GENERAL MEETING DRAFT - Bankier.pl

2. OTC Trading Derivatives with Customers
The business model governing OTC derivatives trading with customers provides for centralization of
market risk in the MIB Division, while credit risk is assumed by the Group company which, under the
divisional or geographical segmentation model, manages the relevant customer’s account.
The Group’s operational model provides for customer trading derivatives business to be carried on, as
part of each subsidiary’s operational independence:
� by the Italian commercial banks that close transaction in OTC derivatives in order to provide noninstitutional
clients with products to manage currency, interest-rate and price risk. Under these
transactions, the commercial banks transfer their market risks to the MIB Division by means of equal
and opposite contracts, retaining only the relevant counterparty risk. The commercial banks also
place or collect orders on behalf of others for investment products with embedded derivatives (e.g.,
structured bonds);
� by the MIB Division operating with large corporates and financial institutions, in respect of which it
assumes and manages both market and counterparty risk;
� by UCB AG, BA AG and Pekao, which transact business directly with their customers.
UniCredit Group trades OTC derivatives on a wide range of underlyings, e.g.: interest rates, currency
rates, share prices and indexes, commodities (precious metals, base metals, petroleum and energy
materials) and credit rights.
OTC derivatives offer considerable scope for personalization: new payoff profiles can be constructed by
combining several OTC derivatives (for example, a plain vanilla IRS with one or more plain vanilla or
exotic options). The risk and the complexity of the structures obtained in this manner depend on the
respective characteristics of the components (reference parameters and indexation mechanisms) and the
way in which they are combined.
Credit and market risk arising from OTC derivatives business is controlled by the Chief Risk Officer
competence line (CRO) in the Parent and/or in the Division or subsidiary involved. This control is carried
out by means of guidelines and policies covering risk management, measurement and control in terms of
principles, rules and processes, as well as by setting VaR limits.
This business with non-institutional clients does not entail the use of margin calls, whereas with
institutional counterparties (dealt with by the MIB Division) recourse may be made to credit risk mitigation
techniques, for example “netting” and/or collateral agreements.
In addition to the information given in chapter 18 Other Information – Fair Value of Part A) Accounting
Policies, it should be noted that write-downs and write-backs of derivatives to take account of
counterparty risk are determined in line with the procedure used to assess other credit exposure,
specifically:
� performing exposure to non-institutional clients of the Italian commercial banks is valued in
terms of PD (Probability of Default) and LGD (Loss Given Default), in order to obtain a value in
terms of ‘expected loss’ to be used for items designated and measured at fair value;
� non-performing positions are valued in terms of estimated expected future cash flow according
to specific indications of impairment (which are the basis for the calculation of the amount and
timing of the cash flow).
Referring to write-downs and write-backs of derivatives to take account of counterparty risk totaled, no
significant effects have affected 2009 Profit&Loss.
2009 CONSOLIDATED REPORTS AND ACCOUNTS
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