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

2.2 INTEREST RATE AND PRICE RISK - BANKING BOOKQUALITATIVE INFORMATIONInterest rate risk on the banking book continues to be stronglyinfluenced by the presence of a sizeable bond trading portfolio (equal toaround 25% of the total assets of Mediobanca S.p.A.). This generates amismatch between the banking book’s assets and liabilities, accentuating thedifference between an increase/decrease in interest rates on the bankingbook alone, compared to that for the Group’s entire asset structure.Compared to last year, when the overall picture was substantiallybalanced (with a slight positive correlation between net interest incomeand interest rates), the increased weight of fixed-income securities in thebanking book accentuated the negative impact which a 100 basis pointincrease in the yield curves would have on it, thus reversing the overallexposure. Indeed, the loss now on the banking book deriving from a rise ininterest rates would amount to €84.9m (as against €59m last year), only inpart offset by the €60.4m gain on the trading book (down from €65m lastyear), generating a net loss of €24.5m. Conversely, the general rise ininterest rates reduced the mismatch in the case of a shock in the oppositedirection: a 100 basis point reduction in the curve produces an overall profitof €24.1m, representing the balance between an €84.7m gain on the bankingbook and a €60.6m loss on the trading book.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 thiscase, the increase in the weight of fixed-income securities mentioned aboveis offset by a reduction in their average duration, which, however, is notsufficient to prevent the aggregate asset value remaining above that of theliabilities. This explains why an upward movement in the interest rate curvesgenerates a loss on the banking book’s discounted value amounting to€91.9m (compared with €99m last year). As is the case with net interestincome, here too the mismatch in the event of a reduction in interest rateshas reduced, with a gain of €91.6m compared with €90m as at 30 June2010.– 391