Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

1.2.2 INTEREST RATE RISK AND PRICE RISK – BANKINGBOOKQUALITATIVE INFORMATIONInterest rate risk on the banking book continues to be strongly influenced bythe presence of a sizeable bond trading portfolio (equal to around 25% of the totalassets of Mediobanca S.p.A.). This generates a mismatch between the bankingbook’s assets and liabilities, accentuating the difference between anincrease/decrease in interest rates on the banking book alone, compared to thatfor the Group’s entire asset structure.Compared to last year, when the overall picture was substantially balanced(with a slight positive correlation between net interest income and interest rates),the increased weight of fixed-income securities in the banking book accentuatedthe negative impact which a 100 basis point increase in the yield curves wouldhave on it, thus reversing the overall exposure. Indeed, the loss now on thebanking book deriving from a rise in interest rates would amount to €84.9m (asagainst €59m last year), only in part offset by the €60.4m gain on the tradingbook (down from €65m last year), generating a net loss of €24.5m. Conversely,the general rise in interest rates reduced the mismatch in the case of a shock inthe opposite direction: a 100 basis point reduction in the curve produces anoverall profit of €24.1m, representing the balance between €84.7m on thebanking book and €60.6m (minus) on the trading book.As for the other Group companies, the most significant exposures areconcentrated at CheBanca! and Compass, albeit in opposite directions. ForCheBanca!, which has a funding model based on demand deposits by customers,the impact is the opposite of that for Mediobanca S.p.A., with an increase ofapprox. €11.3m in net interest income in the event of a 100 basis point rise ininterest rates, and a slightly larger reduction, of €13.2m, in the opposite case. ForCompass, meanwhile, an increase in interest rates generates a reduction in netinterest income due to the presence of floating-rate funding: a 100 basis pointrise in the curves generates a reduction of over €43m in net interest income,whereas the gain in the event of a similar downward movement would be €43.6m.In addition to the sensitivity of net interest income to interest rates, theimpact which a 100 basis point shock would have on the discounted value offuture cash flows from the banking book has also been estimated. In this case, theincrease in the weight of fixed-income securities mentioned above is offset by areduction in their average duration, which, however, is not sufficient to preventthe aggregate asset value remaining above that of the liabilities. This explainswhy an upward movement in the interest rate curves generates a loss on thebanking book’s discounted value amounting to €91.9m (compared with €99m188 –