore rose from 79.9962% (December

2011) to 98.9927%.

84


In order to provide a more adequate level of capitalisation, on 30 th November 2012 an

extraordinary shareholders’ meeting of UBI Leasing approved an increase in the share

capital up to a maximum limit of €400 million, inclusive of any share premium. On 2 nd

January 2013 the subscription of a tranche of a share capital increase was launched,

offered with option rights to shareholders, but fully subscribed by UBI Banca for €300

million, with the issue of 50,000,000 new shares with a nominal value of €6 and no share

premium. The new share capital of UBI Leasing therefore rose from €241,557,810 as at

31 st December 2012 to the current €541,557,810;

UBI Sistemi e Servizi Scpa: various changes took place in the composition of the

shareholders, resulting mainly from the intragroup ownership transactions reported above:

- 23 rd July: UBI Banca acquired 1,000,000 shares following the merger of B@nca 24-7;

- 9 th October: the Parent sold 6,757 shares to UBI Academy, allowing the company to become a

member of the Consortium which delivers IT and other services to the Group;

- 22 nd October: BRE acquired 1,000,000 shares following the merger of BSG;

- 30 th November: increase of the share capital to €36,149,948.64 through the issue of 1,949,132

new shares, as valuable consideration to IW Bank for the contribution of its operations;

- 21 st December: UBI Banca acquired 50,000 shares following the merger of SILF;

- 21 st December: the Group sold its stake held in UBI Insurance Broker, but that company

nevertheless continued to maintain its interest in the service company (50,000 shares). As a

consequence of that transaction, Group control over UBI.S was 98.4896% (while the remaining

1.4385% is held by UBI Assicurazioni and 0.0719% is held by UBI Insurance Broker).

85


Reclassified consolidated financial

statements, reclassified income statement

net of the most significant non-recurring

items and reconciliation schedules

Reclassified consolidated balance sheet

Figures in thousands of euro

31.12.2012 31.12.2011 Changes

%

changes

ASSETS

10. Cash and cash equivalents 641,608 625,835 15,773 2.5%

20. Financial assets held for trading 4,023,934 2,872,417 1,151,517 40.1%

30. Financial assets designated at fair value 200,441 126,174 74,267 58.9%

40. Available-for-sale financial assets 14,000,609 8,039,709 5,960,900 74.1%

50. Held-to-maturity investments 3,158,013 - 3,158,013 -

60. Loans and advances to banks 6,072,346 6,184,000 -111,654 -1.8%

70. Loans and advances to customers 92,887,969 99,689,770 -6,801,801 -6.8%

80. Hedging derivatives 1,478,322 1,090,498 387,824 35.6%

90. Fair value change in hedged financial assets (+/-) 885,997 704,869 181,128 25.7%

100. Equity investments 442,491 352,983 89,508 25.4%

120. Property, plant and equipment 1,967,197 2,045,535 -78,338 -3.8%

130. Intangible assets 2,964,882 2,987,669 -22,787 -0.8%

of which: goodwill 2,536,574 2,538,668 -2,094 -0.1%

140. Tax assets 2,628,121 2,817,870 -189,749 -6.7%

150. Non-current assets and disposal groups held for sale 21,382 22,020 -638 -2.9%

160. Other assets 1,060,390 2,244,343 -1,183,953 -52.8%

Total assets 132,433,702 129,803,692 2,630,010 2.0%

LIABILITIES AND EQUITY

10. Due to banks 15,211,171 9,772,281 5,438,890 55.7%

20. Due to customers 53,758,407 54,431,291 -672,884 -1.2%

30. Debt securities issued 45,059,153 48,377,363 -3,318,210 -6.9%

40. Financial liabilities held for trading 1,773,874 1,063,673 710,201 66.8%

60. Hedging derivatives 2,234,988 1,739,685 495,303 28.5%

80. Tax liabilities 666,364 702,026 -35,662 -5.1%

90. Liabilities associated with assets held for sale - - - -

100. Other liabilities 2,391,283 3,139,616 -748,333 -23.8%

110. Post-employment benefits 420,704 394,025 26,679 6.8%

120. Provisions for risks and charges: 340,589 345,785 -5,196 -1.5%

140.+

170.+180.+

190.+ 200.

a) pension and similar obligations 80,563 76,460 4,103 5.4%

b) other provisions 260,026 269,325 -9,299 -3.5%

Share capital, share premiums, reserves, valuation reserves and treasury

shares 9,655,174 10,780,511 -1,125,337 -10.4%

210. Non-controlling interests 839,287 898,924 -59,637 -6.6%

220. Profit (loss) for the year 82,708 -1,841,488 1,924,196 n.s.

Total liabilities and equity 132,433,702 129,803,692 2,630,010 2.0%

86


Reclassified consolidated quarterly balance sheets

Figures in thousands of euro

31.12.2012 30.9.2012 30.6.2012 31.3.2012 31.12.2011 30.9.2011 30.6.2011 31.3.2011

ASSETS

10. Cash and cash equivalents 641,608 516,764 509,983 538,617 625,835 568,540 595,685 569,052

20. Financial assets held for trading 4,023,934 3,177,832 5,211,059 3,679,925 2,872,417 2,250,881 1,093,974 1,613,809

30. Financial assets designated at fair value 200,441 121,026 122,376 123,066 126,174 130,494 468,038 474,114

40. Available-for-sale financial assets 14,000,609 13,483,510 12,837,037 10,794,700 8,039,709 8,365,381 10,223,610 10,252,511

50. Held-to-maturity investments 3,158,013 3,220,200 3,192,239 3,254,437 - - - -

60. Loans and advances to banks 6,072,346 5,286,733 4,843,142 4,925,671 6,184,000 5,314,336 4,384,636 4,510,008

70. Loans and advances to customers 92,887,969 94,843,423 95,333,181 97,105,771 99,689,770 102,765,316 102,774,467 102,702,444

80. Hedging derivatives 1,478,322 1,541,973 1,340,946 1,087,609 1,090,498 995,341 413,389 351,398

90. Fair value change in hedged financial assets (+/-) 885,997 868,601 819,561 722,393 704,869 675,977 254,474 194,086

100. Equity investments 442,491 423,352 406,225 409,499 352,983 351,463 381,376 378,196

120. Property, plant and equipment 1,967,197 1,973,317 2,002,183 2,021,314 2,045,535 2,058,170 2,077,758 2,086,769

130. Intangible assets 2,964,882 2,962,430 2,971,246 2,979,781 2,987,669 5,268,352 5,287,195 5,452,328

of which: goodwill 2,536,574 2,538,668 2,538,668 2,538,668 2,538,668 4,286,210 4,286,210 4,416,659

140. Tax assets 2,628,121 2,525,656 2,631,652 2,641,166 2,817,870 2,604,967 2,312,956 1,704,774

150. Non-current assets and disposal groups held for sale 21,382 19,231 37,748 37,217 22,020 6,874 7,041 6,023

160. Other assets 1,060,390 1,138,807 1,350,560 1,189,953 2,244,343 2,272,277 2,476,298 2,442,098

Total assets 132,433,702 132,102,855 133,609,138 131,511,119 129,803,692 133,628,369 132,750,897 132,737,610

LIABILITIES AND EQUITY

10. Due to banks 15,211,171 14,765,300 14,708,333 15,143,195 9,772,281 8,611,714 4,966,574 7,332,517

20. Due to customers 53,758,407 56,356,021 57,074,877 52,358,466 54,431,291 56,392,736 56,199,737 56,144,592

30. Debt securities issued 45,059,153 43,907,855 45,171,850 47,084,745 48,377,363 47,502,685 49,964,140 48,678,875

40. Financial liabilities held for trading 1,773,874 1,479,098 1,274,898 934,366 1,063,673 654,949 844,259 1,040,163

60. Hedging derivatives 2,234,988 2,102,181 1,966,231 1,823,770 1,739,685 1,569,117 953,439 1,020,994

80. Tax liabilities 666,364 632,136 562,709 807,049 702,026 1,389,753 1,309,724 1,083,134

90. Liabilities associated with assets held for sale - - - - - 827 987 -

100. Other liabilities 2,391,283 1,608,626 1,991,859 2,094,393 3,139,616 4,554,208 4,778,011 4,606,189

110. Post-employment benefits 420,704 410,555 400,953 405,062 394,025 389,096 383,467 382,333

120. Provisions for risks and charges: 340,589 332,063 352,369 347,885 345,785 326,203 335,057 321,912

a) pension and similar obligations 80,563 76,601 77,680 75,453 76,460 65,806 67,022 67,317

b) other provisions 260,026 255,462 274,689 272,432 269,325 260,397 268,035 254,595

140.+170.

+180.+190.+ 200. Share capital, share premiums, reserves, valuation reserves and treasury shares 9,655,174 9,401,308 9,075,169 9,497,332 10,780,511 11,105,404 11,821,241 11,088,990

210. Non-controlling interests 839,287 884,960 870,347 909,478 898,924 949,008 942,551 973,302

220. Profit (loss) for the period/year 82,708 222,752 159,543 105,378 -1,841,488 182,669 251,710 64,609

Total liabilities and equity 132,433,702 132,102,855 133,609,138 131,511,119 129,803,692 133,628,369 132,750,897 132,737,610

87


Reclassified consolidated income statement

Figures in thousands of euro

2012 2011 Changes

%

changes

4th Quarter

2012

4th Quarter

2011

Changes

%

changes

A B A-B A/B C D C-D C/D

10.-20. Net interest income 1,863,561 2,018,978 (155,417) (7.7%) 417,494 520,280 (102,786) (19.8%)

of which: effects of the purchase price allocation (36,980) (49,931) (12,951) (25.9%) (8,966) (12,441) (3,475) (27.9%)

Net interest income excluding the effects of the PPA 1,900,541 2,068,909 (168,368) (8.1%) 426,460 532,721 (106,261) (19.9%)

70. Dividends and similar income 15,591 19,997 (4,406) (22.0%) 1,929 89 1,840 -

Profits (losses) of equity-accounted investees 44,426 9,947 34,479 346.6% 10,683 (3,171) 13,854 n.s.

40.-50. Net fee and commission income 1,182,276 1,193,708 (11,432) (1.0%) 310,677 315,142 (4,465) (1.4%)

of which performance fees 19,741 11,728 8,013 68.3% 19,741 11,728 8,013 68.3%

80.+90.+

100.+110. Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair value 257,278 7,329 249,949 - 109,016 23,999 85,017 354.3%

220. Other net operating income/expense 163,179 188,380 (25,201) (13.4%) 41,047 47,987 (6,940) (14.5%)

Operating income 3,526,311 3,438,339 87,972 2.6% 890,846 904,326 (13,480) (1.5%)

Operating income excluding the effects of the PPA 3,563,291 3,488,270 75,021 2.2% 899,812 916,767 (16,955) (1.8%)

180.a Staff costs (1,373,719) (1,423,196) (49,477) (3.5%) (336,348) (350,339) (13,991) (4.0%)

180.b Other administrative expenses (701,797) (717,988) (16,191) (2.3%) (188,130) (195,751) (7,621) (3.9%)

200.+210. Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets (191,144) (248,442) (57,298) (23.1%) (49,605) (66,574) (16,969) (25.5%)

of which: effects of the purchase price allocation (20,099) (69,823) (49,724) (71.2%) (5,015) (17,455) (12,440) (71.3%)

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets

excluding the effects of the PPA (171,045) (178,619) (7,574) (4.2%) (44,590) (49,119) (4,529) (9.2%)

Operating expenses (2,266,660) (2,389,626) (122,966) (5.1%) (574,083) (612,664) (38,581) (6.3%)

Operating expenses excluding the effects of the PPA (2,246,561) (2,319,803) (73,242) (3.2%) (569,068) (595,209) (26,141) (4.4%)

Net operating income 1,259,651 1,048,713 210,938 20.1% 316,763 291,662 25,101 8.6%

Net operating income excluding the effects of the PPA 1,316,730 1,168,467 148,263 12.7% 330,744 321,558 9,186 2.9%

130.a Net impairment losses on loans (847,214) (607,078) 240,136 39.6% (352,535) (208,413) 144,122 69.2%

130. b+c+d Net impairment losses on other financial assets and liabilities (54,810) (135,143) (80,333) (59.4%) (4,078) 3,694 (7,772) n.s.

190. Net provisions for risks and charges (49,212) (31,595) 17,617 55.8% (28,367) (11,812) 16,555 140.2%

240.+270. Profits from the disposal of equity investments 14,714 7,119 7,595 106.7% 6,091 5,616 475 8.5%

Pre-tax profit (loss) from continuing operations 323,129 282,016 41,113 14.6% (62,126) 80,747 (142,873) n.s.

Pre-tax profit (loss) from continuing operations excluding the effects of the PPA 380,208 401,770 (21,562) (5.4%) (48,145) 110,643 (158,788) n.s.

290. Taxes on income for the period/year from continuing operations (121,238) 95,942 (217,180) n.s. 17,570 (48,585) 66,155 n.s.

of which: effects of the purchase price allocation 18,862 39,423 (20,561) (52.2%) 4,620 9,842 (5,222) (53.1%)

310. Post-tax profit from discontinued operations - 248 (248) (100.0%) - 226 (226) (100.0%)

330. Profit for the period/year attributable to non-controlling interests (17,310) (28,833) (11,523) (40.0%) (1,547) (9,477) 7,930 n.s.

of which: effects of the purchase price allocation 3,580 8,687 (5,107) (58.8%) 834 2,132 (1,298) (60.9%)

Profit (loss) for the year/period attributable to the shareholders of the Parent before expenses for leaving incentives and

net impairment losses on goodwill and finite useful life intangible assets excluding the effects of the PPA 219,218 421,017 (201,799) (47.9%) (37,576) 40,833 (78,409) n.s.

Profit (loss) for the year/period attributable to the shareholders of the Parent before expenses for leaving

incentives and net impairment losses on goodwill and finite useful life intangible assets 184,581 349,373 (164,792) (47.2%) (46,103) 22,911 (69,014) n.s.

210.+260. Impairment losses on goodwill and finite useful life intangible assets net of taxes and non-controlling interests - (2,190,861) (2,190,861) (100.0%) - (2,047,068) 2,047,068 (100.0%)

180.a Expenses for leaving incentives net of taxes and non-controlling interests (101,873) - 101,873 - (93,941) - 93,941 -

340. Profit (loss) for the year/period attributable to the shareholders of the Parent 82,708 (1,841,488) 1,924,196 n.s. (140,044) (2,024,157) (1,884,113) (93.1%)

Total impact of the purchase price allocation on the income statement (34,637) (71,644) (37,007) (51.7%) (8,527) (17,922) (9,395) (52.4%)

88


Reclassified consolidated quarterly income statements

Figures in thousands of euro

2012

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

2011

10.-20. Net interest income 417,494 466,438 486,311 493,318 520,280 509,868 488,646 500,184

of which: effects of the purchase price allocation (8,966) (9,341) (9,051) (9,622) (12,441) (11,636) (12,018) (13,836)

Net interest income excluding the effects of the PPA 426,460 475,779 495,362 502,940 532,721 521,504 500,664 514,020

70. Dividends and similar income 1,929 980 12,384 298 89 1,243 16,555 2,110

Profits (losses) of equity-accounted investees 10,683 7,984 14,924 10,835 (3,171) 3,496 4,953 4,669

40.-50. Net fee and commission income 310,677 285,544 286,672 299,383 315,142 291,989 294,641 291,936

of which performance fees 19,741 - - - 11,728 - - -

80.+90.+

100.+110.

Net income (loss) from trading, hedging and disposal/repurchase activities and from assets/liabilities

designated at fair value 109,016 42,898 11,397 93,967 23,999 (23,891) (7,391) 14,612

220. Other net operating income/expense 41,047 37,056 49,045 36,031 47,987 45,191 46,196 49,006

Operating income 890,846 840,900 860,733 933,832 904,326 827,896 843,600 862,517

Operating income excluding the effects of the PPA 899,812 850,241 869,784 943,454 916,767 839,532 855,618 876,353

180.a Staff costs (336,348) (348,572) (327,564) (361,235) (350,339) (334,913) (373,217) (364,727)

180.b Other administrative expenses (188,130) (161,445) (176,476) (175,746) (195,751) (165,947) (185,209) (171,081)

200.+210.

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible

assets (49,605) (45,770) (47,020) (48,749) (66,574) (60,365) (61,779) (59,724)

of which: effects of the purchase price allocation (5,015) (5,020) (5,003) (5,061) (17,455) (17,456) (17,456) (17,456)

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible

assets excluding the effects of the PPA (44,590) (40,750) (42,017) (43,688) (49,119) (42,909) (44,323) (42,268)

Operating expenses (574,083) (555,787) (551,060) (585,730) (612,664) (561,225) (620,205) (595,532)

Operating expenses excluding the effects of the PPA (569,068) (550,767) (546,057) (580,669) (595,209) (543,769) (602,749) (578,076)

Net operating income 316,763 285,113 309,673 348,102 291,662 266,671 223,395 266,985

Net operating income excluding the effects of the PPA 330,744 299,474 323,727 362,785 321,558 295,763 252,869 298,277

130.a Net impairment losses on loans (352,535) (160,328) (203,181) (131,170) (208,413) (135,143) (158,148) (105,374)

130. b+c+d Net impairment losses on other financial assets and liabilities (4,078) (992) (47,663) (2,077) 3,694 (119,245) (17,959) (1,633)

190. Net provisions for risks and charges (28,367) 34 (16,764) (4,115) (11,812) (5,228) (4,136) (10,419)

240.+270. Profits from the disposal of equity investments 6,091 8,593 9 21 5,616 170 1,152 181

Pre-tax profit (loss) from continuing operations (62,126) 132,420 42,074 210,761 80,747 7,225 44,304 149,740

Pre-tax profit (loss) from continuing operations excluding the effects of the PPA (48,145) 146,781 56,128 225,444 110,643 36,317 73,778 181,032

290. Taxes on income for the period/year from continuing operations 17,570 (62,554) 19,727 (95,981) (48,585) (70,191) 291,636 (76,918)

of which: effects of the purchase price allocation 4,620 4,746 4,643 4,853 9,842 9,575 9,936 10,070

310. Post-tax profit from discontinued operations - (13) - 13 226 22 - -

330. Profit for the period attributable to non-controlling interests (1,547) (1,352) (7,137) (7,274) (9,477) (6,097) (5,046) (8,213)

of which: effects of the purchase price allocation 834 1,002 862 882 2,132 2,114 2,139 2,302

Profit (loss) for the year/period attributable to the shareholders of the Parent before expenses for leaving

incentives and net impairment losses on goodwill and finite useful life intangible assets excluding the

effects of the PPA (37,576) 77,114 63,213 116,467 40,833 (51,638) 348,293 83,529

Profit (loss) for the year/period attributable to the shareholders of the Parent before expenses for

leaving incentives and net impairment losses on goodwill and finite useful life intangible assets (46,103) 68,501 54,664 107,519 22,911 (69,041) 330,894 64,609

210.+260.

Impairment losses on goodwill and finite useful life intangible assets net of taxes and non-controlling

interests - - - - (2,047,068) - (143,793) -

180.a Expenses for leaving incentives net of taxes and non-controlling interests (93,941) (5,292) (499) (2,141) - - - -

340. Profit (loss) for the period attributable to the shareholders of the Parent (140,044) 63,209 54,165 105,378 (2,024,157) (69,041) 187,101 64,609

Total impact of the purchase price allocation on the income statement (8,527) (8,613) (8,549) (8,948) (17,922) (17,403) (17,399) (18,920)

89


Reclassified consolidated income statement net of the most significant non-recurring items

2012

net of non-recurring

items

2011

net of non-recurring items

Changes

%

changes

Figures in thousands of euro

Net interest income (including the effects of the PPA) 1,863,561 2,018,978 (155,417) (7.7%)

Dividends and similar income 15,591 19,997 (4,406) (22.0%)

Profits of equity-accounted investees 44,426 9,947 34,479 346.6%

Net fee and commission income 1,182,276 1,193,708 (11,432) (1.0%)

Net income from trading, hedging and disposal/repurchase activities and from assets/liabilities designated at fair

value 223,079 7,329 215,750 -

Other net operating income/expense 163,179 191,725 (28,546) (14.9%)

Operating income (including the effects of PPA) 3,492,112 3,441,684 50,428 1.5%

Staff costs (1,373,719) (1,451,128) (77,409) (5.3%)

Other administrative expenses (701,797) (717,988) (16,191) (2.3%)

Depreciation, amortisation and net impairment losses on property, plant and equipment and intangible assets

(including the effects of PPA) (188,921) (244,969) (56,048) (22.9%)

Operating expenses (including the effects of PPA) (2,264,437) (2,414,085) (149,648) (6.2%)

Net operating income (including the effects of PPA) 1,227,675 1,027,599 200,076 19.5%

Net impairment losses on loans (847,214) (607,078) 240,136 39.6%

Net impairment losses on other financial assets and liabilities 1,334 (9,690) 11,024 n.s.

Net provisions for risks and charges (49,212) (29,232) 19,980 68.3%

Profits from the disposal of equity investments 779 7,119 (6,340) (89.1%)

Pre-tax profit from continuing operations (including the effects of PPA) 333,362 388,718 (55,356) (14.2%)

Taxes on income for the year from continuing operations (224,046) (247,775) (23,729) (9.6%)

Post-tax profit from discontinued operations - 248 (248) (100.0%)

Profit for the year attributable to non-controlling interests (11,992) (29,629) (17,637) (59.5%)

Profit for the year attributable to the shareholders of the Parent 97,324 111,562 (14,238) (12.8%)

90


Reclassified consolidated income statement net of the most significant non-recurring: details

non-recurring items

non-recurring items

Prior year tax

Tax realignment

Tax relief on nonaccounting

deduction for

credit for

2012

UBI Banca tax Impact of IRAP

2011

Impairment

pursuant to Law

Impairment

Gain on

Impairment

net of nonrecurring

losses on

accordance with deferred tax Discontinuati

recurring

Impairment

realignment in adjustment for

losses on

No. 111/2011 and

losses on

net of non-

public tender

deductions on corporate Disposal of

loan provisions income tax

losses on

2012

shares and

Law No. 214/2011

2011

shares and AFS

Release of Write-off of

offer to

Leaving

shareholdings

tangible and items

goodwill and

Law No. 111/2011 provisions on of the UBI

AFS OICR

of BPA goodwill

OICRs

surplus B@nca 24-7 items

purchase

incentives

of UBI Banca purposes of and equity

on finite useful

and write-off of recognised as Leasing

(collective

recognised in the

pursuant to Law regional

intangible

(collective

provisions IT platform

preference

investments

life intangible

deferred income at 31st agent network

investment

consolidated

No. 244/2007 production tax

assets A

investment

B

shares

assets

tax assets/deferred December

instruments)

financial

instruments)

(Section EC) on the cost of

IRAP tax assets 2010

statements

Figures in thousands of euro

labour pursuant

to Law No.

Net interest income (including the effects of the PPA) 1,863,561 1,863,561 2,018,978 2,018,978

Dividends and similar income 15,591 15,591 19,997 19,997

Profits (losses) of equity-accounted investees 44,426 44,426 9,947 9,947

Net fee and commission income 1,182,276 1,182,276 1,193,708 1,193,708

Net income (loss) from trading, hedging and

disposal/repurchase activities and from assets/liabilities

designated at fair value 257,278 (20,671) (13,528) 223,079 7,329 7,329

Other net operating income/expense 163,179 163,179 188,380 3,345 191,725

Operating income (including the effects of PPA) 3,526,311 (20,671) - - - - - (13,528) - 3,492,112 3,438,339 - - - - 3,345 - - 3,441,684

Staff costs (1,373,719) (1,373,719) (1,423,196) (27,932) (1,451,128)

Other administrative expenses (701,797) (701,797) (717,988) (717,988)

Depreciation, amortisation and net impairment losses on

property, plant and equipment and intangible assets

(including the effects of PPA) (191,144) 2,223 (188,921) (248,442) 3,473 (244,969)

Operating expenses (including the effects of PPA) (2,266,660) - - - - - - - 2,223 (2,264,437) (2,389,626) - - - - - (27,932) 3,473 (2,414,085)

Net operating income (including the effects of PPA) 1,259,651 (20,671) - - - - - (13,528) 2,223 1,227,675 1,048,713 - - - - 3,345 (27,932) 3,473 1,027,599

Net impairment losses on loans (847,214) (847,214) (607,078) (607,078)

Net impairment losses on other financial assets and

liabilities (54,810) 56,144 1,334 (135,143) 125,453 (9,690)

Net provisions for risks and charges (49,212) (49,212) (31,595) 2,363 (29,232)

Profits from the disposal of equity investments 14,714 (13,935) 779 7,119 7,119

Pre-tax profit from continuing operations (including the

effects of PPA) 323,129 (20,671) 56,144 - - - - (27,463) 2,223 333,362 282,016 - 125,453 - - 5,708 (27,932) 3,473 388,718

Taxes on income for the year from continuing operations (121,238) 5,684 (5,596) (24,992) (8,298) (66,086) (2,835) (685) (224,046) 95,942 (2,292) (352,841) 6,267 (1,407) 7,681 (1,125) (247,775)

Post-tax profit from discontinued operations - - 248 248

Profit for the year attributable to non-controlling interests (17,310) (21) 5,191 181 (33) (11,992) (28,833) (925) 129 (29,629)

Profit for the year attributable to the shareholders of

the Parent before expenses for leaving incentives and

impairment losses on goodwill and on finite useful life

intangible assets 184,581 (14,987) 50,527 - (24,992) (8,298) (60,895) (30,117) 1,505 97,324 349,373 - 123,161 (352,841) 5,342 4,301 (20,122) 2,348 111,562

Impairment losses on goodwill and finite useful life intangible

assets net of taxes and non-controlling interests - - (2,190,861) 2,190,861 -

Expenses for leaving incentives net of taxes and non-controlling interests (101,873) 101,873 - - -

Profit (loss) for the year attributable to the shareholders

of the Parent 82,708 (14,987) 50,527 101,873 (24,992) (8,298) (60,895) (30,117) 1,505 97,324 (1,841,488) 2,190,861 123,161 (352,841) 5,342 4,301 (20,122) 2,348 111,562

ROE 0.9% 1.0% -17.1% 1.0%

Cost/income ratio (including the effects of PPA) 64.3% 64.8% 69.5% 70.1%

Cost/income ratio (excluding the effects of PPA) 63.0% 63.6% 66.5% 67.1%

91


Reconciliation schedule as at 31st December 2012

Ite ms

RECLASSIFIED INCOME STATEMENT 2012 Reclassifications

2012

Figures in thousands of euro

Mandatory

consolidated

financial

statements

Tax

recoveries

Profit of equityaccounted

investees

Depreciation

for

improvements

to leased

assets

Fast Credit

Processing

fee/ Overdrawn

penalty

Expenses for

leaving

incentives

Reclassified

consolidated

financial

statements

10.-20. Net interest income 1,931,684 (68,123) 1,863,561

70. Dividends and similar income 15,591 15,591

Profits of equity-accounted investees - 44,426 44,426

40.-50. Net fee and commission income 1,181,806 470 1,182,276

80.+90.+

100.+110.

Net income from trading, hedging and disposal/repurchase

activities and from assets/liabilities designated at fair value 257,278 257,278

220. Other net operating income/expense 244,515 (156,473) 7,484 67,653 163,179

Operating income 3,630,874 (156,473) 44,426 7,484 - - 3,526,311

180.a Staff costs (1,525,753) 152,034 (1,373,719)

180.b Other administrative expenses (858,270) 156,473 (701,797)

Depreciation, amortisation and net impairment losses on property,

200.+210. plant and equipment and intangible assets (183,660) (7,484) (191,144)

Operating expenses (2,567,683) 156,473 - (7,484) - 152,034 (2,266,660)

Net operating income 1,063,191 - 44,426 - - 152,034 1,259,651

130.a Net impairment losses on loans (847,214) (847,214)

130. b+c+d Net impairment losses on other financial assets and liabilities (54,810) (54,810)

190. Net provisions for risks and charges (49,212) (49,212)

240.+270. Profits from the disposal of equity investments 59,140 (44,426) 14,714

Pre-tax profit from continuing operations 171,095 - - - - 152,034 323,129

290. Taxes on income for the year from continuing operations (79,429) (41,809) (121,238)

310. Post-tax profit from discontinued operations - -

330. Profit for the year attributable to non-controlling interests (8,958) (8,352) (17,310)

180.a

340.

Profit (loss) for the year attributable to the shareholders of

the Parent before expenses for leaving incentives 82,708 101,873 184,581

Expenses for leaving incentives net of taxes and non-controlling

interests - (101,873) (101,873)

Profit for the year attributable to the shareholders of the

Parent 82,708 - - - - - 82,708

Reconciliation schedule for the year ended 31st December 2011

Ite ms

RECLASSIFIED INCOME STATEMENT 2011 Reclassifications

2011

Figures in thousands of euro

Mandatory

consolidated

financial

statements

Tax

recoveries

Profit of

equityaccounted

investees

Depreciation

for

improvements

to leased

assets

Overdrawn

penalty

Net impairment

losses on

goodw ill and finite

useful life

intangible assets

Reclassified

consolidated

financial

statements

10.-20. Net interest income 2,121,689 (102,711) 2,018,978

70. Dividends and similar income 19,997 19,997

Profits of equity-accounted investees - 9,947 9,947

40.-50. Net fee and commission income 1,191,934 1,774 1,193,708

80.+90.+

100.+110.

Net income from trading, hedging and disposal/repurchase

activities and from assets/liabilities designated at fair value 7,329 7,329

220. Other net operating income/expense 243,065 (163,065) 7,443 100,937 188,380

Operating income 3,584,014 (163,065) 9,947 7,443 - - 3,438,339

180.a Staff costs (1,423,196) (1,423,196)

180.b Other administrative expenses (881,053) 163,065 (717,988)

Depreciation, amortisation and net impairment losses on property,

200.+210. plant and equipment and intangible assets (783,496) (7,443) 542,497 (248,442)

Operating expenses (3,087,745) 163,065 - (7,443) - 542,497 (2,389,626)

Net operating income 496,269 - 9,947 - - 542,497 1,048,713

130.a Net impairment losses on loans (607,078) (607,078)

130. b+c+d Net impairment losses on other financial assets and liabilities (135,143) (135,143)

190. Net provisions for risks and charges (31,595) (31,595)

240.+270. Profits (losses) from the disposal of equity investments (1,856,783) (9,947) 1,873,849 7,119

Pre-tax profit (loss) from continuing operations (2,134,330) - - - - 2,416,346 282,016

290. Taxes on income for the year from continuing operations 271,991 (176,049) 95,942

310. Post-tax profit from discontinued operations 248 248

330. Loss (profit) for the year attributable to non-controlling interests 20,603 (49,436) (28,833)

Profit (loss) for the year attributable to the shareholders of

the Parent before impairment losses on goodwill and on

finite useful life intangible assets (1,841,488) - - - - 2,190,861 349,373

Impairment losses on goodwill and finite useful life intangible

210.+260. assets net of taxes and non-controlling interests - (2,190,861) (2,190,861)

340. Loss for the year attributable to the shareholders of the Parent (1,841,488) - - - - - (1,841,488)

The pre-tax profit from continuing operations in the mandatory financial statements includes the balance of the item 260, net impairment losses on goodwill.

92


Notes to the reclassified consolidated financial statements

The mandatory financial statements have been prepared on the basis of Bank of Italy Circular No. 262 of 22 nd

December 2005 and subsequent updates.

The following rules have been applied to the reclassified financial statements to allow a vision that is more consistent

with a management accounting style:

- the tax recoveries recognised within item 220 of the mandatory financial statements (other net operating income/expenses) were

reclassified as a reduction in indirect taxes included within other administrative expenses;

- the item profits (losses) of equity-accounted investees includes the profits (losses) of equity-accounted investees included within

item 240 in the mandatory financial statements;

- the item other net operating income/expense includes item 220, net of the reclassifications mentioned above;

- the item net impairment losses on property, plant and equipment and intangible assets includes items 200 and 210 (the latter only

partially) in the mandatory financial statements and also the instalments relating to the depreciation of leasehold improvements

classified within item 220;

- the item profits (losses) from the disposal of equity investments includes the item 240, net of profits (losses) of equity-accounted

investees and also item 270 in the mandatory financial statements;

- impairment losses on goodwill and finite useful life intangible assets (net of taxation and non-controlling interests) include items

210 (partially) and 260 in the mandatory financial statements;

- leaving incentives expenses (net of taxation and non-controlling interests) partially include item 180a in the mandatory financial

statements.

The reconciliation of the items in the reclassified financial statements with the figures in the mandatory financial

statements has been facilitated, on the one hand, with the insertion in the margin against each item of the

corresponding number of the item in the mandatory financial statements with which it is reconciled and, on the other

hand, with the preparation of specific reconciliation schedules.

The comments on the performance of the main balance sheet and income statement items are made on the basis of

the reclassified financial statements and of the reclassified financial statements for the comparative periods, and the

tables providing details included in the subsequent sections of this financial report have also been prepared on that

same basis.

The regulatory provisions published by the CICR (interministerial committee for credit and saving) on 4 th July 2012

(pursuant to article 117-bis of the consolidated banking act) required a revision of the commission regime applied to

customers who are past due, with the application of a commission, proportionate to the actual cost incurred by the

Bank to manage past due positions, with a fixed price, entitled a “fast credit processing fee” (FCPF), which is different

for consumer and non-consumer customers. The new regime came into force with effect from 1 st July for new

customers and from 1 st October for customers already existing as at 30 th June 2012. In consideration of the nature of

the FCPF (related to neither the amount past due, nor the time past due and basically the same as a recovery of

expenses), the relative income from the fee is recognised within item 220 “Other net operating income/expense”

(within the line item “other income and prior year income”). In order to ensure consistent reporting, a reclassification

was performed in the income statement with the transfer of amounts relating (mainly) to the previous past due penalty

out of net interest income and into other operating income. It follows that the comparative figures presented (in the

tables relating to net interest income and operating income and also in the normalised reclassified income statement

and in the quarterly income statements) are different from those previously published (quantitative details of the

reclassification have been given explicitly in the reconciliation schedules).

In order to facilitate analysis of UBI Banca’s operating performance and in compliance with Consob Communication

No. DEM/6064293 of 28 th July 2006, two special schedules have been included, the first a brief summary (which

provides a comparison of the normalised results for the year) and the second more detailed, which shows the impact

on earnings of the principal non-recurring events and items – since the relative effects on capital and cash flow, being

closely linked, are not significant – which are summarised as follows:

full year 2012:

- gain on public tender offer to purchase outstanding Group preference shares;

- impairment losses on the Intesa Sanpaolo, A2A and other minor shares as well as on units in AFS units in OICR

(collective investment instruments);

- leaving incentives;

- tax realignment of BPA goodwill recognised in the consolidated financial statements (pursuant to Law No.

111/2011 and Law No. 214/2011);

- tax relief on non-accounting deductions relating to loan provisions and write-downs of UBI Banca (pursuant to

Law No. 244/2007 – Section EC);

- prior year tax credit for deductions for corporate income tax purposes (IRES) of regional production tax (IRAP) on

the cost of labour (pursuant to Law No. 214/2011);

- partial disposal of Intesa Sanpaolo shares and full disposal of investments in ARCA SGR and UBI Insurance

Broker;

- impairment losses on property, plant and equipment and intangible assets;

full year 2011:

- impairment losses on goodwill and on finite useful life intangible assets;

- impairment losses on shareholdings in Intesa Sanpaolo, A2A and Siteba and on units in OICR (collective

investment instruments - AFS);

- UBI Banca tax realignment in accordance with Law No. 111/2011 and write-off of deferred income tax

assets/deferred IRAP tax assets;

- impact of IRAP adjustment for deferred tax provisions recognised as at 31 st December 2010;

- expenses incurred for restructuring of UBI Leasing agent network;

- release of surplus provisions;

- Write-off of B@nca 24-7 IT platform.

93


The consolidated income statement

The income statement figures commented on are based on the reclassified consolidated financial statements

(the income statement, the quarterly income statements and the income statement net of the most significant

non-recurring items, condensed and complete) contained in another section of this report and the tables

furnishing details presented below are also based on those statements. The notes that follow those

reclassified financial statements may be consulted as may the reconciliation schedules for a description of the

reclassification. Furthermore, the commentary examines both changes that occurred in 2012 compared to

2011 and also those occurring in the fourth quarter of 2012 compared to the previous quarter (these comments

are highlighted with a slightly different background colour) in order to bring to light emerging events as they

developed during the year.

After an initial glimmer of an economic recovery in early 2012, weakness once more became

prevalent and then spread even to those European nations regarded as more solid. The financial

situation, one of the main obstacles to growth, gradually returned to normal late in the year,

with a decline in yields on the government securities of nations subject to the greatest pressures

and an improvement in liquidity and funding conditions on wholesale markets. By contrast, the

economic scenario continued to have an adverse impact on customers’ creditworthiness, in

relation both to the effects of the recession on corporate finances and those of households and to

the considerable increase in deteriorated loans reported by the banking sector (especially in the

second half of the year).

In this context, the UBI Banca Group ended the year with a profit of €82.7 million 1 , after having

charged €152 million in leaving incentive costs to the income statement in connection with the

trade union agreements of November 2012 and February 2013, aimed at a structural reduction

in operating costs (of which they represent a component, albeit the most significant).

In order to allow a consistent analysis of Group profits and operations, the above costs were stated in a single

separate item net of tax and non-controlling interests, shown in the reclassified consolidated financial statements on

the last line item before profit for the year.

Excluding non-recurring items (presented net of taxes and non-controlling interests) normalised

profit stood at €97.3 million compared to €111.6 million in the previous year. Those nonrecurring

items came to expense of €14.6 million in 2012 – owing to the aforementioned charges

and impairment losses on some financial assets, despite the capital gain from the public tender

offer for the preference shares, the benefits of certain tax measures and the disposal of shares

and equity investments – and they also consisted of expense of €1,953 million in 2011,

primarily due to impairment of goodwill and other intangible assets, although marginally

mitigated by the realignment of tax values.

The fourth quarter of the year – affected by the significant structural measures enabled by

the aforementioned trade union agreements, but also the increase in net impairment losses on

the loan portfolio, despite a significant contribution by financial activities – presented a loss of

€140 million, compared with a loss of €2,024.2 million in the corresponding period of 2011

and the profit of €63.2 million earned in the third quarter of 2012 (-€83 million, +€15.2 million

and +€59.8 million respectively in normalised terms).

During the year, ordinary banking business generated operating income of €3,526.3 million,

up by 2.6% compared with 2011, due above all to the results achieved by financial activities and

by equity-accounted investees, while net interest income was again affected by the generalised

1 In 2011 the UBI Banca Group had reported a loss of €1,841.5 inasmuch as it had recognised impairment losses on goodwill and

finite useful life intangible assets that had essentially arisen following the merger between the former BPU Banca Group and the

former Banca Lombarda e Piemontese Group. In other words, it significantly wrote down (by €2,397 million gross, accounting for

44% of the total on the books at the end of 2010) the carrying amounts that had been recognised.

Since those amounts had been generated by a “paper for paper” transaction, that is with no cash payments, the accounting

treatment introduced by IFRS – which does require recognition of the impairment through profit and loss – had yielded effects of an

accounting nature only, which have no impact on the Group’s operations. More specifically, it had no impacts on liquidity, capital

ratios (because these are calculated by deducting all intangible assets) or future profits, which in fact benefited from lower purchase

price allocation amortisation from 2012. The total charge resulting from the purchase price allocation declined to €34.6 million from

the €71.6 million recognised in 2011.

94


weakness of the context 2 and by de-leveraging and de-risking action taken on the loan portfolio.

Net fee and commission income also performed well, despite the difficult economic and operating

scenario.

Interest and similar income: composition

Figures in thousands of euro

Debt

instruments

Financing

Other

transactions

2012 2011

1. Financial assets held for trading 54,233 - 26 54,259 42,392

2. Financial assets designated at fair value - - - - -

3. Available-for-sale financial assets 454,581 - - 454,581 373,970

3. Held-to-maturity investments 96,150 - - 96,150 -

5. Loans and advances to banks 9,558 15,917 6 25,481 56,327

6. Loans and advances to customers 1,458 3,222,468 785 3,224,711 3,470,274

7. Hedging derivatives - - - - -

8. Other assets - - 1,095 1,095 1,872

Total 615,980 3,238,385 1,912 3,856,277 3,944,835

Interest and similar expense: composition

Figures in thousands of euro

Borrowings

Securities

Other

transactions

2012 2011

1. Due to central banks (97,721) - - (97,721) (21,520)

2. Due to banks (28,841) - (194) (29,035) (62,336)

3. Due to customers (483,178) - (112) (483,290) (416,507)

4. Debt securities issued - (1,302,558) - (1,302,558) (1,325,414)

5. Financial liabilities held for trading (38,728) - - (38,728) (12,574)

6. Financial liabilities designated at fair value - - - - -

7. Other liabilities and provisions - - (595) (595) (728)

8. Hedging derivatives - - (40,789) (40,789) (86,778)

Total (648,468) (1,302,558) (41,690) (1,992,716) (1,925,857)

Net interest income 1,863,561 2,018,978

Net interest income 3 , which included the effects of the purchase price allocation of -€37 million,

compared with the previous -€49.9 million, amounted to €1,863.6 million, down by €155.4

million compared with 2011, the consequence, for each component of the item 4 , of the increased

impact of interest expense in line with market trends for interest rates. In short:

- business with customers generated net interest income of €1,527.2 million (-€246.4

million), impacted above all by both the interest rates for funding (the spread for business

with customers narrowed by 20 basis points compared with 2011) and by volumes of

business (consolidated loans decreased by €6.8 billion over the twelve months). In addition

to the obvious difficulties of the economic situation, the latter was also influenced by a

policy to reduce lending to large corporate clients in favour of non-captive customers

(following the disposal of third party agency networks), as well as by generalised de-risking

of the entire portfolio, despite improvement in the mark-up of approximately 80 basis

points;

- the securities portfolio generated net interest income of €437.2 million, (+€165.4 million),

due to growth in investments in debt instruments over twelve months of €10.5 billion.

Purchases of Italian government securities continued to make a substantial contribution to

net interest income (€454.6 million of interest income from available-for-sale securities –

2 Interest rate trends moved in opposing directions, although to a lesser degree in the final months of the year, with a tendency of the

medium to long-term maturities of the yield curve to rise rapidly, while very short-term maturities fell further (the average

progressive Euribor one month rate fell further from 1.19% in 2011 to 0.338% in 2012).

3 Following the introduction of the expedited processing fee, a reclassification was conducted within the income statement, separating

out the sums (primarily) relating to the previous overdraft penalty from net interest income and reclassifying them within other

operating income. The comparative figures presented in the tables illustrating net interest income and operating income thus differ

from the published versions. Refer to the notes to the reclassified consolidated financial statements.

4 The calculation of net balances was performed by allocating interest for hedging derivatives and financial liabilities held for trading

within the different areas of business (with customers, financial, with banks).

95


AFS – and €96.2 million from the held-to-maturity – HTM – portfolio), although these

investments incorporate the costs of uncovered short positions and the differentials paid on

hedges on fixed interest rate bonds;

- activity on the interbank market resulted in net interest expense of €101.3 million (net

expense of €27.5 million in 2011), attributable almost entirely to debt with the central

bank, through LTROs in 2012 and full-allotment auctions in 2011, which helped to change

the mix of the sources of funding for the portfolio. Net of that expense (€97.7 million in

2012 compared with €21.5 million in 2011), the balance on business with other banks

passed from -€6 million in 2011 to the -€3.6 million at present.

Dividends received fell to €15.6 million (from €20 million before) and they related mainly to

securities in the AFS portfolio held by UBI Banca. The fall in the total reflects a lower

distribution of profits by all companies and on the 186,458,028 ordinary Intesa Sanpaolo shares

in particular (held on the books on the ex dividend date), with a dividend of €0.05 per share,

which paid €9.3 million (compared to €11.6 million in 2011).

Driven by the good performance of the insurance companies, profits of equity-accounted

investees 5 climbed to €44.4 million (+€34.5 million), the result of significant contributions

from: Aviva Vita (€14.4 million compared with €6 million in 2011), Lombarda Vita (€16.1

million, up from €4.5 million before), UBI Assicurazioni (€8.6 million, compared with €3.2

million) and Aviva Assicurazioni Vita (€8 million, compared with -€2.4 million).

Fee and commission income: composition

Fee and commission expense: composition

Figures in thousands of euro

2012 2011

Figures in thousands of euro

2012 2011

a) guarantees granted 50,078 49,793 a) guarantees received (44,171) (807)

c) management, trading and advisory services 636,406 622,140 c) management and trading services: (78,322) (82,257)

1. trading in financial instruments 27,165 38,410 1. trading in financial instruments (14,403) (18,268)

2. foreign exchange trading 7,400 11,868 2. foreign exchange trading (10) (38)

3. portfolio management 251,523 277,518 3. portfolio management (8,526) (6,236)

3.1. individual 67,994 72,042 3.1. own - -

3.2. collective 183,529 205,476 3.2. on behalf of third parties (8,526) (6,236)

4. custody and administration of securities 12,293 13,702 4. custody and administration of securities (7,502) (6,979)

5. depository banking - - 5. 6. placement financial instruments, of financial products instruments and

(4,844) (4,416)

6. placement of securities 133,614 74,538 services

7. receipt and transmission of orders 49,521 40,852 distributed through indirect networks

(43,037) (46,320)

8. advisory activities 6,398 4,855 d) collection and payment services (38,946) (44,141)

8.1 on investments 6,398 4,855 e) other services (26,177) (32,688)

8.2 on financial structure - -

9. distribution of third party services 148,492 160,397 Total (187,616) (159,893)

9.1. portfolio management 37 42

9.1.1. individual 37 42

9.2. insurance products 106,386 119,723

9.3. other products 42,069 40,632

d) collection and payment services 154,047 150,128

f) services for factoring transactions 26,240 26,486

i) current account administration 214,152 216,501

j) other services 288,969 288,553

Total 1,369,892 1,353,601 Net fee and commission income 1,182,276 1,193,708

Net fee and commission income remained basically steady at €1,182.3 million (down by 1% on

the previous year), the aggregate result of different performances within the item:

- management, trading and advisory services rose to €550.7 million 6 (+€22.6 million). They

were driven by the placement of securities (+€58.6 million), and in particular by

subscriptions of the new UBI Pramerica Sicav’s (Cedola Certa 2013-2016, Protezione e

Crescita 2017, Focus Italia, Cedola Mercati Emergenti and Cedola Certa 2013-2017) and by

the receipt and placement of orders and advisory services (+€10.2 million), despite

5 The item consists of the profits of the companies recognised on the basis of the percentage interest held by the Group. The item no

longer includes the profit for Arca SGR (-€1.1 million in 2011) following a decision taken by the Group to withdraw from the share

capital of this company. The investment (held by UBI Banca and by BPA) was disposed of on 3 rd September 2012.

6 The amount consists of management, trading and advisory services net of the corresponding expense items and is calculated

excluding currency trading.

96


continuing penalisation by portfolio managements (-€28.3 million), custody and

administration of securities (-€1.9 million) and the distribution of third-party services

(-€11.9 million, of which -€13.3 million relating to insurance products and +€1.4 million to

other products). The latter was only partially offset by lower commission expense for

financial instruments and products and services sold through indirect networks (-€3.3

million), in relation to the rationalisation of UBI Banca Private Investment in progress since

2011;

- fees and commissions on ordinary banking business 7 fell to €631.6 million (-€34.1 million).

The result included growth of collection and payment operations (+€9.1 million) and “other

services” (+€6.9 million, including commitment fees), but also decreases in current account

administration charges (-€2.3 million, due in part to the ongoing shift in customers’

preferences), in foreign exchange business (-€4.4 million) and above all in commissions on

guarantees (-€43.1 million). The item includes the expense (€42.8 million) of the guarantee

from the Italian government on the bonds issued in the first months of the year by UBI

Banca amounting to €6 billion nominal, designed to increase assets eligible for refinancing

with the ECB. The expense consisted of an annual percentage of the nominal amount of the

bonds issued. Because these were issued by the Parent, subscribed by Centrobanca and then

repurchased entirely by UBI Banca, on the basis of IFRS international accounting standards, like the

interest income and expense attributable to them, they are not recognised in the accounts. However, they

are nevertheless included within the assets eligible for refinancing that form part of the cover pool

available to the ECB.

As a result principally of the disposal of financial assets held for trading consisting of bonds,

the net result for financial activities rose to €257.3 million, a marked recovery compared to the

€7.3 million reported in 2011. In detail:

- trading made a positive contribution of €91.8 million (€10.7 million in 2011 8 ), almost

entirely attributable to the trading in debt instruments: +€101.8 million (net of unwinding

derivatives on assets and liabilities resulting in a loss of €34.2 million) from debt

instruments and derivatives on debt instruments and interest rates, +€4 million from

equity instruments and the relative derivatives and +€18 million from currency trading;

- changes in fair value – relating to investments in Tages funds and a residual position in

hedge funds, as well as the private equity investments held by Centrobanca classified

according to the FVO at the end of 2012 – recorded a profit of €0.9 million, compared to a

loss of €38.8 million in 2011, due to the performance of international markets 9 ;

- hedging activity, which represents the change in the fair value of derivatives and the relative

items hedged, resulted in a profit of €1.1 million (a profit of €8.9 million in 2011) and should

be interpreted in combination with the information reported on trading activity concerning

the unwinding phenomenon;

- the disposal of AFS instruments and the repurchase of financial liabilities generated profits

of €163.5 million (€26.5 million in 2011 10 ), of which: €139.4 million from the disposal of

financial assets and €124.6 million in particular from the sale of €6.4 billion of Italian

government securities (primarily securities held by UBI Banca maturing from 2013 to

2015); €16.3 million from equity instruments (of which: €14 million 11 non-recurring, from

the partial disposal of Intesa Sanpaolo shares and €1.6 million from the sale of Società per i

Mercati di Varese and of Risparmio e Previdenza); -€2.2 million from the disposal of former

B@nca 24-7 and Centrobanca unsecured non-performing loans and a BPB credit position;

while the remaining €24.1 million was from the repurchase of financial liabilities. The latter

7 All the changes were calculated by subtracting fee and commission expense from the respective fee and commission income.

8 Net of the unwinding phenomenon (-€18.4 million), the result for 2011 was composed of: +€26.4 million from debt instruments and

the related derivative instruments; -€15.9 million from equity instruments and the related derivative instruments (in relation to the

impairment loss on Medinvest International of €12.2 million); and +€13.7 million from foreign currency business.

9 In the comparative year, the result reflected: disposals of UBI Pramerica funds in the third quarter with a loss of €22 million, when

a stop-loss mechanism was triggered (in compliance with the limits set by the Financial Risks Policy), losses on Tages hedge funds,

formerly Capitalgest (-€11.4 million) and the fair valuation of residual positions in other hedge funds.

10 This sum included €12.1 million from the repurchase of securities issued – by the Parent (€14.1 million), mainly consisting of

securities in the EMTN programme, and by Centrobanca (€4 million), as part of ordinary business with customers – while €14.4

million was from the disposal of financial assets: €6.8 million from the equity investment in the London Stock Exchange (formerly

Borsa Italiana), €1.6 million from other lesser equity investments (including PerMicro), €2.5 million in funds originating primarily

with the former Capitalgest SGR, approximately €1 million in debt instruments, chiefly of IW Bank, and €2.5 million in unsecured

non-performing loans, largely originating with B@nca 24-7.

11 Only the share of the overall capital gain attributable to UBI Banca (€13.5 million) is subject to normalisation.

97


item also included a €20.7 million non-recurring gain on the public tender offer to purchase

preference shares, repurchases of bonds issued, including a profit of €14.3 million on the

buy-back of notes under the EMTN programme issued by the Parent and a loss of €10.8

million in relation to ordinary business with customer counterparties (mainly by the

network banks).

Net trading income

Gains

Profits from

trading

Losses

Losses from

trading

Net income

2012

Figures in thousands of euro (A) (B) (C) (D) [(A+B)-(C+D)]

2011

1. Financial assets held for trading 112,875 186,923 (3,067) (82,043) 214,688 (67,392)

1.1 Debt instruments 21,928 72,024 (207) (8,763) 84,982 30,332

1.2 Equity instruments 1,675 799 (2,560) (325) (411) (10,488)

1.3 Units in O.I.C.R. (collective investment instruments) 72 133 (300) (4) (99) (265)

1.4 Financing - - - - - -

1.5 Other 89,200 113,967 - (72,951) 130,216 (86,971)

2. Financial liabilities held for trading 9,530 16 - (10) 9,536 (1,502)

2.1 Debt instruments 9,530 - - - 9,530 (2,367)

2.2 Payables - - - - - -

2.3 Other - 16 - (10) 6 865

3. Financial assets and liabilities: exchange rate differences X X X X 7,308 (5,011)

4. Derivative instruments 328,582 1,620,729 (317,630) (1,651,874) (139,729) 84,616

4.1 Financial derivatives 328,582 1,620,729 (317,630) (1,651,874) (139,729) 84,616

- on debt instruments and interest rates 291,999 1,608,832 (290,011) (1,637,661) (26,841) (19,932)

- on equity instruments and share indices 203 5,558 (54) (1,250) 4,457 (5,387)

- on currencies and gold X X X X (119,536) 105,723

- other 36,380 6,339 (27,565) (12,963) 2,191 4,212

4.2 Credit derivatives - - - - - -

Total 450,987 1,807,668 (320,697) (1,733,927) 91,803 10,711

Net hedging income

Figures in thousands of euro 2012 2011

Net hedging income 1,072 8,938

Profit from disposal or repurchase

Figures in thousands of euro

Profits

Losses

Net profit

2012

2011

Financial assets

1. Loans and advances to banks 16 - 16 -

2. Loans and advances to customers 9,337 (11,484) (2,147) 2,464

3. Available-for-sale financial assets 145,791 (4,235) 141,556 11,929

3.1 Debt instruments 128,421 (3,825) 124,596 1,027

3.2 Equity instruments 16,686 (406) 16,280 8,404

3.3 Units in O.I.C.R (collective investment instruments). 684 (4) 680 2,498

3.4 Financing - - - -

4. Held-to-maturity investments - - - -

Total assets 155,144 (15,719) 139,425 14,393

Financial liabilities

1. Due to banks - - - -

2. Due to customers - - - -

3. Debt securities issued 46,964 (22,838) 24,126 12,136

Total liabilities 46,964 (22,838) 24,126 12,136

Total 202,108 (38,557) 163,551 26,529

Net profit (loss) on financial assets and liabilities designated at fair value

Figures in thousands of euro 2012 2011

Net profit (loss) on financial assets and liabilities designated at fair value 852 (38,849)

Net income from trading, hedging and disposal/repurchase activities and from

assets/liabilities designated at fair value

257,278 7,329

Other net operating income/expense decreased to €163.2 million (-€25.2 million) as a reflection

of the performance of income, which fell to €229.1 million (-€29.1 million), owing to lower

recoveries of expenses on current accounts (partly in light of ongoing regulatory

developments), insurance premiums (to be interpreted in relation to the corresponding cost

item) and finance lease contracts.

98


Under the line “other income and Other net operating income

exceptional receivables,” the item

also includes the new fast credit Figures in thousands of euro

2012 2011

processing fee, which from 1 st Other operating income 229,097 258,156

October 2012 replaced the previous

Recovery of expenses and other income on current accounts 14,158 15,458

Recovery of insurance premiums 28,140 31,644

overdraft penalty, reclassified under

Recoveries of taxes 156,473 163,065

this item from net interest income in Rents and other income for property management 7,494 8,158

the interests of consistency of Recovery of expenses on finance lease contracts 12,814 14,181

Other income and prior year income 166,491 188,715

presentation. A comparison between

Reclassification of "tax recoveries" (156,473) (163,065)

the two years shows a decrease of

Other operating expenses (65,918) (69,776)

approximately €12 million due to a Depreciation of leasehold improvements (7,484) (7,443)

reduction in the number of accounts Costs relating to finance lease contracts (7,607) (7,145)

Expenses for public authority treasury contracts (6,604) (6,977)

overdrawn (the result of monitoring

Ordinary maintenance of investment properties - -

action) and to the method used to Other expenses and prior year expense (51,707) (55,654)

calculate the new commission,

based on a fixed price, as opposed to

Reclassification of depreciation of leasehold improvements 7,484 7,443

Other net operating income 163,179 188,380

the overdraft penalty, which was

commensurate to the amount and duration of the overdraft.

Operating expense also decreased slightly to €65.9 million (-€3.9 million), owing to the

changes in prior year expense, which in the previous year included €3 million attributable to

applications for action by the Interbank Deposit Protection Fund and €3.3 million (nonrecurring)

aimed at terminating the contracts of agents of UBI Leasing.

In addition, both prior year items (of both income and expense) include on the one hand the

operating loss as a result of a bank robbery and on the other, the related insurance

compensation.

In the fourth quarter, operating income, driven by the disposal of debt instruments and net fee

and commission income, came to €890.8 million, compared with €904.3 million in the fourth

quarter of 2011 and with €840.9 million in the third quarter of 2012 (which had benefited from

the results for financial activities to a lesser extent). The quarter-on-quarter increase in the item

(+€49.9 million) is explained by the following trends:

• a reduction in net interest income to €417.5 million (-€48.9 million), related to a further

decrease in interest rates 12 and the volume effect, which influenced business with customers.

Consequently, interest income on loans decreased by €50.6 million (in relation to a decrease

in outstanding loans of approximately €2 billion during the quarter), while the spread on

business with customers narrowed by more than 10 basis points. By contrast, the net

contribution of the securities portfolio did not change significantly compared with the

previous year (-€8.6 million; the impact was at least partially mitigated by the switch to

longer maturities and the increase in volumes of approximately €1.5 billion). As a result of

the LTRO financing from the ECB, the result for interbank business also remained negative,

with an expense of €25.2 million compared to the previous expense of €26.7 million;

• an increase in dividends to €1.9 million (+€0.9 million), relating to the available-for-sale

portfolio;

• a rise in the profits of equity-accounted investees to €10.7 million (+€2.7 million), primarily

attributable to the life insurance companies;

• an improvement in net fee and commission income to €310.7 million (+€25.1 million). It

should also be noted that the item includes performance commissions of €19.7 million,

entirely attributable to UBI Pramerica SGR and recognised in the fourth quarter of the year

alone 13 . If that variable is disregarded, net fee and commission income performed well

compared with the previous quarter (+€5.4 million), owing to an improvement in

management, brokering and advisory services (+€8.5 million, primarily related to the

distribution of insurance policies and order collection and placement), while traditional

banking services declined (by approximately €3 million, associated with the performance of

12 The average one month Euribor rate fell further from 0.167% in the third quarter to 0.112% in the fourth quarter.

13 Performance commissions accounted for 1.7% of net fee and commission income for the year, compared with 1% in 2011, when

performance commissions amounted to €11.7 million.

99


other services, in which commitment fees are classified, only partially offset by an uptrend in

collection and payment services and year-end charges for current account administration);

• a significant improvement in the result for financial activities to €109 million (+€66.1 million),

broken down into the disposal/repurchase of financial assets of €72.2 million (of which €64.7

million as the capital gain on government securities, €11.9 million on the Intesa Sanpaolo

shares, -€1 million from the repurchase of own bonds in business with customers and -€2.9

million from the disposal of a BPB credit position to the group controlling the borrower),

trading (primarily of debt instruments) of €22.3 million, hedging of €12 million (unwinding for

the quarter, amounting to -€14.9 million, should be considered for accurate interpretation)

and measurement at fair value of the units of OICR (collective investment instruments, i.e.,

Tages funds and residual hedge funds) and private equity investments of €2.5 million;

• an increase in other net operating income/expense (+€4 million), partly fostered by expense

recoveries traditionally recognised at year-end on current accounts and finance lease

contracts, but above all by the performance of prior year income and expense, which vary

considerably in amount from one period to another because they consist of components of a

heterogeneous nature and non-structural character.

Operating expenses totalled €2,266.7 million (-5.2%), benefiting from the results of ongoing

efforts to optimise the Group’s cost structure and from lower amortisation of the goodwill

arising from the merger due to the impairment losses recognised at the end of 2011.

Staff costs decreased to €1,373.7

million, compared with the €1,423.2

million reported in 2011.

However, this latter figure included a nonrecurring

component of +€27.9 million, recognised

within the item “expenses for retired personnel”

relating to a release of excess provisions 14 .

Net of this effect, labour costs for the

year decreased by €77.4 million.

As shown in the table, the decrease for

expenses relating to employees was

more significant (-€72.1 million), the

result of a reduction in staff numbers (-

338 in terms of total average staff

numbers), changes in variable

components of remuneration, the impact

of the new national labour contract (for

professional areas and middle

managers) and lower provisions for the

renewal of the national labour contract

signed in January 2012 15 .

Staff costs: composition

Figures in thousands of euro

2012 2011

1) Employees (1,353,539) (1,425,623)

a) Wages and salaries (939,900) (983,736)

b) Social security charges (248,748) (267,619)

c) Post-employment benefits (50,879) (60,928)

d) Pension expense (16) (74)

e) Provision for post-employment benefits (10,196) (9,078)

f) Pensions and similar obligations: (3,042) (3,069)

- defined contribution (113) (139)

- defined service (2,929) (2,930)

g) Payments to external supplementary pension plans: (42,626) (50,431)

- defined contribution (42,165) (50,154)

- defined benefits (461) (277)

h) Expenses resulting from share based payments - -

i) Other employee benefits (58,132) (50,688)

2) Other personnel in service (2,475) (6,504)

- Expenses for agency staff on staff leasing contracts (398) (3,671)

- Other expenses (2,077) (2,833)

3) Directors and statutory auditors (17,705) (19,001)

4) Expenses for retired personnel - 27,932

Total (1,373,719) (1,423,196)

Other administrative expenses fell to

€701.8 million (-€16.2 million).

This decrease is the aggregate result of an increase of €5.4 million in indirect taxation (primarily

due to the introduction of a municipal property tax) and savings of €21.6 million on current

spending, within which opposing trends were recorded. In detail, there were increases in services

in outsourcing (+€4.3 million, relating to the process of insourcing the management of financing

applications by Prestitalia, an activity that had previously been outsourced to specialised outside

firms, with which operating relationships were gradually discontinued), SW and HW license and

maintenance fees and lease instalments (+€2.1 million), tenancy of premises (+€1.1 million),

14 The amount in question related to the release of amounts recognised in previous years due to actuarial recalculations of post

retirement benefits, now no longer considered due. In the third quarter of 2011, the defined benefit obligation and the existing

mathematical reserve were reversed, with a positive impact on the item “administrative expenses: staff costs” of €27.9 million and

the relative portion of the “fair value reserve actuarial gains/losses on defined benefit plans” amounting to approximately €2

million was reclassified within “retained earnings”.

15 Expense items also benefited in the second quarter of 2012 from the recognition of a total of €17 million for the release of

provisions made in prior periods.

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professional services (+€2 million,

associated with projects aimed at optimising

capital and liquidity – eligible assets – and

intragroup corporate integration

transactions).

The line item “professional and advisory services”

(€92.2 million) groups together a variety of expense

types incurred in the Group’s activities. These expenses

are for the following purposes: commercial and sales

support (€11.7 million), support of issuances and

capital management (€14 million), legal expenses (€12.4

million), technical support (€14 million, inclusive of

auditors’ certifications), strategic and organisational

consulting (€7.8 million) and IT services (€32.3 million).

The latter include expenses relating to extraordinary

corporate integration operations, business support

projects and regulatory projects for compliance with

legislation as well as expenses relating to ordinary

activities.

On the other hand, action taken to contain

costs primarily involved the following:

advertising (-€9.5 million), rent payable

(-€4.4 million, related, amongst other

things, to branch closures carried out in

2011 and February 2012), telephone and

data transmission expenses (-€3.8 million),

postal expenses (-€2.7 million, partly due to

increased use of online communications),

forms and stationery (-€2.6 million),

information services and land registry

Other administrative expenses: composition

Figures in thousands of euro

2012 2011

A. Other administrative expenses (644,748) (666,346)

Rent payable (67,702) (72,060)

Professional and advisory services (92,216) (90,225)

Rentals hardware, software and other assets (41,073) (36,211)

Maintenance of hardware, software and other assets (37,765) (40,483)

Tenancy of premises (55,867) (54,755)

Property maintenance (25,971) (27,245)

Counting, transport and management of valuables (14,529) (16,004)

Membership fees (9,338) (9,468)

Information services and land registry searches (10,660) (12,612)

Books and periodicals (1,659) (1,877)

Postal (23,866) (26,576)

Insurance premiums (43,083) (44,276)

Advertising (16,489) (26,007)

Entertainment expenses (1,735) (2,017)

Telephone and data transmission expenses (54,728) (58,531)

Services in outsourcing (50,699) (46,439)

Travel expenses (23,330) (23,476)

Credit recovery expenses (43,872) (44,000)

Forms, stationery and consumables (8,510) (11,137)

Transport and removals (7,654) (7,354)

Security (8,450) (9,736)

Other expenses (5,552) (5,857)

B. Indirect taxes (57,049) (51,642)

Indirect taxes and duties (31,594) (37,498)

Stamp duty (142,951) (140,749)

Municipal property tax (16,915) (8,806)

Other taxes (22,062) (27,654)

Reclassification of "tax recoveries" 156,473 163,065

Total (701,797) (717,988)

searches (-€2 million) and counting, transport and management of valuables (-€1.5 million).

It must also be considered that all expense items incurred in 2012 were affected by a one percent increase in VAT which

occurred in September 2011, amounting to a total of approximately €4.3 million.

Depreciation, amortisation and net impairment losses on property, plant and equipment and

intangible assets fell to €191.1 million (-€57.3 million). Of this decrease, €49.7 million was due

to a reduction in the effects of the purchase price allocation arising from the merger, following

impairment losses recognised at the end of 2011 (which affected finite useful life intangible

assets, such as brand names, core deposits and assets under management, for a total of €523

million before taxes and non-controlling interests). Net of the effects of the purchase price

allocation, the item (€171 million) decreased by €7.6 million, despite greater amortisation of

software commenced in 2011 (+€6.7 million) and write-offs incurred for branch closures by

BPCI, BPA, BBS, Carime and BRE in 2012 (+€2.1 million), as well as the Centrobanca IT

system and, to a lesser extent, certain properties (for a total of +€2.2 million, classified within

non-recurring components). The decrease in the item also reflected lower depreciation of

hardware (-€4.6 million) and lower depreciation and amortisation of IW Bank and S.B.I.M.

tangible and intangible assets (-€4.4 million) and the absence of amortisation on intangible

assets related to By You, which was fully written-off in the second quarter of 2011 (-€1.5

million). Net impairment losses also included a non-recurring item of €3.5 million for the

write-off of the B@nca 24-7 IT system, which at the time was held for sale.

On a quarterly basis, operating expenses were affected by the seasonal nature of certain

expense items, as also confirmed by the normalised average quarterly figure, which showed a

further, marked reduction: from €618 million in 2009 to €608 million in 2010, €603 million in

2011 and €566 million in 2012.

In the third quarter, operating expenses rose to €574.1 million, compared with €612.7 million in

the same quarter of 2011 and €555.8 million in the third quarter of 2012. The quarter-onquarter

increase (+€18.3 million) was the result of the following factors:

• staff costs of €336.3 million were down by €12.2 million compared with the €348.6 million

recognised in the third quarter, partly owing to ongoing processes to increase efficiency;

• other administrative expenses totalled €188.1 million, compared with €161.4 million in the

third quarter, up by €26.7 million, of which €3.5 million was attributable to indirect taxation

(partly in relation to different payment due dates, which tend to concentrate in June and

101


December) and €23.2 million to current expenses (concentrated in professional and advisory

services, advertising, credit recovery expenses, travel expenses, maintenance of properties

and equipment and services in outsourcing), also influenced by the different seasonal nature

of some expense items;

• depreciation, amortisation and net impairment losses on property, plant and equipment and

intangible assets rose by €3.8 million to €49.6 million, reflecting two non-recurring factors,

an initial write-off of €1.3 million of the IT system of Centrobanca in view of migration to the

Group’s target system, as well as certain impairment losses on properties recognised by UBI,

UBI.S, Prestitalia and BPB Immobiliare (€0.9 million), in addition to write-offs recognised in

connection with the branch-closure process completed in December of approximately €1.3

million.

As a summary of overall performance, net operating income rose to €1,259.7 million, an

improvement of 20.1% compared with 2011.

On a quarterly basis, net operating income stood at €316.8 million, compared with €291.7

million in the same quarter of 2011 and with €285.1 million in the third quarter of 2012.

The difficulties of the macroeconomic background continued to be reflected in the performance

of net impairment losses on loans, which increased to €847.2 million over the twelve months

(+€240 million compared with 2011), of which €503 million was attributable to the network

banks (+€198 million) and €347 million to the product companies (also including UBI Banca,

relating to the consumer finance activity acquired with the merger of B@nca 24-7, +€52

million).

Net impairment losses on loans: composition

Figures in thousands of euro

Impairment losses/

reversals of impairment losses, net

A. Loans and advances to banks 2 (68) (66) - (5) (5)

B. Loans and advances to customers (882,628) 35,480 (847,148) (373,308) 20,778 (352,530)

C. Total (882,626) 35,412 (847,214) (373,308) 20,773 (352,535)

2012

Impairment losses/

reversals of impairment losses, net

Specific Portfolio Specific Portfolio

4th

Quarter

2012

Figures in thousands of euro

Impairment losses/

reversals of impairment losses, net

Specific Portfolio Specific Portfolio

A. Loans and advances to banks (3) (114) (117) 1 (18) (17)

B. Loans and advances to customers (544,777) (62,184) (606,961) (195,115) (13,281) (208,396)

C. Total (544,780) (62,298) (607,078) (195,114) (13,299) (208,413)

2011

Impairment losses/

reversals of impairment losses, net

4th

Quarter

2011

The total increase in the item of €240 million – of which more than €192 million is attributable

to the fourth quarter, which traditionally also incorporates net impairment losses on positions

brought to light after year-end – is in reality the aggregate result of higher specific impairment

losses of €338 million (of which €226 million relating to the network banks and €108 million

to the product companies) and a decrease in impairment losses on the performing portfolio of

€98 million.

As shown in the table, in 2012, owing in part to the reduction of the performing portfolio, the

Group recognised net portfolio reversals of €35 million 16 , of which €1.8 million originated with

the network banks and €23.2 million with the product companies. The latter include

approximately €24 million attributable to the former B@nca 24-7 17 (merged into the Parent in

the third quarter), due to two types of reasons. Firstly as a consequence of the rigorous

valuation polices pursued on this bank’s portfolio since 2009 and secondly as a result of

16 Of this figure, €10 million related to the reversal following the release of the guarantee granted by UBI Banca to the former B@nca

24-7 benefiting Prestitalia, which in the individual accounts was included among reversals on other assets and liabilities.

17 The impairment losses of B@nca 24-7 for 2011 included €19.4 million for impairment relating to the Ktesios Group, of which €8

million recognised as the reclassification of a provision for risks and charges made in the fourth quarter of 2010.

102


changing from collective recognition to more recognition of impairment losses on single

positions for the salary backed lending line of business contributed to Prestitalia, a prudential

change carried out in the second quarter in preparation for the contribution of the operations.

With regard to specific impairment, reversals were recognised in the period (excluding present

value discounts) amounting to €178.8 million (€216.8 million in 2011).

The loan loss rate (calculated as total net impairment losses as a percentage of net loans to

customers) increased at the same time to 0.91% from 0.61% for 2011.

Net impairment losses/reversals of impairment losses on loans: quarterly performance

Figures in

thousands of

euro

1st

2nd

Specific Portfolio Specific Portfolio

Specific

Quarter

Quarter

Portfolio

3rd

Quarter

Specific

Portfolio

4th

Quarter

2012 (122,221) (8,949) (131,170) (225,562) 22,381 (203,181) (161,535) 1,207 (160,328) (373,308) 20,773 (352,535)

2011 (96,010) (9,364) (105,374) (142,877) (15,271) (158,148) (110,779) (24,364) (135,143) (195,114) (13,299) (208,413)

2010 (105,366) (26,493) (131,859) (184,080) (5,765) (189,845) (124,200) (9,811) (134,011) (217,327) (33,890) (251,217)

2009 (122,845) (36,728) (159,573) (176,919) (58,703) (235,622) (178,354) (18,995) (197,349) (281,668) 9,001 (272,667)

2008 (64,552) 4,895 (59,657) (85,136) (8,163) (93,299) (77,484) (25,384) (102,868) (219,512) (90,887) (310,399)

On a quarterly basis, net impairment losses of €352.5 million were up compared both with the

third quarter of 2011 (when they came to €208.4 million) and the three prior months, during

which they amounted to €160.3 million.

The loan loss rate – annualised – was 1.52% compared with the 0.84% recorded in the same

quarter of 2012 and with 0.68% in the third quarter of 2012.

The income statement for the year also recorded €54.8 million of net impairment losses on

other financial assets/liabilities, of which €56.1 million of non-recurring items (including €47.1

million already recognised at the end of June) relating to impairment losses on instruments

held in the AFS portfolio: €31.8 million on the Intesa Sanpaolo share (based on the reference

price quoted on 29 th June 2012, €1.118) €3.5 million on A2A and €20.8 million on other

shares and OICR units (collective investment instruments – including €12.5 million on the

Centrobanca Sviluppo Impresa fund and €4.4 million on the Polis closed-end property fund) 18 .

The value of the Intesa Sanpaolo

shares recovered in the second half of

the year by €21.6 million, which

increased the reserve in equity and

did not change the half year

impairment.

Following the partial disposal of 72,329,014

shares in the final four months of 2012, the

recovery in the capital amount was calculated on

the new number of shares (114,129,014) and on

the reference price on 28 th December 2012,

which was €1.3.

Net provisions for risks and charges

Figures in thousands of euro

2012 2011

Net provisions for revocation clawback risks (9,806) (2,248)

Net provisions for staff costs (259) (450)

Net provision for bonds in default 71 (286)

Net provisions for litigation (11,285) (10,425)

Other net provisions for risks and charges (27,933) (18,186)

Total (49,212) (31,595)

Net provisions for risks and charges totalled €49.2 million and included €12 million recognised

as part of the restructuring of indirect distribution networks launched in the previous year,

€10 million attributable to Prestitalia, relating to the process of insourcing the loan application

IT processing, which had previously been outsourced to third party companies and €3 million

attributable to B@nca 24-7, allocated in the first six months of the year to account for risks

associated with its business with customers.

18 In 2011 net impairment losses on other financial assets and liabilities amounted to €135.1 million, of which €9.7 million relating to

impairment losses on available-for-sale financial assets and impairment losses on guarantees granted and €125.4 million to

impairment losses on available-for-sale financial assets classified as non-recurring. They consisted of the following: impairment

losses on units in OICR funds (collective investment instruments) (€7.5 million, of which €4.3 million relating to the Polis property

fund) held by UBI Banca and impairment losses on investments in Banco di Brescia (€1.6 million), as well as a total of €116.3

million of impairment losses on equity investments in A2A (€3.3 million), in Siteba Spa (€0.5 million) and in Intesa Sanpaolo. The

latter incurred a total impairment loss of €112.5 million during the year on the basis of the official share price quoted on 30 th

December 2011 (1.2891 euro). The amount includes the impairment loss recognised in the first half (€15.9 million), together with

the recognition of a further impairment loss that became necessary in the third quarter (€112.9 million), which was then offset by a

recovery in the share price in the fourth quarter (+€16.3 million).

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Provisions for litigation, primarily related to the network banks and litigation with customers

involving financial investments and compounding of interest, were up by €0.9 million

compared with 2011. By contrast, provisions for revocatory clawback risks rose by €7.6

million and related to a position in the process of being settled, for which the bodies of the

extraordinary administration procedure formulated a settlement proposal, on which the UBI

Banca Group expressed a favourable opinion.

In the previous year, net provisions for risks and charges of €31.6 million, primarily concentrated in the items “for

litigation” and “other provisions,” related, amongst other things, to the following: B@nca 24-7 (€7.5 million, to account

for operating risks associated with the provision of consumer loans and salary backed lending transactions brokered

by financial companies in conditions of objective difficulty, of which €3.6 million pertained to Ktesios SpA, net of a

release of provisions of €8 million, set aside in 2010 in connection with Ktesios, as the transfer to net impairment

losses on loans); IW Bank (€2.1 million, attributable to the closure of transit accounts which failed to balance,

regarding the former legacy platform created at the time of the follow-up to the IT migration carried out in February

2011); and UBI Leasing (€2.4 million, non-recurring, of provisions recognised as part of the process of disposing of the

network of agents, due to the termination of contracts, to be interpreted in conjunction with the figure of €3.3 million

recognised within non-recurring operating expenses).

The disposal of equity investments generated a profit of €14.7 million (of which €13.9 million

was non-recurring), attributable to the capital gain of €8.1 million earned on the liquidation of

the equity investment in Arca SGR (following the exercise of the right of withdrawal) and €5.8

million on the disposal in December of the entire equity investment in UBI Insurance Broker

(net of consolidation adjustments and excluding dividends received of €3.2 million).

In the case of Arca SGR, the capital gain indicated is significantly different from that recognised by the Parent

(€21.8 million) because the investment had been recognised at historical cost in the accounts of UBI Banca,

while it has been accounted for according to the equity method in the consolidated financial statements and

therefore the value increased progressively as a result of the profits distributed by the asset management

company over the years, which reduced the final gain.

In 2011 approximately €7.1 million had been realised, approximately €5 million from the sale of two properties (the

historic property of Neuchâtel by Banque de Dépôt et de Gestion for €3.8 million and a property located in Varese by

Banca Popolare di Bergamo) and €2.3 million from the capital gain on the partial disposal of the investee By You in

April 2011.

As a result of the performance described above, profit on continuing operations before tax

improved by +14.6% compared with the previous year to €323.1 million.

On a quarterly basis, the loss on continuing operations was €62.1 million, compared with a

profit of €80.7 million in the same quarter of 2011 and a profit of €132.4 million realised in

the third quarter of 2012.

The income statement for the year presents taxes on income for the year from continuing

operations of €121.2 million 19 , which benefited from certain non-recurring components,

detailed below:


€25 million from the realignment of taxation on goodwill, recognised in the consolidated financial

statements in relation to the purchase of a controlling interest in Banca Popolare di Ancona, in

accordance with Art. 23, paragraphs 12-15 of Decree Law No. 98 of 6 th July 2011 (Law No. 111/2011)

19 In the first half of 2011 tax income of €95.9 million was reported, following the recognition of a non-recurring item amounting to

+€352.8 million, relating to the Parent, consisting of:

+€377.8 million from the realignment of taxation on goodwill and other intangible assets in accordance with Decree Law No. 98 of

6 th July 2011, converted with amendments into Law No. 111 of 15 th July 2011. This legislation allowed, in accordance with the

principles of Law No. 2 of 28 th January 2009, the recognition for tax purposes of higher values attributed to controlling interests

acquired through extraordinary transactions. The realignment was performed by the payment of a substitute tax of 16% (€525.6

million paid in November 2011), which allowed tax to be deducted on the amortisation of the amount subject to tax relief

(€3,285.3 million) at constant rates over ten years with effect from 2018 (instead of from 2013, given the deferral effected by Law

No. 228/2012). Consequently, in the first half of 2011 deferred tax assets of €903.4 million were recognised within item 290 of

the income statement, corresponding to the future benefit arising from the deduction of amortisation on the intangible assets

subject to tax relief;

-€25 million from the write-off of deferred tax assets for IRAP (local production tax) purposes, already recognised in the financial

statements as at and for the year ended 31 st December 2010. As a result of the tax deductibility of the amortisation of the

amount subject to tax relief mentioned above, the Parent did not have sufficient taxable income for IRAP purposes to recover the

deferred tax assets which had been recognised, since IRAP is not included in the tax consolidation. Consequently the conditions

for its recognition were therefore no longer met.

The increase of 0.75% in the rate for IRAP (regional production tax) introduced by Art. 23, paragraph 5 of Decree Law No. 98/2011

already mentioned, applicable to banks and financial companies and in force with effect from the tax year 2011, resulted in changes in

both current taxation (with the recognition of greater current taxes of -€16.2 million) and deferred taxation, with the recognition of -

€6.3 million (non-recurring) deriving from the adjustment of the deferred tax liabilities allocated in the financial statements as at and

for the year ended 31 st December 2010, primarily relating to intangibles brought to light during the allocation of the cost of the merger

deficit for the former Banca Lombarda e Piemontese Group.

104




as amended by Art. 20 of Decree Law No. 201 of 6 th December 2011 (Law No. 214/2011). Following

enactment of the Decreto Salva Italia (“Save Italy Decree”), the payment terms were re-opened with

regard to extraordinary transactions performed in 2010 and in preceding years. As already reported,

in 2011 UBI Banca had taken advantage of the measures mentioned to obtain tax relief on the higher

amounts recognised on subsidiaries when the former Banca Lombarda e Piemontese was merged into

it with regard to goodwill, brands and other intangible assets as stated in the consolidated financial

statements. In consideration of the re-opened terms which allowed a precise evaluation of the

operating and financial impacts of the operation, it was also decided to obtain tax relief in 2012 on

the goodwill recognised in the consolidated financial statements arising from the acquisition of a

controlling interest in BPA by UBI Banca (formerly BPU Banca). In return for the cost of recognising

the substitute tax at a rate of 16% (€34.8 million), it is possible to deduct the amortisation of the

amount subject to tax relief (€217.3 million) at constant rates over ten years with effect from 2018

(instead of 2013, owing to the deferral provided for by Law No. 228/2012). Consequently, in the first

half of 2012, deferred tax assets of €59.8 million were recognised within item 260 of the income

statement, corresponding to the future benefit arising from the deduction of amortisation on the

goodwill subject to tax relief;

€8.3 million resulting from tax relief in relation to non-accounting deductions existing as at 31 st

December 2011, relating to the loan impairment provision of UBI Banca (section EC of the income tax

return). Law No. 244/2007 repealed, with effect from 2008, the ability to make non-accounting

deductions from income (pursuant to article 109, paragraph 4, letter b) of the Consolidated Income

Tax Act) for depreciation and amortisation, provisions and impairment losses of a tax nature, and

introduced the ability to obtain tax relief for those deductions in order to align statutory accounting

amounts with tax accounting amounts existing as at 31 st December 2007. Since the legislation

mentioned made it possible to obtain partial tax relief on uniform categories of deductions and also in

the light of changes to the operating perimeter (with the direct disbursement of loans to customers), it

was decided to take advantage of that opportunity with regard to provisions for impairment losses on

loans, not subject to tax relief in prior years. The income statement therefore included the total

substitute tax due of €11.5 million (16% of the amount of €72.1 million subject to tax relief declared

in section EC of the 2012 income tax return) and also the proceeds from the write-off of deferred

liabilities recognised against the non-accounting deductions from the loan impairment provision as at

31 st December 2011 (€19.8 million). Owing to the foregoing, from 2012 any loan losses are deductible

according to the ordinary tax provisions;

€66.1 million relating to prior year tax credits, in view of the full deduction for corporate income tax

purposes of IRAP (local production tax) on the cost of labour from 2012, as provided for by Art. 2,

paragraph 1 quater of Decree Law No. 201/2011, converted with amendments into Law No. 214/2011

and subsequently supplemented by Art 4, paragraph 12 of Decree Law No. 16/2012, converted with

amendments into Law No. 44/2012. The decree on tax deregulation made it possible to file a

corporate income tax refund application, recalculated as a result of the deductibility mentioned above,

for prior years, for which the time limit (on 2 nd March 2012) of 48 months indicated for the refund of

direct payments had not yet expired (i.e. the tax years 2007-2011). According to the Provision of the

Director of the Tax Authorities of 17 th December 2012, which establishes the terms and conditions for

filing for such refunds, the amount of the refund for which to apply for the UBI Banca Group was

recalculated (with respect to the amount originally defined in the half-yearly accounts) for the

aforementioned annual periods.

Net of non-recurring items, taxes came to €224 million from €247.8 million before, to give an

effective tax rate of 67.21% (63.74% in 2011).

Compared to the theoretical tax rate (33.07%), the taxation levied was conditioned by the

combined effect of greater IRES and IRAP, due to:

- the partial non-deductibility of interest expense (4%), introduced by Law No. 133 of 6 th

August 2008 (9.2 percentage points);

- the higher taxation on dividends eliminated in the consolidation (4.4 percentage points);

- non tax deductible expenses, costs and provisions accounting (2.2 percentage points);

- the non-deductibility for IRAP purposes of net impairment losses on loans and staff costs

and the partial non-deductibility of other administrative expenses and depreciation and

amortisation (32.6 percentage points).

These impacts were only partially cushioned by the following: the valuation of equity

investments according to equity method, not significant for tax purposes (4.4 percentage

points), the Aiuto alla crescita economica (“Aid to economic growth”) concessions (2.6

percentage points), the deduction for IRES (corporate income tax) purposes of an amount

equal to the IRAP (regional production tax) corresponding to the taxable portion of employee

and similar personnel expenses and the flat-rate deduction of 10% (4.8 percentage points),

105


and the deduction from the IRAP taxable income of the tax amortisation of goodwill

(approximately one percentage point) and of negative components not deducted in previous

years on loans disposed of during the year (1.5 percentage points).

On a quarterly basis, (normalised) taxes decreased to €14.4 million from the €50.2 million in

the fourth quarter of 2011 and €62.2 million in the third quarter of 2012. The quarter-onquarter

performance was affected above all by the change in taxable income, which became

negative during the reporting quarter, but also by the different weight assumed during the two

periods by certain components, such as net impairment losses on loans and provisions for

risks and charges, for the purposes of their significance in calculating taxable income or loss

for IRAP (regional production tax).

As a result of the performance already reported and also of the profits earned by Group banks

and companies, profit for the year attributable to non-controlling interests (inclusive of the

effects of consolidation entries) stood at €17.3 million, compared with €28.8 million in 2011.

This change reflects the different results which contributed to the item of the companies in

which non-controlling shareholders hold shares (for example the change from profit in 2011 to

the current loss for Carime, BPA and BRE and the decreases in profits for BPCI and

Centrobanca).

On a quarterly basis, profit attributable to non-controlling interests came to €1.5 million,

compared with €9.5 million in the same quarter of 2011 and €1.4 million in the previous three

months of 2012.

Staff leaving incentive costs of €101.9 million were presented within a single item, net of taxes

and non-controlling interests. The item originated to a significant degree in the fourth quarter of

the year (€93.9 million), following the signing of the trade union agreements of 29 th November

2012 and 12 th February 2013.

These costs totalled €152 million (subject to taxes of €41.8 million, whereas the share

attributable to non-controlling interests is €8.3 million), of which:

• -€4 million was charged in connection with the General redundancy incentive offer

implemented in March 2012 and aimed at employees eligible for the benefits provided by the

Salva Italia (“Save Italy”) Decree;

• -€4.5 million 20 (net of the related staff costs for the personnel covered by the redundancy

plan) was recognised in the third quarter in connection with the “Managerial manoeuvre”;

• -€143.5 million is attributable to the contents of the trade union agreements signed on 29 th

November 2012 and 12 th February 2013.

The impairment-testing procedure performed at the end of December 2011, in accordance with IAS 36 (Impairment of

assets), no longer ensured the recoverability of the carrying amounts for goodwill and finite useful life intangibles.

Accordingly, the reclassified income statement presented net impairment losses on goodwill (item 260) and net

impairment losses on finite useful life intangibles (part of item 210) recognised during the year, totalling €2,190.9

million, within a single item stated net of taxes and non-controlling interests. These were composed of €1,865.5

million for impairment losses on goodwill and €305.9 million for impairment losses on finite useful life intangible

assets, while the remaining €19.5 million (recognised in the second quarter of the year) related to the full impairment

loss on intangible assets associated with the investment in BY YOU (partially disposed of in April 2011), following the

renegotiation of distribution agreements.

In detail, the impairment test gave rise to total impairment losses of €2,396.8 million, composed as follows:



€1,873.8 million for the total impairment loss recognised on goodwill, of which:

- €521.2 million for the full impairment loss on goodwill recognised by UBI Banca arising from the business

combination involving the former BPU Group and the former BLP Group, which took effect from 1 st April 2007;

- €1,331 million for reductions in goodwill arising on consolidation, of which €987.5 million relating to the

network banks, €234.5 million to the main product companies, €96.8 million to the other banks and €12.2

million to other minor companies;

- €21.6 million for impairment losses on goodwill recognised in the separate balance sheets arising from

previous merger transactions (€12.1 million for Banca Carime, €7.2 million for Centrobanca, €2 million for UBI

Leasing and €0.3 million for BRE);

€523 million for impairment losses on all the finite useful life intangible assets (except for those relating to assets

under custody and software): €193 million relating to brands, €241.7 million to core deposits and €88.3 million to

assets under management.

20 Estimated costs of €7.6 million had been recognised in the third quarter of 2012.

106


The following comments are based on items in the consolidated balance sheet contained in the

reclassified consolidated financial statements, on which the relative tables furnishing details are

also based.

The sections “Consolidated companies: the principal figures” and “The performance of the main

consolidated companies” may be consulted for information on individual banks and Group

member companies.

General banking business with customers:

funding

The action taken as a whole during the initial months of 2012 freed the Group from all concerns

over liquidity so that it had no need in its financial management to renew maturing medium to

long-term institutional funding.

In fact, during the first quarter of the year, due partly to a temporary easing of sovereign debt

pressures, renewed interest was seen among institutional investors in Italian bank issuers. In this

context, the Group nevertheless preferred not to make new placements, which, moreover were not

strictly necessary for the structural balance of its assets and liabilities, as it considered that

market conditions were still too costly. It was only from October onwards, given reduced pressure

on sovereign spreads and the consequent improvement in cost levels, that UBI Banca returned to

international markets with a benchmark issue of €750 million, followed by two private placements

for a total of €525 million.

In the short-term institutional segment, in which the Group operates in euro commercial paper and

French certificates of deposit (instruments issued by UBI Banca International and listed in

Luxembourg), volumes of business were further reduced due to both the specific nature of this

funding (used as a “buffer” for optimising liquidity management and overall funding) and the

impact that Italy risk was having on the yields and the durations of investments. Another factor

was the minimum rating levels stipulated by the internal policies of a number of institutional

operators.

At the same time, commercial attention was increasingly directed towards funding from ordinary

customers, a traditional strategic strength for the Group, and even more important for the future,

although in an increasingly competitve environment. In this situation, commercial action was

organised principally around the range of bond products, with a view, amongst other things, to

stabilising liabilities and around term deposits.

Net of the institutional component (including repurchase agreements with the Cassa di

Compensazione e Garanzia – a central counterparty clearing house), at the end of the year,

funding from households and companies financed 86.5% of loans and advances to customers.

Total funding

Total funding from customers

Figures in thousands o f euro

31.12.2012

A

%

30.9.2012

B

%

30.6.2012

C

%

31.3.2012

D

%

31.12.2011

E

%

Changes A/E

amount %

Direct funding 98,817,560 58.5% 100,263,876 58.7% 102,246,727 59.7% 99,443,211 57.9% 102,808,654 58.8% -3,991,094 -3.9%

Indirect funding 70,164,384 41.5% 70,665,545 41.3% 69,024,117 40.3% 72,381,158 42.1% 72,067,569 41.2% -1,903,185 -2.6%

of which: assets under

management 38,106,037 22.6% 37,969,326 22.2% 36,490,940 21.3% 37,604,598 21.9% 36,892,042 21.1% 1,213,995 3.3%

Total funding from customers 168,981,944 100.0% 170,929,421 100.0% 171,270,844 100.0% 171,824,369 100.0% 174,876,223 100.0% -5,894,279 -3.4%

Total funding net of CCG and

institutional funding 150,498,750 152,068,364 149,377,124 152,725,529 151,588,548 -1,089,798 -0.7%

Total Group funding, consisting of total amounts administered on behalf of customers,

amounted, as at 31 st December 2012 to €169 billion (-€5.9 billion compared to the end

of 2011), highlighting a progressive reduction during the year, attributable, although

107


at different rates over the various time frames, to both direct funding (-€4 billion) and

indirect funding (-€1.9 billion).

In actual fact, the trend for the

total was influenced by a series of

factors, some technical, which did

not relate to normal banking

business with customers as such,

as follows:


110,000

100,000

90,000

80,000

on the one hand, for some 70,000

institutional components of 60,000

direct funding, the failure to

50,000

renew medium to long-term

EMTN funding, reduced shortterm

activity in euro 30,000

40,000

commercial paper and French

20,000

CDs, as well as repurchase

10,000

transactions with the Cassa di

Compensazione e Garanzia

0

(CCG) to fund the portfolio of

2009

Italian government securities,

the latter meeting contingent

requirements as part of overall liquidity management;

Direct funding and indirect funding

(end of quarter totals in millions of euro)

1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q

2008 2010 2011

2012

Direct funding

Indirect funding


on the other hand, for indirect funding, the volatility which characterised the

financial markets for the whole of the first part of 2012, with signs of recovery only

firming up from September onwards. This inevitably impacted asset values (the

“market effect”).

Net of the institutional items cited above, direct funding from customers grew (+€0.8

billion), partially offsetting the decline in indirect funding. Compared to December

2011, total direct funding of €150.5 billion fell more moderately as a consequence

(-€1.1 billion).

Direct funding

As already reported above, direct Group funding, amounting to €98.8 billion,

contracted over the twelve-month period, incorporating trends in a number of factors

of an institutional nature (transactions with the Cassa di Compensazione e Garanzia

to fund the proprietary portfolio, failure to renew maturing institutional funding and

reduced activity in short-term institutional markets), net of which, the trend was

positive at +€0.8 billion.

In detail, after reaching €57.1 billion in June, amounts due to customers stood at

€53.8 billion, a reduction of €0.7 billion compared to December 2011.

The main cause of the downward trend is attributable to repurchase agreements, for

both the part relating to business with customers (which progressively fell to €0.3

billion from €1 billion) and that with counterparties through the Cassa di

Compensazione e Garanzia, which over the twelve-month period, fell from €4.6 billion

to €3.9 billion, although with fluctuating performance in the intervening periods,

reflecting the investment/disinvestment choices for the government bond portfolio and

also the improved Group liquidity position from the third quarter onwards.

During the first quarter, business with the CCG had been reduced (from €4.6 billion in December

2011 to €2.4 billion in March 2012) in parallel with the three-year liquidity acquired through the

two LTRO operations with the ECB (an operation which also provided greater stability to the

balance sheet liability structure). During the second quarter, on the other hand, recourse to the

Cassa di Compensazione e Garanzia was increased again (€7.2 billion in June) in order to

finance short-term investments. From the second half of the year onwards, a new phase of

108


educing these operations began, bringing them down to a total of €3.9 billion in December 2012,

as a consequence of partial divestments from the trading portfolio (all concentrated during the

third quarter) and the positive liquidity position of the Group

Considered net of repurchase agreements with the Cassa di Compensazione e

Garanzia, amounts due to customers were stable at €49.8 billion year-on-year.

For other forms of funding, a change in the mix of investment choices by customers

occurred, out of current accounts, which fell by €0.9 billion over the twelve-month

period to €45.1 billion, into term deposits (+€1.8 billion to €3.2 billion) partly in

relation to the commercial initiatives already in place from the end of 2011 in order to

exploit fixed term forms of funding, above all from private individual customers.

It should moreover be considered that the trend for current accounts was influenced

by changes, which varied during the year, in liquid assets deposited with UBI Banca

by UBI Pramerica 1 , (stable in the fourth quarter but down €0.2 billion compared to

December 2011), by the CCG (-€1.1 billion compared to September, -€0.9 billion

compared to the end of 2011), as well as by corporate customers (-€0.2 billion over the

last three months, +€0.3 billion over the twelve-month period).

Finally, mention must be made of growth in IWBank funding, the Group’s internet

bank (+€1 billion year-on-year), the result, amongst other things, of the growing

appreciation by customers for the products and services provided.

Direct funding from customers

Changes

31.12.2012 % 31.12.2011 %

Figures in thousands of euro amount %

Current accounts and deposits 45.149.448 45,7% 46.065.651 44,8% -916.203 -2,0%

Term deposits 3.184.368 3,2% 1.396.835 1,4% 1.787.533 128,0%

Financing 4.732.552 4,8% 6.022.955 5,8% -1.290.403 -21,4%

- repurchase agreements 4.273.890 4,3% 5.568.351 5,4% -1.294.461 -23,2%

of which: repos with the CCG 3.944.510 4,0% 4.615.754 4,5% -671.244 -14,5%

- other 458.662 0,5% 454.604 0,4% 4.058 0,9%

Other payables 692.039 0,7% 945.850 0,9% -253.811 -26,8%

Total amounts due to customers (item 20 liabilities) 53.758.407 54,4% 54.431.291 52,9% -672.884 -1,2%

Bonds 41.996.277 42,5% 44.429.027 43,2% -2.432.750 -5,5%

Certificates of deposit 2.449.278 2,5% 2.447.560 2,4% 1.718 0,1%

Other certificates 613.598 0,6% 1.500.776 1,5% -887.178 -59,1%

Total debt securities issued (item 30 liabilities) 45.059.153 45,6% 48.377.363 47,1% -3.318.210 -6,9%

of which:

securities subscribed by institutional customers: 14.538.684 14,7% 18.671.921 18,1% -4.133.237 -22,1%

- The EMTN programme (*) 7.091.040 7,2% 10.292.174 10,0% -3.201.134 -31,1%

- The French certificates of deposit programme 487.838 0,5% 750.616 0,7% -262.778 -35,0%

- The euro commercial paper programme 273.574 0,3% 1.044.055 1,0% -770.481 -73,8%

- The covered b ond programme 6.346.208 6,4% 6.128.355 6,0% 217.853 3,6%

- Preference shares (**) 340.024 0,3% 456.721 0,4% -116.697 -25,6%

bonds subscribed by ordinary customers 28.395.864 28,7% 27.749.274 27,0% 646.590 2,3%

- of the Group:

issued by UBI Banca 7.812.713 7,9% 6.856.713 6,7% 956.000 13,9%

issued by the network banks 16.654.669 16,8% 16.624.904 16,2% 29.765 0,2%

- external distribution networks:

issued by Centrob anca 3.928.482 4,0% 4.267.657 4,1% -339.175 -7,9%

Total direct funding 98.817.560 100,0% 102.808.654 100,0% -3.991.094 -3,9%

Due to customers net of the CCG 49.813.897 49.815.537 -1.640 0,0%

Total direct funding net of the CCG and institutional funding 80.334.366 79.520.979 813.387 1,0%

(*) The corresponding nominal amounts were €6.995 billion (€182 million subordinated) as at 31 st December 2012 and €10.186 billion (€212

million subordinated) as at 31 st December 2011. The amounts indicated in the table do not include two private placements, for a total of

€88 million, of an “intragroup” nature and therefore eliminated in the consolidation (€93 million as at 31 st December 2011 also due to a

partial repurchase).

(**) The preference shares were issued, in nominal terms, by BPB Capital Trust for €300 million, by Banca Lombarda Preferred Securities Trust

for €155 million and by BPCI Capital Trust for €115 million. Following the Public Exchange Offer of 25 th June 2009, the Public Purchase

Offer, concluded on 12 th March 2012 and further repurchases done afterwards, the nominal values of the debt securities issued were

€182.095 million for the issue by BPB Capital Trust, €90.314 million for that by Banca Lombarda Preferred Securities Trust and €65.338

million for BPCI Capital Trust.

1 Following an agreement signed in April 2011, the Parent of UBI Banca Group is the holder of the deposits intended for

the investment requirements of the number of funds managed by the asset management company: Euro Breve Termine,

Euro Cash (both from May 2011 onwards) and Portafoglio Prudente (from August 2011 onwards).

109


Debt securities issued, over 90% of which represent bonds, fell to €45.1 billion, with

a progressive contraction over the first three quarters of 2012 due to the downward

trend in funding from bonds and other securities, with a partial recovery in the final

months of the year.

Bonds amounted to €42 billion, affected by the maturities of the EMTN programme,

which were concentrated above all during the first half of the year, while other

securities (€0.6 billion compared to €1.5 billion outstanding at the end of 2011)

substantially reflected the trend for euro commercial paper.

Certificates of deposit, which were stable at €2.4 billion, almost unchanged compared

to the previous year, actually represented differring trends within the total: the French

certificates component, which is used for short-term institutional funding and liquidity

optimisation requirements, fell by €0.3 billion. Similarly, certificates swapped into yen

(€0.8 billion), fell compared to December 2011 (-€0.3 billion). The remaining types of

funding on the other hand benefited from renewed interest among customers, after

changes in taxation in effect from 1 st January 2012 onwards, reaching a total of €1.1

billion at the end of the financial year, with an increase of €0.6 billion since the start

of the year.

In terms of types of customers, funding from institutional customers totalled €14.5

billion, compared to €18.7 billion at the end of 2011. As already reported previously,

the decrease in the item was affected mainly by the partial renewal in the EMTN

programme (only during the last quarter of the year) of maturing notes, although also

by a progressive reduction in transactions in short-term markets, used as a buffer for

the optimisation of liquidity management, where, moreover, at least until September,

Italy risk influenced the yields and durations of investments, partly in relation to the

the minimum rating levels required by the internal policies of several institutional

operators.

In detail, institutional funding as at 31 st December 2012 was composed as follows:

EMTN instruments (Euro Medium Term Notes) amounting to €7.1 billion (of which

only €0.2 billion subordinated), issued as part of a programme for a maximum

issuance of €15 billion 2 .

These decreased by €3.2 billion over twelve months, which was in fact attributable

to the positive liquidity and structural balance of the Group, which made it possible

not to renew maturing securities, under market conditions which were still

considered too costly.

It was not until October 2012, after 18 months, that UBI Banca started to return to

international markets with three new issuances for a total of €1.275 billion

nominal, which partially replaced maturities, redemptions and repurchases during

the year, for total of €4.46 billion nominal.

On 30 th October a benchmark issue of €750 million with a three-year maturity and a fixed

coupon of 3.75% was placed by a public offer. This was followed by two private placements,

the first, for €200 million on 28 th November and the second, for €325 million on 11 th

December, both at a variable rate and maturing in 2013.


Covered bonds, amounting to €6.3 billion (+€0.2 billion over twelve months, the

result of a change in book value, with no issues made during the year).

As part of the “multioriginator” programme, backed by residential mortgages, with a

maximum ceiling of €10 billion, UBI Banca has eight covered bonds outstanding for

a nominal value of €5.717 billion, after three amortisations for a total of €33

million 3 . The securities are listed in London.

2 All the securities are traded in London, with the sole exception of the securities issued by the former Banca Lombarda e

Piemontese, which are listed in Luxembourg.

3 Considering the large pool of segregated assets available from UBI Finance, on 22 nd February 2012 three new issues were

made for an overall amount of €750 million, which were not placed on the market but used to strengthen the pool of

eligible assets with the Central Bank. At the same time, a second covered bond programme backed by commercial

110


As at 31 st December 2012, assets consisting of residential mortgages transferred to UBI

Finance to back the issues made, amounted to €11.2 billion, of which 22.9% originated by

Banca Popolare di Bergamo, 20.5% by Banco di Brescia, 18.9% by Banca Popolare Commercio

e Industria, 15.6% by Banca Regionale Europea, 11% by Banca Popolare di Ancona, 7% by

Banca Carime, 2.4% by Banca di Valle Camonica and the remaining 1.7% by UBI Banca

Private Investment.

The cover pool was again highly fragmented, including over 157,000 mortgages with an

average residual debt of €71,200, of which 72.1% in the north of Italy, and in particular, in

Lombardy (51% of the total).

On 1 st February 2012, a transfer of assets was concluded by Banca Popolare di Bergamo,

Banco di Brescia, Banca Carime and UBI Banca Private Investment. They transferred

mortgages already held as assets on their balance sheets for a total of €1.171 billion of

remaining principal debt to the special purpose company.

On 1 st October 2012, a further transfer of assets was concluded by BRE, the former BSG, BPA,

BPCI and BVC, which transferred mortgages for a total remaining nominal principal debt of

€1.4 billion held on their balance sheets to UBI Finance.



French certificates of deposit for €488 million, issued by UBI Banca International

as part of a €5 billion programme, listed in Luxembourg, and euro commercial

paper of €274 million, issued by UBI Banca International as part of a €6 billion

programme, listed in Luxembourg;

preference shares of €340 million, consisting of shares still in issue after the public

exchange offer of June 2009 and the more recent operation in February and March

2012.

Bond funding from ordinary customers, consisting of bonds subscribed by customers of

the network banks, increased over the twelve-month period by €0.6 billion rising to

€28.4 billion, due to an issuance programme by the Parent concentrated above all in

the last part of the year.

Due to 18 new placements for a total nominal amount of €1.8 billion (of which two, for

an amount of €1.2 billion, with a lower tier two subordination clause), at the end of

the year, UBI Banca’s holding of listed bonds had risen to €7.8 billion, with an annual

increase of around €1 billion (+€1.5 billion in the fourth quarter alone) and an issued

to maturity ratio of 191%. Bond funding from the network banks nevertheless

remained stable at €16.6 billion, reflecting a substantial balance between issuances

(overall €5.6 billion) and redemptions and repurchases.

Centrobanca funding, mainly from non-captive customers, continued to decline in the

absence of new issuance (-€0.3 billion year-on-year).

Excluding Centrobanca, during 2012, UBI Banca securities placed by the network

banks totalled €7.4 billion nominal, against maturities, repurchases and amortisation

repayments of €6.5 billion nominal, with an issued to maturity ratio of 113%.

During 2013, a strategic change is planned in the Group’s medium to long-term direct

funding strategy, with the predominant concentration of bond issues by UBI Banca,

while the network banks will focus primarily on placements with customers. This will

favour the progressive reduction of the number of securities in issue, to the benefit of

their liquidity, as a result of increasing the average size of the issues placed and with

greater efficiency also in the management of hedges where used.

mortgages was structured with the aim of making self-retained issues, i.e. intended to create new eligible assets. At the

end of May, the first issue for a nominal amount of €1.8 billion was made (six-year maturity), while a second issue was

completed at the end of October for a nominal amount of €0.5 million (ten-year maturity). In so far as these were

repurchased by the same Parent, on the basis of IAS/IFRS standards, such liabilities are not recorded in the accounts.

111


Maturities of bonds outstanding as at 31st December 2012

Nominal amounts in millions of euro

1st Quarter

2013

2nd Quarter

2013

3rd Quarter

2013

4th Quarter

2013

2014 2015 2016

Subsequent

years

Total

UBI BANCA* 1,557 56 1,366 1,975 4,726 2,476 2,557 5,692 20,405

of which: EMTNs 1,424 - 642 1,663 2,076 965 100 125 6,995

Covered bonds ** - 25 - 25 51 551 1,801 3,264 5,717

Network banks 1,186 1,182 1,441 1,405 5,805 3,401 940 940 16,300

Other banks in the Group 5 7 23 56 422 448 2,304 630 3,895

Total 2,748 1,245 2,830 3,436 10,953 6,325 5,801 7,262 40,600

* The EMTN subordinated loan was placed on the exercise date of the call option (October 2013).

** The first half-yearly repayment, of €11 million, took place in the fourth quarter of 2011 and the second and third repayments, also for €11

million, took place respectively during the second and fourth quarters of 2012.

Listed securities

Bonds listed on the MOT (electronic bond market)

Nominal amount of

Book value as at

ISIN number issue 31.12.2012 31.12.2011

IT0001197083 Centrobanca zero coupon 1998-2018 L. 800 billion € 164,047,404 € 157,100,369

IT0001257333 Centrobanca 1998/2014 reverse floater L. 300 billion € 89,251,808 € 106,581,450

IT0001267381 Centrobanca 1998/2018 reverse floater capped L. 320 billion € 132,468,039 € 121,608,918

IT0001278941 Centrobanca 1998/2013 equity linked coupon L. 100 billion € 38,099,909 € 41,153,616

IT0001300992 Centrobanca 1999/2019 step dow n indicizzato al tasso sw ap euro 10 anni € 170,000,000 € 119,683,666 € 117,189,043

IT0001312708 Centrobanca 1999/2019 step dow n eurostability bond € 60,000,000 € 62,389,248 € 54,765,695

IT0003834832 Centrobanca 2005/2013 inflazione Italia con leva € 16,280,000 € 4,892,524 € 9,826,128

IT0004424435 UBI subordinato low er tier 2 a tasso variabile con ammortamento 28.11.2008-2015 € 599,399,000 € 356,528,893 € 474,738,713

IT0004457070 UBI subordinato low er tier 2 fix to float con rimborso anticipato 13.3.2009-2019 € 370,000,000 € 381,377,159 € 383,885,598

IT0004457187 UBI subordinato low er tier 2 a tasso variabile con ammortamento 13.3.2009-2016 € 211,992,000 € 168,290,705 € 209,976,428

IT0004497043 Unione di Banche Italiane Scpa tasso misto 30.6.2009-2014 € 219,990,000 € 218,273,272 € 217,147,237

IT0004497050 UBI subordinato low er tier 2 fix to float con rimborso anticipato 30.6.2009-2019 € 365,000,000 € 372,171,144 € 370,940,321

IT0004497068 UBI subordinato low er tier 2 a tasso variabile con ammortamento 30.6.2009-2016 € 156,837,000 € 124,233,447 € 154,914,482

IT0004496557 Unione di Banche Italiane Scpa tasso misto 7.7.2009-2014 € 200,000,000 € 198,834,101 € 198,215,118

IT0004517139 Unione di Banche Italiane Scpa tasso misto 4.9.2009-2013 € 84,991,000 € 84,923,166 € 84,809,448

IT0004572860 UBI subordinato low er tier 2 a tasso variabile con ammortamento 23.2.2010-2017 € 152,587,000 € 151,575,804 € 151,473,168

IT0004572878 UBI subordinato low er tier 2 a tasso fisso 3,10% con ammortamento 23.2.2010-2017 € 300,000,000 € 314,157,916 € 309,378,048

IT0004626617 IW Bank Obbligazioni agosto 2015 con opzione di tipo call asiatica (*) € 1,054,000 € 1,010,953 € 1,081,021

IT0004642382 IW Bank Obbligazioni ottobre 2015 con opzione di tipo call asiatica - II tranche (*) € 940,000 € 896,115 € 923,710

IT0004645963 UBI subordinato low er tier 2 a tasso fisso 4,30% con ammortamento 5.11.2010-2017 € 400,000,000 € 410,797,107 € 397,739,866

IT0004651656 Unione di Banche Italiane Scpa tasso fisso 2,30% 2.12.2010-2013 Welcome Edition € 81,322,000 € 81,264,633 € 81,041,477

IT0004652043 Unione di Banche Italiane Scpa tasso misto 2.12.2010-2014 € 174,973,000 € 174,136,269 € 173,997,117

IT0004710981 Unione di Banche Italiane Scpa tasso fisso 3,65% 20.5.2011-20.11.2013 € 5,787,000 € 5,911,171 € 5,914,831

IT0004713654 Unione di Banche Italiane Scpa tasso misto 10.6.2011-2015 € 120,000,000 € 123,276,629 € 121,935,110

IT0004718489 UBI subordinato low er tier 2 tasso fisso 5,50% con ammortamento 16.6.2011-2018 Welcome Edition € 400,000,000 € 423,622,244 € 412,216,859

IT0004723489 UBI subordinato low er tier 2 tasso fisso 5,40% con ammortamento 30.6.2011-2018 € 400,000,000 € 423,855,780 € 412,473,438

IT0004767742 UBI subordinato low er tier 2 tasso misto 18.11.2011-2018 Welcome Edition € 222,339,000 € 223,629,064 € 219,055,454

IT0004777550 Unione di Banche Italiane Scpa tasso fisso 5% 9.12.2011-9.6.2014 € 203,313,000 € 206,227,976 € 204,273,814

IT0004777568 Unione di Banche Italiane Scpa tasso fisso 5% 30.12.2011-30.6.2014 Welcome Edition € 176,553,000 € 178,073,154 € 176,231,023

IT0004779713 Unione di Banche Italiane Scpa tasso fisso 4,50% 30.12.2011-30.6.2014 € 287,722,000 € 289,994,069 € 286,920,098

IT0004780711 Unione di Banche Italiane Scpa tasso fisso 5% 29.12.2011-29.6.2014 € 95,109,000 € 95,605,512 € 94,660,143

IT0004785876 Unione di Banche Italiane Scpa tasso fisso 4,3% 17.2.2012-17.3.2014 € 19,991,000 € 20,358,184 -

IT0004785892 Unione di Banche Italiane Scpa tasso fisso 3,8% 31.1.2012-28.2.2014 € 25,000,000 € 25,464,290 -

IT0004796030 Unione di Banche Italiane Scpa tasso variabile 30.3.2012-30.3.2014 € 20,000,000 € 20,000,535 -

IT0004796048 Unione di Banche Italiane Scpa tasso fisso step up 3,50% 30.3.2012-30.3.2014 € 40,000,000 € 40,388,587 -

IT0004803968 Unione di Banche Italiane Scpa tasso variabile 23.4.2012-23.4.2014 € 73,022,000 € 73,285,049 -

IT0004804560 Unione di Banche Italiane Scpa tasso fisso step up 3% 30.4.2012-30.4.2014 € 33,438,000 € 34,344,849 -

IT0004815368 Unione di Banche Italiane Scpa tasso fisso 4% 8.6.2012-8.6.2015 Welcome Edition € 15,371,000 € 15,481,581 -

IT0004815715 Unione di Banche Italiane Scpa tasso fisso 3,80% 15.6.2012-15.6.2016 € 20,224,000 € 20,333,588 -

IT0004841778 UBI subordinato low er tier 2 tasso misto 8.10.2012-8.10.2019 Welcome Edition € 200,000,000 € 201,603,727 -

IT0004842370 UBI subordinato low er tier 2 tasso fisso con ammortamento 6% 8.10.2012-8.10.2019 € 970,457,000 € 985,224,678 -

IT0004851710

IT0004851728

IT0004854490

Unione di Banche Italiane Scpa tasso variabile 23.11.2012-23.11.2016 Welcome Edition

"UBI Comunità per l'imprenditoria sociale del sistema CGM" € 17,552,000 € 17,624,825 -

Unione di Banche Italiane Scpa tasso fisso step up 4,00% 19.10.2012-19.10.2016 Welcome Edition

"UBI Comunità per la Comunità di Sant'Egidio" € 20,000,000 € 20,361,336 -

Unione di Banche Italiane Scpa tasso misto 7.12.2012-7.12.2015 Welcome Edition

"Progetto T2 Territorio per il Territorio UBI Banca e Assolombarda" € 18,550,000 € 18,601,359 -

IT0004855554 Unione di Banche Italiane Scpa tasso fisso 4% 30.11.2012- 30.11.2014 Welcome Edition € 34,966,000 € 35,017,404 -

IT0004855562 Unione di Banche Italiane Scpa tasso fisso 4% 23.11.2012-23.12.2014 € 99,991,000 € 100,393,415 -

IT0004865579 Unione di Banche Italiane Scpa tasso fisso 3% 3.12.2012-3.12.2014 € 121,440,000 € 121,435,076 -

IT0004867310 Unione di Banche Italiane Scpa tasso fisso 3,50% 7.12.2012-7.6.2015 € 68,189,000 € 68,145,376 -

IT0004869860

Unione di Banche Italiane Scpa tasso fisso step up 3,00% 31.12.2012-31.12.2015 WE UBI Comunità per

Fondazione Umberto Veronesi € 20,000,000 € 20,000,000 -

IT0004874985 Unione di Banche Italiane Scpa tasso fisso step up 3,00% 31.1.2013-31.1.2017 € 157,532,000 - -

IT0004874993 Unione di Banche Italiane Scpa tasso fisso 3,50% 31.1.2013-31.1.2016 Welcome Edition € 54,419,000 - -

IT0004883762 Unione di Banche Italiane Scpa tasso fisso step up 1,50% 8.2.2013-8.2.2016 € 45,230,000 - -

IT0004884208 Unione di Banche Italiane Scpa tasso fisso 1,60% 8.2.2013-8.2.2015 € 43,977,000 - -

IT0004884539 Unione di Banche Italiane Scpa tasso fisso 1,70% 8.2.2013-8.8.2015 € 13,145,000 - -

IT0004884745 Unione di Banche Italiane Scpa tasso misto 8.2.2013-8.2.2016 € 49,045,000 - -

IT0004883770 Unione di Banche Italiane Scpa tasso variabile 8.2.2013-8.2.2015 € 51,120,000 - -

IT0004884729 Unione di Banche Italiane Scpa tasso fisso 2,30% 8.2.2013-8.2.2015 Welcome Edition € 13,249,000 - -

IT0004884679 Unione di Banche Italiane Scpa tasso misto 8.2.2013-8.2.2016 € 102,898,000 - -

(*)The figures relate to bonds outstanding, that is net of repurchases by the company itself. On 9th January 2013 IW Bank launched a public tender purchase offer – concluded on 29th January –on the bonds in issue for the two listed

issues, designed to remove them from the listing. With a provision of 7th January 2013, Borsa Italiana removed them from the listing as of 6th March 2013 and as a consequence the company lost its status as a listed issuer.

112


Listed securities (contd.)

Convertible bonds listed on the MOT (electronic bond market)

ISIN number

Nominal amount of

issue

31.12.2012 31.12.2011

IT0004506868 UBI 2009/2013 convertibile con facoltà di rimborso in azioni € 639,145,872 € 655,465,003 € 653,777,805

Covered bonds listed on the London Stock Exchange

ISIN number

Nominal amount of

issue

31.12.2012 31.12.2011

IT0004533896 UBI Covered Bonds due 23 September 2016 3,625% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,096,717,624 € 1,068,507,939

IT0004558794 UBI Covered Bonds due 16 December 2019 4% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,145,948,084 € 1,081,847,471

IT0004599491 UBI Covered Bonds due 30 April 2022 floating rate amortising guaranteed by UBI Finance Srl € 250,000,000 € 216,118,631 € 239,418,111

IT0004619109 UBI Covered Bonds due 15 September 2017 3,375% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,078,025,809 € 1,028,594,052

IT0004649700 UBI Covered Bonds due 18 October 2015 3,125% guaranteed by UBI Finance Srl € 500,000,000 € 523,119,513 € 510,433,699

IT0004682305 UBI Covered Bonds due 28 January 2021 5,25% guaranteed by UBI Finance Srl € 1,000,000,000 € 1,202,660,589 € 1,131,286,542

IT0004692346 UBI Covered Bonds due 22 February 2016 4,5% guaranteed by UBI Finance Srl € 750,000,000 € 832,783,878 € 817,037,468

IT0004777444 UBI Covered Bonds due 18 November 2021 floating rate amortising guaranteed by UBI Finance Srl € 250,000,000 € 250,833,411 € 251,229,559

Innovative equity instruments (preference shares) listed on international markets

ISIN number

Luxembourg

XS0123998394

XS0131512450

London

Nominal amount of

issue

31.12.2012 31.12.2011

Non-cumulative Fixed/Floating Rate Guaranteed Trust Preferred Securities

Banca Popolare di Bergamo Capital Trust € 300,000,000 € 183,572,879 € 229,648,799

9% Non-cumulative Guaranteed Trust Preferred Securities Banca Popolare Commercio e Industria Capital € 115,000,000 € 65,787,479 € 101,929,335

Trust

XS0108805564 Step-Up Non-voting Non-cumulative Trust Preferred Securities Banca Lombarda Preferred Securities Trust € 155,000,000 € 90,663,343 € 125,142,835

The list does not include the numerous EMTN issues quoted in London and Luxembourg, nor the securities resulting from securitisations

carried out for internal purposes by UBI Leasing, Banco di Brescia, Banca Popolare di Bergamo, Banca Popolare Commercio e Industria, Banca

Popolare di Ancona and by the former B@nca 24-7, all listed on the Dublin stock exchange, nor the issuance of French certificates of deposit

and of euro commercial paper, listed in Luxembourg.

***

Geographical distribution of direct funding from

customers by region of location of the branch

(excluding repurchase agreements and bonds) (*)

Percentage of total 31.12.2012 31.12.2011

Lombardy 61.77% 59.14%

Piedmont 7.65% 8.02%

Latium 6.90% 8.54%

Apulia 4.42% 4.71%

Calabria 4.35% 4.50%

Marches 3.93% 3.97%

Campania 3.74% 3.88%

Liguria 2.45% 2.42%

Emilia Romagna 1.19% 1.23%

Veneto 1.00% 1.01%

Basilicata 0.97% 0.95%

Umbria 0.53% 0.52%

Abruzzo 0.45% 0.42%

Friuli Venezia Giulia 0.22% 0.26%

Tuscany 0.21% 0.19%

Molise 0.17% 0.18%

Valle d'Aosta 0.03% 0.03%

Trentino Alto Adige 0.02% 0.02%

Total 100.00% 100.00%

Lastly, the table “Geographical distribution

of funding from customers by region of

location of the branch” illustrates the

geographical distribution of traditional

funding (consisting of current accounts,

savings deposits and certificates of deposit)

in Italy. The data shows an increase in the

already significant geographical

concentration of the Group in North-west

regions, where the network banks are most

concentrated (71.9%, compared to 69.6% in

December 2011), and in Lombardy in

particular, with a share which rose to

61.8% (from 59.1%), also by virtue of the

growth in funding by IWBank.

North 74.3% 72.1%

- North West 71.9% 69.6%

- North East 2.4% 2.5%

Central 11.6% 13.2%

South 14.1% 14.7%

(*) The aggregates relate to banks only.

113


Indirect funding and assets under management

Indirect funding from ordinary customers

31.12.2012 % 31.12.2011 %

Changes

Figures in thousands of euro amount %

Assets under custody 32,058,347 45.7% 35,175,527 48.8% -3,117,180 -8.9%

Assets under management 38,106,037 54.3% 36,892,042 51.2% 1,213,995 3.3%

Customer portfolio management 7,744,074 11.0% 7,898,346 11.0% -154,272 -2.0%

of which: fund based instruments 1,642,689 2.3% 1,699,935 2.4% -57,246 -3.4%

Mutual investment funds and SICAV’s 19,102,247 27.2% 17,250,549 23.9% 1,851,698 10.7%

Insurance policies and pension funds 11,259,716 16.1% 11,743,147 16.3% -483,431 -4.1%

of which: Insurance policies 11,050,312 15.7% 11,545,015 16.0% -494,703 -4.3%

Total indirect funding from ordinary customers 70,164,384 100.0% 72,067,569 100.0% -1,903,185 -2.6%

At the end of December,

indirect funding amounted to

€70.2 billion, down €1.9 billion

compared to the €72.1 billion in

2011 (-2.6%).

The overall trend actually

represents the opposing

performances by assets under

management, which rose to

€38.1 billion (+€1.2 billion) and

assets under custody, which fell

to €32.1 billion (-€3.1 billion, of

which -€2.6 billion in the first

half of the year 4 ), apparently

extending a declining trend,

substantially in place since the

third quarter of 2011.

It should nevertheless be

considered that the performance

of assets under custody was

impacted by customer choices,

50,000

45,000

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Indirect funding

(end of quarter totals in millions of euro)

1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 Q

2008 2009 2010 2011 2012

Assets under management

Assets under custody

where these translated into the reallocation of investments towards managed products

or forms of direct funding (listed bonds issued by UBI Banca).

Assets under management, which recovered during the second part of the year after

the decline between April and June, the share of which rose to 54.3%, were driven by

mutual investment funds and Sicavs (+€1.9 billion to €19.1 billion), which benefited,

on the one hand, from a recovery in financial asset prices that consolidated from

September onwards, and on the other, by the positive results of the placement (overall

€2.7 billion) of five new Sicavs of UBI Pramerica: Cedola Certa 2013-2016, Protezione e

Crescita 2017, Focus Italia, Mercati Emergenti and Cedola Certa 2013-2017 5 .

The favourable trend in mutual investment funds and Sicavs, representing half of

assets under management, more than offset the reduction in insurance policies and

pension funds (-€0.5 billion to €11.3 billion), entirely attributable to the insurance

sector, and a modest decline in customer portfolio management (-€0.2 billion to €7.7

billion), mitigated moreover by a partial recovery during the second half of the year

(+€0.1 billion).

4 The negative change in the first half of the year must also be viewed with regard to the departure of a significant private

position.

5 In January 2013 the placement of the “UBI Sicav Global Dynamic Allocation” funds were closed for a further €0.3 billion.

114


* * *

With regard to the periodic surveys carried out by Assogestioni, from the “Monthly map of assets

under management” of June 2012 onwards, the figure for assets under management also

includes, in view of their nature, management mandates granted by UBI Banca Group to

Pramerica Financial – a brand used by Prudential Financial Inc. (USA) – UBI Banca’s partner for

assets under management, via UBI Pramerica SGR (as at 31 st December 2012, €3.6 billion in

mutual investment funds and Sicavs, of which €1.5 billion in equity funds and €2.1 billion in bond

funds). This modification ensures a more consistent representation of the actual assets under

management of the UBI Banca Group.

Relative market shares as at 31 st December 2011 were thus recalculated to make them consistent

with those at the end of 2012.

With regard to the Mutual Investment Fund and Sicav sector, at the end of December,

the Assogestioni 6 data on the asset management companies of the UBI Banca Group

indicated the following for ASSETS UNDER DIRECT MANAGEMENT:

• negative net inflows in 2012 of around €90 million, corresponding to -0.5% of

managed assets at the end of 2011 (at sector level, on the other hand, net inflows

were positive by €1.2 million, corresponding to 0.3% of managed assets at the end

of 2011);

• favourable performance of assets under management (+€1.2 billion; +7.1%) which

compares with similar performance at sector level (+€60.5 billion; +14.4%). Both

cases recorded a particularly favourable trend during the second half of the year:

+€1.5 billion (+9.6%) for the UBI Banca Group and +€54.1 billion (+12.6%) for the

Assogestioni sample;

• net assets under management of €17.7 billion, ensuring the Group seventh place

among sector operators, with a market share of 3.67%, down from 3.91% a year

earlier.

It should nevertheless be recalled that the Assogestioni sample representing the sector also

includes non-banking operators; this resulted in market share figures for the UBI Banca

Group in the assets under management sector which are inherently lower than those

expressed with regard to indirect funding, loans and branches (see the previous

section“Distribution network and market positioning”). Limiting the analysis solely to banks,

the UBI Banca Group’s market share as at 31 st December 2012 for Mutual Investment

Funds and Sicavs was 5.86% (5.68% at the end of 2011), placing the Group in fourth

position among operators in the sector.

Fund assets (including assets managed for the UBI Banca Group under a mandate)

UBI Banca Group

31.12.2012 % 31.12.2011 %

Changes

Figures in millions of euro amount %

Equities 2,276 12.9% 2,364 14.3% -88 -3.7%

Balanced 1,270 7.2% 1,293 7.8% -23 -1.8%

Bond 11,309 63.9% 9,387 56.9% 1,922 20.5%

Monetary funds 2,214 12.5% 2,782 16.9% -568 -20.4%

Flexible 615 3.5% 612 3.7% 3 0.5%

Hedge funds - - 67 0.4% -67 -100.0%

Total (a) 17,684 100.0% 16,505 100.0% 1,179 7.1%

Sector

31.12.2012

%

31.12.2011

%

Changes

Figures in millions of euro amount %

Equities 99,198 20.6% 94,001 22.3% 5,197 5.5%

Balanced 20,727 4.3% 20,061 4.8% 666 3.3%

Bond 249,051 51.6% 182,930 43.4% 66,121 36.1%

Monetary funds 32,358 6.7% 48,816 11.6% -16,458 -33.7%

Flexible 67,551 14.0% 61,175 14.5% 6,376 10.4%

Hedge funds 7,088 1.5% 9,495 2.2% -2,407 -25.4%

Unclassified 6,232 1.3% 5,208 1.2% 1,024 19.7%

TOTAL (B) 482,205 100.0% 421,686 100.0% 60,519 14.4%

MARKET SHARE OF THE UBI BANCA GROUP (a)/(b) 3.67% 3.91%

6 Assogestioni, “Monthly map of Assets under management”, 4 th quarter 2012.

115


The summary data given in the table confirms the prudent approach of the Group’s

customers, showing the following over the twelve month period:

• a high and stable share for low-risk categories of funds (monetary and bond funds),

accounting overall for 76.4% of the total, compared to 58.3% for the sector. For the

UBI Banca Group in particular, as well as for the Assogestioni sample, a lower

percentage of monetary funds was recorded (-4.4% and -4.9% respectively) in

favour of the bond components (+7%; + 8.2% sector);

• a slightly declining share of equity funds, which was consistently below the

reference sample (12.9% against 20.6%);

• reduction to zero of investments in hedge funds during the first quarter (a 1.3%

share at sector level for these latter funds at the end of the year).

* * *

On the other hand, with regard to ASSETS UNDER MANAGEMENT NET OF GROUP FUNDS,

which include collective instruments and customer portfolio management, at the end

of the fourth quarter, the UBI Banca Group was in eighth position among sector

operators and in seventh among Italian groups, with assets of €27.2 billion, of which

€5.6 billion attributable to institutional customers, and a market share of 2.44%,

down compared to December 2011 (2.97%).

Restricting the analysis solely to banks, UBI Banca Group’s market share as at 31 st December

2012 was 5.11% (4.97% at the end of 2011), placing the Group in fourth place among sector

operators.

116


General banking business with customers:

lending

Performance of the loan portfolio

Composition of loans to customers

of which

of which Changes

31.12.2012 %

31.12.2011 %

Figures in thousands of euro deteriorated

deteriorated amount %

Current account overdrafts 12.875.334 13,9% 1.343.890 12.907.301 13,0% 1.151.331 -31.967 -0,2%

Reverse repurchase agreements 618.901 0,7% - 923.859 0,9% - -304.958 -33,0%

Mortgage loans and other medium to long-term financing 54.226.909 58,4% 3.931.236 56.238.200 56,4% 3.172.375 -2.011.291 -3,6%

Credit cards, personal loans and salary-backed loans 5.058.147 5,4% 472.210 5.527.788 5,6% 206.948 -469.641 -8,5%

Finance leases 7.914.765 8,5% 1.250.191 8.886.514 8,9% 937.571 -971.749 -10,9%

Factoring 2.752.379 3,0% 303.609 3.199.870 3,2% 62.427 -447.491 -14,0%

Other transactions 9.431.048 10,1% 803.035 11.797.162 11,8% 748.232 -2.366.114 -20,1%

Debt instruments: 10.486 0,0% 1.003 209.076 0,2% 1.000 -198.590 -95,0%

- structured instruments - - - 8.893 0,0% - -8.893 -100,0%

- other debt instruments 10.486 0,0% 1.003 200.183 0,2% 1.000 -189.697 -94,8%

Total loans and advances to customers 92.887.969 100,0% 8.105.174 99.689.770 100,0% 6.279.884 -6.801.801 -6,8%

At the end of December, lending to customers amounted to €92.9 billion, down by 6.8% yearon-year

(-€6.8 billion), compared to -1.8% reported by the Bank of Italy for the sector

nationally to the private sector. This comparison was in fact affected by the impacts of actions

which the Group had already started to take to a significant degree from the closing months of

2011 onwards. The contraction in the portfolio continued during the second part of 2012,

although at levels more in line with those of other Italian banks: loans fell in fact by 2.6% over

six months and by 2.1% in the fourth quarter, compared to changes at sector level of -1.4%

and -0.3% respectively.

The overall trend is still suffering significantly from the adverse economic environment,

characterised by a persistent ongoing recession in the real economy, with a consequent fall in

consumption, production and investments, reflected in a reduction of demand from

households, but above all from businesses.

Actions were undertaken on the Group’s loan portfolio which influenced its performance and

also affected it structurally. These included the following:

• the progressive discontinuation of business with third party networks and the consequent

reductions in loans to non-captive customers, that is affecting all of the product companies

as well as B@nca 24-7 operations merged into the Parent, for the purpose of preserving

credit quality by withdrawing from higher risk businesses (-€1.8 billion over the twelvemonth

period);

• the reorganisation of lending processes, in progress for some time in the leasing division, in

parallel with a change in the focus of business towards the captive market (-€0.5 billion

year-on-year);

• the residual effects of the action taken to reduce exposure to the large corporate segment,

undertaken in the fourth quarter of 2011 (-€0.8 billion year-on-year, of which -€0.5 billion

during the first half of the year);

• a decrease in loans related to specific types of business carried out by the Parent

(-€1 billion).

With regard to segmentation of customers by markets, at the end of December 49.7% of the

consolidated portfolio consisted of loans to the retail market (48.4% at the end of 2011), 31.8%

to the corporate market (32.1%), 0.9% to the private banking market (0.9%), while the

remaining 17.6% consisted of all those types excluded from the commercial portfolios, such as

leasing, factoring and loans by UBI Banca (18.6%).

117


From the viewpoint of types of lending, the reduction was general, although to a different

degree:

• while mortgages and medium to long-term loans were again the principal form of lending,

with a share of 58.4%, these fell progressively to €54.2 billion (-€2 billion), the result of a

slowdown in new grants.

On the basis of management accounting figures for the network banks, Centrobanca and

UBI Banca (as the manager of the remaining outstanding loans of the merged B@nca 24-7),

in December performing residential mortgages amounted to €24.5 billion, of which €22.2

billion disbursed to consumer households and €2.3 billion to businesses (€25.3 billion at

the end of 2011, of which €22.8 billion to households and €2.5 billion to businesses). Forty

seven percent of the latter had a loan to value ratio of less than 60%;

• reverse repurchase agreements, which fell to €0.6 billion (-€0.3 billion), reflected the trend

for business specific to UBI Banca and in particular: lower ordinary business with the

Cassa di Compensazione e Garanzia (CCG – a central counterparty clearing house)

(-0.5 billion) with Italian government bonds as the underlying, carried out to invest liquidity

temporarily, which were offset by the start, from the summer months onwards, of business

with a counterparty belonging to a banking group (+€0.2 billion) to be intepreted in relation

to financial liabilities held for trading (uncovered short positions on European government

bonds);

• finance lease credit, relating almost entirely to UBI Leasing, fell to €7.9 billion (-€1 billion,

of which almost half attributable to non-captive business), as a consequence of the action

taken already mentioned;

• factoring loans, granted principally by UBI Factor, stood at €2.7 billion 1 , with an overall

decline of €0.4 billion over 12 months, although the trend reversed during the fourth

quarter (+€0.3 billion);

• consumer loans as a whole, which fell to €5.1 billion (-€0.5 billion), were impacted by

rationalisation initiatives regarding business with non-captive customers, for which only

the management of outstanding loans remained at the end of December. The decline over

twelve months involved both the outstanding portfolio of the former B@nca 24-7,

contributed to UBI Banca (personal loans, special purpose loans, credit cards, current

accounts and other forms of lending; -€0.7 billion) and that of Prestitalia (salary backed

loans; -€0.2 billion), partially offset by an increase in loans managed directly by the

network banks (+€0.4 billion);

• other forms of short-term lending, totalling €22.3 billion, fell by €2.4 billion year-on-year.

While the amount for current accounts remained substantially stable at €12.9 billion,

benefiting from a partial recovery during the last months of the year, “Other transactions”

(loans for advances, portfolio, import/export transactions, very short-term lending, etc.) fell

by €2.4 billion to €9.4 billion, during the first and fourth quarters in particular;

• debt securities fell to €10.5 billion (-€0.2 billion), in relation to the maturity of a security

issued by a bank amounting to €0.2 billion, subscribed by the Parent at the end of 2011.

With regard to maturities, due, amongst other things, to the performance described above, at

the end of the year, the Group’s loan portfolio consisted of €67.2 billion of medium to longterm

loans (-€3.7 billion; -5.2% year-on-year), accounting for 72.4% of the total, and of €25.7

billion of short-term loans (-€3.1 billion; -10.9% over the twelve-month period). The latter

decreased particularly significantly during the first half of the year (-€2.4 billion).

On that same date, the lending to funding ratio was 94%, an improvement compared to the end

of 2011 (97%).

1 The outstanding amount as of 31 st December 2012 included €466 million of loans for factoring granted by UBI Banca International.

118


Distribution of loans by economic sector (Bank of Italy classification)

(management accounting figures for performing loans of the network banks and Centrobanca)

31.12.2012 30.9.2012 30.6.2012 31.3.2012 31.12.2011

Manufacturing and service companies (non-financial companies and

producer households) 60.4% 60.6% 60.8% 61.6% 61.8%

of which: other services destined for sale 16.5% 16.6% 16.6% 17.0% 17.0%

Commerce, recovery and repair services 9.7% 9.6% 9.6% 9.6% 9.5%

Construction and public works (*) 8.7% 8.9% 8.9% 8.9% 9.1%

Energy products 3.6% 3.5% 3.4% 3.5% 3.7%

Agricultural, forestry and fishery products 2.3% 2.3% 2.3% 2.3% 2.3%

Metal products, excluding machines and means of transport 2.2% 2.2% 2.2% 2.3% 2.4%

Foodstuffs, beverages and tobacco products 2.1% 2.0% 1.9% 2.0% 1.9%

Hotels and restaurants 2.0% 2.0% 2.0% 2.0% 2.0%

Agricultural and industrial machinery 1.5% 1.5% 1.4% 1.5% 1.4%

Textiles, leather and footwear, clothing 1.4% 1.5% 1.5% 1.5% 1.5%

Consumer households 34.1% 33.8% 33.4% 32.4% 32.3%

Financial companies 2.5% 2.5% 2.7% 2.6% 2.8%

Public administrations 1.2% 1.2% 1.2% 1.3% 1.0%

Other (not-for-profit institutions and the rest of the world) 1.8% 1.9% 1.9% 2.1% 2.1%

Total 100.0% 100.0% 100.0% 100.0% 100.0%

(*) “Construction and public works” refers to category 66. ATECOs [Classification of economic activities] are not considered (item L and item F – property and

construction activities) since they are included in the other categories.

From the management accounting figures presented in the table “Distribution of loans by

economic sector ”, relating to the network banks and to Centrobanca only, an aggregate

representing 66.9% of gross loans, it was found that as of December 2012:

• 94.5% of outstanding loans were to manufacturing and service companies and consumer

households, a share which had progressively increased from 94.1%, twelve months earlier,

which confirms the traditional attention paid by the Group towards supporting local

markets. Over the same period, a change in composition occured in favour of consumer

households, whose share of loans rose to 34.1% from 32.3% at the end of 2011;

• loans and advances to financial companies as a

percentage of the portfolio as a whole declined from

2.8% to 2.5%;

• the distribution by sector of performing loans to nonfinancial

companies and to producer households

confirmed that the main sectors in receipt of loans

were “other services destined for sale” and “commerce,

recovery and repair services”, which partly due to

their heterogeneous nature, continued to account for

the largest percentage of total lending (26.2%),

although down by one percentage point compared to a

year before (26.5%).

The table “Geographical distribution of loans and

advances to customers by region of location of the

branch” summarises the geographical distribution of

loans within Italy.

The actions taken concerning the Group’s loan portfolio

had a more significant impact within Lombardy, causing

a marginal change in composition among the various

geographical areas.

Geographical distribution of loans to customers

by region of location of the branch (*)

Percentage of total 31.12.2012 31.12.2011

Lombardy 69.12% 70.06%

Piedmont 6.24% 6.16%

Latium 4.98% 4.81%

Marches 3.95% 3.84%

Liguria 2.92% 2.91%

Campania 2.42% 2.30%

Apulia 2.24% 2.14%

Emilia Romagna 2.14% 1.98%

Calabria 1.96% 1.92%

Veneto 1.53% 1.45%

Umbria 0.69% 0.68%

Abruzzo 0.64% 0.62%

Basilicata 0.44% 0.43%

Friuli Venezia Giulia 0.25% 0.25%

Molise 0.24% 0.23%

Tuscany 0.22% 0.20%

Valle d'Aosta 0.02% 0.02%

Trentino Alto Adige 0.00% 0.00%

Total 100.00% 100.00%

North 82.2% 82.8%

- North West 78.3% 79.1%

- North East 3.9% 3.7%

Overall, the share at the end of the year for the northern

regions was 82.2% of the total (78.3% in the North West),

with a slight decrease over the twelve-month period,

Central

South

(*) The aggregates relate to banks only.

9.9%

7.9%

9.5%

7.7%

while that for central Italian regions was 9.9% and the remaining 7.9% of lending was to

southern regions.

From the viewpoint of concentration, the table highlights a significant and generalised

improvement, concentrated mainly in the first half of the year, the result, amongst other

things, of action undertaken during the last part of 2011. The improvement resumed during

the last three months of the year.

119


Concentration of risk

(largest customers or groups as a percentage of total loans and guarantees )

Customers or

Groups

31.12.2012 30.9.2012 30.6.2012 31.3.2012 31.12.2011

Largest 10 2.9% 3.0% 3.0% 3.3% 3.5%

Largest 20 4.9% 5.1% 5.0% 5.5% 5.6%

Largest 30 6.2% 6.4% 6.5% 7.0% 7.1%

Largest 40 7.2% 7.5% 7.5% 8.1% 8.2%

Largest 50 8.0% 8.3% 8.3% 8.9% 9.1%

securities (€7.8 billion in December 2011);

With regard to “large exposures”, at the end of

the year, only two positions were outstanding

(three at the end of 2011 2 ), totalling €22.6

billion, an increase over the twelve-month

period, although down on June. In particular,

of the €22.6 billion reported:

• €18 billion were attributable to the Ministry

of the Treasury, mainly in relation to

investments by the Parent in government

• around €4.6 billion related to the Cassa di Compensazione e Garanzia due to overall

transactions by the Parent (€6 billion in December 2011).

In consideration of the reduction in Large exposures

the number of counterparties reported

compared to the year before and the

Figures in thousands of euro

application of a weighting factor of

zero to transactions with government,

the Group’s actual risk exposure after

weightings was €141.2 million (on a

single position), down both year-on-year and compared to the other comparative periods.

Each of the positions reported was considerably below the 25% limit set for banking groups as

a percentage of the consolidated regulatory capital.

31.12.2012 30.9.2012 30.6.2012 31.3.2012 31.12.2011

Number of positions 2 2 2 2 3

Exposure 22,599,040 22,349,704 25,774,877 17,869,444 15,388,367

Positions at risk 141,175 275,779 169,548 188,934 1,127,147

In line with the trend for on-balance sheet lending, guarantees granted by the Group also

totalled €6.2 billion at the end of the year, a reduction of over 15%, compared to the €7.3

billion in December 2011.

In detail, the change reflects a generalised reduction, more significant for guarantees of a

financial nature, to €2.1 billion (-€0.9 billion) and more contained for guarantees of a

commercial nature, which in December, totalled €4.1 billion (-€0.2 billion).

Risk

The difficult economic background has been progressively affecting the quality of loans and is

continuing to increase gross volumes of deteriorated loans, which at the end of December, had

reached almost €11 billion.

The overall change year-on-year was +€2.37 billion (+27.6%), of which +€0.52 billion

attributable to the first quarter, +€0.35 billion to the second, +€0.89 billion to the third and

+€0.61 billion to the fourth quarter and related mainly to impaired loans (+€1.28 million),

although also to non-performing loans (+€0.77 billion) and exposures past due and/or in

arrears (+€0.48 billion), while there was a reduction in restructured loans (-€0.16 billion).

The annual trend in the different categories of deteriorated loans was also affected by the

following:

• internal reclassifications of some substantial positions which had already been recorded

among deteriorated loans;

• disposals of non-performing unsecured loans during the second quarter of 2012 by B@nca

24-7 (€103.2 million), prior to the merger into the Parent, and by Centrobanca (€5 million);

• the classification as impaired of a portfolio of salary backed loans belonging to B@nca 24-7

and Prestitalia for approximately €240 million.

This action should be considered in relation to the direct aquisition by B@nca 24-7 until 30 th June and

by Prestitalia from 1 st July 2012 of salary-backed operations after the liquidation in April 2011 of the

2 At the end of 2011, the report also included €1.6 billion attributable to different types of transaction outstanding with a major

banking Group.

120


finance company Ktesios Spa (which operated as an agent), with the disappearance as a consequence

of B@nca 24-7’s ability to use the “deducted for non-payment” clause. On the basis of that clause the

agent, Ktesios, guaranteed the repayments on the loans disbursed and was also responsible for all the

credit recovery activities and any enforcement of guarantees that were compulsory by law. The

discontinuation of the indirect distribution channels for salary-backed loans had also continued during

2011. This had involved not only Ktesios, but also other finance companies, whose mandates to operate

were revoked by the UBI Banca Group.

Therefore, in view of the above, salary-backed lending operations were progressively insourced within

the Group at Prestitalia Spa which specialises in these. This company not only carries out ordinary

collection activities, but also the direct recovery of credit, enforcing compulsory legal guarantees where

applicable and it also classifies positions, where necessary, in the most appropriate categories of

deteriorated loan.

• the extension of reporting to include all positions which, on exceeding the threshold of

significance set by the supervisory regulations, were continuously in arrears for over 90

days and no longer for over 180 days, as permitted until 31 st December 2011.

Those same events also affected the trend for net deteriorated loans, which, at the end of

December, amounted to €8.11 billion, an increase of €1.83 billion (+29.1%), of which +€0.43

million attributable to the first quarter, +€0.31 billion to the second quarter, +€0.75 billion to

the third quarter and +€0.34 billion to the fourth quarter.

Notwithstanding a generalised increase in net impairment losses, total coverage of deteriorated

loans of 26.04%, fell slightly by comparison with the 26.89% recorded at the end of 2011

(although slightly up on September - 24.88% - and June - 25.74%), due to the

aforementioned disposals of non-performing loans 3 , which were almost entirely written down,

and to the increase in the percentage of positions backed by collateral, with less impairment

recognised on them, also the result of prudent loan to value ratios for residential mortgages

granted to private individuals by the Group.

Coverage for performing loans on the other hand was essentially stable at 0.55% (0.58% a year

before).

In terms of type of loan, as shown in the table “Composition of loans and advances to

customers”, around 42% of the annual growth in net deteriorated loans related to the item

“Mortgages loans and other medium to long-term loans”, backed by collateral, which result

automatically in a lower level of coverage, while 30% related to non-banking financial business

and 14.5% to consumer credit lending, partly as a result of the reclassification of salarybacked

loans already mentioned.

NON-PERFORMING LOANS

Gross non-performing loans grew during the twelve-month period from €4.38 billion to €5.14

billion, with a €765 million increase, divided as follows: +€215.7 million in the first quarter,

+€112.9 million in the second quarter, +€176.6 million in the third quarter and +€259.8

million in the fourth quarter 4 .

In percentage terms, the annual change was +17.5%, which compares with +16.6% for loans

to the private sector by the banking sector nationally. During the second part of the year, on

the other hand, the pace of growth for gross non-performing loans in the UBI Banca Group –

+9.3% over the last six months and +5.3% over the last three months – was less than the

average growth for the sector nationally which was +10.5% and +6.3% respectively.

The annual trend also benefited from the disposal in June of non-performing unsecured loans, with almost

100% coverage, for a total amount of €108.2 million, belonging to the former B@nca 24-7 (€103.2 million)

and residually to Centrobanca (€5 million).

3 If the disposals of non-performing loans made in June are not included, overall coverage at the end of December would have been

26.70% (instead of 26.04%).

4 The new entrance of five significant positions occurred in the fourth quarter, for a total amount of €102 million. These included two

which totalled €67 million (one of which transferred from impaired loans) relating to the non-banking financial sector.

121


Year-on-year change in the total was due principally to the network banks and to UBI Leasing.

Loans and advances to customers as at 31st December 2012

Figures in thousands of euro

Gross exposure

Impairment

losses

Carrying amount

Coverage (*)

Deteriorated loans (11.39%) 10,958,381 2,853,207 (8.73%) 8,105,174 26.04%

- Non-performing loans (5.34%) 5,142,308 2,190,369 (3.18%) 2,951,939 42.60%

- Impaired loans (4.29%) 4,123,537 520,995 (3.88%) 3,602,542 12.63%

- Restructured loans (0.80%) 773,934 114,833 (0.71%) 659,101 14.84%

- Past due loans (0.96%) 918,602 27,010 (0.96%) 891,592 2.94%

Performing loans (88.61%) 85,253,156 470,361 (91.27%) 84,782,795 0.55%

Total loans and advances to customers 96,211,537 3,323,568 92,887,969 3.45%

The item as a percentage of the total is given in brackets.

Loans and advances to customers as at 31st December 2011

Figures in thousands of euro

Gross exposure

Impairment

losses

Carrying amount

Coverage (*)

Deteriorated loans (8.38%) 8,589,416 2,309,532 (6.30%) 6,279,884 26.89%

- Non-performing loans (4.27%) 4,377,325 1,895,908 (2.49%) 2,481,417 43.31%

- Impaired loans (2.77%) 2,844,167 310,387 (2.54%) 2,533,780 10.91%

- Restructured loans (0.91%) 933,786 93,096 (0.84%) 840,690 9.97%

- Past due loans (0.43%) 434,138 10,141 (0.43%) 423,997 2.34%

Performing loans (91.62%) 93,951,550 541,664 (93.70%) 93,409,886 0.58%

Total loans and advances to customers 102,540,966 2,851,196 99,689,770 2.78%

The item as a percentage of the total is given in brackets.

(*) Coverage is calculated as the ratio of impairment losses to gross exposure.

Non-performing loans backed by collateral increased by €0.6 billion to €3.3 billion (+23.3%),

with a share of the gross total which rose progressively to 63.6% from 60.6% at the end of

2011.

An analysis of changes in 2012 shows a reduction, compared to the previous year, of around

one quarter in new classifications from performing loans, which was more than offset,

however, by transfers from other categories of deteriorated exposures, mainly from impaired

loans.

Total net non-performing loans rose from €2.48 billion to €2.95 billion, an increase of €470.5

million (+19%), of which +€151.6 million attributable to the first quarter, +€118 million to the

second quarter, +€103.5 million to the third quarter and +€97.4 million to the fourth quarter.

A comparison with data for the sector nationally reveals more moderate rises for the UBI

Banca Group, seen year-on-year (+19% compared to +25.6%), in the second half of the year

(+7.3% compared to +19.5%) and also in the fourth quarter (+3.4% compared to +11.5%).

Only 9.5% of the total outstanding loans at the end of the year were without any type of

backing (collateral/personal guarantees), a lower percentage than the figure of 11% for 2011 .

The combined effect of the trends described above and the reduction in the total loan portfolio

led to a non-performing loans to loans ratio, which increased to 5.34% in gross terms and to

3.18% net of impairment losses. Despite this, the loan quality of the Group continues to

outperform the average for Italian banks nationally, for