2008
ANNUAL REPORT
A. Palladio, Palazzo Thiene (XVI century) - Historical headquarters of the Banca Popolare di Vicenza
Banca
Popolare di Vicenza
Società Cooperativa per azioni - Member of the Italian bankers association an italian
interbank deposit protection fund - Parent of the Banca Popolare di Vicenza Banking Group Registered office: I-Vicenza - Via Btg. Framarin, 18 - Tax Code 00204010243
- Vicenza Business Register 1858 Bank listing n. 1515 - Capital stock as of 31.12.2008
€ 261,460,260.00 Banking Group 5728.1
ANNUAL REPORT
2008
Translation from the Italian original version.
INDEX
Corporate officers
BPVi Group structure
Territorial presence of the BPVi Group at 31 December 2008
principal data and summary indicators for Banca Popolare di Vicenza
Principal data and summary indicators for the BPVi Group
Directors' report on operations
Economic and financial scenario
Innovations in the regulatory framework
Growth of the BPVi Group: activities of strategic importance
Operational structure
Commercial activities: characteristics and results
Systems
The system of internal controls and auditing
Corporate social responsability and image
Consolidated results of operations
Principal equity investments
Equity and regulatory capital
Comments on the income statement
Performance of BPVi Group companies
Atypical and/or unusual transactions
Investor protection act: new figure of the “Financial Reporting Manager”
Significant subsequent events
Outlook for operations
Proposed allocation of net income
Glossary
Balance sheet
Income statement
Changes in 2008 equity
Changes in 2007 equity
Cash flow statement
Explanatory notes
Attestation of the Financial Reporting Manager
Independent Auditor’s Report
Consolidated financial statements
Consolidated Balance sheet
Consolidated Income statement
Changes in 2008 consolidated equity
Changes in 2007 consolidated equity
Consolidated cash flow statement
Explanatory notes to the consolidated financial statements
Financial statements of subsidiary companies
Attestation of the Financial Reporting Manager
Independent Auditors’ Report
BPVi branch network
3
4
5
7
9
11
13
23
26
34
43
49
53
73
81
98
101
103
111
134
135
136
136
138
139
147
149
150
152
154
157
366
369
373
375
377
378
380
382
385
627
679
681
685
CORPORATE OFFICERS
BOARD OF DIRECTORS
Chairman
Deputy Chairmen
Managing Director
Director and Secretary
Director
* Giovanni Zonin
* Giovanni Bettanin
* Marino Breganze
* Divo Gronchi
* Giorgio Tibaldo
Paolo Bedoni
Alessandro Benetton
Mario Bonsembiante
Giovanni Fantoni
* Zeffirino Filippi
Franco Miranda
Gianfranco Pavan
Paolo Sartori
* Fiorenzo Sbabo
Maurizio Stella
Paolo Tellatin
* Ugo Ticozzi
* Giuseppe Zigliotto
BOARD OF STATUTORY AUDITORS
Chairman
Acting Auditors
Alternate Auditors
Giovanni Zamberlan
Giacomo Cavalieri
Laura Piussi
Giuseppe Mannella
Marco Poggi
BOARD OF ARBITRATORS
Chairman
Gianfranco Corà
Acting Arbitrators
Gian Paolo Boschetti
Pierantonio Maule
Alternate Arbitrators
Lelio Barbieri
Altegrado Zilio
General Manager
Deputy General Manager
Deputy General Manager
Deputy General Manager
Samuele Sorato
Franco Tonato
Mauro Micillo
Emanuele Giustini
* Members of the Executive Committee.
3
BPVI GROUP STRUCTURE
The structure of the Banca Popolare di Vicenza Group at 31 December 2008 is analysed below
by business area.
(1) In February 2009 turned from S.p.a. into S.c.p.a.
(2) In March 2009 turned from S.p.a. into S.r.l.
4
TERRITORIAL PRESENCE OF THE BPVi GROUP AT 31 DECEMBER 2008
Presence in Italy
Distribution of branches BPVi’s Group at December 2008
5
The sales network of the BPVi’s Group
Branches
31/12/2008
Financial
Private bank shops
outlets
Total
Banca Popolare di Vicenza
Cassa di Risparmio di Prato
Banca Nuova
Farbanca
436
94
106
1
1
–
17
–
18
3
5
–
455
97
128
1
Total
637
18
26
681
Geographical distribution of branches
31/12/2008
Number
Comp. %
North Italy
Central Italy
South Italy
437
106
94
68,6
16,6
14,8
Total
637 100,0
Presence abroad
The presence of the BPVi Group abroad is assured by three Representative Offices: in Hong
Kong, operational since the 1980s, in Shanghai, opened in June 2005, and in New Delhi, which
was opened in April 2006.
In addition, the BPVi Group holds equity investments in a number of Central and Eastern European banks, in order to support those Italian firms that maintain commercial relations with
the countries concerned. This support is guaranteed by Italian-speaking personnel who work for
the International desks of the local banks in which investments are held.
6
PRINCIPAL DATA AND SUMMARY INDICATORS
FOR BANCA POPOLARE DI VICENZA
Balance sheet highlights
(in millions of euro)
Banking business
Direct deposits
Indirect deposits
Loans to customers
Total Assets
Risk-weighted assets (RWA)
Net interbank position
Equity (excluding net income for the year)
Regulatory capital
Income statement highlights
(in millions of euro)
Net interest income
Net fee and commission income
Net interest and other banking income
Operating costs
of which: payroll
of which: other administrative costs
Profit from current operations before tax
Net income for the year
Other information
Number of employees at year-end (1)
Number of branches
2008
2007
43,995
15,051
12,926
16,018
22,881
17,124
-467
2,693
2,859
43,906
13,885
15,108
14,913
21,411
20,266
-743
2,674
2,665
2008
2007
Changes
(+/-)
%
89
1,166
-2,182
1,105
1,470
-3,142
276
19
194
0.2
8.4
-14.4
7.4
6.9
-15.5
-37.1
0.7
7.3
Changes
(+/-)
%
405.6
177.6
654.2
-434.1
-254.3
-179.4
190.3
151.0
355.3
175.0
582.7
-364.0
-209.9
-162.5
149.1
110.1
50.3
2.6
71.5
-70.1
-44.4
-16.9
41.2
40.9
14.2
1.5
12.3
19.3
21.2
10.4
27.6
37.1
2008
2007
Change
Change %
3,508
436
3,354
429
154
7
4.6
1.6
The figure at 31/12/2007 includes employees of the former UBI branches.
(1)
7
Key performance indicators
2008
2007
Structure ratios (%)
Loans to customers / Total assets 70.0%
69.7%
Direct deposits / Total assets
65.8%
64.8%
Loans to customers / Direct deposits
106.4%
107.4%
Asset management and retirement savings /
Indirect deposits
30.8%
37.6%
Total Assets / Equity (leverage)
8 x
7.7 x
Profitability and efficiency ratios (%)
Net income for the year /
Equity excluding net income for the year (ROE)
5.6%
4.1%
0.6%
Net income for the year / Total average assets (ROAA) (1) 0.7%
Net interest and other banking income / Total average assets 3.0%
3.0%
Administrative costs, amortization and depreciation /
Total average assets
2.0%
2.0%
65.4%
60.8%
Cost/Income (2)
Productivity ratios (3)
Direct deposits per employee (in millions of euro)
4.4
4.5
Indirect deposits per employee (in millions of euro) 3.7
4.9
Loans to customers per employee (in millions of euro)
4.6
4.8
Net interest income per employee (in thousands of euro) 117.3
115.3
Net interest and other banking income
per employee (in thousands of euro) 189.1
189.1
Payroll costs per employee (in thousands of euro)
73.5
68.1
Change
2008/2007
0.3 p.p.
1.0 p.p.
-1.0 p.p.
-6.8 p.p.
0.3 x
1.5 p.p.
0.1 p.p.
0.0 p.p.
0.0 p.p.
4.6 p.p.
-3.4%
-23.8%
-4.3%
1.7%
0.0%
7.9%
Risk ratios (%)
Risk-weighted assets / Total Assets
74.80%
94.70% -19.90 p.p.
Net impaired loans/Net loans 3.50%
3.34% 0.16 p.p.
Net non-performing loans/Net loans
1.38%
1.48% -0.10 p.p.
49.82%
42.45% 7.37 p.p.
Non-performing loans coverage (%) (4)
Impaired loans coverage (%)
34.52%
31.75% 2.77 p.p.
Performing loans coverage (%) 0.45%
0.54% -0.09 p.p.
Capital adequacy ratios (%)
Core Tier 1
12.04%
9.69%
Tier 1 (Tier 1 capital / Total weighted assets) 12.04%
9.69%
Total Capital Ratio (Regulatory capital / Total weighted assets) 16.70%
13.15% 2.35 p.p.
2.35 p.p.
3.55 p.p.
Total average assets are determined as the simple average of total assets at the end of the current year and at the end
of the previous year.
(2)
This is the ratio of administrative costs (line item 150) plus net adjustments to property, plant and equipment and intangible assets (line items 170 and 180) to net interest and other banking income (line item 120) plus other operating
charges/income (line item 190).
(3)
The productivity indicators are calculated with reference to the average number of employees.
(4)
The coverage of non-performing loans at 31 December 2008, including receivables being written off for insolvency
proceedings still in progress, was 66.63%.
(1)
8
PRINCIPAL DATA AND SUMMARY INDICATORS FOR THE BPVi GROUP
Balance sheet highlights
(in millions of euro)
Banking business
Direct deposits
Indirect deposits
Loans to customers
Total Assets
Risk-weighted assets (RWA)
Net interbank position
Equity (excluding net income for the year)
Regulatory capital
Income statement highlights
(in millions of euro)
Net interest income
Net fee and commission income
Net interest and other banking income
Operating costs
of which: payroll
of which: other administrative costs
Profit from current operations before tax
Net income for the year pertaining
to the Parent Bank
Other information
Number of employees at year-end(1)
Number of branches
2008
2007
60,001
21,406
15,890
22,705
28,933
21,243
-771
2,621
2,425
58,854
19,484
18,531
20,839
27,255
25,672
-1,290
2,629
2,433
2008
2007
Changes
(+/-)
%
1,147
1,922
-2,641
1,866
1,678
- 4,429
519
-8
-8
1.9
9.9
-14.3
9.0
6.2
-17.3
-40.2
-0.3
-0.3
Changes
(+/-)
%
652.9
271.9
952.4
-678.9
-411.5
-261.2
172.1
589.8
265.4
877.2
-588.6
-349.4
-237.0
194.2
63.1
6.4
75.2
-90.3
-62.1
-24.2
-22.0
10.7
2.4
8.6
15.3
17.8
10.2
-11.4
108.7
113.7
-5.0
-4.4
2008
2007
5,645
637
5,432
628
Changes
(+/-)
%
213
9
3.9
1.4
The figure at 31/12/2007 includes employees of the former UBI branches.
(1)
9
Key performance indicators
2008
2007
Change
2008/2007
Structure ratios (%)
Loans to customers / Total assets
78.5%
76.5%
2.0 p.p.
Direct deposits / Total assets
74.0%
71.5%
2.5 p.p.
Loans to customers / Direct deposits
106.1%
107.0% -0.9 p.p.
Asset management and retirement savings / Indirect deposits 33.3%
39.6% -6.3 p.p.
Total Assets / Equity (leverage)
10.6 x
9.9 x
0.7 x
Profitability and efficiency ratios (%)
Net income for the year /
Equity excluding net income for the year (ROE)
4.1%
4.3% -0.2 p.p.
0.4%
0.0 p.p.
Net income for the year / Total average assets (ROAA)(1) 0.4%
Net interest and other banking income /
Total average assets 3.4%
3.4%
0.0 p.p.
Administrative costs. amortization and depreciation /
Total average assets
2.5%
2.4%
0.1 p.p.
70.2%
64.8%
5.4 p.p.
Cost/Income (2)
Productivity ratios (3)
Direct deposits per employee (in millions of euro)
3.8
3.8
1.3%
Indirect deposits per employee (in millions of euro)
2.9
3.6
-20.9%
Loans to customers per employee (in millions of euro)
4.1
4.1
0.5%
Net interest income per employee (in thousands of euro) 117.3
114.9
2.1%
Net interest and other banking income per employee
(in thousands of euro)
171.2
170.9
0.1%
Payroll costs per employee (in thousands of euro)
74.0
68.1
8.6%
Risk ratios (%)
Risk-weighted assets / Total Assets
73.40%
94.20% -20.80 p.p.
Net impaired loans/Net loans
3.72%
3.44% 0.28 p.p.
Net non-performing loans/Net loans
1.51%
1.51% 0.00 p.p.
49.36%
44.49% 4.87 p.p.
Non-performing loans coverage (%) (4)
Impaired loans coverage (%)
34.31%
32.51% 1.80 p.p.
Performing loans coverage (%)
0.49%
0.52% -0.03 p.p.
Capital adequacy ratios (%)
Core Tier 1
7.34%
5.96% 1.38 p.p.
Tier 1 (Tier 1 capital / Total weighted assets)
7.34%
5.96% 1.38 p.p.
Total Capital Ratio (Regulatory capital / Total weighted assets) 11.42%
9.48% 1.94 p.p.
Total average assets are determined as the simple average of total assets at the end of the current year and at the end
of the previous year.
(2)
This is the ratio of administrative costs (line item 180) plus net adjustments to property, plant and equipment and intangible assets (line items 200 and 210) to net interest and other banking income (line item 120) plus other operating
charges/income (line item 220).
(3)
The productivity indicators are calculated with reference to the average number of employees.
(4)
The coverage of non-performing loans at 31 December 2008, including receivables being written off for insolvency
proceedings still in progress, was 66.63%.
(1)
10
DIRECTORS’ REPORT ON OPERATIONS
Stockholders,
The strong results presented in these financial statements were earned in a year without
precedent since the Second World War. The sweeping events that affected the domestic and
international economies, the financial markets and the banking sector are described in more
detail in the section of this report dealing with the macroeconomic situation.
Fortified by a strong balance sheet, the BPVi Group took inspiration from its mission and its
special characteristics as a people’s bank in determining the strategic guidelines and drivers
required to face the operational challenges that, still today, are penalizing the entire financial
system. These strategic guidelines are in fact set down in the new Business Plan 2008-2011,
which was prepared during the first part of the year and definitively approved in September
2008. Key aspects include the maintenance of capital adequacy, a focus on traditional banking
activity, improved equilibrium between the growth of lending and the level of direct customer
deposits, stronger management and control at Group level, attentive risk control and rigorous
cost management. In short, even before the crisis intensified so dramatically, the BPVi Group
had already determined its strategy for the consolidation of growth, with a view to improving
the profitability and efficiency of the core business over the medium term, and to creating the
equity, operational, financial and organizational foundations for a possible new phase of growth
in the future.
Given current conditions, activity was focused on achieving a priority objective: stand alongside
the local economies served by continuing to ensure lending support for households and
businesses, especially small and medium-sized firms. Indeed, when approving the 2009 Budget,
the Board decided to increase the size of available facilities in order to provide further oxygen to
the local economies and their businesses at this crucial time.
This approach is reflected in the balance sheet of Banca Popolare di Vicenza, which reports a
7.4% increase in lending over the year to 16 billion euro at the end of 2008. These loans were
financed entirely by the direct deposits taken from customers, which now exceed 15 billion euro
after a rise of 12.2%, ignoring the liabilities for assets sold but not derecognized. By contrast,
indirect deposits have fallen by 14.4% due to adverse conditions in the financial markets and
the lower demand for asset management products.
The assurance sector has also performed well, with growth of 7.2% confirming the benefits of
the recent partnership with the Cattolica Assicurazioni Group.
The income statement reports net income of 151 million euro, which is more than 37%
higher than in the previous year. Despite the macroeconomic and banking sector complexities
mentioned earlier, this performance reflects a strong rise in the interest margin (+14.2%), the
stability of commission income (+1.5%) and a prudent approach to trading. Net interest and
other banking income consequently rose to 654 million euro, up 12.3% with respect to 2007.
The results of financial management were also up by more than 12% after adjustments to
loans and other financial assets. Operating costs were 19.3% higher than in 2007, due to the
physiological effects of the significant increase in scale achieved by the Bank in the recent past.
The profit from current operations before tax was 27.6% greater than in the prior year, assisted
by pre-tax profits from equity investments of 97.1 million euro, including the capital gain earned
11
on the disposal of the holding in Linea S.p.A..
The net income earned by the Parent Bank means that a dividend of 1.15 euro per share can be
proposed (+15% with respect to 2007). This amount, part to be paid in cash (12.5%), part via
the distribution of treasury shares, leaves room for a further improvement in the Group’s capital
ratios and the natural continuation of support for households and businesses.
The growth in lending and deposits at a consolidated level reflects the trends already described in
relation to the Parent Bank. Loans verso customers amount to 22.7 billion euro at 31 December
2008, up by 9.0% since 31 December 2007. Direct deposits total 21.4 billion euro following a
rise of 13.4%, ignoring “liabilities for assets sold but not derecognized”, while indirect deposits
have fallen due to the performance of the asset management and asset administration sector.
As stated, the capital ratios are very strong: The core tier 1 and tier 1 capital ratios are 7.3%,
while the total capital ratio is 11.4%. These amounts are considerably higher than those
recommended by the Supervisory Authorities and among the highest in the Italian banking
system.
The consolidated income statement reports net income of 108.7 million euro, down slightly
(-4.4%) with respect to 2007. This outcome was affected by the economic and financial crisis
which influenced the results of certain Group companies. It was mainly achieved due to the
good performance by Banca Popolare di Vicenza and the positive contribution made by most
subsidiaries that reported profits for the year.
12
ECONOMIC AND FINANCIAL SCENARIO
Overview of the macroeconomic situation
Global economic conditions deteriorated during the last few months of 2008 at a rate not seen
since the Second World War. . The contraction in GDP during the fourth quarter confirmed the
broad recession afflicting the majority of the world’s leading economies. As a consequence, the
macroeconomic situation moving into 2009 is somewhat bleak. This picture is confirmed by the
changes in the most recent qualitative indicators, which do not suggest any significant recovery
during the first part of 2009. On the other hand, the weakness of international economic activity
together with the fall in consumption have lowered the rate of inflation in Europe and Italy to
less than 2%. This follows the rapid rise during the first part of the year, to a peak at the end of
the summer when the consumer price index touched 4% or so.
The extremely expansionary approach adopted by international monetary policy during the last part
of the year, assisted by the drop in inflation, caused reference rates to fall to historical lows. This was
done in an attempt to normalize the functioning of the financial markets and stimulate both business
and consumer demand. The effectiveness of this move, at least in the latter case, might however be
hampered by the credit-tightening measures implemented by the banking system.
The performance of the Italian economy reflected these international trends (2008 GDP was
1% lower than in 2007), although in this case the deterioration in the public sector accounts
restricts the scope for recourse to fiscal policy as a driver to stimulate recovery.
This extremely difficult and uncertain situation is also confirmed by the performance of the
banking sector, where operations were seriously affected by the intense and unexpected credit
crunch caused by the collapse of confidence within the financial system. The latest available data
shows both a progressive reduction in lending activities, due to the weakness of demand and
the tightening by banks of their criteria for the granting of loans, and an acceleration in bank
funding operations, especially the issue of bonds, in order to meet their financing requirements
despite the overall shortage of liquidity. The focus of the banking system on the more traditional
funding methods has penalized other types of investment including, in particular, the asset
management sector which suffered another year of major net outflows and contractions in the
volume of assets under management.
With regard to bank rates, repeated policy action by the ECB resulted, from the end of
November, in a generalized fall in both lending and funding rates. Since the latter declined by a
lesser extent, the effect was to narrow the banking spread.
The international economic scenario
With its origins in the 2007 US sub-prime mortgage crisis, the financial crisis spread rapidly
throughout the world and has now, in recent months, begun to affect economic activity in the
developped countries, which were already weakened by the major rise in commodity prices seen
in past months. Indeed, almost all the leading economies reported a contraction in GDP during
the final quarter of the year, with a major drop in industrial production, a credit squeeze and a
collapse in the confidence of households and businesses to record lows. The consequences for
the emerging countries have also become clear, with both the flight of foreign capital, via the
sale of shares and bonds held by international banks and investment funds, and the weakening
of foreign demand. These factors have contributed to a marked slowdown in economic activity in
those countries too, despite their apparent immunity to the financial crisis until a short while ago.
13
The weakness of international economic activity, combined with a fall in consumption,
contributed to a sharp fall in commodity prices including oil (stabilized in January at around 40
dollars, compared with a peak of 143 dollars in July 2008), with a consequent reduction in the
rate of inflation (December y-o-y: USA +0.1%, Euro area +1.6%, Italy +2.4%). This situation
has enabled the leading central banks to adopt a strong expansionary policy in support of
the economy, and to help normalize the functioning of the financial markets. This action has
involved slashing official interest rates to unheard of levels by January 2009. (the ECB lowered
the official rates to 2% in January 2009, while the FED voted unanimously to lower the rates
for Fed Funds to between 0% and 0.25%, depending on the requirements). The many steps
taken in recent months by governments and central banks, designed to ensure the continuous
flow of lending to the economy by banks and restore market confidence, have had the effect
of reducing market rates to especially low level. For the moment, however, these moves have
not had a significant effect on the international economic situation, which continues to show
worrying signs of recession. In particular, GDP data for the principal advanced economies
has been among the worst in recent years: in December, the United States reported a drop in
GDP for the second consecutive quarter (-1.6% between September and December, -0.1% in
the third quarter), while three consecutive falls were reported in the Euro area (-1.5% in Q4,
following -0.2% in both September and June), mainly due to the stagnation of both exports
and private consumption. The extreme weakness of activity in the Euro area is confirmed by
the performance of European industrial production, which suffered a record monthly fall of
2.6% in December 2008 and slumped by 12.0% over the year as a whole. Serious pessimism
also stems from the most recent surveys of European business and consumer confidence, which
highlight ongoing major concerns about employment, the prospects for savings and the trend
in sales. All this is compounded by an extremely high level of uncertainty about the economic
situation, as frequently evidenced by the ECB in their most recent monthly bulletins. These
doubts continue to reduce the propensity to consume and investment, thus enhancing the risk of
slower growth.
International monetary policy
The abrupt deterioration in the financial crisis and economic situation from the start of
September resulted, during the final months of the year, in a radical change in the monetary
policy adopted by the international central banks. Until last June, these were actually weighing
the possibility of further minor restrictive measures, especially in the Euro area, to combat
inflationary pressures. The worsening of the economic situation and the consequent drop in
foreign demand caused the prices for commodities, and oil in particular, to collapse and resulted
in an unexpected change in the overall picture, with low rates of inflation. These conditions
allowed the international central banks to take strong action to tackle the deepening financial
crisis, with massive injections of liquidity into the market and steps to save various international
financial institutions. The first coordinated monetary policy action in history took place on 8
October 2008, with a simultaneous cut of 50 basis points in the policy rates of many leading
international central banks, including the FED, the ECB, the Bank of England and the Bank of
Canada. In the following months, there was more action from the FED (-50 basis points on 29
October, -75/-100 basis points on 16 December) and the ECB (-50 basis points on 6 November,
-75 basis points on 4 December and -50 basis points on 15 January 2009), which lowered the
cost of money to historical minimums: between 0% and 0.25% in the United States and 2%
in Europe. The Bank of England also made additional cuts, lowering interest rates to 1% in
February 2009, which is the lowest rate since the foundation of the UK’s central authority.
14
These special measures eased the tensions in the financial markets, as shown by the marked drop in
interbank rates (3-month Euribor falling below 2%, a five-year minimum, in early February 2009),
even though the level of uncertainty remains exceptionally high, as confirmed by President Trichet
during the press conference that followed the ECB meeting on 5 February 2009. On that occasion,
the Governing Council decided to leave rates unchanged at 2%, while remaining open to a further
cut in March by between 25 and 50 basis points, given the sharp drop in the rate of inflation.
International financial markets
2008 was one of the worst years ever in the world financial markets, with extreme volatility
and adverse performance that reached and, in some cases, exceeded declines of 50%. On the
Milan exchange, only 7 out of the 336 listings managed to close the year ahead; the overall
capitalization of this market essentially halved during the year (S&P/Mib down 49.5% from
the end of 2007), falling to 372 billion euro or about one quarter of domestic GDP (slightly less
than half in 2007). The Milan volatility index jumped from 12.5% in 2007 to 30.5% in 2008,
peaking in October at 69.1% which was the highest level in the history of the Italian market: in
particular, the exchange reported its largest fall on 1 October (-9.24%), followed by its largest
gain on 13 October (+8.26%). The number of contracts made fell only slightly to 69.2 million,
-4.6% compared with 2007.
Ongoing financial tensions have continued to discourage IPOs on the Italian exchange. No new
companies were admitted during the last quarter of 2008, and there were just 7 initial public
offerings during the year, compared with 32 in 2007. The number of companies delisted, 18, was
broadly in line with recent experience (16 in 2007 and 17 in 2006). Overall, the Italian exchange
now lists 336 companies, compared with 344 at the end of 2007.
The financial crisis was felt more in Italy than elsewhere (S&P 500, New York -39.4%, Nikkei,
Tokyo -42.1%, FTSE, London -31.8%, DAX, Frankfurt -40.4%, CAC40, Paris -42.8%), mainly
due to the greater weighting of banking shares on the exchange. These shares were sold heavily
during the final months of the year, as news flooded in about the funding difficulties of Italy’s
leading banks.
15
The Italian economy
The Italian economy moved into recession at the start of the second quarter of 2008. Following
a positive start to the year (GDP +0.3% in the first quarter), the Italian economy deteriorated
rapidly as the international crisis deepened, resulting in the worst slump in GDP for the last
15 years. In particular, GDP fell 0.6% between March and June, 0.7% in the third quarter
and 1.9% in the final quarter, resulting in an average decline in 2008 of 1.0%. This sharp fall
essentially reflects the worsening of the international situation, with a consequent drop in
foreign demand to accompany the persistent weakness of domestic demand and the stagnation
of capital investment. Although the Italian statistics were the worst in the Euro area, they were
less dramatic than the situation that emerged in Germany, where the rate of growth during the
fourth quarter was 2.1 percentage points lower than in the previous quarter. The crisis was
also serious in France and Spain (Q4 down respectively 1.2% and 1.0% compared with Q3).
There were numerous leading indicators of this adverse performance, including four consecutive
monthly falls in domestic industrial production, resulting in a collapse of 12.2% over the year
to December 2008. This was the worst result since 1991. Even the jobs market is showing
increasing signs of difficulty: employment, having grown for more than 10 years, received a set
back in the third quarter of 2008, while the unemployment rate rose 0.5 percentage points over
the year to 6.1%. There was also a significant rise in the recourse to government-assisted lay-offs
at the end of 2008.
Due to a further deterioration in public sector finances, the contribution made to economic
recovery by fiscal policy will be weak. Indeed, the most recent data from the Bank of Italy
highlights an increase in public borrowing of about 65 billion euro over the year to December
2008, to a staggering record level of 1,663.6 billion euro. This statistic places the ratio of public
borrowing to GDP at 105.8% (103.5% at the end of 2007), while the deficit has risen to 3.1% of
GDP (1.7% at the end of 2007). This breach of the Maastricht maximum was mainly due to the
marked reduction in inflows as a consequence of the economic slowdown.
Inflation has continued to fall rapidly from its peak back in the summer (+4.1% between July
and August): the consumer price index fell for the fifth consecutive month in January 2009, to
below the 2% threshold for the first time in about eighteen months (+1.6% in January 2009,
down sharply from +2.2% in December 2008). This effect was largely due to the large drop in
the price of fuel, while food products remain “hot” although without repeating the significant
increases seen throughout 2008. Continuation of this slowdown in the rate of inflation seems to
be built into the expectations of most operators. The economic surveys carried out by ISAE at
the start of the year have highlighted that both consumers and manufacturers expect a further
significant reduction in inflation over the coming months.
16
The credit and savings market
Bank lending and non-performing loans
The growth of bank lending in Italy declined steadily during 2008, falling to +4.9% for the year to
December compared with +9.8% at the end of 2007. The brake on bank lending appears closely
linked with the weakness of demand for credit, given the prolonged slowdown of the Italian
economy, not to mention the tougher criteria adopted by banks for lending to households and
businesses. This last phenomenon, mainly reflecting the deterioration in the economic situation
and difficulties in the sourcing of funds, heightened from the second half of September following
the failure of Lehman Brothers, has been confirmed by the results of recent surveys of banks and
firms. These indicate a rise in the margins applied on loans and a reduction, especially in the case
of loans to households, of the ratio between the value of the loan and that of the guarantees given.
17
The slowdown in lending compared with 2007 has also been affected by the upturn in
securitizations intended, for the most part, to create instruments then used to guarantee
refinancing transactions with the Eurosystem (retained securitizations). These exceeded 80
billion euro at the end of 2008, compared with 10 billion euro in 2007.)
The quality of lending by Italian banks has begun to show signs of deterioration, as reflected in
the most recent data available from the Supervisory Authorities at the time of this report. This
information, covering the third quarter of 2008, highlights a rise in new non-performing loans (+18%
with respect to September 2007), especially in Northern Italy and the Islands. The stock of watchlist
loans also appears to be rising rapidly, both in absolute terms and as a percentage of lending: this
dynamic is apparent in all geographical areas and all principal sectors, especially in the Northern
regions, and in the business sector (increase in watchlist loans by 1.75 billion euro over the last twelve
months) and the household sector (increase of more than 1 billion euro over the past year).
Deposits
The growth in bank deposits from Italian residents accelerated in 2008, with annual growth
to December of +12.5% (+6.6% at the end of 2007) due to a rise in deposits and repurchase
agreements and, above all, to an upturn in bond issues. In particular, the market for deposits
and repos has been sustained in recent months by increased demand from households, due to
the low opportunity cost of holding liquidity. The continued riskiness of the financial markets is,
in fact, prompting a reallocation towards financial assets with a low risk-yield profile. The bond
sector has grown strongly (+20.6% over the year, compared with +12.1% at the end of 2007)
due to financial market tensions that have effectively forced Italian banks to make recourse to
this important instrument for their funding needs. Deposits from abroad (borrowing from nonresidents) contracted noticeably during the last part of the year, with the dynamic changing from
+20.6% at the end of 2007 to -8.9% in December 2008.
2008 was undoubtedly one of the most difficult years ever for the asset management sector
which, evidently, has not yet overcome the profound difficulties that emerged during 2007.
The wealth managed by open-end mutual funds and sicavs totaled just 409.2 billion euro in
December 2008, after falling 28.2% since the end of 2007. Net outflows continued throughout
2008, totalling about 140 billion euro over the year or almost triple those seen in 2007 (-53
billion euro). The latest data published by Assogestioni, relating to January 2009, does however
appear to contain a small ray of hope. In particular, the rate of outflows from mutual funds has
slowed considerably with respect to that recorded in 2008 (-4.9 billion euro during the month),
with improvements in all segments except for bond funds, which still represent the largest source
of outflows from mutual funds.
There was also a further decline in the portfolio management activities of Italian banks, which
were down over the year to November 2008 by 36% (-12% at the end of 2007). The latest
available data for total securities deposited with Italian banks (both under management and
held directly by customers) reflects a slight, 2.0% rise over the year to November. Analysis of the
type of financial assets held shows, in particular, that savers strongly prefer bonds and short-term
treasuries (BOT) over mutual funds and longer-term treasuries (BTP and CCT).
18
Bank interest rates
Repeated cuts in the ECB’s policy rates from October (-0.50 percentage points on 8 October,
-0.50 on 6 November, -0.75 on 4 December and -0.50 on 15 January 2009), only began to
influence bank rates from the end of November.
Between October and December 2008, the weighted average of bank lending rates on loans
to households and non-financial businesses fell by 47 basis points (ABI data); this did not fully
reflect the collapse in market rates over the same period (for example, 3-month Euribor dropped
by 186 basis points between the end of October and the end of December). This sudden fall in
market rates, outpacing that seen in relation to bank lending rates, caused the mark-up to increase
from November to 3.19 percentage points at the end of December compared with 1.79 points
just two months earlier. The slower dynamic of bank lending rates was partly due to the repricing
mechanism applicable to forms of lending indexed to market rates, which frequently take a few
months to reflect changes in their reference rate. It also took account of the higher remuneration
required for increased counterparty risk, due to the rapid deterioration of the economic situation.
This said, from January 2009 there was a more marked and generalized reduction in the bank
rates for all forms of lending, given the continued decline in market rates.
Funding rates also fell considerably during the final two months of the year, although by less
than lending rates, resulting in a narrowing of the spread. At the end of December, the rates
paid on deposits and bonds were down by little more than 30 basis points: here too, rates fell
further at the start of 2009, albeit not in line with the trend in market rates given the pressure on
banks to source liquidity from their customers. The greater reduction in market rates with respect
to deposit rates has, over the past few months, given rise to a significant drop in the mark down,
to the lowest levels seen in recent years.
The economic situation in the areas in which the Group operates
Veneto
The steady slowdown of the Veneto economy during 2007 continued at a greater pace
throughout 2008, with recession setting in during the second part of the year. Based on a study
carried out by Unioncamere del Veneto, industrial production fell in the fourth quarter of 2008
both compared with the previous quarter (-2.5%) and with respect to the final quarter of 2007
(-8.2%). This represents the worst result for the past thirty years. Considering the business
profile in terms of scale, the y-o-y fall in production during the final quarter of 2008 impacted
small (10-49 employees) and medium-sized firms (50-249 employees), down by 7.1% and 7.3%
respectively, while large firms were hit even more significantly (-10.6%). The situation for
micro businesses (2-9 employees), appears even more critical with a contraction of 13.2%. In
sector terms, industrial production fell over the year to December 2008 in all sectors, including
in particular electronic and electrical machines (-13.3%), rubber and plastic (-11.6%) and the
wood and furniture industries (-9.6%). In line with the fall in production, sales also dropped
by 7.4% over the year to December 2008. The contraction affected all sectors, except for food,
beverages and tobacco, which was essentially stable (+0.3%).
An analysis by province also shows a decline in production and sales across the board, with
the greatest impact on the provinces of Belluno (production -11.5%, sales -10.3%) and Vicenza
(production -10.2%, sales -9.4%).
There is also serious cause for concern on the employment front. With respect to the final
quarter of 2007, the indicator highlights a contraction of 2.9% in the fourth quarter of 2008,
which was more marked than the y-o-y falls seen in the second and third quarters (respectively
19
-1.5% and -1.6%). This situation affects firms of all sizes in every sector, with special problems
for manufacturers including, in particular, goldsmiths (-7.3%) and textiles, clothing and
footwear (-4.6%). Belluno and Vicenza were also the provinces with the greatest employment
difficulties (down 6.0% and 3.8% respectively over the year).
Based on the qualitative assessment of Veneto entrepreneurs, production, sales and employment
are all set to decline further over the next six months.
In terms of tourism, Veneto was confirmed as Italy’s leading region with regard to the hospitality
industry during 2008. Given a 0.2% fall in arrivals and a 0.9% drop in stays with respect to
2007, Veneto tourism has essentially held up while the industry in Italy as a whole appears to be
experiencing serious difficulties.
Specifically with regard to Vicenza, the latest economic survey of manufacturing performance
during the fourth quarter of 2008, carried out by the Vicenza Chamber of Commerce, confirms
a compounding of the difficulties already reported in relation to the first nine months of the
year. Small, medium and large-sized firms all reported adverse performance, although small
firms were the worst hit. Economic operators expect a further decline in manufacturing and
commercial activity in the province of Vicenza during the first part of 2009, with a probable
consequent fall in sales and employment.
Friuli Venezia Giulia
The latest data for industrial performance in the region confirms the critical state of the
manufacturing sector, which first became evident during the second half of 2007. All
indicators are down, both respect to the previous quarter and the same quarter in the prior
year. Industrial output remained down during the fourth quarter of 2008 (-3.6% compared
with the previous quarter, -14.5% compared with the prior year), despite a slight improvement
with respect to the position at the end of September; the situation is similar with regard to total
sales, which fell by 2.4% with respect to the previous quarter (-15.7% compared with 2007).
Considering other economic indicators, the value of new orders has continued to fall with
respect to both September 2008 (-9.9%) and the prior year (-17.7%), while capacity utilization
dropped to 76.4% in the final quarter from an average of around 85% in the earlier part of
2008. Examination of the region’s most representative manufacturing sectors shows that both
“Engineering” and “Wood and wooden furniture” are adversely affected by the downward
economic trend. The short-term expectations of industrial entrepreneurs at the end of 2008
also reflected growing concern, especially about the future performance of foreign demand and
production.
The latest employment statistics show a deterioration during the third quarter of 2008 (-0.9%
compared with June 2008) and the stabilization of the unemployment rate at above 4%.
Lombardy
Data from Unioncamere Lombardia concerning production in Lombardy during the fourth
quarter shows an acceleration in the pace of the deterioration that began in the first quarter of
2008. At the end of December 2008, production was 6.0% below the level of the prior year and
down 4.1% (deseasonalized) with respect to the third quarter of 2008. This slowdown is evident
across many sectors. Indeed, only food remains positive, while other sectors are in decline
including, in particular, clothing and textiles. Even sectors important to Lombardy’s economy,
such as engineering and chemicals, reported a significant decline in production over the year.
20
Similarly, output fell over the year in all the craft sectors. Total sales were also down by 6.9%
over the year, and by 3.6% with respect to the third quarter of 2008. Capacity utilization has
fallen below 70% with regard to manufacturers, but to around 63% for artisans.
The latest ISTAT data for employment, covering the third quarter of 2008, reflect an essentially
stable situation with respect to the previous quarter, with an unemployment rate of just over
3%, which is well below the national average of 6.1%. There is however growing recourse to
government-assisted lay-offs, involving 15% of firms and 2.5% of total working hours.
Considering the medium/long-term trends, the flow of orders, expectations and the situation
“inherited” from 2008, Unioncamere Lombardia forecasts a further fall in industrial output in
the coming quarter. Despite the adverse economic climate, manufacturers in Lombardy still
expect to invest during 2009, although at levels below those seen in the past two years.
Tuscany
The regional economy was marked by a widespread decline during 2008, the first signs of
which emerged during the second half of 2007. The most recent data available regarding the
third quarter highlight a continuation of this downturn, with a further contraction in industrial
production (-3%) and sales (-2.3%). This decline is affecting all Tuscan provinces (except for
Livorno) including Prato in particular, which has reported a drop of 8.3% with respect to the
third quarter of 2007. Given the general recessionary outlook for manufacturing as a whole,
large firms held up well during the third quarter with production slightly ahead (+1.3%) due, in
part, to the containment of prices and margins. Performance at sector level varies between the
essential stability of metal products and engineering (+0.0% and +0.1% respectively), and the
collapse of non-metal products (-8.0%), wood and furniture (-7.0%), and textiles and clothing
(-6.0%). This industrial decline is a consequence of lower domestic and foreign demand. In the
first case, the weakness of domestic consumption has adversely affected both orders and retail
sales, especially in the non-food sector (including in particular durables, items for the home and
household appliances) and with regard to the medium-small distribution channels. In the second
case, the slowdown in exports is especially worrying since this does not reflect national trends,
which remained in positive territory (although not by much) during the period concerned.
The worsening local and international economic situation is beginning to have an effect on the
jobs market: there was a strong upturn in government-assisted lay-offs during the third quarter
of 2008 and a brake on the deseasonalized growth in employment (+0.1% with respect to the
second quarter of 2008).
Sicily
The downturn in the Sicilian industrial sector began during the last quarter of 2007 and
continued throughout the first nine months of 2008. Plant utilization declined in the first half of
the year, confirming the slowdown in production, although there was a modest recovery during
the third quarter. Inventories of finished products remain higher than normal.
The construction sector showed signs of contraction, marking an inversion of the upward
trend seen over the past several years. In particular, prices for homes fell and the time taken
to complete transactions extended. Expectations for a good year in the agricultural sector
unfortunately seem set for revision. The harvest is estimated to be up 1.2%, compared with
a national average of 3.3%. The best results were achieved in the winegrowing sector with
growth of 19% (+10% nationally), while the worst performance came from fruit growing with
21
a contraction of 11% (essentially unchanged at national level). Services are also in progressive
decline due to weakness of demand from households and the public administration, as well as
to the recent deterioration of demand from businesses. Tourism was also down in terms of both
arrivals and stays (-2.7% and -1.4% respectively). In line with the past three years, the statistics
for foreigners were better than those for Italian visitors. Data from Assaeroporti for Sicily’s three
major airports shows that passenger numbers rose by an annual rate of 3.1% during the first
eight months of the year, which was somewhat slower than in the prior year (+11.1%) due, most
probably, to the troubles that afflicted the national carrier.
There was also a deterioration on the jobs front, with a slight fall in employment during the
third quarter (-0.7%) with respect to the second, and an inversion of the downward trend in the
rate of unemployment which, after a decade, seems to have stabilized at 13% compared with a
national average of less than half that rate.
22
INNOVATIONS IN THE REGULATORY FRAMEWORK
The current regulatory framework reflects measures taken in the second half of the year to tackle
the serious crisis affecting the international economy.
The principal legislative changes affecting bank activity during the first half of the year mainly
comprised the publication on 30 April of the so-called “Consolidated Law on Safety at Work”,
implementing art. 1 of Law 123 dated 3 August 2007 on the safeguarding of health and safety
in workplaces and, in particular, the publication of Decree 93 dated 27 May 2008, the so-called
“fiscal decree”, which governs the renegotiation of mortgages on first homes in accordance with
criteria established in the convention signed between the Ministry of the Economy and ABI.
With regard to supervisory regulations relating to internal systems, the Bank of Italy issued its
“Supervisory instructions for the organization and governance of banks” on 4 March 2008.
These outlined a complete regulatory framework, as supplemented recently by measures
recognizing the central role of systems in the definition of business strategies and policies
for the management and control of the risks inherent in banking and financial activity. The
general objectives pursued by the new instructions comprise the clear segregation of functions
and the appropriate calibration of powers, the balanced membership of corporate bodies, an
integrated and effective system of controls, remuneration mechanisms that are consistent with
risk management policies and long-term strategies, and appropriate information flows that
facilitate knowledgeable operating decisions. In the light of the new instructions, the Board of
Directors of the Parent Bank arranged to check the organizational and financial structure, and
the procedures for managing conflicts of interest, against the essential governance characteristics
described in these instructions. As a result, a draft Group governance plan has been prepared,
specifying the organizational and governance measures deemed appropriate in order to comply
with the above supervisory instructions.
Other instructions affecting the sector were contained in Decree 112 dated 25 June 2008, as
converted into Law 133 dated 6 August 2008, containing “Urgent instructions for economic
development, the simplification, competitiveness and the stabilization of public finances, and
the equitable distribution of taxation”. This decree deferred to 2009 application of the socalled “collective action” and introduced important changes to the privacy law by modifying
arts. 34 and 38 of Decree 196/2003. The decree also established that a percentage of interest
expense (3% in 2008 and 4% from 2009) will not be deductible for IRES and IRAP purposes,
and reduced the annual deductible provision against receivables from 0.40% to 0.30% of their
book value; provisions in excess of this limit will be deductible on a straight-line basis over the
following 18 years (previously over the following 9 years).
In the second half of the year, Decree 155 dated 9 October 2008 regarding “Urgent measures
to ensure the stability of the banking system and the continuity of lending to businesses and
consumers, given the current crisis in the international financial markets” represented the
start of action to deal with the crisis situation. Some of the more important measures included:
authorization for the Minister of the Economy to support, by subscribing for or underwriting
capital increases, the recapitalization of banks with an equity deficit; the ability of banks to go
into special receivership in critical situations, such as a liquidity crisis, that prejudice the stability
of the financial system, and the ability to use public funds to recapitalize such banks in special
receivership. Another notable measure was support for the deposit guarantee offered by banks
(on deposits of up to 103 thousand euro in Italy), whereby the Ministry of the Economy is
authorized, for a period of 36 months, to make up the difference if the available fund proves
insufficient, for the benefit of all depositors whether physical or legal persons (art. 4).
Decree 155 was followed by Decree 157 comprising “Additional urgent measures to ensure the
stability of the banking system”, which has three articles. Pursuant to art. 1, the Ministry of the
23
Economy is authorized to guarantee the bonds with a duration of less than five years issued by
banks between the date when the decree came into force and 31 December 2009. The availability
of government guarantees, again until 31 December 2009, also extends to those parties (e.g.
insurance companies and pension funds) that make securities available to banks for refinancing
transactions with the Eurosystem.
Law 166 was also published in October 2008. This converted into law Decree 134 dated 28 August
2008 comprising “Urgent measures for the restructuring of major companies in crisis”; certain
modifications made on the conversion of this decree altered the requirements applying to major
companies that are insolvent, while others increased the resources of the Fund initially consisting
of the so-called “dormant accounts”, via the addition of two paragraphs to art. 3 of Decree 134/08
to include the amount of bankers’ drafts that are not collected before they become time barred.
Lastly, Decree 185 was published on 29 November 2008 comprising “Urgent measures in
support of families, work, employment and business and to remodel national strategy on an
anti-crisis basis”. The measures of principal interest to the banking system relate to current
mortgages (arranged by physical persons up to 31/10/2008) on principal residences (excluding
categories A1, A8 and A9), for which the floating rate for 2009 cannot exceed 4% (the difference
between the installments determined on this basis and those deriving from application of the
contractual conditions will be paid by the government), and to mortgage contracts (on principal
residences) arranged from 2009 onwards, for which the banks must offer customers the option
of a floating rate linked to the ECB rate. This decree also introduced regulations to strengthen
the Confidi system, in order to mitigate the credit crunch risk for small and medium-sized firms.
The objective is to ensure an adequate flow of finance to the economy and an adequate level
of capitalization for the banking system, by authorizing the Ministry of the Economy, until 31
December 2009, to subscribe - upon specific request from the banks concerned - for financial
instruments without voting rights (art. 2351 of the Italian Civil Code), included in the calculation
of regulatory capital, issued by Italian banks whose shares are listed in regulated markets or by
the parent companies of Italian banking groups whose shares are listed in regulated markets.
Among various tax innovations, the 2008 Finance Law (Law 244 dated 24 December 2007)
which came into force on 1 January 2008 introduced significant changes to corporate taxation.
The principal changes affecting the 2008 financial statements are summarized below:
− Reduction in the standard rates of IRES (from 33% to 27.5%) and IRAP (from 4.25% to 3.9%).
− Abolition of the ability to deduct directly in the tax return (section EC) any “off-books”
depreciation and writedowns not charged to the income statement. In this regard, an option
was introduced to frank the difference between the carrying amount and the tax value of
depreciable assets and off-book adjustments. The effect of franking is to realign the tax value
of assets with their carrying amounts. This realignment is subject to the application of a flatrate tax on the amount of the difference to be cancelled.
− Changes to IRAP and IRES. With regard to IRAP, the tax base for this regional levy is
determined with reference to the amounts stated for statutory reporting purposes, while in
the case of IRES for companies that report under international accounting standards (IAS/
IFRS), the tax rules apply the accounting policies (measurement, accruals basis, classification)
required by those standards (this change envisages the issue of enabling instructions which
have not yet been published at the time of preparing this report).
With regard to VAT, art. 1.261 of the 2008 Finance Law introduced a new form of VAT
exemption from 1 July 2008, applicable - under the conditions established in the regulations - to
services provided by consortiums to their members. In addition, commencing from 1 January
2009, the VAT exemption envisaged in art. 6 of Law 133/1999 and applying to ancillary services
rendered within banking (or insurance) groups has been abrogated.
24
Again with reference to corporate taxation, Decree 185 dated 29/11/2008, as converted with
modifications in Law 2 dated 28/01/2009, envisages inter alia the ability to deduct, with effect
from 2008, 10% of the IRAP due on the taxable portion of interest expense or, alternatively,
on payroll costs. The above decree also introduced special rules for realigning the differences
between tax values and carrying amounts created by the application of international accounting
standards.
.
25
GROWTH OF THE BPVi GROUP:
ACTIVITIES OF STRATEGIC IMPORTANCE
The global crisis that swept the international financial markets from the middle of September,
combined with the general slowdown in economic growth, surprised a number of domestic
and international players in the banking world and, in some cases, caught them unprepared.
This situation forced many banking groups to make rapid and costly changes to their strategies,
with a view to recovering operational equilibrium and defending their capital adequacy
following the liquidity crisis and the change in market conditions. In these circumstances,
the BPVi Group has drawn on its financial solidity, the values embodied in its mission and
the special characteristics of people’s banks, to define its strategic direction and identify the
drivers needed to tackle the operational difficulties weighing on the entire financial system. The
strategic guidelines set down in the new Business Plan 2008-2011, prepared earlier in the year
and approved in September 2008, thus embrace the maintenance of capital adequacy, a focus
on traditional banking, improved balance between the growth in lending and direct customer
deposits, a strengthening of the Group’s management and control activities, close supervision
of risk and strict cost control. In short, even before the crisis became so evidently intense and
worrisome, the BPVi Group had already defined its strategy for the consolidation of growth.
The objective is to enhance operational profitability and efficiency over the medium term, and
create the necessary equity, operational, financial and organizational foundations for a new phase
of growth after a preparatory period of about 18-24 months. In order to achieve the established
objectives within the timeframe of the Plan, work during the last quarter focused on a new and
challenging operational plan that involved the Group’s entire management team and which has
already achieved important early results.
In addition, significant action was taken with regard to equity investments during the year,
in order to optimize the structure of the Group by rationalizing non-strategic investments
and focusing on those companies that contribute to the development of the business. Action
included the reorganization of asset management activities via the merger of BPVi Fondi SGR
and Verona Gestioni SGR, the subsequent joint venture between Banca Popolare di Vicenza,
Azimut and Cattolica Assicurazioni, and the sale of the interest held in Linea S.p.A..
Lastly, work to manage liquidity risk more effectively during the last part of the year included
the securitization of the Group’s residential mortgages, under the name Berica 7 Residential
MBS, for more than 1 billion euro. This is a “retained” transaction that was taken up in full by
the various banks within the BPVi Group, in proportion to the portfolio transferred, in order to
create securities for use in funding repurchase agreements with the ECB.
The Business Plan 2008-2011 and the Master Action Plan
In recent years, the BPVi Group has stood out in the Italian financial market for its relentless
pursuit of growth, culminating at the end of 2007 with the purchase of 61 branches from the
UBI Banca Group and the strategic partnership signed with the Cattolica Assicurazioni Group.
The growth in scale has strengthened Banca Popolare di Vicenza and the entire BPVi Group,
facilitating the defence of its autonomy and independence. These are essential conditions
for continuing to operate as an authentic people’s bank serving the economies of its chosen
territories. The results achieved are highly satisfactory: the BPVi Group is now Italy’s 11th
largest banking group, with a strong presence in the four home regions of the Group’s banks.
This recent growth path and the good positioning achieved now need to be consolidated,
26
especially now at a time of profound financial crisis and general deterioration in the economic
situation. Consolidation will set the potential acquired to work, return efficiency to more
appropriate levels and create the conditions needed for the next stage of development.
Indeed, the consolidation of growth is the principal strategic guideline underpinning the new
Business Plan 2008-2011 approved by the Parent Bank’s Board of Directors on 11 September
2008. This objective will be achieved by focusing on the traditional banking core business,
drawing on the strong grassroots presence already achieved and building on the ties with and
deep knowledge of local economic activity. Emphasis will be given to the role of Distributor
Bank, working in partnership with operators specializing in specific sectors (e.g. bankassurance,
merchant banking and asset management). Key elements include the renewed emphasis on the
performance of branches, the strengthening of the Parent Bank’s management and coordination
capabilities, the active monitoring of credit risk, strict cost control, the strengthening of the
corporate culture and the development of human resources. Subsequent to the 18/24-month
consolidation period, the Group plan to review its strategic positioning for the long term and
examine new opportunities for growth.
Following approval of the Business Plan 2008-2011, steps were taken immediately in September
to implement the action planned and reach the established objectives. In particular, a program
for change was devised and launched, organized into 7 “Directions” that will involve the entire
Group over the plan period on the following main fronts:
− Revision of the Group’s governance model as an essential prerequisite for strengthening
the ability to govern, guarantee the uniformity and consistency of the strategic/operational
directions, and enhance operational efficiency.
− Evolution of the processes and tools for governance and control, with particular reference to
strategic planning, operational control and systems of internal control.
− Optimization of the corporate structure via work to rationalize, consolidate partnership
agreements and develop the existing product factories.
− Relaunch of the Group’s commercial strategy and rationalization of the sales network, via the
closure of branches to re-open them in more attractive areas, and the selective strengthening
of the team at “non-performing” branches with growth potential, while aiming to maintain
employment at end-2008 levels.
− Control of credit risk, drawing on new systems for the measurement and monitoring of
risk while, at the same time, capitalizing on the wealth of information made available by the
Group’s grassroots presence.
Work on the Plan, partly due to the immediate involvement and commitment of all Group
employees, has already achieved significant results, with the activation of 27 projects out of the
30 envisaged, and the completion by 31 December 2008 of about 25% of all the activities to be
performed over the Plan period.
The principal results already achieved in each main area of the Business Plan are discussed below.
Revision of the Group’s governance model
As mentioned, the Business Plan envisages strengthening the Parent Bank’s ability to direct
and coordinate activities by making changes to the way the Group is organized and to the
related governance processes. In part, the intention is to maximize profitability via operational
efficiency. In summary, the Group’s new governance model envisages:
− the strengthening of strategic guidance and control activities via both increased emphasis on
the role of the Group Coordination Committee, which is chaired by the Managing Director
and comprises the General Managers of BPVi and the other banks within the Group, and the
extension of the operational governance activities carried out by the Parent Bank;
27
− the simplification and streamlining of the organizational structure at Group banks via the
rationalization of duplicated functions;
− the completion of work to centralize support activities within specialist service companies.
In line with these indications, the Boards of the Group’s banks have recently approved the
centralization within the Parent Bank and Servizi Bancari, a subsidiary, a number of significant
activities (back office, court searches, ICT, purchasing and payroll). In addition, the meeting of
the Parent Bank’s Board on 16 December 2008 approved, with effect from January 2009, the
centralization of a series of additional activities in the areas of lending, marketing, operations,
personnel etc., as well as the guidelines for the next revision of the Group Regulations
“Guidelines and instructions for the coordination of the banks and companies within the
Banca Popolare di Vicenza Group”. This document identifies a series of rules and principles
comprising the Group’s Governance Model which enable the Parent Bank to specify how its
duty/powers to manage, coordinate and control the Group will be exercised, while offering all
banks/companies within the Group precise points of reference for their activities.
Evolution of the processes and tools for governance and control
The purpose of moving in this direction is to evolve the logic underlying the planning and
control processes towards the safeguarding of capital, enhancement of the ability to identify
and monitor risk, and rigorous cost management. Activity in this regard has included approval
by the Parent Bank’s Board of Directors of the revisions to the Regulations for the Strategic and
Operational Planning Process, and the changes to the functions of the Group Coordination
Committee, which were subsequently adopted by the other companies within the BPVi Group.
The new Regulations formalize the strategic and operational planning process, the process of
evaluating strategic investments and the process of operational control. The primary purpose
of this is both to ensure consistency in the identification of objectives and related actions to be
taken by the Parent Bank and Group companies, as part of and consistent with a united business
approach, and to completely define the decision-making process underlying the selection of
strategic investments. In this regard, the Internal Audit function has recently been reorganized
and expanded, and guidelines have been prepared for the new architecture of the System of
Internal Controls, as described in the section on “System of internal controls and audit
functions”.
Optimization of the corporate structure
In terms of corporate structure, the Business Plan envisages the rationalization of non-strategic
investments and the promotion of companies contributing to the development of the business.
Moves in this direction have included the reorganisation of asset management via the merger of
BPVi Fondi SGR and Verona Gestioni SGR and the subsequent joint venture between Banca
Popolare di Vicenza, Azimut e Cattolica Assicurazioni, the approval of a strategy to rationalize
merchant banking activities, and the sale of the interest held in Linea S.p.A. The above
transactions are described below in the section entitled “Changes in equity investments”.
Relaunch of the Group’s commercial strategy and rationalization of the sales network
One of the Business Plan’s key commercial guidelines refocuses the BPVi Group on its
traditional core business, placing emphasis on the multi-channel approach and relaunching the
branches in terms of both performance and image. A number of important results have already
28
been achieved in this area. These include identification of the first batch (10) of branches to
be closed and re-opened in more attractive areas, the start of a project to relaunch underperforming branches and, lastly, activation of the new Network Model with a view to simplifying
the chain of command at branch level and refocusing on branch activities and the role of the
branch manager. A more detailed description of the new Network Model is provided in the
section entitled “Commercial Action”.
Control of credit risk
The objective here is to ensure the more organized and effective control of credit risk when
granting, managing and recovering loans. Action has included implementing new internal
rating systems for the Private Customer, Small Business, Small and Mid Corporate segments,
as well as formalizing authorization systems and lending policies based on these ratings and,
consequently, including them in the loan granting and management processes. With regard to
work to prevent the deterioration of loans, via the development of methodologies and analytical
support tools and the implementation of any corrective action required, a new operational “early
warning” model has been devised, simulated and calibrated for the environmental monitoring of
lending. This model works with internal data and operational experience, combined with the
new rating models, and is described further in the section on Risk Management.
Changes in equity investments
A number of important actions were taken with regard to equity investments during 2008. As
envisaged in the guidelines contained in the new Business Plan, the purpose of these steps was
to optimize the corporate structure by rationalizing non-strategic investments and promoting
those companies that contribute to the development of the business.
Sale of interest in Linea S.p.A.
As mentioned in the half-year report, Banca Popolare di Vicenza sold its 47.96% interest in
Linea S.p.A. to Compass S.p.A., a consumer credit subsidiary of Mediobanca, on 27 June
2008 following receipt of the necessary authorizations from the competent authorities. This
transaction was mirrored by Banco Popolare, which had the same percentage interest in the
company sold. The proceeds from the transaction amounted to 194.25 million euro, with a
consolidated gross capital gain of 91.6 million euro.
The BPVi Group will nonetheless continue to have a presence in the consumer credit sector
both by distributing Linea’s products and through Prestinuova, a subsidiary specializing in loans
secured against “one-fifth of salary”.
Merger of BPVi Fondi SGR S.p.A. with Verona Gestioni SGR S.p.A.
Having obtained the necessary authorizations from the competent authorities, the absorption
of Verona Gestioni SGR S.p.A. by BPVi Fondi SGR S.p.A. was completed on 3 November
2008. These two companies were the Group’s principal asset management companies and
both were held jointly, 50% each, by BPVi and Cattolica Assicurazioni under the partnership
agreement signed in 2007. This transaction took place on a “simplified” basis (merger without
share exchange) given the identical ownership structure of both companies. The objective was to
create a “product factory” within the asset management sector for the benefit of the BPVi Group
29
and Cattolica Assicurazioni, while releasing the significant synergies deriving from the merger.
As of 31 December 2008, the new company is 50% held by BPVi and its carrying amount in the
financial statements is 25.8 million euro.
Joint venture between Banca Popolare di Vicenza, Cattolica Assicurazioni and Azimut
At the end of August 2008, Banca Popolare di Vicenza, Cattolica Assicurazioni and Azimut,
an established name in Italy’s asset management sector, launched a project to establish an
independent asset management company (SGR) controlled equally by the three promoters. This
joint venture, still at the preparatory stage, would - among other factors - meet the frequently
expressed requirement of the Governor of the Bank of Italy to separate the ownership of SGR’s
from their operating policies. Azimut, listed on the Milan stock exchange, is the holding company
for a group of companies that promote, manage and distribute financial and insurance products.
This project envisages Azimut Holding purchasing a 33% interest in BPVi Fondi Sgr, the asset
management company owned equally by Banca Popolare di Vicenza and Cattolica Assicurazioni,
from the two parent companies. Work is still in progress on the details of the project.
The first step in the joint venture with Azimut was the signature in January 2009 of a subplacement agreement between BPVi and Azimut for the distribution of the AZ Fund 1
Luxembourg funds to customers of the banking group.
Renegotiation of the joint venture agreement between the BPVi Group and the 21 Investimenti Group
Other agreements of strategic interest include the renegotiation in May 2008 of the joint venture
agreement signed between the BPVi Group and the 21 Investimenti Group in October 2004.
The earlier agreement covering a five-year period was signed to strengthen the merchant banking
and private equity activities of the Banca Popolare di Vicenza Group and the 21 Investimenti
Group, via the concentration of these activities respectively within Nordest Merchant S.p.A. and
21 Investimenti Partners S.p.A., subsidiaries of the two groups concerned.
The principal reasons inducing the partners to renegotiate the agreement in force were found
in the changes that have taken place since it was signed, which are influencing the current
development strategies of the two groups, and in the need to “streamline” the terms of the
agreement, especially with regard to the governance of the various companies linked to the
joint venture. In particular, under the new partnership agreement which will have a duration of
three years, compared with five previously, the no-competition restrictions applying to the BPVi
Group in relation to the private equity sector have been eased, since these limited the Bank in
terms of becoming more active in that sector.
In September 2008, 21 Investimenti S.p.A. sold its interest in 21 Investimenti Partners S.p.A. to
the managers of that company.
Measurement of capital adequacy (ICAAP)
In current market conditions, marked by considerable uncertainty and risk, the careful
quantification and planning of capital availability is an increasingly critical driver of operations. An
adequate level of capitalization provides room for operational maneuver, ensuring that fluctuations
in the economic cycle can be tackled and potential losses from extreme events absorbed. The role
of bank equity is strengthened within the new regulatory framework (Basel 2) and the Supervisory
Authorities now remind intermediaries with increasing frequency about the need for capital
adequacy in order to cover all the risks accepted. For these reasons, the process of checking the
overall risk exposure of intermediaries began in early 2008 as part of the so-called Second Basel II
30
Pillar, together with verification of the Parent Bank’s own assessment of the capital adequacy of all
the banks and companies within the Group. The Second Pillar supplements the quantitative rules
envisaged by the First Pillar for the determination of prudent capital with a process (the prudent
control process) that takes account, via self assessment and discussions between the Supervisory
Authorities and the intermediary, of the latter’s special cases and specific risk profiles. This means
that the possible effect on intermediaries of changes in markets, products and technologies can be
evaluated more readily. In this context, the Banca Popolare di Vicenza Group launched a project in
April 2008 to prepare its first Statement on the Internal Capital Adequacy Assessment Process
(ICAAP), which was submitted on time to the Supervisory Authorities. The key steps taken by
the BPVi Group for the preparation of this statement involved the identification of risks and the
creation of a risk map for the Group and for the individual functions within the Parent Bank and
its subsidiaries, the development of methodologies for the measurement of “quantifiable” risks
and verification of the organizational control over risks (both quantifiable and unquantifiable), the
allocation of roles and responsibilities to boards, committees and functions in relation to ICAAP,
the preparation of ICAAP Regulations, and the validation of the ICAAP Process by the internal
audit function prior to validation by the compliance function as part of the full statement to be
completed in April 2009. The first ICAAP statement prepared in simplified form and relating to
the situation at 30 June 2008 was therefore sent to the Bank of Italy at the end of October 2008,
accompanied by a favorable opinion from the Board of Statutory Auditors. In extreme summary,
the assessment of capital adequacy contained in the ICAAP statement shows that regulatory capital
is adequate, on both a current and forward-looking basis (31 December 2008), to deal with all the
risks faced by the BPVi Group in relation to its operations, reference markets and propensity to
accept risk which, as resolved by the Board of the Parent Bank, is measured with reference to a
target level of equity and external ratings. This Statement must be prepared on an annual basis
and delivered in April with reference to the data at 31 December.
Ratings
The most recent ratings for BPVi given by Standard & Poor’s and Fitch Ratings are summarized
below.
Rating’s agency
Standard & Poor’s
Fitch Ratings
Long
term
Short
term
AA-
A-2
F2
Outlook
Date
Negative 14/10/2008
Negative 14/07/2008
The usual meetings between the Parent Bank’s management and analysts from the rating agencies
resulted in confirmation of the positive ratings given in the past, although the changes in the
financial and operational profile of the Group, associated with intensive growth at a time of
adverse conditions for the economy and the banking sector, have resulted in a revision of the
outlook from stable to negative.
In particular, the two agencies have recognized that the Bank’s strengths include its good
positioning in the rich regions of Northern Italy, the good diversification of the loans portfolio
and the financial support available from the shareholder base, as confirmed on multiple occasions.
Nevertheless, the high level of operating costs, mainly associated with the rapid growth in scale
over the past few years, combined with the cost of credit risk, continue to penalize overall
performance; in addition, the growth in lending in prior years has increased the potential credit
risk in view of the general deterioration in the economic situation. The rating agencies have
however recognized that the Bank’s renewed management team has already acted to eliminate
the critical points identified, and have confidence in the firm will shown to maintain an adequate
level of capital adequacy.
31
Other information
New securitization: Berica 7 Residential MBS
With the intention of managing liquidity risk more efficiently and effectively, the Bank has
securitized a new portfolio of residential mortgages, known as Berica 7 Residential MBS,totaling
more than 1 billion euro. The related securities were fully taken up from within the BPVi Group.
The financial crisis stemming from the US sub-prime mortgage collapse gave rise to a widespread
and dangerous international crisis of confidence among financial intermediaries during 2008. This
situation essentially froze the normal functioning of the interbank market, making access uncertain
to one of the principal sources of finance for financial intermediaries. Banks tackled their funding
requirements or managed the risk associated with uncertain access to funds from the interbank
market, partly by securitizing portfolios of loans that they then subscribed for in full (so-called
retained securitizations). These securities were then used, for example, as collateral for refinancing
transactions with the central bank (the total value of retained securitizations exceeded 80 billion
euro in Italy during 2008). The Berica 7 Residential MBS transaction was arranged by the BPVi
Group to obtain securities for use as collateral for short-term loans, at relatively competitive rates,
at times - like now - of liquidity stress in the market.
Inspection by the Bank of Italy
As stated in the 2007 Annual Report and the Half-year Report at 30 June 2008, BPVi was subjected
to a general inspection by the Bank of Italy that commenced in October 2007. This inspection was
completed in March 2008 and, as a consequence, the Bank of Italy notified its inspection report,
containing remarks and issues, on 9 June 2008. On 2 July, the Bank sent its initial thoughts on the
observations and considerations expressed by the Bank of Italy to the Supervisory Authorities.
On 25 July, a detailed reply to the Inspection Report was prepared containing the Bank’s
considerations about the matters raised. With regard to certain of the points and exceptions raised
in the Inspection Report, the Bank of Italy has commenced a disciplinary procedure, pursuant to
arts. 7 and 8 of Law 241 dated 7/8/1990, that may lead to fines for the Directors, the Statutory
Auditors and the General Manager in office at the time of the facts identified in the Inspection
Report. The outcome of this procedure is not known at the time of preparing this report
Other significant court cases
On 6 March 2008 a notice of indictment and a notice advising the conclusion of investigations
were served in relation to criminal proceedings brought by the Milan Public Prosecutor’s Office.
The persons being investigated include Giovanni Zonin, BPVI chairman, and Divo Gronchi,
for having, in conjunction with other bank representatives, organized, conducted and taken
part in a secret build-up of shares in Banca Nazionale del Lavoro, with the goal of obtaining
control of the bank and of blocking the public offer for its shares announced by BBVA. Banca
Popolare di Vicenza is required to answer, as the party liable for the administrative offence under
para.1 (a) of art. 5, art. 6 and paras. 1 and 2 of art. 25-sexies of Decree 231/2001 governing
the administrative responsibility of legal persons, companies and associations without legal
personality, for not having, before commission of the deeds ascribed to Giovanni Zonin and
Divo Gronchi, adopted and effectively implemented organizational and management models
capable of preventing offences such as the one being investigated. The Bank has engaged an
external firm of lawyers for its defence. Subsequently, on 3 June 2008, the investigating
magistrature applied for the indictment of all the parties investigated for market fraud and other
offences. The preliminary hearing has not yet been heard in this case.
32
In March 2008, “Adusbef”, a consumers’ association, filed a complaint with the Vicenza Court
that challenged the value of the Bank’s shares and requested the magistrates to open criminal
proceedings against Bank personnel for the crimes envisaged in art. 2622 of the Italian Civil
Code (false corporate disclosures to the detriment of the company, the stockholders or the
creditors) and art. 2621 (false corporate disclosures), as well as arts. 173 bis (false prospectus),
184 (abuse of privileged information) and 185 (market manipulation) of Decree 58/1998, with
partial responsibility for the Supervisory Authorities (Bank of Italy and Consob) for failure
to check. Subsequent to this complaint, on 10 December 2008 the judge for the preliminary
investigation at the Vicenza Court, upon request from the investigating magistrate presented
on 20 November 2008, notified the entire Board of Directors and the General Manager of the
Bank of the time extension of the preliminary investigation pursuant to art. 405 of the criminal
procedures code covering crimes the referred to in art. 2621 of Decree 58/1998, art. 2622 of
Decree 58/1998 and art. 173 of Decree 58/1998. The Bank’s defence lawyers and the bank
personnel involved consider this complaint to be quite obviously without foundation and, for
this reason, the lawyers petitioned the Court on 30 March 2008 for the case to be closed.
Lastly, on 7 August 2008, Banca Popolare di Vicenza was notified of action by the Competition
Authority with regard to alleged improper commercial practices by the Banca and Banca Nuova,
a subsidiary, in relation to the free transferability of mortgages. This action, as widely reported
in the national press, was commenced following a complaint from a consumers’ association
that had carried out an investigation, using its own personnel in the role of customers. These
investigators visited a number of branches of leading national banks, asking for information
about transferability. In particular, the two BPVi Group banks, together with 21 other banks
investigated, are accused of impeding the transfer of mortgages (envisaged in art. 8 of Decree
7 dated 31 January 2007, as modified by Law 40 dated 2 April 2007 and Law 244 dated 24
December 2007), by offering customers “the most onerous solution, being replacement of the
mortgage rather than its transfer”. As a consequence of this violation, Banca Popolare di Vicenza
and Banca Nuova, together with other banks, were subjected to an administrative fine of 440
thousand euro. An appeal against this fine was presented to the Lazio Administrative Court
(TAR) in mid November 2007. On 28 January 2009, the Lazio TAR ruled to accept the appeal
and cancelled the Competition Authority’s action.
33
OPERATIONAL STRUCTURE
This section of the Report on Operations provides information about the territorial presence
and positioning of the branch network and the changes in employment by the BPVi Group.
Territorial presence of the Banca Popolare di Vicenza Group
Traditional distribution channels
The BPVi Group’s branch network in present in 11 regions and 56 Italian provinces, with
roughly a 1.9% share of total branches nationwide.
At the end of 2008, the BPVi Group with 637 branches (9 more than at the end of 2007) is
Italy’s 11th largest banking group.
The 5 provinces with the largest number of branches are, in order: Vicenza, Treviso, Brescia,
Udine and Prato. The following table shows the territorial presence of the BPVi Group’s branch
network, analyzed by region and principal province, at 31 December 2008.
34
Geographical distribution
31/12/2008
31/12/2007
of branches BPVi’s Group
Change
Veneto
Vicenza
Treviso
Verona
Padova
Venezia Friuli Venezia Giulia
Udine
Pordenone
Lombardia
Brescia
Bergamo
Milano Emilia Romagna Liguria Piemonte Trentino Alto Adige
260
98
56
32
31
23
68
39
15
87
40
24
12
15
4
2
1
258
98
56
30
31
23
67
39
15
86
40
25
10
13
4
2
0
2
0
0
2
0
0
1
0
0
1
0
-1
2
2
0
0
1
North Italy
437
430
7
94
34
23
9
12
9
92
34
22
6
11
8
2
0
1
3
1
1
106
103
3
Sicilia
Palermo
Trapani Calabria 79
25
18
15
79
22
18
16
0
3
0
-1
South Italy
94
95
-1
637
628
9
Toscana
Prato
Firenze
Pistoia Lazio Roma Central Italy
Total
The Parent Bank opened 9 branches during the year: Corsico (Mi), Castelnuovo del Garda (Vr),
Brescia, Cormons (Go) Faenza (Ra), Sesto San Giovanni (Mi), Villafranca di Verona (Vr), Rovereto
(Tn), Sassuolo (Mo). Two branches were closed, at Manerbio (Bs) just a few metres from one of the
61 branches purchased from the Ubi Banca Group, and at Treviglio (Bg).
In the same period, Cariprato opened 2 branches at Pontassieve (Fi) and Follonica (Gr), while the
number of Banca Nuova branches remained unchanged (106) following the opening of 5 branches,
1 in Gela (CI), 2 in Palermo, 1 at Cinisi airport (Pa) and 1 in Rome, and the close of 5 branches at
Raddusa (Ct), Monforte (Me), Gerace (Rc), Agrigento and Chiaramente Gulfi (Rg).
The following table shows the changes during the year in the branch network of each Group bank.
35
Trend of branches
31/12/2008
31/12/2007
BPVi’s Group
Change
Banca Popolare di Vicenza
Cassa di Risparmio di Prato Banca Nuova Farbanca
436
94
106
1
429
92
106
1
7
2
0
0
Total
637
628
9
In addition to branches, the BPVi Group’s sales network includes 18 finance shops (1 for BPVi
and 17 for Banca Nuova) and 26 private customer points (18 for BPVi, 3 for Cariprato and 5 for
Banca Nuova), as as well as a network of 160 financial promoters (150 with Banca Nuova).
Among the other traditional distribution channels, there has been a steady increase in the
number of ATMs, to more than 700 at Group level at the end of December (36 more than in
2007), and a continuation of intensive commercial action in support of the POS (Point of Sale)
service which now has almost 19,100 active installations, following an increase of more than
1,800 units.
Other distribution channels 31/12/2008
31/12/2007
BPVi’s Group
Financial shops 18
Private banking outlets 26
Financial planners
160
702
ATM (*)
19,084
POS (*)
17
22
163
666
17,261
Change
1
4
-3
36
1,823
Telematic channels
In addition to the traditional distribution channels, the Bank also provides an established rate of
telematic alternatives to the ordinary branch, allowing private customers and businesses to make
queries and give instructions in relation to their accounts.
In particular, @Time is a multichannel service that enables private customers to carry out, at low
cost on a 24/7 basis, all principal banking transactions via the Internet, by telephone or via Wap
and I-Mode. In addition, @Time c/Conto, a multichannel service reserved for holders of the
prepaid c/Conto card, was activated recently. A considerable number of Group customers have
subscribed to the multichannel @Time service: more than 64,000 at the end of 2008 (+25.0%
since the end of 2007). The volume of all types of transactions allowed on a telematic basis also
experienced two-digit growth (up 43.0% overall with respect to 2008), with particular emphasis
on bank transfers, telephone top-ups and F24 tax payments. Special efforts were made during
2008 to strengthen the security of the multichannel service, with the introduction of a security
device (personal key) that enables customers to display the password needed to confirm their
transactions. The availability of information has also been extended via the “Documents on
line” function, which allows customers to receive directly via their @Time service the paper
documents that the Bank usually sent out by post.
Companies on the other hand use @Time Impresa, a remote banking solution that connects
them directly to the Bank via the Internet. This multi-bank service enables collection and
payment instructions to be given to all the banks at which accounts are held, while also
2007 figures include ATM and POS belonging to the 61 branches acquired from UBI Banca Group.
(*)
36
providing access to various supporting services (Cerved, WebPos). At the end of December
2008, this service is used Groupwide by almost 38 thousand companies (+12.7% since 2007),
whose activities have increased the total number of transactions by 17.2%.
Lastly, Treasuries have had access to the @Time Enti service for the past three years, This
remote banking product offers information to Treasuries, via the use of a web platform to query
accounting data and documents, and an ability to give instructions for the management of
payment and collection flows. By year end, 328 Treasuries have subscribed for the @Time Enti
service, with a rise over the year of 29.1% in terms of the number of contracts and 17.2% in
terms of instructions given.
Representative offices abroad
The BPVi Group has three long-established representative offices abroad: Hong Kong, opened
in the 1980s, Shanghai opened in June 2005, and New Delhi opened in April 2006. The purpose
of these representative offices is both to facilitate the commercial transactions between Italian
companies and the principal Asian markets, providing appropriate services for entrepreneurs
intending to expand in those areas, and to develop lasting business relations with the principal and
most experienced banking counterparts in Asia.
Cooperation agreements were signed with two foreign banks in 2008, Banco Credicoop in
Argentina and Wells Fargo Bank in the USA, in order to facilitate commercial activity and
investment by Italian firms in Argentina and the United States, as well as with the Interamerican
Development Bank (IDB), which is a sovranational entity based in Washington.
Human resources
The BPVi Group employs 5,645 persons at 31 December 2008, up by 432 since the end of 2007
(+8.3%). This increase mostly took place during the first half of the year, as a consequence of
the growth pursued until approval of the new Business Plan 2008-2011 which, by contrast,
envisages a phase of consolidation and employment stability for the Group. In particular, the
rise in employment at the Parent Bank (+373 since 31 December 2007, +11.9%) was mostly
due to the addition to the Group of the persons employed at the 61 branches acquired from the
UBI Banca Group (219 persons), together with the strengthening of the Commercial Network
(+91 persons, including 56 allocated to the former UBI Banca branches) and, to a lesser extent,
the Central Functions (+55 persons) that provide support to the Group. The remaining change
related to the increase in employment by the commercial and business functions at Banca Nuova
(+49 persons since 31 December 2007, +5.8%) and, to a lesser extent, at Cariprato (+10 persons
since 31 December 2007, +1.0%). Among the other Group companies, the rise in employment
at Prestinuova (+10 persons, +19.2% over the year) was mainly due to the strengthening of
commercial activities in new territories.
The following table shows the changes in employment at each company within the BPVi Group.
37
Staff
31/12/2008
Number
%
31/12/2007
Number
%
Changes
(+/-)
%
Banca Popolare di Vicenza 3,508
62.1 3.135
Cariprato 990
17.5
980
Banca Nuova 899
15.9
850
Farbanca 29
0.5
28
60.1
18.8
16.3
0.5
373
10
49
1
11.9
1.0
5.8
3.6
Banks total employees
PrestiNuova
BPV Finance
B.P.Vi. Fondi SGR (1)
Nordest Merchant
NEM SGR
NEM 2 SGR
Nuova Merchant
Servizi Bancari
Immobiliare Stampa
Other companies total employees
total employees
5,426
96.1
4.993
95.8
433
8.7
62
6
37
10
0
5
0
82
17
1.1
0.1
0.7
0.2
0.0
0.1
0.0
1.5
0.3
52
6
40
10
0
4
8
84
16
1.0
0.1
0.8
0.2
0.0
0.1
0.2
1.6
0.3
10
0
-3
0
0
1
-8
-2
1
19.2
0.0
-7.5
0.0
n.s.
25.0
-100.0
-2.4
6.3
219
3.9
220
4.2
-1
-0.5
5,645
100.0
5.213
100.0
432
8.3
Analysis by function of employment by the Group’s banks (excluding persons who are inactive
for various reasons, such as those on leave of absence or who are on secondment) shows an
overall increase in persons working for the Commercial Network with respect to those at
Central Functions (General Management, Credit Assessment and Back Office), rising from
72.5% at the end of 2007 to 73.3% at 31 December 2008. This change was due to addition
of the 61 branches acquired from the UBI Banca Group and the policy of strengthening the
Commercial Network implemented, for the most part, by the Parent Bank.
Bank employees
Branch
network
31/12/2008
Corp
%
Center
Banca Popolare di Vicenza
2.509
869
74,3
Cariprato
664
280
70,3
Banca Nuova
648
225
74,2
6
22
21,4
Farbanca (2)
Total
3.827
1.396
73,3
31/12/2007
Branch
Corp
network
Center
%
2.199
656
617
6
814
274
208
21
73,0
70,5
74,8
22,2
3.478
1.317
72,5
2007 figure include employees belonging to Verona Gestioni SGR S.p.A. (11 employees), company that during 2008
has been merged into BPVi Fondi SGR S.p.A..
(2)
Farbanca is on-line-bank and has a call center classificated into Corporate Center
(1)
38
With reference to the analysis of employment at Group companies by professional category, there
are 132 executives, 2,205 managers and 2,982 clerical employees at the end of December 2008.
The “Other” category mainly comprises apprentices.
Employees
by professional category
Banca Popolare di Vicenza
Cariprato
Banca Nuova
Farbanca
PrestiNuova
BPV Finance
B.P.Vi. Fondi SGR
Nordest Merchant
NEM SGR
NEM 2 SGR
Servizi Bancari
Immobiliare Stampa
Senior managers
Total
Managers
Category
Remaining staff
Other staff
82
11
24
1
1
1
4
3
0
2
2
1
1,465
340
338
5
9
1
9
4
0
0
26
8
1,695
617
508
23
52
4
24
3
0
3
45
8
266
22
29
0
0
0
0
0
0
0
9
0
132
2,205
2,982
326
At 31 December 2008, “effective” employment by the BPVi Group, considering the employees
of Group companies, persons on secondment and project workers, totals 5,675 persons, up by
8.4% since the end of 2007. The following table shows effective employment by BPVi Group
companies at 31 December 2008.
Permanent
31/12/2008
Staff BPVi
Staff seconded at seconded at Seconded
Other Permanent
(a) BPVi’s other
other
from
staff (1)
staff
Group companies
other
(e) (a-b-c+d+e)
companies
(c) companies
(b)
(d)
Banca Pop. di Vicenza
3,508
10
2
Cariprato
990
17
0
Banca Nuova
899
15
2
Farbanca 29
1
0
PrestiNuova
62 0
0
BPV Finance
6
0
0
B.P.Vi. Fondi SGR
37 0
0
Nordest Merchant
10 4
0
NEM SGR
0
0
0
NEM 2 SGR
5
0
0
Nuova Merchant
0
0
0
Servizi Bancari
82 2
0
Immobiliare Stampa
17
0
0
24
5
2
1
3
0
0
1
3
0
1
0
9
15
0
11
0
8
0
0
0
0
0
0
0
0
3,535
978
895
29
73
6
37
7
3
5
1
80
26
Total
49 34 5,675
5,645 49 4
39
Management and development of Human Resources
Significant organizational changes involving the commercial networks and the general
management functions at Group banks were made during the year, with consequent effects
for the management of employees. The changes involving the network included the opening
of new branches by Group banks and the launch of the new Bergamo-Brescia Area by BPVi,
as well as the recent reorganization of the Area model to optimize the commercial chain of
command. This has involved eliminating the intermediate level of “area leader” branches
and the introduction of the Market Manager role (Corporate, Small Business and Private
Customers). In terms of the management of human resources, this change involved identifying
the persons concerned and allocating them to their new roles, as well as the revision of job
descriptions, in order to draw on the professional skills and potential already available within
the Group.
With regard to the central functions, internal audit was reorganized as part of work to
strengthen the organization and the system of internal controls in order to control business
risks and enhance governance. In addition, in order to ensure the consistent application of
personnel development policies within the BPVi Group, a support team has been formed
at the Parent Bank to help Group banks and companies design and implement personnel
development initiatives and programs, as well as design and present employee evaluation and
incentive systems that are consistent with the guidelines established by the Parent Bank. In
this context, the “New Employee Evaluation System” was developed during the first half
of the year, with preparation of the related manual and procedures so that the system can be
applied effectively. This system will be implemented by the Parent Bank and Farbanca during
2009, while the other Group companies are expected to adopt it from 2010.
Other initiatives included the start of an experimental tutorship program at the Parent Bank,
involving individual meetings with “new colleagues” with about two years of seniority (about 80
persons involved by 31 December 2008), to identify any integration problems and assess both
their levels of satisfaction and their expectations for career development. This program will
continue in 2009.
Training activities
Training activities within the BPVi Group were developed and consolidated along the following
principal lines during 2008:
− Induction training. This is training for new recruits and all those who change role and need to
acquire the technical-operational knowledge needed to perform their new tasks.
− Ongoing training. Regular updates that reflect business objectives and convey specialist
technical-professional knowledge.
− Development training. Programs intended to spread and enhance managerial skills.
− Compulsory training. This is training required by laws and regulations (e.g. anti money
laundering, Isvap, Mifid etc.)
In particular with regard to the induction training, a special training path has been activated for
“Professional Apprentices”, as required by law and regional regulations.
As part of ongoing training, a new module has been developed for branch managers covering the
legal and risk aspects of granting loans and, just at the Parent Bank, training on the new lending
policies has been delivered to Area Managers, Business Consultants and Branch Managers.
40
Work to enhance managerial skills has included the introduction of a training program for
candidate branch managers, comprising not only technical-specialist materials, but also modules
focused on the management of staff and the planning of activities.
The training requirements imposed by the various regulations in force have been considerable
covering, in particular, Isvap rules, anti money laundering, transparency, Decree 231/2001 on the
administrative responsibility of legal persons, health and safety in the workplace, with training on
hold-up risk and first aid, etc.
“Ad hoc” training projects were also devised during the year to meet the specific requirements
of individual banks. In this regard, the Parent Bank organized training for the new colleagues
joining from the 61 branches acquired from the UBI Banca Group, in order to ensure operational
continuity and full integration with BPVi’s processes and internal regulations. A training program
was also introduced for internal auditors, covering the recent internal reorganization and legal
requirements, in order to update their skills. Training was also provided to the branch managers
at Banca Nuova covering managerial and risk control matters. Special behavioral and management
development training was developed for general management personnel at Cariprato, together with
updates on the new regulations (Isvap, Mifid, Basel 2). With regard to the commercial network,
branch managers received training on the analysis of creditworthiness and the management of
positions considered to be at risk.
The large majority of the above courses were delivered by internal “lecturers” with at least
three years’ experience, thus ensuring the regular update of the training programs and materials.
The Group has also continued to work with the leading specialists in the sector, especially with
reference to behavioral training.
This extensive commitment to training is confirmed by the results shown in the following tables,
the first of which relates to the Group’s banks while the second is specific to BPVi.
Training
(days)
Entrance
Apprenticeship
Permanent
Development
Progect UBI
2008
Banks of BPVi Group
2007
(+/-)
Chamge %
5,196
3,129
4,873
5,405
367
5,246
2,378
3,221
2,332
0
-50 751 1,652 3,073 367
-0.9
31.6
51.3
131.8
n.s.,
Total
18,970
13,177
5,793 44,0
Mandatory
16,347
30,959
-14,612 -47.2
Total including mandatory
35,317
44,136
-8,818
-20.0
41
Training
(days)
Entrance
Apprenticeship
Permanent
Development
Progect UBI
Total
Mandatory
Total including mandatory
2008
Banks of BPVi Group
2007
(+/-)
2,653
2,862
2,294
4,234
367
2,461
2,287
1,853
2,142
0
12,410
8,743
10,593
19,141
23,003
27,884
192 575
441
2,092 367
3,667 -8,548 -4,881 Chamge %
7.8
25.1
23.8
97.7
n.s.
41.9
-44.7
-17.5%
The employees of BPVi Group banks received a total of 35,300 mandays of training during
2008, of which 23,000 related to the Parent Bank. This was 20% less than in 2007 (-17.5%
at BPVi), when considerable training was required for the application of ISVAP regulations
(compulsory training). On the other hand, there was significant growth in the other types of
training (+44.0% at Group level and +41.9% at BPVi) including, in particular, an increased
commitment to the development of managerial skills (development training).
Employment policies
Internal discussions with the trade unions covered the organizational changes at the Parent Bank
concerning, in particular, certain general management functions and the commercial network. In
addition, consultations were still in progress at the end of 2008 regarding the transfer to Servizi
Bancari S.p.A., the BPVi Group company that provides IT and back office services, of certain
administrative, back and middle office activities previously carried out by the individual banks.
This transfer involved the sale of the related lines of business.
With regard to the other Group companies, Banca Nuova, Cariprato, BPVi Fondi SGR and
Servizi Bancari have signed the union agreements on bank bonuses for 2007 and 2008. Cariprato
has also reached an important agreement governing the provision of training to employees.
Lastly, other agreements were reached by BPVi Fondi SGR on the absorption of Verona Gestioni
SGR and by Cariprato on activation of the “Solidarity Fund for sustaining the income of bank
personnel”, while BPVi Fondi SGR and Servizi Bancari signed agreements to extend the cover
provided by Caspie.
During 2008, the Parent Bank commenced and concluded 13 disciplinary procedures, applying
the sanctions envisaged in the employment contract.
Examination has continued of the regulatory changes introduced by the “Welfare Protocol”, the
decree governing tax relief for overtime working and variable remuneration, the renewal of the
national payroll contract on 8/12/2007 especially with regard to the treatment of apprentices,
and the changes to employment law contained in Decree 112 dated 25/6/2008 “Urgent
instructions for economic development, the simplification, competitiveness and the stabilization
of public finances, and the equitable distribution of taxation” (so-called “Summer Measures”).
Finally with regard to employment, the Parent Bank settled 6 disputes with employees before
the Mediation Commissions.
42
COMMERCIAL ACTIVITIES: CHARACTERISTICS AND RESULTS
Commercial activities by the BPVi Group during 2008 principally included action to broaden the
customer base and develop cross-selling via emphasis on the breadth and quality of services, as
well as by the use of promotions.
These strategic guidelines were reaffirmed in the new Business Plan 2008-2011, which establishes
that efforts to re-establish adequate levels of profitability and efficiency will include a focus on the
traditional banking core business, with emphasis for BPVi’s role as a “distributor bank”, and
the rebalancing of the loans-deposits ratio, thereby containing the level of borrowing from the
interbank market.
In order to facilitate achievement of the commercial objectives indicated in the Business Plan,
the BPVi Group has taken specific action to simplify the chain of command at branch level and
strengthen their commercial push capabilities, thus confirming the central importance of the branch
within the customer service-relations model. In particular, actions have included the activation of the
new Group Network Model by BPVi from January 2009, thus facilitating the more effective and
rapid delivery of services to customers. This model is currently being rolled out to the other banks
in the Group. Summarizing, the new model eliminates the intermediate role of the “area leader”
branch, creates the role of manager for each of the Corporate, Small Business and Retail markets, and
activates efficient mechanisms for coordination between branches and the commercial areas.
With regard to the strengthening of commercial-push capabilities, a plan has been devised for
renewal of the range of products and services offered to all customer segments including,
in particular, retail customers. This segment in fact affords the greater growth opportunities (e.g.
renewal of the range of current accounts, solutions for the transfer of mortgages, development of the
insurance catalog, etc.). Consistent with the strategic guidelines contained in the Business Plan, work
to develop the product catalog during 2008 therefore mainly concentrated on expanding the range
of direct deposit products and implementing the partnership agreements reached with Cattolica
Assicurazioni and, more recently, Azimut. The principal innovations made to the product catalog
during 2008 are described in the section of this report entitled “Products, services and markets”.
Segment analysis of the BPVi Group’s customers
Analysis of the customers served and the operations
of the banks within the BPVi Group demonstrates the
commercial vocation towards private customers
and family firms that is typical of people’s banks,
confirming the close ties established with the various
local economies.
The distribution of BPVi Group customers at 31
December 2008 confirms the preponderance of private
customers (mass market and affluent customers),
comprising more than 80% of the total, followed by
the retail business segment (firms with sales of up to
2.5 million euro), representing 11% of the total. The
percentage of customers belong to the VIP segment (managed by the private banking area and by
promoters) and the corporate segment (firms with sales of more than 2.5 million euro) is smaller,
representing respectively 3.5% and 2.2% of the total. The “Other” category comprises employees,
disputed accounts, firms managed directly by central functions etc.
43
Private customers also dominant the volume of direct
deposits taken, contributing more than 57% of the
funds gathered by the commercial networks of the
BPVi Group’s banks. The VIP and corporate segments
follow, contributing respectively 15% and 14% of the
total, with retail businesses further behind at 8.5%.
By contrast, analysis of the contribution made to the
growth in lending confirms the leading role of the
corporate segment, which absorbs about 51% of
total loans. The private customer segment follows
with 28.5%, together with the retail business segment
with more than 15%. Lending to th VIP segment is
marginal (2.8%).
With regard to indirect deposits however, the weight
of the VIP segment is evident with about 39% of
the total from just 3.5% of total customers. The
contribution from private customers is also significant,
at 51.5% of the total, while the contributions from
the corporate segment (6.5%) and retail businesses
(0.9%) are much lower.
Considering the net interest and other banking income
generated by the Group’s commercial network, the
greatest contribution is made by private customers
(43.3%). These are followed by the corporate segment
(28.2%) and retail businesses (20.5%). Finally, the VIP
segment contributes 6.1% of the total net interest and
other banking income generated by the commercial
networks of the BPVi Group’s banks.
44
Products, services and markets
As mentioned earlier, work continued during 2008 to upgrade the product catalog available to
Group banks, and to refine the tools available in support of commercial activity including, above
all, CRM tools. Activity in this last area has focused on two key aspects: support for branches in the
management of customer relationships and guidance for the management of the sales network. In
the first case, improvements have been made in the analysis of customer behavior, with a view to
increasing both their loyalty and their satisfaction with their relationships with Group banks. With
regard to the second aspect, the tools for monitoring commercial performance have undergone
significant renewal, now focusing great attention on the individual customer segments ahead of the
introduction of the new Network Model in early 2009.
Geomarketing tools have also been upgraded and refined in support of territorial development, with
a view to identifying growth potential better and accelerating growth both in the newer territories
and in more established areas.
The principal commercial innovations made in order to upgrade the product catalog are summarized
below in relation to the two macrocategories: private customers and businesses.
Private Customers and VIP Segment
A new range of current accounts for households was launched in 2008 under the name of
“SemprePiù”. This comprises four different proposals that accurately target the specific requirements
of customers regarding the remuneration of deposits (“SemprePiù Rendimento”), the containment
of costs (“SemprePiù Risparmio”), the certainty of costs for a full range of services (“SemprePiù
Famiglia”) and remote current account access (“SemprePiù On-line”). The presentation of these
proposals commenced in April with the launch of “SemprePiù Rendimento” and was completed
during the second half of the year.
With regard to consumer credit, distribution of “Presto” from Linea S.p.A. has continued. Work
with this partner during the second half of the year involved making some innovations to further
extend the range of available solutions, including the presentation of “Maxiprestito” for loans up to
55,000 euro.
Given the increasing importance of the energy issue and the government assistance available for
renewable and alternate energy sources, a new line of loans called “Credito Solare” has been
introduced to finance the installation by households of solar-powered installations. BPVi has won
significant recognition with “Credito Solare”, in the form of the “MF Innovazione Award 2008” first
prize in the personal loans category.
In line with market trends with regard to lending to private customers, efforts to sell the Transfer
of one-fifth of Salary (CQS) and Payment Authorization products via the branch network were
augmented from the middle of 2008. These products are supplied by Prestinuova S.p.A., a specialist
company operating within the Group.
Considering the regulatory changes influencing the home mortgages market during the year, the Group
has developed a complete range of solutions for the transfer of mortgages from other banks, encompassing
the possibility of transfer or replacement, as well as opportunities to obtain additional finance.
With regard to multi-channel activities, the introduction of the “personal key” and the “Documenti
On Line” service mentioned earlier has further increased the quality and security of @Time, BPVi’s
home banking service.
45
Working with the insurance companies owned together with Cattolica Assicurazioni, the range of
products available in the loss insurance, life assurance and investment policy sectors has been
rationalized and extended. In particular, in the loss sector, new or restyled insurance products
have been presented together Compagnia ABC Assicura. These solutions are either linked to
major banking products (such as credit protection insurance for home mortgages), or respond to
the need to protect individuals, households or wealth (e.g. accident cover, head-of-household thirdparty liability, travel-related losses etc.). The range of life assurance policies has been extended, in
collaboration with Compagnia Berica Vita, by introducing the “Berica Energy Rendita Immediata”
policy for those who wish to ensure a guaranteed income, immediate and adjusted over time, for
themselves or their loved ones. In addition, the range was reviewed as a whole in order to enhance
the yields recognised to customers. With regard to life assurance for investment purposes, two new
lines of investment have been introduced and a new range of unit-linked products has been launched
under the name “Guida Life Swing”. This range was developed together with Vicenza Life and
is linked to investments in ETFs, with an orientation towards prudent financial investment that, to
some extent, is decoupled from equity market trends.
In addition to the launch of Fondo Arca Capitale Garantito, created and promoted in the asset
management sector by Arca Sgr S.p.A., the portfolio management catalog of BPVI Fondi Sgr has
also been revised in order to respond appropriately to changing market conditions, and to the entry
into force of the new MiFID regulations. Bonds and certificates issued by third parties were also
placed during the year, with a view to offering customers new investment solutions and diversification
given the extreme volatility of European and world stock exchanges and of interest rates.
Lastly, following the agreement reached with Azimut, preparatory work began ahead of the
placement of the “Az Fund” sicav funds by Group banks from the start of 2009.
In terms of Assurance products for VIP customers, the Group has continued to place established
products (unit-linked, index-linked, standard life policies) and has also been successful in placing
Personal Portfolio, a product that provides insurance cover for portfolios of securities. The bond
sector has also been developed, with the issue of bonds specifically for the this segment.
Business Segment
During the year, the BPVi Group distinguished itself with the creation of new products
including, as already mentioned, the “Credito Solare” loans to finance investment in renewable
sources of energy. In addition, consistent with its vocation as a territorial bank attentive to
the growth and development needs of small and medium-sized businesses, BPVi has signed a
global loan agreement with the European Investment Bank (EIB) for the granting of loans
totaling 130 million euro to small and medium-sized businesses. Available for periods of up to 12
years, these loans can finance investment in new works, the acquisition of plant and machinery,
restructuring and modernization.
The catalog of assisted finance has been expanded significantly, involving agreements with
Finlombarda and the EIB, the activation of loans pursuant to Regional Law FVG 29/2005
(commerce), and a contract for the management of grants from the Campania Region.
In order to assist customers with their business in foreign markets, the BPVi Group signed
important new collaboration agreements during the year with Wells Fargo Bank, San Francisco,
the USA’s fifth largest bank with about 6,000 branches, Arab African International Bank,
Egypt, and Banco Credicoop, Argentina. Agreements were also signed with Interamerican
Development Bank, Washington, with a view to hedging political and commercial risks in Latin
America and the Caribbean, and with Istituto per il Commercio con l’Estero (ICE), in order
46
to facilitate the internationalization of Italian companies by making various forms of assistance
available to customers.
The successful strategic partnership with Volksbank has continued. Banca Popolare di
Vicenza’s collaboration with this Austrian group has been consolidated by investment in the
capital of seven banks situated in Central and Eastern Europe. The international desks staffed
by Italian-speaking staff offer specific and professional on-site assistance, as well as consultancy
to Italian firms that are either present in the countries concerned or interested in commercial
expansion or other investment there. In addition, a representative of the Parent Bank is present
on the international desk of Volksbank Romania in Timisoara, with a view to supporting the
consolidation and expansion of Italian firms in Romania.
The gold and silver sector has continued to decline both at home and abroad, where the large
majority of domestic production is sent. This contraction is principally due to the deterioration
of the international economy, the volatility of the metals market and the changing tastes of end
consumers who are tending to purchase alternate discretionary goods.
Commercial communications and promotional initiatives
The commercial activities addressing private customers and businesses during 2008 were
accompanied and sustained by a series of communications campaigns and promotional initiatives.
Advertising activities
A major advertising campaign covering several channels was launched to support the
presentation of the new range of current accounts for households: “SemprePiù”. There were
three distinct stages in this campaign. In particular, multimedia campaigns focused mainly
on advertising in local media, such as daily newspapers, free press and static/dynamic street
hoardings available in the cities and provinces served. Promotional action on the web included
a BPVi presence on some of Italy’s most important national portals (Corriere.it, Gazzetta.it,
Ansa.it, Tiscali.it, Virgilio.it, Libero.it), as well as keyword advertising on the Google search
engine. These actions were also supported by the product’s own website, www.contosemprepiu.
it, referenced by the various promotional tools and the landing site for web advertising, as well
as by the despatch of about 1,400,000 promotional e-mails.
The addition to the catalog of the “Credito Solare” loan product was supported advertising in
the free press and local newspapers, in addition to a campaign in Italy’s leading financial press
(Il Sole24Ore, MF, Milan Finanza). The advertising campaign also involved Radio 24 and the
leading radio stations in the Bergamo and Brescia areas. In order to provide further support
for “Credito Solare”, BPVi also took part in the renewal energy sector’s principal show with the
distribution of brochures.
Following the recent legislation relating to mortgages, the Group has launched the “SOS
Mutui” project which envisages the activation of a toll-free number for both customers and noncustomers, staffed by specially trained personnel who are able to provide appropriate assistance
on the subject. A pilot initiative was carried out in Tuscany during the year, with related
advertising by Cariprato in the leading regional newspapers.
Last but not least, the Banca Popolare di Vicenza brand was promoted to the residents of the
Bergamo and Brescia provinces via a press campaign in the leading daily newspapers and the
free press. Special attention was given to the development of business customers, with a view to
building relations between the Bank and businesses in the Lombardy region.
47
Promotional initiatives
Promotional initiatives included the “Vola al Sole” campaign, focused on arranging standing orders for utility
payments, which included a trip to Mexico as a prize.
The second year of the “Operazioni Studenti” initiative is also worthy of mention. This addresses students
between the ages of 13 and 30 and reflects an agreement signed between Banca Popolare di Vicenza and
F.T.V., which operates the bus services in the province of Vicenza. This initiative, which commenced in
August, offered prizes and discounts to all students using F.T.V.’s services who open a free current account
(Amici or Feel Free).
Sponsorship of the youth section of Vicenza Calcio included the “Amici – City Camp 2008” initiative
which, with a view to drawing the attention of young people to the management of money, made free banking
products (deposit books, accounts) available to participants at the summer camps organized by the football
club. Persons opening accounts were “rewarded” with the official football of the European Cup.
Again with a view to spreading awareness about the management of money among the younger section of
the population, the “Scuole a Palazzo Thiene” initiative made free banking products (deposit books,
accounts) to children on school visits to Palazzo Thiene. Those opening accounts were “rewarded” with an
mp3 player.
A further initiative by Banca Popolare di Vicenza involving the local school system resulted in the
development of a new automated system for the management of school meals and bus services
for infants and primary school children in the Municipality of Vicenza. This initiative was organized with the
Municipality as an extension of its treasury management contract. The new system will replace paper meal
tickets and travel passes with a prepaid top-up card, using contactless technology, dedicated solely to the use
of and payment for these services. Testing of this new automated system for the management of school meals
and bus services began at 9 schools in the Municipality of Vicenza at the start of the 2008-2009 school year.
Given the success of initiatives that associate tangible rewards with the placement of banking products, an
experimental marketing program was tested at just 51 BPVi branches. In particular, persons subscribing
for Certificates of Deposit were given a “material” product for daily use in the home (a double quilt). This
represents an innovative approach to promotion in the Italian market. During this promotion, the branches
concerned were supported by posters, brochures, counter displays and special presentations (e.g. freestanding displays).
Research and development
In view of its business and industry sector, the BPVi Group does not generally carry out research and
development as such. As a result, it has not recognized any intangible assets or costs in this regard.
The usual activities of implementing and updating the product catalog, designed to ensure that each
business line has a complete range of products and services in line with major competitors, and
the revision of procedures and internal processes to ensure that the operational structure functions
adequately, do not result in new or significantly improved products, services or processes relative to
those already present on the market, since they are not the result of research and development in the
strict sense.
48
SYSTEMS
As always, the systems area was particularly active during the year. In addition to working on the
implementation of the Business Plan 2008-2011, as described in the section on “Activities of strategic
importance”, the systems area has supported the activities within the Group’s Basel II project leading
to delivery of the first Statement of Internal Capital Adequacy Assessment Process (ICAAP) to
the Supervisory Authorities, and the initial use of the new rating models within the lending process
by all BPVi Group banks.
The systems area has also been active as part of major revisions to some of the Group’s business
models involving the chain of command at branch level, the finance area, and the decentralization
of the analysis of loan applications, which was previously performed by the central loan labs. In
addition, various significant activities (back office, court searches, ICT, purchasing and payroll)
described in the section on “Activities of strategic importance” have been centralized within the
Parent Bank and Servizi Bancari, and the internal audit function has been reorganized, as
discussed in the section on the “System of strategic controls and auditing”.
The principal activities of the systems area during 2008 with regard to the organization of the Group,
IT and procedures are described below with respect to each operational area.
Markets
The organization model for this area’s functions has been updated to reflect related developments
within the central functions at the BPVi Group’s banks, and the network structure has been revised
to take account of changes in the reference markets.. In particular, the new organizational model
approved by the Boards of the Group’s banks is intended to simplify - by revising the network model
- the chain of command at branch level in order to refocus on the branch, and the branch manager
in particular, in terms of the provision of customer service. Action included elimination of the
intermediate level of “area leader” branches, the creation of three markets (Corporate, Small Business
and Retail) and the activation of effective mechanisms for coordinating the activities of branches and
commercial areas. This has involved the introduction of two new roles, Business Manager and Private
Customer Manager, with a view to focusing the internal organization of areas on the core operating
segments (businesses, private customers).
Systems work in the markets area also included changes to central functions to make the commercial
activities of the network structure more incisive. This action involved the creation of a commercial
coordination function that reports directly to the commercial manager at each bank. The new
function comprises the managers of the commercial areas and, at the Parent Bank, representatives
from two staff functions: branch development and shareholder relations. The new function therefore
acts as a point of reference for all business functions responsible for operations and business
development. In addition, the CRM and Commercial Planning function has been established with the
key objective of improving customer understanding, thereby helping to focus business development
initiatives and equip the networks with the sales support tools they need.
Regulations
In accordance with the supervisory instructions for banks regarding the management and assessment
of risk (Bank of Italy circ. no. 263/2006: Basel II), the Banca Popolare di Vicenza Group launched
its Basel II project in 2006 in order to define, implement, coordinate and monitor the action
49
needed to ensure that the Group’s banks and companies complied with Basel II by the time the new
regulations came into force. In this regard, the Group along with the vast majority of the banking
system, decided to adopt the new prudential regime from 1 January 2008. As already described in
previous Reports on Operations, this project comprised two macro areas: Compliance with Basel
II and Development of rating systems. The Banca Popolare di Vicenza Group has adopted the
standard methodology for credit and market risks and the basic methodology for operating risks,
since it belongs to “class 2”.
In terms of Compliance with Basel II and, in particular, the Second Basel II Pillar, the process
of checking the overall exposure of intermediaries began at the start of 2008, together with the
checks on the self-assessment by the Parent Bank, on behalf of all Group banks and companies, of
their capital adequacy (ICAAP). The resulting first Statement on the Internal Capital Adequacy
Assessment Process (ICAAP) is described in the section on “Activities of strategic importance”.
The development of rating systems is described in relation to the Credit area.
With regard to the Market in Financial Instruments Directive (MiFID), work continued during
2008 on the adoption and consolidation of this directive throughout the Banca Popolare di Vicenza
Group, having regard for the related regulatory changes. Actions involved the launch of a free
investment consultancy service available to all customers, review of the product range for consistency
with regulatory requirements and business objectives, the development of procedures for managing
conflicts of interest and internal Group operations, as well as the improvement of procedures to make
IT applications more efficient while continuing to comply with regulatory requirements. Work also
continued on the refinement of operating processes, the design and development of the “advanced”
consultancy service, and the monitoring of contract completeness.
Lastly, in compliance with the supervisory instructions for banks regarding the regulations issued by
the Bank of Italy, the Board of the Parent Bank created a Compliance function in late January 2008,
tasked with monitoring and managing at Group level the risk of non-compliance with laws and selfimposed regulations (articles of association, codes etc.). See the section on “System of strategic controls
and auditing” for a description of the objectives and activities of the new Compliance function.
Finance
As discussed in the 2007 Annual Report and the Half-year Report at 30 June 2008, work was
completed during the year on the strategic review of the business model. This was performed
to ensure that Group banks and companies attain significant qualitative and quantitative results by
sharing their specific skills, all highly correlated, in the areas of asset management, financial services,
wealth management, and the management of Group offerings to the VIP segment. Following this
review, in March 2008 the Board approved the new organizational structure which has involved
dividing the Finance area into three separate departments (Global Markets, Wealth Management,
Private Banking) with their own specific internal controls and reporting lines, regardless of business
function. The management and monitoring of market risks has also been simplified and made more
efficient via the definition of a new hierarchy of operational portfolios.
Lending
With regard to the development of rating systems as part of the broader Group Basel II project,
new rating models for the corporate and retail segments have now been introduced. These were
developed during 2007, drawing on the databases held by the entire banking group, with support
from leading Italian consultancy firms. Fully automated statistical models have been devised for
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private, small business and small corporate customers (with sales of up to 2.5 million euro), while
the model for mid corporate customers (with sales of between 2.5 and 50 million euro) has been
supplemented with a “qualitative” module and includes the ability to amend the counterpart rating,
partly with reference to group membership criteria. Lastly, for larger corporates (with sales in
excess of 50 million euro), an ad hoc model has been developed that envisages a more judgemental
component, with assessments made by highly experienced personnel. Following a test period of 5
months, the new rating models were integrated within the Electronic Credit Approval Platform
for use within the lending process by the entire BPVi Group network from April 2008.
In addition, as part of the review of rating models to enhance the tools previously in use, development
work has been completed on the new early warning model of credit performance, which takes
account of internal data and operational experience as well as the new rating models. Subsequent to
the introduction of these more reliable tools that take account of internal experience and information,
work is now proceeding on the definition and update of the rules and the process for classifying
positions into the various operational states. The result will be to limit the discretion allowed to
employees, consistent with the new credit management policies.
With regard to the management of lending anomalies, work has commenced on a revision of the
organizational structure and processes for credit recovery, as well as on the industrialization of
the anomaly management processes, adopting different approaches based on value/customer risk
and using supporting tools on an ad hoc basis. In particular, the regulations for the administration of
non-performing loans were updated and supplemented during 2008, while the new procedure for the
active management of non-performing loans is scheduled for introduction in early 2009.
Lastly with regard to Lending, the analysis of loan applications has now been pushed down to the
Territorial Areas. This activity was previously performed by central functions at each Group bank
(so-called Loan Labs). The problems of inconsistent methodologies and processes that led to the
centralization of these functions were deemed to have been overcome in 2008. Accordingly, a
project to reorganize them was started and completed, with a view to improving credit culture
within the sales network, ensuring on-site collaboration and support for the network organization,
and guaranteeing proper control over credit risk. The new decentralized functions, known as “Area
Lending”, are coordinated by a person within the Lending function, who also provides guidance on
credit management (including credit policies, decisions and opinions on loan applications). These
units report functionally to the Area Managers with regard to their objectives for efficiency, credit
quality and the development of network credit management skills.
Logistics, Purchasing and Security
Various activities were completed during the year in relation to health and safety at work.
These included completion of the “risk assessment” at all Parent Bank locations (including the
61 branches acquired from the UBI Banca Group) and preparation of the related “Improvement
plan”. In addition, the principal requirements/improvements envisaged by the new “Consolidated
law on health and safety at work” (Decree 81/08, replacing Decree 626/94 as amended) have also
been identified and implemented, including the provision of safety training (how to deal with
hold-ups, fire prevention, first-aid). Lastly, a new “post hold-up” procedure has been prepared and
implemented. This classifies such action between “serious” and “not serious”, depending on its
gravity, and makes “post event trauma assistance” available on a voluntary basis with support from
the doctor concerned.
Other work performed in relation to security has included the preparation and issue of a new Group
Safety Manual, following update of the security features and insurance cover at each branch; branches
deemed to be at higher risk of theft (especially those acquired from UBI Banca and those recently
51
opened) have also been equipped with new generation “Cash-in Cash-out” safes. Relations with the
police forces have been strengthened by signing a “Protocol of understanding for the prevention
and repression of crime” and, in general, security standards at the branches acquired from the UBI
Banca Group have been aligned with those of BPVi (alarm systems, access control, strong equipment,
transport of valuable, security signage, anti hold-up training, surveillance, etc.).
The use of VoIP fixed line telephony has been tested at 19 BPVi branches, using the data transmission
lines that are part of the technological infrastructure that links the Parent Bank with Sec Servizi. This
experiment was successful and all BPVi telephone traffic will be moved over to VoIP technology
during the first half of 2009.
Lastly, pursuant to point 26 of the “Technical document on minimum security measures”, attachment
B to Decree 196/2003 (“Privacy Code”), it is confirmed that the “Security Planning Document”
is kept up to date on a periodic basis. This document describes the measures taken to guarantee
the privacy of the personal data processed.
Information Technology
The principal activities carried out within the Information Technology area included the
implementation and introduction of new infrastructure. This has optimized the data traffic over the
network used by BPVi, via the replacement of servers at branch level with servers installed at the
SEC Servizi consortium. This activity involved all the branches acquired from the UBI Banca Group
and has recently been extended to other branches with obsolete servers. The new infrastructure
will be extended in future to the other Group banks. Following the same logic, but using different
technology, the virtual workplace concept has been introduced for personnel who work on the move
and who therefore need remote access to the branch system.
The IT systems used by Farbanca were improved and migrated during the year, involving the
provision of technical/systems support at the time of the move.
Lastly, implementation of the “New Branch System” project began in September 2008, with a view
to introducing innovations to users of the network and optimizing operational processes at branch
level. Analysis and development activities included:
− designing the new desktop in the form of a Web Home Page Web accompanied by new tools,
commercial information and operational warning messages,
− releasing the new “Commercial Platform” that allows the adoption of new commercial approaches
and ways to sell products and services, thus accelerating both operational and consultancy
activities,
− introducing the advanced ATM, which will have many more functions in future,
− creation of a unified dashboard for the management of all conditions, regardless of the originating
application.
At the end of 2008, the New Branch System was already installed at 31 BPVi branches, 1 branch
of Banca Nuova and 1 branch of Cariprato. The system will be rolled out to the rest of the Group
network progressively during the year.
52
THE SYSTEM OF INTERNAL CONTROLS AND AUDITING
The system of internal controls and audit functions
The System of Internal Controls comprises the collection of rules, procedures and organizational
structures that seeks to ensure compliance with business strategies and the achievement of effective
and efficient business processes, ensure the safeguarding of assets and protection from loss, ensure
the reliability, completeness and accuracy of accounting and operational information, and ensure that
transactions comply the law, supervisory regulations and internal instructions. The system of internal
controls is an integral part of the daily activities of the Group’s banks and companies and operates on
three levels:
− line controls (first level): designed to ensure that transactions are carried out properly. These
controls are performed within the same production unit (e.g. hierarchical controls) or are
included in the procedures and information systems, or are carried out as a back-office activity;
− second-level controls: these controls are performed by functions outside of the production
unit and are intended to:
• contribute to the definition of methodologies for the measurement of risk, check compliance
with the limits granted to the various operational functions and check the consistency of the
transactions carried out by each production unit with the risk/yield objectives allocated to
them. These activities are assigned to the risk management function.
• contribute to the definition of methodologies for the measurement/assessment of compliance
risk, identify suitable procedures for preventing the risks identified and request their adoption.
This activity is assigned to the new Compliance function described below.
• certify corporate accounting information in accordance with legal requirements. This activity is
performed by the authorized executive.
− Internal audit activity (third level): designed to identify anomalous trends, violations of
procedures and regulations, and evaluate the functioning of the system of internal controls, taken
as a whole. This work is carried out on a continuous, periodic or exception basis by functions
other than independent of the production units, and includes on-site inspections (as required by
the Supervisory Instructions, Book IV, Chapter 11, Section II).
A significant overhaul of the Group’s internal audit activities was carried out in 2008 with a view
to redefining the role performed by this function within the Group. The most significant elements of
the reorganization included, in the first place, the split of the internal audit function into two distinct
organizations: Inspection and Audit. The Inspection team is tasked with checking behavioral
compliance with procedures, internal regulations and corporate standards throughout the branch
network; in this context, the established methodology based on the inspection of individual processes
(lending, finance and operations-accounting) was modified, with the adoption of full branch-level
inspections (covering all the various business processes) in order to formulate an overall opinion
about the branch concerned. The Audit team on the other hand is focused on the performance
of direct verification to assess the functioning of rules, processes and the organizational structure
intended to monitor all forms of business risk.
Actions taken as part of the above reorganization included the preparation of a plan to strengthen
the Internal Audit team, with a view to improving the effectiveness of checking activities and
inspections in particular, and introduction of the role of Internal Audit Manager to the BPVi
Group’s other banks and companies. This person reports to the Manager of the Parent Bank’s internal
audit function and is the point of reference on internal audit matters for the Group’s supervision,
management and control bodies. A project has been activated as part of work to implement the
Business Plan 2008-2011, with a view to preparing the tools and methodologies to be applied by
53
the internal auditors (inspection guides, checklist, audit tracking tools, methodology for assessing
the system of internal controls etc.).
Lastly, the reorganization also affected the structure and responsibilities of the Control Committee.
In particular, the responsibilities associated with the management of the model pursuant to Decree
231/01, previously attributed to the Control Committee, have now been attributed to a specific
Supervisory Body comprising two external members and the Manager of the Internal Audit
function; in addition, the responsibilities attributed to the Control Committee have been revised, in
order to adopt the new Supervisory Instructions on the Basel II principles (circular 253/2006) and
the organization and governance of banks (circular dated 4 March 2008). The changes regarding the
Control Committee and the Supervisory Body 231/01 were later adopted by the Group’s other banks
having regard for their specific situations. With regard to the activities of these two bodies at the
Parent Bank during 2008, the Control Committee met 9 times and its analysis included assessment
of: the action taken to align the Bank with the anti money-laundering and Mifid regulations; the
audit work performed on processes and central functions; the checks on and analysis of the branch
network performed by the Internal Audit department; the risk profile of the loans portfolio; the
trends in market risk, and the first ICAAP statement. The Supervisory Body 231/01 met 6 times and
focused, in particular, on its own Regulations; analysis of the Organizational Model for prevention of
the crimes referred to in Decree 231/2001; analysis of the Parent Bank’s regulatory and procedural
framework with regard to the new Consolidated Law on Safety at Work, Decree 81/2008 (formerly
626/1994), and in relation to Decree 231/2007 adopting Directive 2005/60/EC on prevention of
the use of the financial system for recycling the proceeds of criminal activities and for the financing
of terrorism. Lastly, as described in the section on activities of strategic importance, during the year
BPVi was charged with administrative improprieties, pursuant to arts. 5 (para. 1.a), 6, 25-sexies, paras.
1 and 2 of Decree 231/2001, for not having adopted and effectively implemented organizational and
management models suitable for preventing the alleged crime notified to the Chairman, Giovanni
Zonin, and Divo Gronchi who, together with other banking personnel, are claimed to have
promoted, conducted and taken part in a hidden build up of capital in Banca Nazionale del Lavoro.
See the “Other information” part of the section on activities of strategic significance for a more
detailed description of the charges.
The Inspection team carried out 605 routine inspections of the BPVi Group’s branch network
during 2008, including 330 at the Parent Bank, 120 at Cariprato, 151 at Banca Nuova and 4 at
Farbanca. This work was accompanied by activity to obtain information or form an opinion about
special circumstances, such as hold-ups, suspected internal or external fraud, analysis of the causes
of lending disputes, evaluation of customer transactions etc. The checks envisaged by the regulations
that require suspected money laundering transactions and market abuse to be reported are also
performed in this context. Turning to the audit of processes and central functions by the Audit
team, a series of processes and sub-processes were analyzed at Group level during 2008. This work
involved Lending, Finance and ICT, Governance and Support, and operational processes (e.g. the
management of savings books, certificates of deposit, credit and/or debit cards).
The complaints received were treated as usual in accordance with the “Rules for the management
of complaints”, which call for an in-depth analysis of each case.. Consistent with these rules,
complaints were drawn to the attention of the Complaints Committee, which met 13 times during
2008. Adequate provisions have been made in relation to the contingencies associated with the
complaints, as discussed in the related section of the explanatory notes. Group banks received a total
of 2,012 complaints during 2008 (1,428 BPVi, 297 Cariprato, 286 Banca Nuova, and 1 Farbanca),
of which 1,587 (78.9%) related to ordinary banking activities and 425 (21.1%) to investment
services. About 40% of the complaints relating to ordinary banking activities related to requests
for reimbursement due to cloning, theft or loss of debit cards. The Group’s banks are not directly
responsible for these losses incurred by customers. In certain cases, reimbursements are “advanced”
if the related insurance indemnities have not yet been paid out.
54
Compliance Function
As described earlier, the Compliance function performs second-level control activities for the
purpose, envisaged in the regulations (Supervisory Instructions no. 688006 dated 10 July 2007
entitled “The compliance function”), of preventing and managing the risk of non-compliance
with the regulations, in order to safeguard the good name of the Parent Bank and the Group and
the confidence of the public in the propriety of their operations and management. To this end, the
function identifies, assesses and manages the risk of regulatory violations, and ensures that internal
procedures are consistent with the objective of preventing the violation of laws, external regulations
and self-imposed rules (codes of conduct, ethical codes) applicable to BPVi and to the Group.
The Compliance function was established by the Board of the Parent Bank on 29 January 2008. The
project to activate the function commenced on that date, bearing in mind the criteria of efficiency and
proportion with respect to scale and operational complexity, drawing on the synergies between the
various functions and eliminating unnecessary duplications. The first part of the year was therefore
dedicated to designing the function in terms of its organizational model and structure, resources
and methodologies, as well as the identification of possible relations with other business functions
and teams. This project also involved the other banks in the BPVi Group, Prestinuova and the
asset management companies. During the second part of the year, actions were taken to strengthen
and stabilize the function and a series of compliance-related activities were performed. Typical
compliance function activities (assessment of the risk of non conformity) essentially comprised
making assessments in relation to the “Management of conflicts of interest regarding the governance
and obligations of banking personnel and related parties”, the management of the depositary
bank and the analysis of the proper completion of portfolio management contracts. At Group
level, the function verified compliance with internal regulations and that all responsible persons
at Group companies were involved in the assessment work, in order to assist the Parent Company
by highlighting specifics in relation to applicable regulations, processes, procedures, functions and
internal regulations.
Risk Management
This section of the report provides significant information about the activities/results of the
Group during 2008 with regard to the management of typical banking and financial risks, with
special reference to the risk management function. Further details and quantitative information
is provided in “Part E” of the explanatory notes entitled “Information about risks and the
related hedging policies”.
The purpose of the risk management function is to measure and check risk (credit, market, rate,
liquidity and operational) on behalf of the Parent Bank and the Group, supporting the delegated
functions in determining parameters and methods for the definition of objectives, as well as in the
assessment of risk/return and other results. This mission involves:
− the definition and development of models and tools for the measurement and control of
risk at Group level, as well as the systematic and ongoing verification of the adequacy of the
risk management models and tools used, while also monitoring changes in the regulatory
guidelines that influence risk management activities, including reference to the matters
involved in applying Basel II.
− verification that the risk profiles of the Group’s banks and companies comply with the limits
established by the respective Boards of Directors.
In particular, with reference to credit risk, the risk management function develops rating and scoring
models, and takes part in the definition at Group level of methodologies for estimating the general
and specific provisions needed with reference to the related components of risk. More generally,
55
the function also provides support for the definition of measurement methodologies for accounting
purposes. Additionally, a dedicated organizational unit monitors changes in the risk profile of the
loans portfolio at a consolidated level and for each Group bank.
With regard to market risks, the main activities of the risk management function are to propose,
together with the finance function, a system of VaR and operational limits that are consistent with
the propensity to accept risk expressed by the Board. The function also monitors compliance with
these limits, validates and documents the sources of and the processes for gathering market data, and
determines and validates the methodologies and criteria adopted for pricing the financial instruments
used by various entities within the Group.
In relation to rate and liquidity risks, the risk management function develops strategic ALM models
and tools, and produces daily operational maturity ladders and monthly structural maturity ladders,
while also analyzing, maintaining and developing the reports that are generated. The function
guarantees coordination with the authorized functions within other Group banks and companies.
Lastly, with regard to operational risk, the risk management function develops and maintains
a system for the identification of operational risks, with particular reference to the process of selfassessment, and determines how to collect data on the operational losses incurred at Group level.
Risk profile of the BPVi Group
Consistent with the self-assessment of capital adequacy and changes in the operating environment,
the Board of the Parent Bank determines the Group’s propensity to accept risk each year as
part of the strategic planning and budgeting process. The BPVi Group’s propensity to accept
risk was determined in terms of both a target level of capitalization for the Group, by fixing
minimum levels for both the Tier one ratio and the Total capital ratio, and a target external rating,
by defining an objective for the outlook rating attributed to the Parent and the Group by the rating
agencies. With regard to the first and most significant aspect, the level of capitalization, the BPVi
Group took account of the changing macroeconomic and sector conditions when approving the 2009
budget, requiring the Tier one ratio and the Total capital ratio to remain consistently above 6.5% and
10.5% respectively. This is higher than the minimums specified by the Supervisory Authorities. In
terms of the target rating, the ongoing objective is to maintain the current short, medium and longterm ratings expressed by the rating agencies.
Credit risk
The BPVi Group has defined credit risk as the risk of loss due to an unexpected deterioration in
the creditworthiness of a borrower, whether following contractual non-performance or otherwise.
Counterparty risk is included in this context, being the risk that the counterparty to a transaction
involving specified financial instruments will default prior to settlement, as is concentration risk,
being the risk deriving from a concentration of exposures in the portfolio of loans to counterparties
or groups of counterparties operating in the same economic sector, industry or geographical area.
In order to support the management of credit risk, the BPVi Group has implemented an internal
rating system that has been integrated with its business processes and assists with the assessment
of creditworthiness. The internal rating represents a summary assessment, for the coming year, of
the credit quality of the customer expressed as a probability that the counterparty may become
insolvent. This assessment is expressed on an internal scale of 11 rating classes. A probability of
default is associated with each rating class. The rating classes are ordered as a function of credit risk:
moving from a lower risk class to a higher risk class means an increase in the probability of default
by the debtor.
56
The BPVi Group has decided to develop internal rating models that primarily cover the types of
counterparts with which it usually works and to which it is most exposed: retail (private customers
and small businesses), small corporate (sales between 2.5 and 50 million euro) and mid corporate
(sales between 50 and 200 million euro). The new models for the various segments were completed
and put into practice during 2008. The rating system for the corporate segment, used on an
experimental basis by the Parent Bank’s Loan Lab, has been subjected to a planned revision with
reference to the customer database and qualitative information, resulting in improved performance.
Work has also been completed on the new internal rating model for the retail segment (private
customers and small businesses). Both models have been tested by analysts at the Parent Bank
and, with regard to the corporate segment, at Banca Nuova and Cariprato. This testing provided
comforting results in terms of the consistency of the output from the models with the assessments
made by the experts. Accordingly, the models became operational from the end of April 2008
throughout the Parent Bank’s commercial network, and from the beginning of June at Banca
Nuova and Cariprato. Companies with sales of more than 200 million euro are currently excluded.
Implementation of the model for this segment, based largely on actual experience, is now at an
advanced stage at various functions within the Parent Bank.
Routine monitoring is based on the performance scoring system used by the three banks within the
Group. This is known as SGR (meaning risk management system) and is used to check on the
performance of lending relationships. This tools assigns a monthly score to loan positions in excess
of 200 euro outstanding with private customers and businesses, and automatically proposes a
classification of customers into three classes of increasing risk: “performing”, “ under observation”
and “high risk”. In addition to this, the system considers the relations between customers, tracks
discussions between account managers and the control bodies, and manages the entire process of
classification, authorization and verification of the related powers. Backtesting and monitoring of the
model has identified that the environmental rating system has a certain predictive ability, considering
the defaults observed over a period of one year. The system is now undergoing profound revision
in order to make the tool more effective and timely in the identification of anomalous events, and
to integrate it with the new internal rating models. Without altering the current SGR tool and thus
protecting the network from operational problems, the new system for the identification of anomalies
has already been fully programmed and, following a test phase, will become operational during the
first half of 2009.
In support of credit management activities, “Credit Policies” also came into force within the Parent
Bank’s network in October 2008. These govern how the Parent Bank intends to accept credit risk
in relation to its customers and cover both granting/renewal and the credit management phase. The
purpose of the policies is to facilitate the balanced growth of lending to lower risk customers and limit
lending to customers that are less creditworthy. In particular, four different credit policies have been
identified: development, operations and protection, rebalancing and withdrawal. The assessment is
made by the authorized functions, while the system automatically establishes, based on internal rating
and environmental score, the powers of the network authorization committees based on the level of risk
(lower powers in the case of high risk and greater powers in relation to more creditworthy customers).
See the section on credit risk in “Parte E” of the explanatory notes for more details about the above
and other quantitative information.
57
Market risk
The BPVi Group has defined market risk as the risk of adverse changes in the value of its exposure to
financial instruments included in the trading portfolio for supervisory purposes, due to unfavourable
changes in risk factors (interest rate, exchange rate, market prices, credit spread, commodity prices)
and their volatility.
For some time now, the BPVi Group has quantified market risk and, as a consequence, set operating
limits by using a Value-at-Risk model derived from historical simulation. In short, VaR is a statistic
measure that indicates the maximum potential loss on an investment in a given period of time. The
current process for determining VaR involves estimating the portfolio risk, with a time interval of
one day and a 99% confidence interval, with reference to historical market changes. A quantitative
analysis relating to 2008 is presented in “Part E” of the explanatory notes. Since this is an estimate,
the above internal system for the measurement of risk is subjected to backtesting in order to assess
the forecasting efficiency of the VaR results. This involves comparing the loss estimated by the model
with the profit & loss effect of measuring the positions using actual market data. In addition, a stress
test is performed to assess the ability, in terms of capital availability, to absorb the effects of significant
market shocks. This involves re measuring the portfolio using extremely adverse risk factors, as well as
remeasuring it using historical market crash scenarios (e.g. the terrorist attack on 11 September 2001,
the failure of Lehman Brothers etc.). The stress test therefore complements the VaR and measures the
potential vulnerability to exceptional, but nevertheless plausible events.
Compliance with the limits set for VaR during the budgeting process should cap, within the
established confidence interval, the maximum daily loss. An individual unit may comply with the
established limits on daily VaR and report losses over a period of days that fall within these limits;
however, the sum of the losses accumulated over a given period of time may still be deemed
excessive. This risk is tackled by associating indicators with the daily VaR limits designed to monitor
any losses arising over longer periods (Stop Loss). This represent the maximum allowed loss that
can be accumulated over a given period of time (one month and the entire year), at a given level of
authorization, without the need to take specific action. Lastly, for completeness, additional operational
limits have been defined in terms of sensitivity, delta, vega, concentration and credit risk.
The risk management function is responsible for the quantification and control of the VaR limits,
while the Financial Control function within the Finance Division is responsible for the daily checking
of operational and stop-loss limits.
During the year, the risk management function carried out the routine monitoring of the VaR limits
that were, as usual, revised at the time of preparing the budget. This work was performed for both
the Parent Bank and BPV Finance using the system based on the Murex VaR model. The Group
has in fact migrated to a single system (Murex) for the calculation of risk, with a view to obtaining
a consistent view of the underlying risk factors from the application of consistent methodology.
This decision has a double advantage. The same position keeping system can be used for both the
measurement and management of risk, while obtaining significant operational synergies with such
activities as backtesting and stress testing.. In addition, operational risks have also been reduced as a
result of no longer having to replicate in an external system the positions and deals contained in the
Group’s official system.
Interest-rate risk
Interest-rate risk may be defined as the current and prospective risk of volatility affecting profits or
equity due to adverse changes in interest rates. Interest-rate risk is associated with asset and liability
positions within the banking portfolio and mainly derives from the transformation of maturities.
58
In particular, it is generated by the mismatch between interest-earning assets and interest-bearing
liabilities in terms of volume, maturity and rate.
The Group’s exposure to the change in the interest-rate curve is monitored each month using
ALMPro, an asset and liability management tool, which measures in “static” conditions the effect
on the financial margin and equity of a change in interest rates. Operational and strategic decisions
regarding the banking book by the Finance and ALMS Committee are designed to minimize the
volatility in net interest income expected in the financial year (12 months) and so minimize the
volatility in total equity value when interest rates change. The project to revise the methodologies
adopted for the measurement of financial risk was completed at the end of 2007. With regard to
interest-rate risk, the decision was taken to migrate from the previous platform to the ALMPro
System from Prometeia, a sector leader, with a view to adopting a tool with more structured input
processes that allows for the implementation of a dynamic model so that more realistic simulations
can be made using diverse scenarios. The BPVI Group’s exposure to interest-rate risk has been
reduced significantly following completion of the project work, the introduction of a new internal
model for demand positions with customers and the activation of hedge accounting tools and
processes. These last were approved by the Parent Bank’s Board on 3 June 2008 and used for the first
time in July 2008 in order to hedge the Bank’s long-term fixed rate loans.
The Parent Bank’s Board is ultimately responsible for the management of interest-rate risk, as assisted
by the Finance and ALM Committee and the business functions responsible for the strategic and
operational management of such risk, both at Group level and at all companies within the Group.
The Parent Bank’s Board approves the strategic guidelines and operational limits proposed by
the Finance and ALM Committee, and is periodically informed about changes in the exposure to
interest-rate risk and the way it is managed.
The risk management function inputs a complex and continuous flow of data into the Asset & Liability
Management system, and is also responsible for reporting and the monitoring of operational limits.
Lastly, the Finance Division is directly responsible for the operational management of interest-rate risk.
In order to mitigate its exposure to interest-rate risk, the Group arranges specific hedges for
bonds issued at fixed or structured rates, in order to reduce the duration of the liabilities and fix
the cost of structured issues. The hedge accounting tools and processes needed for the specific
hedge of clusters of similar fixed-rate loans were defined during the first half of 2008. The
hedges arranged during the second half of 2008 covered loans that mature after more than 10
years, which do not benefit from the natural hedge generated by the inelastic core component of
demand deposits from customers.
Further details and quantitative information are provided in the section on credit risk in “Part E” of
the explanatory notes.
Liquidity risk
The BPVI Group has defined Liquidity as the risk of being unable to meet payment obligations
caused by inability to obtain funding (funding liquidity risk) and/or the presence of restrictions on
the ability to sell assets (market liquidity risk). This risk can also take the form of a loss relative to
fair value deriving from a forced sale of assets or, more generally, of a loss in terms of reputation or
business opportunities. Funding liquidity risk is incurred in banking activities when institutional
counterparties withdraw their usual funding, or request a significantly higher return than in normal
circumstances. Market liquidity risk on the other hand relates to the risk that the Group may be
unable to sell an asset, except at a capital loss, due to the illiquid nature of the market and/or due to
the timing required for the transaction.
59
The exposure of the financial system to liquidity risk and the consequent, sometimes dramatic
impact that this risk may have on banking activity emerged with unexpected intensity during
2008. Given this experience, liquidity risk has been classified among the killer risks, being those
that have a low probability of arising but which may have major consequences for the operations
of the intermediary. During the past year, the financial crisis that began in the US sub-prime
mortgage market during 2007 generated, in fact, a widespread and dangerous international
crisis of confidence among financial intermediaries. This essentially blocked the functioning of
the interbank market, causing serious funding difficulties for financial intermediaries. This crisis
of confidence then transformed into a dramatic liquidity crisis which forced the international
banking system to rapidly recapitalize and restrict the criteria for the granting of loans. Given
events of this gravity, governments and central banks reacted with massive and, for the first time,
coordinated action designed to re-establish confidence in the markets, ensure the continuity of
lending to financial institutions and to the economy, and extend and strengthen the guarantees for
depositors. The effect of the various actions taken has been to reduce market rates to particularly
low levels, even if the differential between the rates for unsecured loans(Euribor) and those for
secured loans (Eurepo) highlights the ongoing high level of risk in the interbank market.
In this context, the BPVi Group reacted promptly via a careful and diversified funding policy,
with a progressive move towards longer maturities for its interbank funding while avoiding
significant exposures in the very short term. In order to contain market liquidity risk, steps were
also taken to sell the less immediately liquid investments in the trading portfolio. In addition, a new
securitization of residential mortgages was arranged in November 2008, as described in the section
on activities of strategic importance, mainly to increase the quantity of instruments available as
collateral for intraday advances. This securitization has enabled the Group to fund lending at
relatively competitive rates at a time of liquidity stress. The arrangement of funding repurchase
agreements with the ECB and direct customers has broadened the sources of finance with respect
to the interbank market, especially considering the recent issues of liquidity by the Central Bank
via an unlimited volume of fixed-rate (TUR) repo transactions.
With regard to the way liquidity risk is managed, the BPVi Group approved a policy in October
2008 that describes the methodologies for the measurement of risk, the roles and responsibilities of
the committees and business functions involved, and the related management reports. The guiding
principles underlying the model for the governance of liquidity risk are:
- liquidity is managed on a centralized basis by the Parent Bank;
- the Parent Bank’s Board is responsible for preparing guidelines for the management of liquidity
and the related risk, and delegates the task of defining strategic guidelines and the related
operational management to the operations committee and the authorized business functions.
In particular, short-term liquidity (less than 12 months) is managed using the operational maturity
ladder, which determines the mismatch between expected cash inflows and outflows in each time
period. The accumulated mismatch is used to calculate the net financing requirement / surplus
over the various time horizons considered. Medium/long-term liquidity is managed, on the other
hand, using the structural maturity ladder which evaluates the equilibrium between assets and
liabilities, not only in terms of the related cash flows, but also and above all with reference to the
related balance sheet ratios. The objective is to maintain a sufficiently balanced profile of structural
liquidity, placing restrictions on the possibility of financing medium/long-term assets with liabilities
whose duration is not consistent.
The operational management of liquidity risk is entrusted to a dedicated function within the
Finance Division, whose objective is to maintain the best balance between the medium-term
maturities of loans and short-term funding, taking care to diversify it by counterparty and maturity
arranged over the counter and in the interbank deposits market. In addition to the usual banking
treasury activities (daily monitoring of the Group’s liquidity and optimization of its short-term
60
management), any medium and long-term imbalances are managed using appropriate funding
policies established by the Finance and ALM Committee.
Operational risks
Operational risk is defined as the risk of losses deriving from inadequate or dysfunctional
procedures, human resources or internal systems, or from external events. This category includes
losses deriving from fraud, human error, the interruption of operations, the non-availability of
systems, contractual non-performance and natural catastrophes. Operational risk also includes legal
risk, but excludes strategic and reputation risk.
Back in 2006, the Parent Bank launched the “ORM” (Operational Risk Management) project
as part of work to adopt the Basel II requirements. The objective of this project was to define an
integrated framework for the measurement and management of operational risks, with a view
to working gradually towards the requirements for adoption of the standardized method. During
2007, work on this project resulted in completion of the following phases: “Classification and Riskmapping Models”, “Policy and Governance in the Operational Risk Management process” and “Self
Risk Assessment”. The “Operational Risks Manual – Loss Date Collection” was also issued. During
2008, the work performed for the Parent Company, was repeated at a local level for Banca Nuova
and Cassa di Risparmio di Prato, in order to enable operational risks to be managed at Group level.
This work was completed in June 2008 with the adoption by the two subsidiaries of the “Operating
Risks Manual – Loss Date Collection”, while the process of extending risk self-assessment activities to
the subsidiaries is still in progress.
With regard to the monitoring of operational risks, the Parent Bank was a founding member in
2002 of DIPO, the interbank consortium promoted by ABI that maintains an Italian database of
operational losses. As a consequence, the Group gathers regular information about its operational
losses. The reporting of such losses continued during the year, benefiting in terms of completeness
of the information gathered, from the improved organization of the process following issue of
the manual. Commencing from the June 2008 reporting date, Banca Nuova and Cariprato gather
information in the same way as the Parent Bank following the above extension of activities and
adoption of the related manual. With regard to the way operating risks are managed, the internal
audit function carries out remote and on-site checks of the distribution network to verify the
consistency of their behavior with corporate standards (in essence: proper application of the
regulations and proper performance of line controls).
Quantitative information about the operational losses identified for DIPO purposes is presented in
“Part E – Operating Risks” of the explanatory notes.
61
Information about the exposure to high-risk financial products (pursuant to the
recommendations on transparency issued by the Financial Stability Forum - FSF)
The turbulence in the international financial markets from August 2007, caused by the increasing
number of insolvencies linked to US sub-prime mortgages, resulted in a general distrust by operators
of a vast range of structured credit products. This meant that the markets for these products became
highly illiquid and credit spreads widened. Market confidence was further eroded by the inadequate
information provided by certain financial intermediaries, which did not always provide sufficient
information about the nature of their on and off balance sheet exposures to those instruments and
the related level of risk.
With a view to encouraging the gradual return to normal market conditions, the report of the
Financial Stability Forum (FSF) issued on 7 April 2008 called on financial institutions to provide
broad and detailed information about their exposures to certain instruments deemed by the market
to be high risk. The report also called for information about the risks accepted by trading, whether
directly or via vehicle companies or other non-consolidated entities, in such structured credit
products as Collateralized Debt Obligations (CDO), residential mortgage-backed securities (RMBS),
commercial mortgage-backed securities (CMBS), other special-purpose entities (SPE) and leveraged
finance.
Considering these issues, Bank of Italy communication no. 671589 dated 18 June 2008, entitled
“instructions about market information”, invited banks to comply with the FSF’s transparency
recommendations on a complete and timely basis.
Consistent with this invitation from the Supervisory Authorities, the following disclosure are provided
about the Group’s exposure to the above financial products.
Exposure to structured credit products deriving from securitization transactions
originated by the Group.
Exposure to special-purpose entities (SPE)
Between 2000 and 2008, the BPVi Group has arranged seven securitizations of its performing
portfolio of mortgages:Berica MBS Srl, Berica 2 MBS Srl, Berica 3 MBS Srl, Berica Residential MBS
1 Srl, Berica 5 Residential MBS Srl, Berica 6 Residential MBS Srl and Berica 7 Residential MBS Srl.
In addition, prior to joining the BPVi Group, Cassa di Risparmio di Prato had securitized performing
mortgages under the name of “Siena Mortgages 02-3 Srl”.
All the above securitizations were carried out pursuant to Law 130/1999 via the formation of a
special-purpose entity (SPE) to which the securitized assets were sold without recourse. None of
the above SPEs has been consolidated, since the conditions envisaged by IAS 27 and SIC 12 do not
apply. Nevertheless, with regard to the securitizations denominated “Berica 5 Residential Mbs”,
“Berica 6 Residential Mbs” and “Berica 7 Residential MBS”, arranged subsequent to 1/1/2004, the
residual securitized assets and related liabilities have been written back to the balance sheet, and the
related asset-backed securities (ABS) held have been eliminated, since the conditions envisaged by
IAS 39 for the derecognition of such assets and liabilities were not met because the Group continued
to hold the junior tranche of the ABS issued by the vehicle companies.
The most recent multioriginator securitization, “Berica 7 Residential MBS Srl”, was arranged on
1 October 2008 via the sale without recourse of performing mortgages by the Parent Bank, Banca
62
Nuova and Cassa di Risparmio di Prato to Berica 7 Residential MBS Srl, the special-purpose entity
formed for the transaction. Mortgage loans totaling 1,012.8 million euro were sold. The transaction
was completed in November with the issue of ABS totaling 1,005 million euro (senior notes of 930
million euro and junior notes of 75 million euro) which were taken up in full by the originating banks.
The purpose of the transaction was to obtain ABS usable as collateral for funding repo transactions
with the European Central Bank.
At 31 December 2008, the cash exposures to SPEs in relation to securitization arranged by the Group
are summarized below:
Isin code
Description
IT0004432222
IT0004013790
IT0003765176
IT0003641005
IT0004013824
IT0003765184
IT0003765200
IT0003641047
IT0003422117
IT0003422141
IT0003247530
IT0003247563
IT0004432230
IT0004013832
IT0003765218
IT0003641054
IT0003422158
IT0003247571
IT0003112254
Tranche
(2)
BERICA 7 MBS MBS A (2)
BERICA 6 RES MBS A2(2)
BERICA 5 RES MBS A
BERICA RES MBS 1 A (2)
BERICA 6 RES MBS D (2)
BERICA 5 RES MBS B (2)
BERICA 5 RES MBS C
BERICA RES MBS 1 C
BERICA 3 MBS B
BERICA 3 MBS C
BERICA 2 MBS B
BERICA 2 MBS C
(2)
BERICA 6 RES MBS E (2)
BERICA 7 MBS MBS B (2)
BERICA 7 MBS MBS B(2)
BERICA 6 RES MBS E (2)
BERICA 5 RES MBS D
BERICA RES MBS 1 D
BERICA 3 MBS D
BERICA 2 MBS D
BERICA MBS D
BERICA RES MBS 1 D
SIENA MORGAGES 02-3
Senior
Senior
Senior
Senior
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Mezzanine
Junior
Junior
Junior
Junior
Junior
Junior
Junior
Junior
Junior
Junior
Junior
Rating S&P
AAA
AAA
AAA
AAA
B+
A
BBB
BBB
A+
BBB
AABBB
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Rating
Moody’s
n.a.
Aaa*n.a.
n.a.
B1/*n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Rating Classification
Fitch
n.a.
AAA
AAA
AAA
n.a.
A
BBB
BBB
A
BBB
A+
BBB
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
L&R
AFS
AFS
AFS
AFS
CFV
CFV
CFV
L&R
L&R
Total
(1)
Book
value
930,000,000
144,232,047
60,715,556
1,129,641
8,565,000
4,000,000
16,897,000
8,478,281
5,559,984
3,593,176
3,353,321
4,083,919
1,118,725
21,287,538
75,000,000
4,600,000
35,400,000
22,921,951
8,443,409
5,691,848
2,941,797
3,374,762
1,208,883
1,372,596,837
The acronyms included in this column are used to classify the following financial assets: L&R (loans and receivables): Loans and amounts due from customers/banks; AFS (available for sale): financial assets available for sale; CFV (carried at fair value): financial assets measured at fair value; HFT (held
for trading): financial assets held for trading.
(2)
The exposures considered are not reported as assets since the securities concerned have been eliminated from the balance sheet. This is because the residual securitized assets and related liabilities do not qualify for derecognition under IAS 39 and have been written back. The amounts indicated reflect the
residual nominal value of the various tranches of ABS held by the Group.
(1)
The senior tranches subscribed for and/or repurchased by Group banks were used for refinancing
purposes with the European Central Bank.
At the same date, the “off balance sheet” exposures towards the above SPEs related to the margins
available on lines of credit totaling 11.4 million euro, which were granted to the SPEs solely for use
under difficult conditions.
63
Exposures as investor to structured credit products deriving from securitizations
originated by third parties
At 31 December 2008, the Group’s exposures to financial products deriving from securitizations
originated by third parties are held solely by Banca Nuova and BPV Finance, as described below.
Exposures held by Banca Nuova S.p.A.
The exposures of Banca Nuova, totaling 30.6 million euro, comprise ABS issued in relation to
securitizations arranged pursuant to Law 130/1999 by the Palermo Chamber of Commerce and
small and medium-sized businesses in Sicily.
This subsidiary acted as arranger in the structuring of the transactions and also acts as servicer,
calculation agent, cash manager, paying agent and collection account bank. It has no equity interest in
the vehicle company.
This activity, carried out by a dedicated internal team, is part of Banca Nuova’s investment strategy, in
view of the particular attention given to the business world in Sicily.
Isin code Description Tranche
Maturity Originator
date
Geographical
Type
distribution of asset securitizied
IT0004306640 TURCHESE A senior 31/12/17 C.C.I.A.A. Italy di Palermo
IT0004314164 TURCHESE A 2 senior 31/12/18
C.C.I.A.A. Italy
di Palermo
IT0004250483 BOREALE FIN. senior
23/07/12 PMI siciliane
Italy CLASSE A
IT0003856611 LIBECCIO TV senior
30/12/15
C.C.I.A.A.
Italy
CLASSE A
di Palermo
IT0003702211 MEMOSEC
senior
31/12/14
C.C.I.A.A.
Italy
CLASSE 1
di Palermo
IT0004314198 TURCHESE mezzanine 31/12/18 C.C.I.A.A.
Italy 4.75% 18 B 2
di Palermo
IT0004306905 TURCHESE mezzanine 31/12/17
C.C.I.A.A.
Italy
4.75% 17 B
di Palermo
Diritti camerali
C.C.I.A.A. Palermo
Diritti camerali
C.C.I.A.A. Palermo
Crediti vantati
dalla Regione Sicilia
Diritti camerali
C.C.I.A.A. Palermo
Diritti camerali
C.C.I.A.A. Palermo
Diritti camerali
C.C.I.A.A. Palermo
Diritti camerali C.C.I.A.A. Palermo
Rating
S&P
Rating
Moody’s
Rating Classification (1)
Fitch
n.a. n.a. n.a. L&R 8,011,478
n.a.
n.a.
n.a.
L&R
8,097,708
n.a.
n.a.
n.a.
L&R
7,080,555
n.a.
n.a.
n.a.
L&R
577,013
n.a.
n.a.
n.a.
L&R
258,877
n.a.
n.a.
n.a.
L&R
3,583,236
n.a. n.a.
n.a.
L&R 2,964,247
Total
30,573,114
The acronyms included in this column are used to classify the following financial assets: L&R (loans and receivables): loans and amounts due from customers/banks.
(1)
The securities issued by “Boreale”, an SPE, do not have an official rating from specialist agencies
given the “limited” size of the transactions. Nevertheless, they are well guaranteed from a credit
standpoint since the sources of cash flow are governed by legislation published in the Official Gazette
of the Sicily Region. In particular, the Decree of the General Director of the Sicily Region, no.
1646/7S dated 17/07/07, allocates funds from the Sicily Region directly to the vehicle and, therefore,
to Banca Nuova.
More than half of the senior securities issued by “Boreale” are due for repayment in 2009, together
with all the senior securities and an as yet unknown percentage of the mezzanine securities issued by
“Turchese”, another SPE.
Neither of the above SPEs have been consolidated, since the conditions envisaged by IAS 27 and SIC
12 are not met.
All the above exposures are reported as “Loans and advances to customers” and are not subject to
impairment losses, as defined in IAS 39.
64
Book
value
Exposures of BPV Finance (International) PLC
The exposures of BPV Finance totaling 123.1 million euro relate to a Collateralized Debt Obligation
(CDO) and various Asset-Backed Securities (ABS).
BPV Finance specializes in the management of multiple investment portfolios, including one entirely
dedicated to transactions in ABS deriving from the securitization of residential and commercial
mortgages, as well as leasing receivables, loans to small and medium-sized businesses and credit
cards. This subsidiary’s investment policy is to optimize the medium-term value of the ABS, requiring
that they be denominated in euro and have a minimum rating of single A (unless approved otherwise
by the Board). The geographical breakdown of the assets underlying these transactions principally
encompasses Western Europe and North America.
The exposures to structured credit instruments are measured in accordance with the relevant
accounting standards. Except for the positions deriving from the Zoo III securitization, which have
been written down in full, this portfolio is not subject to the recognition of any further impairment.
Although the ABS portfolio held by the company has not been significantly downgraded by the
specialist agencies (except for the OXFORD 2005-1 A1 security which Moody’s downgraded from
Aaa to Baa2 during 2008), its overall fair value at 31 December 2008 is 85.8 million euro, representing
a reduction of about 37.3 million euro with respect to its carrying amount.
This adverse effect, principally associated with the illiquid nature of these securities in the financial
markets, has not been recognised in the income statement since the entire ABS portfolio is classified
among Loans and Receivables, consistent with the amendment to IAS 39 published by the IASB on
13 October 2008 and endorsed by the European Commission on 15 October 2008, Regulation EC
no. 1004/2008. The portfolio is not subject to impairment losses pursuant to IAS 39.
The exposures at 31 December 2008 are analyzed by type below.
1) Exposures to CDOs (Collateralised Debt Obligations)
BPV Finance (International) PLC is exposed to the OXFORD 2005-1 A1 (Isin code XS0232966910)
CDO with a nominal value of 5,000,000 euro, being the senior tranche of a CDO issued by Oxford
Street Finance Ltd, a SPE based in Jersey. This company appears to be owned by the KBC Financial
Products Group, which is entitled to the residual value of the vehicle.
Isin code
Description
Tranche
XS0232966910
OXFORD
2005-1 A1
senior
Expected
maturity (1)
07/01/16
Legal
Originator
maturity
07/04/44
KBC Bank
Rating
S&P
Rating
Moody’s
n.d.
Baa2 -
Rating Classification (2)
Fitch
n.d.
Total
HFT
Book
value
1,942,892
1,942,892
The expected maturity is estimated with reference to the average duration of the underlying portfolios and the latest available information about the incidence of early repayments.
The acronyms included in this column are used to classify the following financial assets: HFT (held for trading): financial assets held for trading.
(1)
(2)
The collateral backing the entire CDO (2 billion euro) consists of an exposure to individual corporate
securities (57%), to corporate inner tranches (30%) and to a portfolio of ABS securities (13%).
This last element amounts to 260 million euro and the concentration of US sub-prime debt at 30
October 2008 is 53.62% (43 individual ABS) according to Moody’s. The percentage of the entire
CDO collateral invested in US sub-prime securities is therefore 6.970% (being 53.62% of 13%).
65
Accordingly, the total indirect exposure to BPV Finance to US sub-prime securities at 31 December
2008 is 348,530 euro.
The Oxford Street Finance Ltd CDO comprises two parts: the first is a privately-placed senior credit
default swap (representing the most senior part of the credit risk), while the second comprises 9
tranches of publicly-placed asset-backed bonds representing the remainder of the credit risk.
The publicly-placed notes totaling 382 million euro are analyzed as follows:
Tranche
Currency
A1
A2
B
C
D
E
F
G
H
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
EUR
Nominal
Rating Moody’s
87,000,000.00
80,000,000.00
64,000,000.00
43,000,000.00
33,000,000.00
28,000,000.00
17,000,000.00
16,000,000.00
14,000,000.00
Baa2
Ba1
Ba3
Caa2
Caa3
Caa3
Caa3
Caa3
Caa3
The percentage invested in corporate represents investments in “individual names”, while the
corporate inner tranche part represents tranches of sub-portfolios also deriving from a portfolio of
“individual names”.
According to Moody’s, the ABS part comprises: 4.88% Commercial Real Estate, 1.54% credit card,
1.92% IG Corporate CDO, 3.92% SME Corporate CDO, 4.97% ABS CDOs, 5.08% RMBS MidPrime, 8.45% RMBS Prime, 15.62% HY Corp CDO totaling 46.38%.
The sub-prime ABS (totaling 53.62%) are analyzed below by age of origination:
− 2007: 21%
− 2006: 25%
− 2005: 40%
− 2004: 11%
− 2003: 3%
66
2) Commercial Mortgage-Backed Securities - CMBS
BPV Finance (International) PLC is exposed for a total of 45.0 million euro towards Commercial
Mortgage-Backed Securities, as detailed below:
XS0230464314 RECR IV A3 senior 20/10/12 20/10/14 XS0239251092
MESDG 1 B senior
25/01/14 25/07/16
XS0246905805 PARGN 11X CB mezzanine 15/04/10 15/10/41 XS0261650674 PARGN 12X C1B mezzanine 15/08/10 15/11/38 XS0235420725 PARGN 10X C1B mezzanine 15/12/10 15/06/41 XS0310524599 PARGN 15X CB mezzanine 15/06/12 15/12/39 FR0010251504 EURO 21 B
mezzanine 15/08/12 15/08/15 FR0010255141 EURO 21 C
mezzanine 15/08/12 15/08/15 IT0004070055 PTRMO 2006-1 C mezzanine 31/12/12 31/12/21 XS0301457635
IMMEO 2 C mezzanine 15/12/13 15/12/16 IT0003872774
FIPF 1 A2
mezzanine 10/07/14 10/01/23 FR0010247593
PROUD 1 C
mezzanine 18/08/14 18/08/17 XS0220767106
FORES 1 B mezzanine 12/05/15 12/05/18
NM Rothschild United Kingdom
NIBC Bank Germany
Paragon United Kingdom Mortgage Ltd
Paragon United Kingdom Mortgage Ltd
Paragon United Kingdom Mortgage Ltd
Paragon United Kingdom
Mortgage Ltd
Morgan Stanley
France
Bank International
Morgan Stanley
France Bank International
Banca Nazionale
Italy Lavoro Fondi SGR
Morgan Stanley Germany
Mtge Serv
Fondo Immobiliare Italy Pubblico Funding
FCC Proudreed France Properties
Immofinanz.
Austria
AAA AA A
Aaa n.a. A2
n.a. AAA
A
L&R L&R L&R 4,746,990
3,778,840
3,294,210
A
A2 A
L&R 5,602,354
A
A2 A
L&R 2,872,212
A
A2 A
L&R 3,478,886
AA n.a.
n.a. L&R
1,813,039
A
n.a.
n.a. L&R 2,911,781
AA n.a. AA- L&R 3,031,230
AA n.a. AA L&R 2,510,334
A+ Aa2 AA- L&R
5,512,121
AA n.a. AA L&R 2,086,575
AA
n.a.
AA
L&R
3,378,499
Total
45,017,071
The expected maturity is estimated with reference to the average duration of the underlying portfolios and the latest available information about the incidence of early repayments.
The acronyms included in this column are used to classify the following financial assets: L&R (loans and receivables): loans and amounts due from customers/banks.
(1)
(2)
All the above exposures are reported as “Loans and advances to customers” and are not subject
to impairment losses, as defined in IAS 39.
67
3) Residential Mortgage-Backed Securities - RMBS
BPV Finance (International) PLC is exposed for a total of 23.3 million euro towards Residential
Mortgage-Backed Securities, as detailed below:
Isin code
Description
Tranche Expected Legal
Originator
maturity (1) maturity
Geographical
distribution
FR0010029231 LOGGI senior 24/02/14 24/11/25 Electricite de France, France
2003-1 A
Gas de France
IT0003683262 CREDI 3 B mezzanine 20/08/16 20/11/25 ICCREA Italy XS0274611317
EMACP mezzanine 25/10/13 25/04/39 GMAC RFC NL Netherlands
2006-3 C
XS0168666013 GRAN mezzanine 21/07/14 20/07/43 Northern Rock PlcUnited Kingdom
2003-2 2B
XS0184563111
GRAN mezzanine 22/09/14 20/03/44 Northern Rock Plc U
nited Kingdom 2004-1 2B
ES0337985024 UCI 17 B mezzanine 17/09/20 17/12/49 Union de Creditos Spain Inmobiliarios
XS0298976621 GRANM mezzanine 18/05/15 17/12/54 Northern Rock Plc U
nited Kingdom 2007-2 3N2
Rating
S&P
Rating
Moody’s
Rating Classification (2)
Fitch
n.d.
Aaa
AAA
L&R
2,774,296
A
A
A1
n.d.
n.d.
A- L&R L&R 3,251,122
1,940,004
AA+ Aa1 AAA L&R 1,227,968
AA+ Aa2 AAA L&R 2,970,530
BBB n.d. A- L&R 5,405,819
A
A2 A
L&R 5,770,473
Total
Book
value
23,340,212
The expected maturity is estimated with reference to the average duration of the underlying portfolios and the latest available information about the incidence of early repayments.
The acronyms included in this column are used to classify the following financial assets: L&R (loans and receivables): loans and amounts due from customers.
(1)
(2)
All the above exposures are reported as “Loans and advances to customers” and are not subject
to impairment losses, as defined in IAS 39.
68
4) ABS with other forms of underlying loans
BPV Finance (International) PLC is exposed for a total of 52.8 million euro towards the SPEs of
third parties, as detailed below:
Cod Isin
Description Tranche Expected
maturity (1)
Legal
Originator Geographical Type of asset Rating Rating Rating Classification (2)
maturity
distribution securitized S&P Moody’s Fitch
XS0254042541 HARVT IV senior 29/07/11 29/07/21 Mizuho Global A1B
Corporate Bank
ES0337710026 SANTM 3 A3 senior 16/10/11
16/10/49 Banco Santander Spain
XS0272064337 EIRLES senior 15/05/14
17/05/21 Winchester Capital Global
TWO LIMITED 303
XS0190180918 EXPLO mezzanine 25/03/09
25/09/12 Governo Portoghese Portugal
2004-1 M
XS0143891488 CLISL 1X II mezzanine 21/09/15
19/03/20 Allied Irish Bank Global ES0312271010 AYTBT
mezzanine 25/02/13
24/02/16 Ahorro y Titulizacion Spain
2006-II B ES0312284013 AYTDS mezzanine 26/11/11
17/11/19 Ahorro y Titulizacion Spain
2006-I B
XS0253600521 RMFE mezzanine 11/09/16 11/09/22 RMF Group
Global
IV-A III
IT0004137433 A
GRI 2006-1 B mezzanine 08/03/15
08/12/23 Banca Agrileasing Italy IT0003940050 PHARM 2 B mezzanine 28/04/13
28/01/25
Comifin SpA Italy IT0003951123 LOCAT mezzanine 12/12/13
12/12/26 Locat SpA Italy 2005-3 B
XS0238920655 SMILS 05 C mezzanine 20/01/12
20/01/15 ABN AMRO
Netherlands
Loans
AAA n.d.
AAA L&R 2,881,866
Loans AAA Aaa AAA L&R 12,427,379
Loans AAA Aaa n.d.
HFT 4,577,259
Taxes and social AAA A1 AAA L&R 6,990,152
contributions
Loans AA Aa2 n.d. L&R 3,521,188
Loans n.d. A2 A+ L&R 4,306,833
Loans BBB- n.d. A/- L&R 3,183,923
Loans A
A2 n.d. L&R 3,213,410
Leases
Leases Leases A
A
A
n.d.
A2
A2 A
n.d.
n.d. L&R
L&R
L&R 3,211,295
3,161,658
3,340,562
Leases A
A2
AA- HFT 2,014,905
Total
1)
Book
value
52,830,430
The expected maturity is estimated with reference to the average duration of the underlying portfolios and the latest available information about the incidence of early repayments.
The acronyms included in this column are used to classify the following financial assets: L&R (loans and receivables): loans and amounts due from customers/banks; HFT (held for
trading): financial assets held for trading
(2)
None of the above SPEs have been consolidated, since the conditions envisaged by IAS 27 and
SIC 12 are not met.
All the above exposures are reported as “Loans and advances to customers” and are not subject
to impairment losses, as defined in IAS 39.
5) Other exposures to subprime and Alt-A loans
In addition to the sub-prime mortgages and/or Alt-A loans described in point 1) above, BPV Finance
also has indirect exposure to the US sub-prime sector via its investment in Blackstone Partners
Offshore Sterling Fund Ltd. At 31 December 2008 this is not significant (less than 1,000 euro).
6) Leveraged Finance
The BPVi Group has no significant exposure to leveraged finance.
69
Information about lending
Information about lending by the Group is presented below in terms of concentration,
geographical distribution and distribution by economic sector, together with a number of risk
indicators. Except for the parameters relating to doubtful loans, the data used in this analysis
was drawn from the financial statements and the information reported to the Central Risks
Database, including cash loans, guarantees and derivatives. Group banks and companies are
excluded from the aggregates, which however do include securitized mortgages in order to
provide a complete picture of the way the Group’s loans portfolio is structured.
Concentration of customers
The Group’s loans portfolio is well spread overall with 255 thousand positions, of which 247
thousand representing just over 93% of the total have facilities of less than 250 thousand euro.
The most numerous band with facilities of up to 25 thousand euro represents 51.3% of the
total positions at 31 December 2008, just slightly lower than at the end of 2007 (52.0%) The
bands from 26 to 250 thousand euro account for 41.9%, while those with greater facilities
represent 6.8% of the total, much in line with 2007. Considering the amounts drawn down,
the band with facilities up to 25 thousand euro accounts for just 2.7% of total loans granted by
the Group (2.8% in 2007), while the bands from 26 to 250 thousand euro account for 34.7%
(35.5% in 2007) and those drawing against greater facilities represent 62.6% of the total (61.7%
in 2007). In particular, facilities in excess of 5 million euro account for 28.2% of the total loans
drawn down.
With regard to the Parent Bank, the Board has taken a clear internal position on the control of
concentration risk: in addition to having established in the past that facilities in excess of 60 million
euro must not exceed 12% of total facilities granted by the Bank, the Board has also defined new
thresholds for the monitoring and control of concentration risk in relation to facilities that exceed
5 million euro. This said, in December 2008 the loans granted to individual counterparts, or those
belonging to the same economic group, with facilities in excess of 60 million euro represent 10.7%
of total facilities granted by the Bank. This is slight more than 10.4% at the end of 2007 but still
below the limit of 12%. With regard to the other facilities, the concentration of the 5 to 30 million
euro band has fallen from 26.2% at the end of 2007 to 25.7% in December 2008, while that of the
30 to 60 million euro band is essentially unchanged at 10.7%.
As at the Parent Bank, Cassa di Risparmio di Prato and Banca Nuova have established limits
for individual counterparts and those belonging to the same economic group, although the scale
limit for the 12% threshold is 26 million euro at Cariprato and 20 million euro for Banca Nuova.
In the first case, at 31 December 2008 the facilities belonging to this band represented 11.4%
of the total, which is just below the limit having increased from 10.6% at the end of 2007; with
regard to Banca Nuova, on the other hand, utilization is much lower (4.1%), although higher
than at the end of 2007 (2.4%).
70
Geographical distribution
The geographical distribution of Group lending at 31 December 2008, by province of residence
for physical persons and by location of registered office for companies, shows clearly the
addition of the branches acquired from the UBI Banca Group which has helped to reduce the
concentration of lending in the original home provinces.
In particular, 17.6% of total lending is distributed in the province of Vicenza, down from 18.4%
at the end of 2007. The concentration in the province of Treviso has also declined from 8.1% al
7.0%, thus reducing its relative importance from 2nd to 3rd place. Similarly, the weighting of Prato
has fallen (from 7.8% to 6.2%, from 3rd to 4th place). Padua and Udine at respectively 5.2% and
5.1% have decline slightly in percentage terms with respect to 2007. Considering the provinces
where Banca Nuova is present, Palermo has increased its weighting from 4.3% at the end of 2007 to
4.6% in December 2008, while Trapani is stable at around 1.90%. The province of Milan has grown
strongly to 8.2% from 7.7% in December 2007, becoming the Group’s second most important
province, while Brescia (2.6%) and Bergamo (1.4%) together account for 4% of all Group loans,
compared with 0.8% at the end of 2007.
Distribution by economic sector
Analysis of the distribution of the loans portfolio by economic sector highlights, at Group level,
a marked increase in “Non-financial companies” from 55.6% at the end of 2007 to 59.8% in
December 2008. By contrast, there has been a notable reduction in the weighting of loans to
“Financial companies” (from 6.3% to 2.6%). “Households” absorbed 31.1% of total lending in
December 2007, but this weighting is now 0.9 percentage points lower due to the slowdown in
demand for residential mortgages. “Personal businesses” now represent 6.7% of total lending,
up over the year by 0.3 percentage points.
71
Analyzing the loans to non-financial companies and personal businesses, which together
represent 66.5% of the total loans portfolio, the Group is found to be mainly present in 6
segments: “Other services for sale” represent 21.6% of total lending, Commerce 11.6%,
Construction 6.6%, Engineering (total of “Metal products” and “Agricultural and industrial
machinery”) 4.5%, “Textiles, leather and footwear, clothing” (which includes tanning and, in
particular, the districts of Prato and Alto Vicentino) 3.8%, and “Other industrial products”
(including gold and furniture) 2.6%.
Risk indicators
At 31 December 2008, consolidated gross impaired loans (including non-performing, watch
list, past due, over drawn and restructured) amount to 1,285 million euro, up by 224 million
euro (+21.1% since 31 December 2007). This rise in impaired loans reflects an increase in nonperforming loans (+110 million euro, or +19.4% since the end of 2007), watchlist loans (+94
million euro, +26.1%) due to a more restrictive definition of objective watchlist loans established
by the Bank of Italy, and past due loans (+34 million, +36.4%). Despite this increase, the quality
of the Group’s loans portfolio expressed as the ratio of doubtful loans to total lending has
deteriorated only moderately since the end of 2007: the ratio of gross impaired loans to gross
lending has risen from 4.98% at the end of 2007 to 5.52% at December 2008, while the ratio of
non-performing loans to gross lending has increased from 2.67% to 2.92%. This increase should
be assessed in the light of the slowdown in the growth of lending during 2008.
Changes in the risk relating to performing loans are monitored using the Risk Management
System (SGR). This has been operational for more than three years and uses a system
of counterpart scoring that classifies customers is decreasing order of credit quality. The
calculations are based on trend indicators and information received from the IT systems
of Group banks that might be relevant to a change in the level of risk associated with the
counterpart. In particular, the SGR system classifies performing positions with anomalous trends
into two categories: “under observation” or “high risk”. At Group level, the loans classified as
“under observation” as a percentage of the total loans portfolio has risen from 2.8% at the end
of 2007 to 3.3% in December 2008, while “high risk” loans have increased from 1.3% to 1.7%.
With reference to the most significant economic sectors in terms of total Group lending,
the highest risk sectors (lowest percentage of “performing” loans) are “Textiles, leather
and footwear, clothing” (performing at 78.3%), “Other industrial products” (79.6%) and
Construction (85.5%). The principal sectors with the lowest level of risk, on the other hand,
include “Agricultural and industrial machinery” (93.4%), “Other services for sale” (92.3%) and
“Commerce” (89.9%).
72
CORPORATE SOCIAL RESPONSABILITY AND IMAGE
This chapter will describe projects supported and actions adopted by the Parent Bank for the
benefit of all its stakeholders. The purpose is to confirm our Bank’s firm desire to be an active
and responsible part of the social and environmental context in which it operates, knowing that
contributing to the economic and social progress of its local area and residents is part of the
essence of co-operative banking with its central values and principles of mutualism and solidarity.
Annual report on the mutualistic nature of the co-operative pursuant to art.
2545 of the Italian Civil Code
When co-ordinating the provisions of the Italian Civil Code with the special rules for cooperative banks contained in articles 29 et seq of the Consolidated Law on Banking and
Lending, the legislator has restated that «popolare» banks belong to the co-operative category
and has recognized the specific nature of their mutualistic purpose, stating that the associated
principles adopted must be suitably disclosed in the present report.
The mutualistic purpose, especially in a co-operative bank, is pursued not only in the typical
forms of “internal” mutuality, but also those of “external” mutuality relating to the community
and social context in which the bank itself operates and which is increasingly important in terms
of corporate social responsibility.
In the case of Banca Popolare di Vicenza, its mutualistic purpose involves:
− providing members with banking services at times under preferential conditions;
− taking actions in favour of the local area, households and businesses aimed at enhancing the
local economy for the specific benefit of the community as a whole;
− allocating funds to projects of social benefit, charities, welfare and cultural initiatives with
benefits for the community and local area in which the Bank directly operates.
Banking services for Members
An effective mutualistic relationship with its Members also involves the specific offer of financial
services relating to the principal products and services, starting with current accounts.
The main product for Members is called the “Socio Più” (Members Plus) account, a complete
package offered by Banca Popolare di Vicenza for the personal and family needs of its Members
under absolutely preferential conditions. The package includes some of its more exclusive
services free of charge, such as the Oro Socio Più (Gold Members Plus) credit card and the
international debit card which now boasts microchip security and functionality, the securities
deposit service, the safety deposit box, discounts on mortgage and loan arrangement fees, access
to the latest multi-channel banking services and the prestigious fur coats custody service.
Members also enjoy exclusive insurance coverage: the Lost Baggage policy, which covers all
material damage to the personal effects and baggage of Members and their family as a result of
theft, robbery, fire and other accidents, the Member-Customer Accidents policy which insures
against occupational and non-occupational accidents resulting in death or permanent disability
and the Medical policy which offers a daily reimbursement for hospital stays resulting from
accidents or major surgery plus a specialist information and booking service.
Members who opt for the “Socio Più” account are entitled to access a series of non-banking
services, some of which provided through “Carta SemprePiù”, the prestigious service card
provided free of charge which offers a series of discounts and benefits on exclusive goods and
73
services supported by a freephone service and special website. Members are also entitled to
free guided tours of Palazzo Thiene (the bank’s historic headquarters) and its rich art collection
and are constantly kept abreast of what is going on in the Bank through free subscription to the
“BPVI Oggi” magazine sent to them at home.
Member admission criteria and management of member relationships
The close relationship between the Bank and its Members is one of the hallmarks of the cooperative banking model, featuring the presence of a large number of Members each with one
vote and prevention of the formation of controlling majorities. The close relationship between
the Bank and its Members is evident from the very moment of a new member’s admission,
which is governed by art. 8 et seq of the articles of association. Applications for admission to
membership are examined, before presentation to the Board of Directors, by a special Members
Committee, set up under a board resolution adopted on 23 February 1999, which has the task
of evaluating whether such applications satisfy the requirements contained in the acceptance
clause in the articles of association and comply with the co-operative spirit. In particular, the
Members Committee checks that existing or new members seeking the allocation of new shares
are not acting for purely speculative ends, but have demonstrated their loyalty and attachment
to the Bank over time; in this way, the committee puts forward only those applications that best
respond to the nature and goals of co-operative banking.
An intense mutualistic relationship with Members is also reflected in constant, effective
communications. Among the tools adopted are the publication of the annual Social Report,
which looks in detail at the relationship between the Bank and its stakeholders, with particular
reference to internal stakeholders such as Members, and the letter sent at least twice a year in
which the Bank’s management provides information on the Bank’s results and performance, in
compliance with the principle of providing the market with the same information.
Information on the shareholding structure of Banca Popolare di Vicenza
Banca Popolare di Vicenza had 53,329 Members at the end of 2008 (+1.6% compared with the
end of 2007), plus 3,425 simple stockholders without voting rights, for a total of 56,754. Our
Bank’s commercial development has been put on a more solid footing thanks to the entry of
new Members, especially in the recent, new areas of operation in Bergamo and Brescia, while
membership in our traditional areas has continued to rise steadily.
The analysis of members’ composition reveals one of the typical hallmarks of the co-operative
model, namely a large number of Members, almost entirely comprising natural persons (99.0%)
with a small representation of companies, entities and institutions (1.0%).
74
Shareholders
composition
2008
Comp. %
2007
Change Change %
Men
Women
Companies, Administrative body, Institution
33,616
22,565
573
59.2
39.8
1.0
33,136
22,441
528
480 124 45
1.4
0.6
8.5
Total
56,754
100.0
56,105
649
1.2
Another feature which also reflects the primarily mutualistic character of BPVi is the huge
number of private individuals and personal businesses who are both customers and Members
of an entity that since its origin has sought to act “…so that the working classes, small businesses,
retailers and shopkeepers” can “easily access credit born of the fruitful and liberal principle of
providence and mutuality”. In fact, around 97.5% of all the Members are individuals falling into
the category of consumer households, followed by 1.5% who belong to the personal businesses
category. The rest of the shares are held by companies, religious institutes, banks, financial
institutions, insurance companies and public entities.
Shareholders composition
by business sector
2008
Comp. %
2007
Change Change %
Households
Individual companies
Companies
Religious institutions
Banks, insurances, etc.
Administrative body
55,341
861
453
41
50
8
97.5%
1.5%
0.8%
0.1%
0.1%
0.0%
54,758
840
420
36
46
5
583
21
33
5
4
3
1.1
2.5
7.9
13.9
8.7
60.0
Total
56,754
100.0%
56,105
649
1.2
More than 62% of the stockholders have been Members of the Bank for over 10 years. This
figure reflects the long-term, non-speculative nature of investing in BPVi and the close fiduciary
relationship that has always bound the Bank to its Members.
Shareholders composition
by ageing of the relationship
2008
Less than 5 years
Between 6 and 10 years
More than 10 years
21,313
16,105
19,336
37.6
28.4
34.1
Total
56,754
100.0
Change %
In fact, the expectations of these Members are many and complex, being not only investors but
also customers, employees of the Bank and many players from the traditional areas of operation,
whose objective is not based on mere short-term economic “return” on the investment but above
all aimed at ensuring lasting, balanced development for the Bank itself, in harmony with the local
social and economic environment, thereby creating the necessary conditions for uninterrupted
pursuit of the corporate mission.
75
The Bank’s ties with its local area are even more evident from the geographical breakdown of
Members, which confirms its deep roots in its traditional regions: over 80% of Members reside
in the Veneto region and around 14% in Friuli Venezia Giulia. The proportion in Lombardy has
increased because of the admission of new Members presented by the branches acquired from the
UBI Banca Group in the provinces of Brescia and Bergamo.
Shareholders distribution
by geographical area
N.
2008
Comp. %
2007
N.
Change. %
a/a
Veneto
Vicenza
Treviso
Padova
Verona
Venezia
Belluno
Rovigo
Friuli V. G.
Udine
Pordenone
Gorizia
Trieste
Lombardia
Emilia Rom.
Sicilia Lazio Other italian area
Abroad
45,774
28,085
8,122
4,058
3,049
1,619
732
109
7,900
6,307
1,158
214
221
1,445
380
246
227
665
117
80.7
49.5
14.3
7.2
5.4
2.9
1.3
0.2
13.9
11.1
2.0
0.4
0.4
2.5
0.7
0.4
0.4
1.2
0.2
45,680
28,216 8,052
4,028
2,995
1,579
734
76
7,941
6,385
1,112
218 226 971
375
216
207
599
116
0.2
-0.5
0.9
0.7
1.8
2.5
-0.3
43.4
-0.5
-1.2
4.1
-1.8
-2.2
48.8
1.3
13.9
9.7
11.0
0.9
Total 56,754
100.0
56,105
1.2
Banca Popolare di Vicenza and the community
The mission of “external” mutuality harmoniously complements that of “internal” mutuality and
involves numerous actions by the Bank in favour of the local area and the local community.
In fact, as required by art. 53 of the Parent Bank’s articles of association, BPVi distributed a
total of 1,869,311 euro in 2008 from the sum approved by the Members’ Meeting for charitable
works, welfare, culture and projects of social benefit. The sums donated to projects of social
benefit were basically the same as in 2007 and involved 965 individual donations (+2.7%
relative to 2007), of which 38.7% in the sector of culture and safeguarding of artistic heritage,
19.7% in the sector of health and welfare, 14.4% for research, studies and education, 13.4% to
voluntary entities and associations involved in social and cultural aggregation and in support of
the underprivileged (which received 40.3% of total donations in this category), 4.9% for sport
and youth associations, and the remaining 8.9% to other minor causes.
Donations in support of art and culture included:
− a contribution to the Fondazione Teatro Comunale Città di Vicenza (Vicenza’s Municipal
Theatre), of whom the Parent Bank is a founding member, in support of the programme of
activities in 2008;
− support for the Bertoliana Civic Library in Vicenza for the celebration of its 300th anniversary
and the publication of a book on the history of this institution;
76
− a contribution to the Cathedral in Castelfranco Veneto for restoring the eighteenth century
wooden choir stalls flanking the high altar;
− support for making a copy of the crown of the statue of the Monte Berico Madonna, stolen at
the end of 2008;
Donations in support of studies, education and research included:
− a major three-year contribution to the Vicenza University Campus, particularly in support of
the degree course in Business Economics and Administration;
− a contribution in support of the Centro Universitario di Organizzazione Aziendale (Corporate
Organization University Centre) in Altavilla Vicentina, traditionally backed by BPVi, for the
establishment of a scholarship to attend the Masters course in Banking and Finance;
− a contribution to the Centro Internazionale di Studi di Architettura Andrea Palladio (Andrea
Palladio International Centre for Architectural Studies), in support of the traditional course
on Palladian architecture for young Italian and foreign student;
− support to the University of Venice for the annual seminar on banking contracts;
Donations in the field of medical care and welfare were made to:
− the Vicenza Green Cross to buy an ambulance;
− the S.O.S. Village in Vicenza to buy a property to house children from difficult family
backgrounds;
− the Padua section of the Italian Multiple Schlerosis Association to buy a specially equipped
vehicle for transporting the disabled.
Still in the area of medical care and welfare, of particular relevance was the renewed contribution
to medical facilities operating in the Vicenza area and in Italy’s North East. The “Progetto
Sanità 2008” (Health Project 2008), to which a total of 250,000 euro was allocated, included the
following principal donations:
− donation of equipment to the Urological Unit at Vicenza Hospital (for treating prostatic
adenoma), to the Spinal Unit at Vicenza Hospital (for rehabilitating patients with medullar
injury) and to the Pro Senectute Association in Vicenza (for the experimental treatment of
Alzheimer’s disease);
− scholarships for specialization and medical research in the Pediatric Surgery Unit and Plastic
Surgery Unit at Vicenza Hospital, for Vicenza’s Friends of the Kidney Association (for the
doctor working in the Nephrology Unit at Vicenza Hospital) and for the Foundation for
Advanced Biomedical Research in Padua.
Donations in the field of sport included:
− renewed support for the mini-marathon in Udine, now part of the sporting tradition in the
Veneto and Friuli Venezia Giulia;
Lastly, all the ticket sales from the exhibition entitled “Returned Masterpieces - Paintings in the
collection of the Banca Popolare di Vicenza Group”, held in Rome from 28 February to 15 June
2008, were donated to the Italian Cancer Research Association.
Corporate Social Responsibility Report
During 2008 the Parent Bank presented the sixth edition of its Corporate Social Responsibility
Report for 2007. It considers this an increasingly important tool for clearly and transparently
communicating the effects that its activities have on all the principal stakeholders operating
within and without its business, namely Human Resources, Members, Customers and the
Community as a whole.
In fact, Banca Popolare di Vicenza firmly believes that the primary need of creating lasting value
77
for any business cannot be separated from the close and growing interdependence between
economic results and social performance. Attention to progress and establishment of its role in
its local areas is even more important for a co-operative bank like ours whose core values and
operational guidelines are based on mutuality and solidarity. These principles now appear to be
even more relevant for the banking system as a whole, exposed to high reputational risk in an
increasingly difficult and complex market.
This document, which is available on the website, briefly summarizes the key stages in the Bank’s
history, its underlying values and its mission. As usual, plenty of room is given to the section
entitled “Social Report”, which identifies and examines the most useful and effective indicators
of actions taken in the interests of all stakeholders. This section begins with a presentation of
the “Social Dashboard”, comprising a “system of indicators”, representing the results of the
Bank’s “social performance”, thus providing an overview of how our Bank fits into its local
environment and interacts with local players.
External communication and corporate image
The economic and socio-cultural role played by Banca Popolare di Vicenza in its local areas
has been enhanced during the year by many, valid initiatives and by its continued support for
institutions like Vicenza Calcio (Vicenza football club), of which BPVi is co-sponsor, and of the
junior team of which the bank is official sponsor.
Other initiatives include the official sponsorship of the 81st National Alpine Corps Meeting,
held in May in Bassano del Grappa 60 years after the corps’ undertaking to rebuild the Bassano
Bridge, and the sponsorship of the Rovigo Rugby Club. We have also been involved in a
number of high profile national events, such as renewed sponsorship for the Campiello Literary
Prize, organized by Confindustria Veneto and the Guido Piovene Journalism Prize, created
to celebrate this great Vicenza-born writer and organized by the Bank once every two years,
reaching its fifth edition in 2008, accompanied by the second edition of the Piovene Youth
Competition, organized in partnership with “Il Giornale di Vicenza”, a local newspaper and
open to students of upper secondary schools in Vicenza and its province.
In the musical sphere, the Bank continued its intense programme of events, including the
“Spring Concert”, offered by the Bank to the City of Udine and performed by the Orchestra of
the Olympic Theatre in Vicenza, the much applauded concert of the Solisti Veneti, accompanied
by James Galway on the flute, in the Hermitage Church in Padua, the traditional choral concert
entitled “Invitation to Summer” hosted in June in the Palladian courtyard of the historic
headquarters of Palazzo Thiene and performed by the Cadore Brigade choir, the concert of the
Solisti Veneti in Castelfranco Veneto in November, and the traditional “Christmas Concert”
offered to the City of Vicenza which saw the St. John’s Orchestra and the OSJ London Voices
conducted by John Lubbock perform in the Temple of the Sainted Crown.
In the sphere of art and culture, the Bank confirmed its commitment to promoting and
enhancing the value of its artistic heritage through a series of important local and national events.
Apart from the usual “Sunday lectures”, on the myth of Venus and Love, held in Palazzo Thiene
in the first quarter of the year and following on from the “Returned Masterpieces” exhibition
in 2007, the Bank organized, a major exhibition in the first half of the year, together with the
Memmo Foundation in Rome, entitled “Returned Masterpieces. Paintings in the collection of
the Banca Popolare di Vicenza Group”. This event, receiving the patronage of the Ministry of
Culture, and the high patronage of the President of Italy, saw the prestigious setting of Palazzo
Ruspoli in Rome host over 100 masterpieces from the collections of Banca Popolare di Vicenza,
Cariprato and Banca Nuova. At the same time as this important event in Rome, the Republic
78
of San Marino decided to issue a collection of stamps reproducing four masterpieces from the
Group’s collection, thus confirming the importance of the Bank’s cultural project to recover
great works of Venetian art from the art markets and safeguard them. In exchange for this
initiative, last summer the Bank lent the St. Frances Art Gallery in San Marino three of the four
paintings for the exhibition: “Tiepolo Pellegrini Bassano. Three masterpieces in San Marino
from the collection of the Banca Popolare di Vicenza Group”.
Since 2008 marked the 5th centenary of the birth of Andrea Palladio, the Bank had the honour
to host at Palazzo Thiene, a masterpiece of Palladian architecture and a Unesco world heritage
site, Giorgio Napolitano, the President of Italy, during his visit to Vicenza for the Palladio
anniversary celebrations. The visit, on 19 September 2008, came 56 years after the visit by
another Italian President, Luigi Einaudi, and has been commemorated by a special plaque in the
palace’s porch. To mark the Palladian anniversary our Bank not only supported a series of events
organized for the occasion by the Province of Vicenza with the patronage of the Veneto Region,
it also organized the “Schools Project at Palazzo Thiene”, involving the exceptional opening
of Palazzo Thiene for school year 2008-2009 to pupils of primary and secondary schools in the
Veneto, Friuli Venezia Giulia, Bergamo and Brescia, with special educational tours for visiting
the palace and its collections. Still as part of the Palladian anniversary celebrations, in September
the Bank organized at Palazzo Thiene the exhibition “The Doge of Palladio. Portraits of Nicolò
da Ponte by Tintoretto in the 1700s”, which paid homage to the doge serving in the year of the
celebrated architect’s death. This was also the occasion for presenting the city with the “Portrait
of the Doge Nicolò da Ponte”, a recently purchased eighteenth century Venetian school replica
of the Tintoretto original already in the Bank’s collection.
As for the Bank’s art collection, we recall the acquisition of the matching paintings by
Giulio Carpioni: “Bacchanal” and “The plage of Aegina”; precious canvases by the Venetian
seventeenth century master and now on display in Palazzo Thiene, and the purchase of a
medallion of the Doge Andrea Gritti, year IV – 1526, adding to the Bank’s collection of Venetian
medallions which is now missing only one example to be complete. The Bank also purchased
“Alexander’s triumph in Babylon”, a large painting by Antonio Zanchi, a seventeenth century
Venetian master; this painting, recovered on the North American art market and brought back to
Italy by the Bank, was the centrepiece of the traditional exhibition of “Returned Masterpieces”
organized at year end in Palazzo Thiene. The exhibition entitled “Antonio Zanchi. Alexander
the Great in triumph” displayed, in addition to the rediscovered masterpiece, several works
from public and private collections and a multi-media section on the topic of “Film triumphs”.
Internal communication
Internal communication activities continued in 2008, with them playing an important role in
quickly spreading information and enhancing a common corporate culture throughout the
Group. In particular, efforts focused on improving the quantity and quality of the services
broadcast by the BPVI Channel, the Corporate TV channel of the BPVi Group, by increasing
the time devoted to commercial and other initiatives by all the Group’s banks with the goal of
creating a real corporate community around this medium.
The corporate publications BPV OGGI and Linea Diretta also continued to appear regularly
and actually increased the number of topics addressed and improved the quality of their
pictures. As regards the house organ “BPV OGGI” (BPV TODAY), the editorial style was
consolidated in 2008 with the goal of reporting the key facts relating to all the Group’s banks
as well as giving ample space to exclusive articles on economics, finance, foreign politics, art
and culture by national journalists or experts. The “Linea Diretta” (Direct Line) magazine
has established itself as the periodical for the Group’s employees, which consider it theirs and
79
eagerly anticipate its publication. The articles and reports about employees in their daily jobs are
very popular, like those on leisure and sport. In almost eight years of publication, the “La parola
ai Colleghi” (Employee forum) column has never been short of input, confirming the attention
and affection that the magazine enjoys; the “Bear or Bull” competition devised and organized by
“Linea Diretta” also proved a great success with over 3,500 participants.
80
CONSOLIDATED RESULTS OF OPERATIONS
Scope of consolidation
The scope of consolidation at 31 December 2008 is summarized below:
The scope of consolidation has undergone the changes discussed below since 31 December 2007.
Acquisitions, mergers and cancellations
Verona Gestioni SGR S.p.A.: on 15 October 2008 this company was merged into BPVI Fondi
SGR S.p.A. (50% controlled), effective from 1 January 2008 for accounting purposes pursuant
to art. 2504 of the Italian Civil Code, and resulting in the cancellation of Verona Gestioni SGR
S.p.A.
81
Linea S.p.A.: on 27 June 2008 the entire 47.96% interest in Linea S.p.A. was sold to Compass
S.p.A. (Mediobanca Group). In compliance with IFRS 5, this equity investment had been
classified in “Non-current assets held for sale” at 31 December 2007.
Otto a Più Investimenti SGR S.p.A.: the subsidiary BPVI Fondi SGR S.p.A. sold its entire
20.00% interest in this company during the year.
Changes in equity interests
Farbanca S.p.A.: during the year the Parent Bank acquired another small interest in this
company, taking its holding from 47.44% in December 2007 to 47.52% at the end of 2008.
Other changes
Società Cattolica di Assicurazione S.c.p.A.: further to Cattolica di Assicurazione S.c.p.A.
taking a 0.50% interest in Banca Popolare di Vicenza on 31 October 2008, a “significant
influence” is now considered to exist between our Group and this company as defined by IAS
28 “Investments in associates”. In fact, this interest by Cattolica Assicurazioni in the Bank has
sealed the existing strategic and business alliance between the two groups, further strengthening
their major partnership in the sector of insurance, banking and financial services, also confirmed
by the fact that each has a representation on the other’s Board of Directors.
The 12.72% interest held in Cattolica Assicurazioni, previously classified in “financial assets
available for sale”, has now been reclassified to “equity investments” at the carrying amount
against cancellation of the previously recognized valuation reserve.
This company has therefore been consolidated in 2008 using the equity method, with the share
of its related income and expenses included from 1 November 2008.
Temporary investments held as part of merchant banking activities and insignificant interests
have been excluded from the scope of consolidation, even though such holdings may exceed
20% of capital, and are classified as “financial assets available for sale” (note that insignificance
is defined in terms of the effect of exclusion on the financial and operating structure of the
consolidated financial statements, with regard to potential line-by-line consolidations, and on
the components of equity, with regard to potential measurement using the equity method).
The balance sheets and income statements used for consolidation purposes (line-by-line,
proportional, equity method) are those approved by the Boards of Directors of the individual
companies as of 31 December 2008. These financial statements have been adjusted, where
necessary, to align them with proper and consistent accounting policies adopted by the Group.
The financial statements of companies consolidated line-by-line, but presented using formats
that differ from those established in Circular 262 of 22 December 2005, have been duly
reclassified in accordance with these formats.
The investments in Interporto della Toscana Centrale S.p.A.1 and Magazzini Generali e Derrate
S.p.A. have been reported using the equity method with reference to their 2007 financial
statements, while the holdings in Cattolica di Assicurazione S.c.p.A. and 21 Investimenti
Partners S.p.A. have been carried at equity with reference to their financial statements at 31
December 2008 and 31 December 2007 respectively.
The consolidated financial statements of the Banca Popolare di Vicenza Group as of
Although the interest in the company’s equity exceeds the carrying amount of the investment, the company has reported losses in recent years and, for the sake of prudence, its carrying amount has not been adjusted.
(1)
82
31 December 2008 therefore comprise, as required by IAS 27, the financial information reported
by the Parent Bank and its direct and indirect subsidiaries and associated companies:
1) consolidated line-by-line (unless otherwise specified, control is held by the Parent Bank):
− Banca Popolare di Vicenza S.C.p.A. - Parent Bank
− Banca Nuova S.p.A. (99.59% controlled)
− Cassa di Risparmio di Prato S.p.A. (79.00% controlled)
− Farbanca S.p.A. (47.52% controlled)
− B.P.Vi. Fondi SGR S.p.A. (50.00% controlled)
− Nordest Merchant S.p.A. (80.00% controlled)
− NEM SGR S.p.A. (100% controlled by Nordest Merchant S.p.A.)
− NEM 2 SGR S.p.A. (100% controlled by Nordest Merchant S.p.A.)
− Nuova Merchant S.p.A. (100% controlled)
− BPV Finance (International) Plc (99.99% controlled)
− Servizi Bancari S.c.p.A. (97.00% controlled with 1.00% owned by Banca Nuova S.p.A.,
1.00% by Cassa di Risparmio di Prato S.p.A. and 1.00% by Farbanca S.p.A.)
− PrestiNuova S.p.A. (6.33% owned with 88.67% controlled by Banca Nuova S.p.A.)
− Immobiliare Stampa S.p.A. (100% controlled)
− Monforte 19 S.r.l. (100% controlled)
2) consolidated using the equity method (unless otherwise specified, the equity investment is held
by the Parent Bank):
− Berica Vita S.p.A. (49.00% owned with 1.00% held by Banca Nuova S.p.A.)
− Vicenza Life Ltd (50.00% owned)
− ABC Assicura S.p.A. (50.00% owned)
− Cattolica di Assicurazione S.c.p.A. (12.72% owned)
− 21 Investimenti Partners S.p.A. (20.00% owned)
− Farmanuova S.p.A. (30.00% owned by Banca Nuova S.p.A.)
− BPVI – Cattolica Mediazione Creditizia S.p.A. (50.00% owned)
− Magazzini Generali Merci e Derrate S.p.A. (25.00% owned)
− SEC Servizi S.C.p.A. (47.04% owned, with 1.66% held by Banca Nuova S.p.A., 1.02% by
Cassa di Risparmio di Prato S.p.A. and 0.10% by Farbanca S.p.A.)
− Interporto della Toscana Centrale S.p.A. (20% owned by Cassa di Risparmio di Prato S.p.A.).
83
Information on financial instruments reclassified following amendments to IAS
39 and IFRS 7 and methods of determining fair value.
The serious crisis hitting financial markets in the second half of 2008 led governments in the
European Union to ask the International Accounting Standards Board (IASB), an independent
body responsible for issuing international accounting standards, to amend the accounting
standards applying to the classification of financial instruments (also to bring them into line with
the related US standards) and the method of determining their fair value in situations of market
illiquidity like at present.
The following paragraphs will describe the amendments made in October 2008 to IAS 39,
allowing the possibility of reclassifying financial instruments, and the IASB’s recommendations
concerning measurements in light of the problems of measuring fair in unstable financial
markets. The decisions adopted by the BPVi Group in this regard will also be discussed.
84
Reclassification of financial instruments: changes introduced following the amendments to IAS 39
and IFRS 7
With reference to the classification of financial assets, on 13 October 2008 the IASB published
some amendments to IAS 39 “Financial instruments: recognition and measurement” and to
IFRS 7 “Financial instruments: disclosures” in a paper entitled “Reclassification of Financial
Assets”, endorsed under urgent procedures by the European Commission on 15 October 2008
in Regulation EC 1004/2008.
In brief, these amendments allow companies that apply international accounting standards
the option to reclassify certain financial instruments from their originally designated category
in accordance with specific instructions and in rare circumstances. The current situation on
financial markets undoubtedly qualifies as one of the “rare circumstances” envisaged by the
amendments.
In more detail, the amendment to IAS 39 has removed the previous ban on reclassifying nonderivative financial instruments from the assets held for trading category (measured at fair value
through profit or loss) to other categories (assets held to maturity, asset available for sale, and
loans and receivables). It is now also possible to reclassify certain financial assets available for
sale to loans and receivables.
Such reclassifications are permitted when a financial asset, in rare circumstances, is no longer
held for near-term trading, even though it was purchased primarily for such purpose, and the
company has the intention and ability to hold it for the foreseeable future or to maturity. The
financial instrument’s characteristics must nonetheless be such as to allow its transfer into the
new category at the reclassification date.
The provisions of IAS 39 already permitting reclassification of financial instruments from
“financial assets held to a maturity” to “financial assets available for sale” and vice versa still
hold good.
A reclassified financial asset is recorded in its new category at its fair value on the reclassification
date and profits and losses previously recognized in the income statement must not be reversed.
Solely for reclassifications approved before 1 November 2008 is it permitted, in view of the
exceptional circumstances, to use the fair value of the financial instrument at 1 July 2008 as the
transfer value.
In the event of reclassifying a financial instrument from “financial assets available for sale”,
the profits and losses previously deferred in equity, if referring to an instrument with a
predetermined maturity, are amortized over the term of the investment using the effective
interest method; conversely, if the instrument does not have a predetermined maturity, such
profits and losses stay in the reserve until the instrument is sold or cancelled.
85
Reclassifications by the Banca Popolare di Vicenza Group
The turmoil on financial markets and the reduced liquidity of certain financial instruments
means that it is no longer possible to pursue in the near term the intent under which they were
originally classified as financial assets held for trading, effectively forcing them to be held over
the medium/long term or to maturity. In view of these circumstances, the Banca Popolare di
Vicenza Group has applied the options allowed by the amendments to the international
accounting standards discussed above and made the following reclassifications totalling 465.7
million euro (of which 118.9 million euro pertaining to the Parent Bank Banca Popolare di
Vicenza and 346.8 million euro to the subsidiary BPV Finance Plc):
(in millions of Euro)
Category before
reclassification
Financial assets
available for sale
Financial assets
available for sale
Financial assets
held for trading
Category after
Amount
reclassification reclassified
Loans and advances
to customers
Loans and advances
to banks
Financial assets
available for sale
of wich BPVi
of wich BPV
Finance
253.3
29.4
223.9
149.2
44.1
105.1
63.2
45.4
17.8
Total
465.7
118.9
346.8
Since the Boards of Directors of the Parent Bank and the subsidiary BPV Finance resolved to
make these reclassifications before 1 November 2008, they have been made with effect from 1
July 2008 (as permitted by the amendment to IAS 39), with the fair value recognized in the new
category equal to the related book value at 30 June 2008. Purchases of additional securities after
30 June 2008 have been reclassified with effect from the purchase date, using the price on such
date as the fair value. As a result of these reclassifications, the financial instruments reclassified to
“loans and advances to customers” and “loans and advances to banks” are now being measured
at “amortized cost” as adjusted to take account of any impairment in compliance with IAS 39.
At 31 December 2008 the book value of financial assets reclassified in the year amounted to
461.8 million euro compared with a fair value of 387.9 million euro. The fair value of the above
financial assets has been determined on the basis of the related market prices at 31 December
2008 which in some cases reflect situations of severe illiquidity.
86
The following table provides the information required by paragraph 12A of IFRS 7 in the event
of reclassifying financial instruments from the fair value through profit or loss category (in
compliance with paragraph 50B or 50D of IAS 39) or from the “available for sale” category (in
compliance with paragraph 50E of IAS 39):
(in millions of Euro)
Category before
reclassification
Financial assets available
for sale
Financial assets available
for sale
Financial assets held
for trading
Total
Category after
reclassification
Book value
as at
31/12/2008
Fair value
as at
31/12/08
Loans and advances
to customers
Loans and advances
to banks
Financial assets
available for sale
257.9
199.2
-
-
-
-58.7
150.7
135.5
-
-
-
-15.2
53.2
53.2
-6.7
-16.1
-2.4
-
461.8
387.9
-6.7
-16.1
-2.4
-73.9
recognised in
profit/loss in
the previous
year
fair value gain/loss:
recognised in
not
not
profit/loss in recognised in
recognised
the year profit/loss in in AFS reserve
the year
in the year
At the reclassification date, the effective interest rate of the financial assets reclassified from
“financial assets available for sale” and “financial assets held for trading” to “loans and advances
to customers” or to “loans and advances to banks” is close to the nominal interest rate of the
reclassified financial instruments, and in view of the fact that they are classified as performing,
the estimated amount of expected cash flows are near to their book value.
87
Determination of fair value of financial assets
With reference to the methods of measuring financial instruments if their market is “not active”,
the IASB set up an advisory panel in May 2008 to define the rules for determining fair value in
illiquid or no longer active markets; the results were published on 31 October 2008 in a paper
entitled “Measuring and disclosing the fair value of financial instruments in markets that are no
longer active”.
These guidelines are consistent with those already issued by the Financial Accounting Standards
Board (FASB) in the United States and are designed to allow greater use of valuation techniques,
also based on assumptions by management, if the market for an asset is no longer considered to
be active.
In brief, the paper includes the following indications:
− no deviations are permitted from fair value;
− the objective of a fair value measurement is to establish the price at which a transaction would
ordinarily take place between market participants, not the price resulting from a forced
liquidation or a distress sale;
− even at times of market crisis not all market activity represents forced liquidations or distress
sales, meaning that even if a market is inactive the price of transactions cannot be ignored;
− the fundamental value (independent estimate by a company’s management on the basis of
expected cash flows) if left unadjusted, is unsuitable for determining fair value since it does
not consider factors that the market would consider (credit/liquidity risk);
− if a market becomes inactive - meaning there is little observable input data - it is possible to
determine values other than market prices that are equally reliable using valuation techniques
and models which consider the different factors of risk;
− if a valuation technique is used for determining fair value, it is necessary to periodically
calibrate the model used for observable market data to ensure that it represents current
market conditions and to identify any weaknesses in it;
− if the fair value measurement differs from market prices, the disclosures are of prime
importance for the purposes of measurement transparency.
As regards the criteria for determining fair value, the new guidelines have confirmed the
approach already generally followed by the Group.
88
Direct deposits
Direct deposits, excluding “liabilities for assets sold but not derecognized”, amounted to 20,253
million euro at 31 December 2008, reporting an increase of 13.4% on the year before (+9.9%
including “liabilities for assets sold but not derecognized”).
Direct deposits
(in millions of Euro)
Current accounts and unrestricted deposits
Current accounts and restricted deposits
Repurchase agreements and other payables
Bonds Certificates of deposit and other securities
31/12/2008
31/12/2007
Changes
(+/-)
%
10,002
182
801
8,968
300
8,625
25
1,074
7,827
302
1,377
157
-273
1,141
-2
sub-total
20,253
Liabilities for assets sold but not derecognized 1,153
17,853
1,631
2,400
-478
13.4
-29.3
Total direct deposits
19,484
1,922
9.9
21,406
16.0
628.0
-25.4
14.6
-0.7
The changes in the different types of direct deposit reflect strong growth in “bonds” (+14.6%)
and “current accounts and unrestricted deposits” (+16.0%), but a contraction in “repurchase
agreements and other payables” (-25.4%). This downward trend in repurchase agreements in
favour of other types of funding is a positive sign in terms of liquidity, with our Group closing
such funding transactions with lending transactions generally in the same technical form.
“Certificates of deposit and other securities” and “current accounts and restricted deposits”
have settled for some time now at much reduced levels: while the former posted a modest
decrease over the twelve months of 0.7%, the later grew by 157 million euro in absolute terms
(+628.0%).
With reference to the Group’s own bond issues, which account for 42% of all direct deposits,
the Group made no new issues in the year under its European Medium Term Notes programme
, after issuing more than 1,815 million euro in notes in 2007; consequently, the entire change
for the year is attributable to ordinary placement activities with retail customers , with obvious
benefits in terms of diversification of the sources and cost of funding.
“Liabilities for assets sold but not derecognized” were 29.3% lower than at 31 December 2007.
These relate to the “Berica 5 Residential MBS” and “Berica 6 Residential MBS” securitizations
arranged in 2004 and 2006 respectively, which, as discussed in the section on loans, have been
“reinstated” in the balance sheet, as required by IAS 39. In fact, they represent notes issued
by vehicle companies that are backed by securitized home mortgages; their decrease since 31
December 2007 reflects partial repayment of such securities and the Parent Bank’s repurchase
of 208.9 million euro in senior and mezzanine notes issued as part of the above securitizations
which have consequently been derecognized.
With reference to the latest securitization known as “Berica 7 Residential MBS”, carried out in
November 2008 and also “reinstated” in the balance sheet under IAS 39, since all the related
asset backed securities (ABS) were subscribed by the originator banks (BPVi, Banca Nuova and
Cariprato), no “liabilities for assets sold but not derecognized” have been recognized.
89
Indirect deposits
Indirect deposits had a total market value of 15,890 million euro at 31 December 2008, reporting
a decrease of 14.3% on a year earlier.
This aggregate has been seriously affected by the recent turmoil on financial markets and
the decline in its value is almost entirely attributable to negative performance in the asset
management sector, which although accounting for only 20% of all indirect deposits,
posted an absolute decrease in value of 2,142 million euro over the year (-40.0%). Assets
under administration, which represent 67% of the total aggregate, also reported a negative
performance although not as large (-5.3%). Pension premiums, accounting for 13% of total
indirect deposits, increased by 4.8% over the year, reflecting the benefits of partnership with the
Cattolica Assicurazioni Group.
Indirect deposits
(in millions of Euro)
Mutual funds
Personal asset management
Pension premiums
Shares
Other securities
Treasury shares
90
31/12/2008
31/12/2007
Changes
(+/-)
%
2,484
735
2,078
1,347
5,519
3,727
3,845
1,516
1,982
2,198
5,255
3,735
-1,361
-781
96
-851
264
-8
Total indirect deposits
15,890
18,531
-2,641
-14.3
assets under management
retirement savings
assets under administration
3,219
2,078
10,593
5,361
1,982
11,188
-2,142
96
-595
-40.0
4.8
-5.3
-35.4
-51.5
4.8
-38.7
5.0
-0.2
Looking at the various forms of indirect deposits, the sharp contraction in assets under
management, which for some time has witnessed a reduction in volumes due to investor
disaffection for this sector, reflects decreases in both “mutual funds” (-35.4%) and “personal
asset management” (-51.5%). With regard to assets under administration, “shares” were 38.7%
lower mainly because of the steep drop in global share prices, while “other securities” were
5.0% higher. “Treasury shares” were generally stable. Lastly, “pension premiums” posted an
annual increase of 4.8% to more than 2 billion euro at 31 December 2008.
Loans to customers
The volume of loans to businesses and households in our home regions continued to grow in
a satisfactory fashion in 2008, all of which was funded by the growth in direct deposits from
customers.
Loans to customers
(in millions of Euro)
Ordinary current accounts
Mortgage loans
Syndicated loans
Import/export loans
Other loans
Debt securities
Repurchase agreements
Net non-performing loans 1
31/12/2008
31/12/2007
Changes
(+/-)
%
4,573
9,064
1,736
1,374
2,907
331
32
312
4,354
8,562
1,650
1,316
2,908
38
8
300
219
502
86
58
-1
293
24
12
sub-total
Assets sold but not derecognized
20,329
2,376
19,136
1,703
1,193
673
6.2
39.5
Total net loans
22,705
20,839
1,866
9,0
5.0
5.9
5.2
4.4
0.0
771.1
300.0
4.0
This does not include non-performing loans related to “assets sold but not derecognized”.
(1)
91
Net of impairment adjustments, loans to customers increased by 9.0% on the prior year to 22,705
million euro at 31 December 2008 (+6.2% excluding “assets sold but not derecognized”). This
increase also reflects the reclassification of 253.3 million euro in debt securities from “financial assets
available for sale” to “loans and advances to customers”, after the Group took up the option allowed
by the IASB, as endorsed by the European Commission (Regulation 1004/2008 of 15 October
2008), of reclassifying certain financial instruments in rare circumstances like those caused by the
current financial crisis. Ignoring these reclassifications, discussed in a specific section of this report,
cash loans to customers would have amounted to 22,452 million euro, with an increase of 7.7% on
31 December 2007 (+4.9% excluding “assets sold but not derecognized”).
In terms of individual lending products, all the different technical forms grew despite the economic
slowdown. In particular, “mortgage loans” grew by 5.9%, “ordinary current accounts” by 5.0%,
“syndicated loans” by 5.2% and “import-export loans” by 4.4%. The increase in “debt securities”
(+771.1%) reflects the effect of the above reclassification of financial instruments further to the
amendments to IAS 39. “Repurchase agreements”, of relatively immaterial absolute amount, were up
300%, while “other loans” were unchanged.
“Mortgage loans”, grew at a slower pace than in the past, reflecting a contraction in individual
customer demand throughout the banking industry as a whole, and the securitization, carried out
in November 2008, under which the Parent Bank, Banca Nuova and Cariprato sold 968.4 million
euro in performing residential mortgage loans to a special purpose entity called “Berica 7 Residential
MBS Srl”. Like the “Berica 5 Residential Mbs” and “Berica 6 Residential MBS” securitizations, this
securitization does not meet the derecognition requirements of IAS 39;2 accordingly, the residual
securitized assets have been “reinstated” in the balance sheet at 31 December 2008 as “assets sold
but not derecognized”, which have therefore increased by 673 million euro (+39.5%).
“Mortgage loans” nonetheless continued to represent around 40% of total loans (and over 50%
including the securitized mortgages classified in “assets sold but not derecognized”).
Credit risk indicators have deteriorated throughout the banking industry in the wake of the
financial market crisis in the second half of the year and the resulting deterioration in an already
weak economy. These events have had a negative impact on the quality of the Group’s loan book,
which has deteriorated at the end of 2008 relative to 31 December 2007. This deterioration,
expressed in terms of the ratio between impaired loans and total loans, was less than for the
banking industry as a whole.
With regard to the other securitizations carried out before 1 January 2004, the securitized assets were not reinstated
on first-time adoption of IAS 39, as allowed by paragraph 27 of IFRS 1.
(2)
92
Impaired loans to customers (net of adjustments and including any impaired loans classified as
“assets sold but not derecognized”) were 127.9 million euro higher (+17.9%) at 31 December
2008 than a year earlier; however, as a percentage of total net loans, impaired loans increased
by just 0.28 percentage points, from 3.44% at 31 December 2007 to 3.72% at the end of 2008.
The ratio of net non-performing loans to net loans to customers was 1.51%, the same as at 31
December 2007.
Looking at the composition of impaired loans, it is mainly the watchlist loans and positions
past due by more than 180 days that have deteriorated most, increasing by 79.0 million euro
(+29.0%) and 33.8 million euro (+38.6%) respectively; non-performing loans have increased by
28.1 million euro (+8.9%), while restructured loans have fallen by 13.0 million euro (-32.2%).
In terms of coverage, meaning the ratio between total provisions and gross exposure, the
coverage of impaired loans has increased from 32.51% at 31 December 2007 to 34.31% at 31
December 2008, mainly due to higher provisions against non-performing loans, whose coverage,
ignoring partial write-offs, has risen from 44.49% at 31 December 2007 to 49.36% at the end of
20083.
Lastly, the “general provision” for “performing” loans amounted to 106.7 million euro at 31
December 2008, providing coverage of 0.49%, slightly down from 0.52% at 31 December 2007.
The coverage of non-performing loans, including write-offs for bankruptcy proceedings still in progress at 31 December 2008, was 63.60% at year end, while that of gross impaired loans would be 45.55%.
(3)
93
Financial assets
The Group’s financial assets amounted to 1,273 million euro at 31 December 2008, 41.4% below
the figure of 2,174 million euro reported at the end of 2007.
Financial assets breakdown
(in millions of Euro)
Financial assets held for trading
Financial assets at fair value
Financial assets available for sale
Financial assets held to maturity
Total 31/12/2008
31/12/2007
Changes
(+/-)
%
794
17
436
26
886
26
1,216
46
-92 -9
-780 -20
-10.4
-34.6
-64.1
-43.5
1,273
2,174
-901
-41.4
Under the option allowed by the IASB and endorsed by the European Commission
(Regulation 1004/2008 of 15 October 2008) to reclassify certain financial instruments in rare
circumstances, such as those caused by the current financial crisis, the Group has transferred
402.5 million euro in debt securities from “financial assets available for sale” to “loans and
advances to customers” and “loans and advances to banks” and 63.2 million euro in debt
securities from “financial assets held for trading” to “financial assets available for sale”.
Excluding these reclassifications, described in a specific section of this report, financial assets
would have amounted to 1,676 million euro at the end of 2008, with a decrease of 22.9% on
31 December 2007.
Assets held for trading represented 62.4% of the Group’s financial assets at 31 December 2008,
10.4% below the year before. Over 91% of these assets were derivatives (724 million euro).
Financial assets available for sale accounted for 34.2% of total financial assets, down 64.1% on 2007.
Excluding the reclassifications described earlier, “financial assets available for sale” would have
amounted to 775 million euro, with a decrease of 36.2% relative to 31 December 2007, and
representing 46.3% of total financial assets.
94
Financial assets are analyzed by type of assets as follows:
Financial assets breakdown
(in millions of Euro)
Debt securities
Equities
Mutual funds
Assets sold but not derecognized
Financial derivatives
Loans
Total
31/12/2008
31/12/2007
Changes
(+/-)
216
164
109
50
724
10
1.058
365
96
81
574
–
-842
-201 13 -31
150 -10 1,273
2,174
-901
%
-79.6
-55.1
13.5
-38.3
26.1
n.s
-41.4
95
Interbank position and liquidity
The Group’s net exposure to the interbank market was a negative 771 million euro at 31
December 2008, down from -1,290 million euro a year earlier. The improvement in the interbank
position is attributable to better matched growth between customer lending and deposits, one of
the Group’s top priorities, and to the cash generated from selling financial assets and equity
investments.
Net interbank position
(in millions of Euro)
Loans and advances to banks
Deposits from banks
Total 31/12/2008
31/12/2007
Changes
(+/-)
%
2,306
3,077
1,989
3,279
317
- 202
-771
-1,290
519 15.9
-6.2
-40.2
The following table summarizes the cash flow statement for 2008 and 2007 presented in the
consolidated financial statements at 31 December 2008 and prepared on the basis of IAS/IFRS.
This shows that the Group absorbed 12.0 million euro in net liquidity in 2008, having generated
31.4 million euro in net liquidity the year before.
31/12/2008
31/12/2007
(in thousands of Euro)
Cash and cash equivalents
at the beginning of the year
Changes
(+/-)
%
186,946
155,504
31,442
20.2
76,157
134,409
- 58,252
-43.3
85,066
- 470,904
555,970 -118.1
-173,235
367,937
-541,172 -147.1
Net liquidity generated/
absorbed in the year
-12,012
31,442
- 43,454 -138.2
Cash and cash equivalents
at the end of the year
174,934
186,946
-12,012
-6.4
Net liquidity generated/absorbed
by operating activities
Net liquidity generated/absorbed
by investing activities
Net liquidity generated/
absorbed by funding activities
Net liquidity generated by operating activities amounted to 76.2 million euro in 2008 (134.4
million euro in 2007) and is the product of:
− liquidity of -2,142.7 million euro absorbed by financial assets (-3,547.1 million euro in 2007)
of which -2,086.7 million euro for increased loans to customers (-4,347.8 million euro in
2007); it is recalled that a total of 968.4 million euro in loans were sold during the year as part
of the “Berica 7 Residential MBS” securitization.
− liquidity of 1,941.8 million euro generated by financial liabilities (3,254.2 million euro in 2007);
− liquidity of 277.1 million euro generated by operations (427.3 million euro in 2007).
96
With reference to liquidity generated by financial liabilities, deposits from banks decreased
by 202 million euro, while amounts due to customers increased by 1,160.5 million euro, debt
securities in issue by 387.4 million euro and financial liabilities at fair value by 573.8 million euro.
Net liquidity generated by investing activities amounted to 85.1 million euro in 2008 (-470.9
million euro in 2007). In particular:
− liquidity generated by investing activities amounted to 216 million euro (79.4 million euro in
2007), of which 194.3 million euro from the sale of the entire interest in Linea S.p.A.
− liquidity absorbed by investing activities amounted to -130.9 million euro (-550.3 million euro
in 2007), of which -85.3 million euro relating to the purchase of a new property in Milan by
the subsidiary Monforte S.r.l.
Lastly, net liquidity absorbed by funding activities amounted to -173.2 million euro in 2008
(+367.9 million euro generated in 2007), as follows:
− liquidity of 100.6 million euro absorbed to buy back equity instruments and treasury shares
(+436.2 million euro generated in 2007 following the issue of new shares);
− liquidity of -72.6 million euro absorbed by paying dividends (-68.3 million euro in 2007).
97
PRINCIPAL EQUITY INVESTMENTS
The Group continued to work in 2008 towards a more rational, effective management of its
equity investments, including in relation to the Parent Bank’s co-ordinating role and its assistance
to subsidiaries with their own equity investments and partnership agreements.
In completion of the information presented in the section on activities of strategic importance,
the principal agreements, acquisitions and disposals relating to equity investments made in 2008
will now be described.
Agreements
Strategically important agreements include the joint venture between Banca Popolare di
Vicenza, Azimut and Cattolica Assicurazioni and the renegotiation of the agreement between
the BPVi Group and the 21 Investimenti Group, already described in the section on activities
of strategic importance.
In May 2008, Banca Popolare di Vicenza made an agreement with Banco di Sicilia S.p.A.
(Unicredit Group) to buy a controlling 76.26% interest in IRFIS, a bank based in Palermo
that specializes in medium/long-term lending to small and medium businesses. The remaining
interest in IRFIS is held by the Region of Sicily (21.00%) and other smaller stockholders
(2.74%). The Bank of Italy had not yet authorized the purchase of the controlling interest in
IRFIS at 31 December 2008, having requested Banca Popolare di Vicenza to provide it with
additional information.
Lastly, the controlling stockholders of Polis Fondi SGR S.p.A. (some of whom are major cooperative banks) entered an agreement in October 2008 to sell a controlling interest in this
company to Sopaf S.p.A., a property company listed on the Milan Stock Exchange. Under this
agreement Banca Popolare di Vicenza would sell a 9.80% interest in this company; the sale is
subject to the Bank of Italy’s authorization.
Corporate actions
Changes in holdings of equity investments during 2008 are described below.
The following changes took place in investments held by the Parent Bank Banca Popolare di
Vicenza:
Compagnia Investimenti e Sviluppo S.p.A.
Banca Popolare di Vicenza subscribed to its share of a capital increase, from 60 million to 75
million euro, by Compagnia Investimenti e Sviluppo S.p.A. in February 2008. By taking up its
rights, the Bank subscribed to 625,000 new shares, thus increasing the value of its investment
in this company by 1.25 million euro. The Bank’s equity interest of 4.167% in Compagnia
Investimenti e Sviluppo S.p.A. was carried at a value of 6.25 million euro in the balance sheet at
31 December 2008.
Equitalia S.p.A.
In the first half of 2008 the Bank was allocated 5 financial instruments with a nominal value
of 250 thousand euro in exchange for its interest in S.F.E.T. S.p.A., the company previously
responsible for tax collection in Friuli Venezia Giulia; this was the conclusion of an operation
98
that saw Banca Popolare di Vicenza, along with other shareholder banks, sell their interests in
S.F.E.T. S.p.A. in September 2006 to Equitalia S.p.A. (a state-controlled company under whom
all tax collecting activities have been centralized nationally, having been previously decentralized
to regional collection agencies). These instruments, which earn interest for their holders, will be
purchased by the public shareholders of Equitalia by the end of 2010.
Veneto Sviluppo S.p.A.
The Bank subscribed its share of a capital increase in 2008, which was partly a bonus issue
and partly a rights issue; as a result, it subscribed to 23,549 new shares for 235 thousand euro,
increasing the carrying amount of the equity investment to 1.5 million euro at 31 December 2008.
Hopa S.p.A.
Under a settlement for the repayment of a customer loan, the Bank took over ownership of a
package of shares in Hopa S.p.A. worth around 700 thousand euro, thereby increasing its
existing interest in this company. The Bank held 1.202% of Hopa S.p.A. at 31 December 2008,
with a book value of 3.3 million euro.
Cattolica-BPVI Mediazione Creditizia S.p.A.
This company was set up in 2007 under the partnership agreement with Cattolica Assicurazioni
for the placement of basic banking products through the latter’s agency network and is owned in
equal shares by the two partners.
Cattolica Assicurazioni and BPVi paid in a total of 800 thousand euro, split equally between
the two, to this company in 2008 in order to strengthen its capital structure; the sum paid in
by the Bank has increased the book value of the equity investment to 550 thousand euro at 31
December 2008.
Nuova Merchant S.p.A.
Following a recapitalization of Nuova Merchant, in which Banca Nuova S.p.A. did not participate
(it used to hold 20% while the other 80% was held by Banca Popolare di Vicenza), Banca Popolare
di Vicenza subscribed to all of the new capital stock for 120 thousand euro, thus becoming this
company’s sole stockholder at 31 December 2008. The extraordinary stockholders’ meeting of
Nuova Merchant resolved on 10 March to transform it legal status from that of an “S.p.A.” (joint
stock company) to an “S.r.l.” (limited liability company) with a consequent change of name to
“NUOVA MERCHANT S.r.l.”. Capital stock, all of which owned by the sole stockholder Banca
Popolare di Vicenza, was reduced and reinstated to the legal minimum of 10,000 euro for limited
liability companies. The change of legal status is in preparation for the subsequent merger of
Nuova Merchant into Nordest Merchant, the BPVi Group’s other merchant banking company,
with the goal of rationalizing corporate structure as set out in the new Business Plan for 2008-2011.
The merger will come into effect during the first half of 2009.
Servizi Bancari S.p.A.
In December 2008, the Bank sold its banking subsidiaries (Cariprato, Banca Nuova and
Farbanca) an overall 3% interest in Servizi Bancari S.p.A., the group company that provides
IT and back office services. The sale of this interest, which reduced the Parent Bank’s share
from 100% to 97%, was a precursor to transforming the company from a joint stock company
into a co-operative and took place at a value based on the company’s equity. Furthermore, in
February 2009, with 60 days having passed since filing the resolution of transformation without
any opposition from creditors, Servizi Bancari was transformed from a joint stock company
into a co-operative; this transformation had been approved in an extraordinary stockholders’
meeting in December 2008 with the aim of optimizing the benefits of rationalizing back office
processes for the banking group as a whole. Lastly, on 27 February 2009 Banca Popolare di
Vicenza, Cariprato and Banca Nuova formalized the transfer of their respective back offices
to Servizi Bancari, as envisaged in the Business Plan for 2008-2011; at the same time, Servizi
99
Bancari transferred its ICT activities to Banca Popolare di Vicenza.
In addition, on 19 December 2008 the extraordinary stockholders’ meetings of Banca Nuova
S.p.A. and Cariprato S.p.A. voted to make bonus increases in capital of 12.9 and 50 million
euro respectively (with the par value of outstanding shares increased from 3.0 euro to 4.3 euro
in the case of Banca Nuova and from 51.65 euro to 76.65 euro in the case of Cariprato), by
allocating almost all of the existing “revaluation reserves” to capital stock. This bonus increase
in capital has a positive impact on the Tier 1 capital of these two banks, with these reserves now
included in Tier 1 capital rather than in Tier 2 like before.
Lastly, the Parent Bank’s Board of Directors decided in December 2008 to transfer Banca
Popolare di Vicenza’s interest in Cattolica Assicurazioni from the AFS portfolio to the “Equity
investments” portfolio. This transfer is mainly the result of strengthening the strategic and
business alliance between these two financial groups in 2008 such that there is now a “significant
influence” between our Group and Cattolica Assicurazioni within the meaning of IAS 28. For the
purposes of ensuring a consistent accounting treatment between the separate and consolidated
financial statements, the entire interest held by BPV Finance (International) Plc in Cattolica
Assicurazioni comprising 458,000 shares was transferred to the Parent Bank on 22 December
2008 involving a wholesale market transaction at a carrying amount of 21.5 million euro.
As regards the other banks in the BPVi Group, Cariprato subscribed to a capital increase
by Lineapiù S.p.A., a company operating in the textiles and yarn sector, which required
an investment of 126 thousand euro, and paid in the remaining 75%, corresponding to
105 thousand euro, of a capital increase by Fidi Toscana S.p.A., a company operating in the
collective underwriting of loans, for which the original 25% had been paid in 2007. Banca
Nuova subscribed to its 30% share of a capital increase by Farmanuova S.p.A. involving an
investment of 122 thousand euro (following on from a previous capital increase for 717 thousand
euro in December 2007), raising the book value of this equity investment to 1.1 million euro at
31 December 2008.
Sale of equity investments
Apart from the sale of the equity investment in Linea S.p.A., already described in the section
on activities of strategic importance, in January 2008 BPVi sold its 14.44% interest in Santex
Holding S.p.A. after the controlling stockholder exercised a call option. Under the terms of the
option contact, the Bank received 739 thousand euro for the sale of its 520,000 shares in Santex
Holding S.p.A., realizing a capital gain of almost 170 thousand euro.
Other equity investments classified as “available for sale” (AFS)
BPVi purchased 200 thousand shares in Aachener und Munchener Beteiligung A.G. (AMB),
corresponding to a 0.37% interest, for 15.6 million euro. This German company, listed on the
Frankfurt Stock Exchange, heads up the business of the Generali Group in Germany, and is in
turn controlled by its Italian parent.
Lastly, in December 2008 the Bank acquired a package of shares representing a 1.95% interest
in Banca Profilo S.p.A., a company listed on the Milan Stock Exchange, for 1.3 million euro,
and 0.20% of Autostrada Brescia – Verona – Vicenza – Padua S.p.A., manager of the motorway
between Brescia and Padua, for 2.2 million euro.
100
EQUITY AND REGULATORY CAPITAL
Consolidated equity pertaining to the Group amounted to 2,729.9 million euro at 31 December
2008, reporting a decrease of 13.0 million euro (-0.5%) since 31 December 2007.
Group equity
31/12/2008
31/12/2007
(in thousands of Euro)
Capital stock
Additional paid-in capital
Equity instruments
Valuation reserves
Reserves
Treasury shares
261,460
1,960,355
13,104
90,362
392,812
- 96,981
Equity
Net income for
the year pertaining to the Group
Total equity
Changes
(+/-)
%
261,656
1,963,297
13,630
66,081
324,487
-
- 196 - 2,942 - 526 24,281 68,325 - 96,981
-0.1
-0.1
-3.9
36.7
21.1
n.s.
2,621,112
2,629,151
-8,039 -0.3
108,739
113,731
- 4,992 -4.4
2,729,851
2,742,882
-13,031 -0.5
The decreases of 196 thousand euro in “capital stock” and of 2,942 thousand euro in
“additional paid-in capital” reflect the combined effect of issuing new shares allotted to
employees after achieving a specific length of service and of reimbursing shares to estates of
deceased members and then cancelling them.
“Equity instruments” of 13.1 million euro at 31 December 2008 refer to the equity component
embedded in the convertible bond known as “BPVI 13.a Emissione 2007-2015”, placed by the
Parent Bank in July 2007, and reported separately in accordance with IAS 32. The decrease of 526
thousand euro reflects bonds that were bought back but have not yet been resold.
Apart from the changes in fair value recognized in the year for financial instruments classified
as “financial assets available for sale”, the increase of 24.3 million euro in the “valuation reserves”
mainly reflects: -52.4 million euro for the bonus increase in capital by Banca Nuova and Cassa di
Risparmio di Prato in October, using 12.9 and 39.5 million euro respectively in revaluation reserves;
+65.7 million euro for cancelling the negative valuation reserves relating to the interest in Cattolica
Assicurazioni after reclassifying it to “equity investments” with effect from 31 October 2008.
The “valuation reserves” also include the reserves arising from the valuation of land, buildings and
works of art at deemed cost on the first-time adoption of IAS/IFRS, as well as the reserves relating to
special revaluation laws.
The increase of 68.3 million euro in other “reserves” reflects +41.1 million euro in allocations
of prior year net income to the Group’s reserves, -23.2 million euro for the effects of the firsttime consolidation of the interest in Cattolica Assicurazioni at equity, +52.4 million euro for
the effect, described above, of reducing the revaluation reserves of the subsidiaries Banca
Nuova S.p.A. and Cassa di Risparmio di Prato S.p.A involving a matching increase in other
reserves forming part of consolidated equity 4 and -2 million euro in other effects. These
Consolidated equity includes not only the Parent Company’s “valuation reserves” but also those of its subsidiaries, in
proportion to its interest in such companies. Therefore, every change in the “valuation reserves” of subsidiaries has a
corresponding opposite impact on the Group’s “Other reserves”.
(4)
101
reserves also include reserves formed from prior year earnings, as well as the positive and
negative reserves arising on first-time adoption of IAS-IFRS not recognized in other equity
accounts. These reserves also include the former “reserve for general banking risks” recorded
pursuant to Decree 87/92 which, in accordance with IAS, has been reclassified to equity.
A total of 1,616,346 treasury shares were held at 31 December 2008 with a value of 97.0 million
euro. These were the result of buy-backs in the year using the specific reserve for treasury shares
previously set up.
The amount of the Group’s capital is adequate and provides reliable coverage of business risks,
while fully satisfying the minimum requirements established by the Supervisory Authorities.
Consolidated regulatory capital is made up as follows:
31/12/2008
31/12/2007
(in milions of Euro)
Changes
(+/-)
%
Tier 1 capital
Tier 2 capital
Deductions
1,559.1
872.3
-18.9
1,529.6
906.7
-29.4
29.5 -34.4 10.5 1.9
-3.8
-35.7
Regulatory capital
Tier 3 capital
2,412.5
12.4
2,406.9
25.8
5.6 -13.4 0.2
-51.9
Regulatory capital including
Tier 3 capital
2,424.9
2,432.7
-7.8 -0.3
The consolidated prudential ratios are as follows:
Capital adeguacy ratios
31/12/2008
31/12/2007
Changes
2008 /2007
Core Tier 1 capital ratio
7.34%
Tier 1 capital ratio (Tier 1 capital/Risk-weighted assets) 7.34%
Total capital ratio
11.42%
(Regulatory capital/ Risk-weighted assets)
5.96%
5.96%
9.48% 1.4 p.p.
1.4 p.p.
1.9 p.p.
Regulatory capital and risk assets were calculated at 31 December 2007 using the previously
applicable rules of Basel I, while those at 31 December 2008 have been determined under the
rules of Basel II.
102
COMMENTS ON THE INCOME STATEMENT
Despite the most unprecedented financial crisis in recent history, the impact of which started to
spill over into the real economy in the last part of the year, the Banca Popolare di Vicenza Group
closed 2008 with 108.7 million euro in net income, only 4.4% below the prior year. The Group
was able to face the effects of the crisis in a calm fashion thanks to the nature of the Group,
comprising banks focused on their core business with deep roots in their home areas, and its
time-honoured attention to a solid balance sheet. Consolidated net income primarily reflected
the results of core retail banking activities, even if it included the increase in operating costs due
to the rapid growth in size in recent years and the prudent policy of providing against risks and
charges, especially necessary at times of great uncertainty. Income and expenses not relating to the
core business, particularly the capital gain on the sale of the interest in Linea S.p.A., reported a net
positive balance of 52 5 million euro and helped further strengthen the Group’s capital base. The
good resistance of the Parent Bank’s results and the performance of the subsidiary Banca Nuova,
which closed the year with 15.2 million euro in net income (+51.5% on 2007), have supported
the Group’s results, despite the loss of 21.7 million euro reported by the subsidiary BPV Finance
(which had 2.0 million in net income in 2007) and the modest contribution of 462 thousand euro
from the subsidiary Cassa di Risparmio di Prato (12.2 million euro in 2007).
This result, combined with the establishment of adequate capital buffers against risks and further
potential for growth thanks to our increase in size in recent years make us moderately optimistic
about the future despite the significant uncertainties permeating the environment.
For the purposes of better appreciating the contribution of the various areas of the Group’s
operations to consolidated net income, trends in the principal performance indicators during 2008
are discussed below and compared with those in the prior year.
Changes in the scope of consolidation in 2007, particularly the method of consolidating the
insurance companies Berica Vita and Vicenza Life, which were consolidated line-by-line up until
31 August 2007 and thereafter at equity, as well as the impact of acquiring 61 branches from the
UBI Group at the end of 2007, mean that there are some limits on the comparability of a number
of lines in the income statement.
Net interest income
Captions (in thousands of Euro)
10.
20.
Interest income
and similar revenues
Interest expense
and similar charges
30.
Net interest income
31/12/2008
31/12/2007
Changes
(+/-)
%
1,533,552
1,256,160
277,392
22.1
(880,602)
(666,324)
(214,278)
32.2
652,950
589,836
63,114 10.7
Net interest income of 652.9 million euro was 10.7% up on 2007, reflecting higher volumes as well as
spread management policies, fostered by the favourable trend in market rates in 2008.
Calculated by deducting the amount reported in line item 130 b) “Net impairment adjustments to financial assets available for sale” (-33.2 million euro) from the sum of line items 240 “Income from equity investments” (86.4 million euro),
250 “net gains (losses) arising on fair value adjustments to tangible and intangible fixed assets” (95 thousand euro), 260
“Adjustments to goodwill” (-1.4 million euro) and 270 “Profits/losses from disposals of investments” (-0.2 million euro).
5
103
Net interest and other banking income
Captions (in thousands of Euro)
31/12/2008
31/12/2007
(+/-)
Changes
%
30.
Net interest income
652,950
589,836
63,114
10.7
40.
50.
Fee and commission income
Fee and commission expense
300,321
(28,467)
304,508
(39,092)
(4,187)
10,625
-1.4
-27.2
60.
Net fee and commission income
271,854
265,416
6,438
2.4
70.
80.
90.
100.
Dividend and similar income
29,114
Net trading income
(13,226)
Net hedging gains (losses)
461
Gains (losses) on disposals/
repurchases of:
13,548
a) loans and advances
(50)
b) financial assets available for sale (931)
d) financial liabilities
14,529
Net change in financial
assets and liabilities at fair value (2,324)
38,824
(16,329)
–
(9,710)
3,103
461
-25.0
-19.0
n.s.
6,264
(1)
4,538
1,727
7,284
(49)
(5,469)
12,802
116.3
n.s.
-120.5
741.3
(6,845)
4,521
-66.0
877,166
75,211
8.6
110.
120.
Net interest
and other banking income
952,377
Net interest and other banking income came to 952.4 million euro in 2008, reporting an
increase of 8.6% on the prior year. This is a particularly satisfying result in view of the difficult
circumstances in which it was achieved.
Net fee and commission income was 2.4% higher than in 2007 at 271.9 million euro. Even
this result is gratifying given the growing loss of customer confidence in financial markets and
the consequently sharp fall in the acceptance of orders and placement of asset management
products. The breakdown of fees and commission by type of business shows a steep contraction
in those from placement of personal asset management products but an increase in those from
the sale of other products, primarily insurance.
Dividend and similar income of 29.1 million euro was 25.0% lower than in the prior year which
had benefited from a number of short-term investment transactions in equities close to their exdiv dates.
Net trading income reported a loss of 13.2 million euro, compared with a loss of 16.3 million
euro in the prior year. Given the major turmoil affecting global financial and stock markets
in 2008, even if this result is negative it should be seen in a positive light and reflects the
particularly prudent, vigilant management of the Group’s trading activities.
Net hedging gains (losses) reported a net gain of 461 thousand euro, having been zero at 31
December 2007.
Losses on disposal of financial assets available for sale (caption 100 b) amounted to 931
thousand euro, compared with gains of 4.5 million euro in the prior year, almost all of which
refers to the sale of the sale of shares in Banca Popolare di Intra.
Gains on repurchases of financial liabilities (caption 100 d) amounted to 14.5 million euro
104
(compared with 1.7 million euro in 2007) and mostly refer to the repurchase of part of the senior
and mezzanine notes relating to the fifth and sixth securitizations organized by the Group, which
are “reinstated” in the financial statements.
The net change in financial assets and liabilities at fair value was a negative 2.3 million euro
compared with a negative 6.8 million euro in the prior year, with this year’s figure penalized by
the negative change in fair value of junior notes relating to the first three of the securitizations
organized by the Parent Bank.
Comparison of net interest and other banking income reported in 2008 with the prior year
shows increased contributions from net interest income (68.6% versus 67.2%), from net gains
on the disposal or repurchase of financial assets and liabilities, caption 100 (1.4% versus 0.7%)
and from the net change in financial assets and liabilities at fair value (-0.2% versus -0.8%).
Although net trading income made a generally stable contribution (-1.4% versus -1.9%), net fee
and commission income made a smaller contribution (28.5% versus 30.3%) as did dividend and
similar income (3.1% versus 4.4%).
Net income from financial and insurance activities
Captions (in thousands of Euro)
31/12/2008
120. Net interest
and other banking income
130.
Net impairment
adjustments to:
a) loans and advances
b) financial assets
available for sale
d) other financial transactions
31/12/2007
Changes
(+/-)
%
952,377
877,166
75,211
8.6
(186,319)
(152,115)
(146,291)
(135,843)
(40,028) (16,272)
27.4
12.0
(33,237)
(967)
(10,022)
(426)
(23,215)
(541)
231.6
127.0
766,058
730,875
–
–
241,177
(236,330)
766,058
735,722
140.
Net income
from financial activities
150.
160.
Net premium income
Other insurance income (charges)
170.
Net income from financial
and insurance activities
35,183 (241,177)
236,330
30,336 4.8
n.s.
n.s.
4.1
Net income from financial and insurance activities was 4.1% higher at 766.1 million euro, up
from 735.7 million euro in the prior year.
Net impairment adjustments to loans and advances were 12.0% higher at 152.1 million euro,
up from 135.8 million euro in the prior year, also reflecting increased coverage of impaired loans
due to vigilant and prudent policies of credit risk evaluation.
Net impairment adjustments to financial assets available for sale amounted to 33.2 million
euro, compared with 10.0 million euro in the prior year. These adjustments include another
writedown of 3.4 million euro against the investment in Hopa Spa, taking its carrying amount to
0.25 euro per share. Net impairment adjustments also include 15.3 million euro in writedowns
105
against a structured loan provided under the sale agreement completed in the year relating to all
the shares in Linea S.p.A.
Net impairment adjustments to other financial transactions amounted to 967 thousand euro
(426 thousand euro in 2007) and refer to adjustments against guarantees and commitments to
disburse funds.
Unlike in the prior year, the Group’s consolidated results do not contain any contribution from
net income from insurance activities; this is because 50% of Berica Vita and Vicenza Life was
sold under the partnership agreement with the Cattolica Assicurazioni Group made in the last
quarter of 2007, meaning that these companies are now being consolidated at equity.
Operating costs
Captions (in thousands of Euro)
180.
31/12/2008
31/12/2007
Changes
(+/-)
%
(586,427)
(349,420)
(237,007)
(86,270)
(62,096)
(24,174)
14.7
17.8
10.2
(41,092)
18,628
-45.3
(17,401)
(3,026)
17.4
220.
Administrative costs:
(672,697)
a) payroll
(411,516)
b) other administrative costs
(261,181)
Net provisions for risks
and charges
(22,464)
Net adjustments to property,
plant and equipment
(20,427)
Net adjustments
to intangible assets
(5,729)
Other operating charges/income 42,453
(3,752)
60,074
(1,977)
(17,621)
52.7
-29.3
230.
Operating costs
(588,598)
(90,266)
15.3
190.
200.
210.
(678,864)
Operating costs were 15.3% higher at 678.9 million euro, reflecting the natural effects of the
Group’s recent growth in size.
Analysis of the different components of cost reveals that payroll increased by 17.8% on 2007 to
411.5 million euro, mainly because of the cost of staff in the former UBI branches (not included
at 31 December 2007), new recruits to staff newly opened branches and the costs for accessing
the Law 449/1997 solidarity fund during the year. Other administrative costs climbed by 10.2%
to 261.2 million euro, reflecting the costs of the new branches acquired from the UBI Group
and higher costs associated with internally-driven expansion.
Net provisions for risks and charges amounted to 22.5 million euro and were 45.3% lower
than at 31 December 2007; last year’s figure included major provisions against possible negative
outcomes on certain types of financial products acquired from customers, which, given the state
of financial markets, had suggested making suitable provisions against the related risks.
Net adjustments to property, plant and equipment increased by 17.4% from 17.4 million euro
in 2007 to 20.4 million euro in 2008, while those to intangible assets increased by 52.7% from
3.8 to 5.7 million euro; the increase in net adjustments to intangible assets mostly reflects higher
amortization (of 1.6 million euro) after allocating 24.1 million euro of the purchase price paid for
acquiring the former UBI branches to “intangibles” (which reduced the amount provisionally
booked to goodwill in the prior year and reflects the value of the acquired relationships), in
compliance with the treatment envisaged by IFRS 3 “Business combinations”.
106
Other operating charges/income reported 42.5 million euro in net income, down 29.3% on
60.1 million euro in 2007, partly due to costs of closing out early certain financial instruments
subscribed by customers and costs of renegotiating securitized mortgage loans.
The cost/income ratio1 was 70.25% compared with 64.83% in 2007.
Profit (loss) from current operations before tax
Captions (in thousands of Euro)
240.
250.
260.
270.
280.
Profit (loss)
from equity investments
Net gains (losses) arising
on fair value adjustments to
property, plant and equipment
and intangible assets
Adjustments to goodwill
Gains (losses)
on disposal of investments
Profit (loss) from current
operations before tax
31/12/2008
31/12/2007
Changes
(+/-)
%
86,445
46,911
39,534
84.3
95
(1,386)
172
(660)
(77)
(726)
-44.8
110.0
(201)
645
(846)
-131.2
172,147
194,192
(22,045)
-11.4
Profit (loss) from current operations before tax was 11.4% below the prior year at 172.1 million euro.
Profits from equity investments amounted to 86.4 million euro, compared with 46.9 million
euro in 2007, and reflect the capital gain of 91.6 million euro realized on the disposal of the
entire interest in Linea S.p.A. to Compass S.p.A., less the losses for the year of certain associates
consolidated at equity.
Net gains (losses) arising on fair value adjustments to property, plant and equipment and
intangible assets reported immaterial amounts.
Adjustments to goodwill amounted to 1.4 million euro, compared with 660 thousand euro in the
prior year, and reflect the recognition of impairment losses on all the remaining goodwill arising
on consolidation relating to the subsidiary Nuova Merchant.
Lastly, losses on disposal of investments amounted to 201 thousand euro compared with gains
of 645 thousand euro in the prior year.
This indicator reports administrative costs (caption 180) plus net adjustments to property, plant and equipment and
intangible assets (captions 200 and 210) as a proportion of net interest and other banking income (caption 120) plus
other operating charges/income (caption 220).
1
107
Net income for the year pertaining to the Parent Bank
Captions (in thousands of Euro)
31/12/2008
31/12/2007
Changes
(+/-)
%
280.
Profit (loss) from current
operations before tax
172,147
194,192
(22,045)
-11.4
290.
Income taxes
on current operations
(61,092)
(76,652)
15,560
-20.3
300. Profit (loss)
from current operations after tax
111,055
117,540
(6,485)
-5.5
320.
Net income for the year
111,055
117,540
(6,485)
-5.5
330.
Minority interests
(2,316)
(3,809)
1,493
-39.2
340.
Net income (loss)
for the year pertaining
to the parent bank
108,739
113,731
(4,992)
-4.4
Income taxes amounted to 61.1 million euro (with a tax rate of 35.5%), compared with 76.7
million euro in 2007 (with a tax rate of 39.5%).
Following the above charge for tax, profit (loss) from current operations after tax and net
income for the year amounted to 111.1 million, down 5.5% on the prior year.
Net income pertaining to minority interests in subsidiary companies came to 2.3 million euro
compared with 3.8 million euro in 2007, while net income for the year pertaining to the Parent
Bank was 108.7 million euro, down 4.4% on the prior year.
108
Reconciliation of equity and net income of the Parent Bank with the related
consolidated amounts
The following table reconciles equity and net income reported in the Parent Bank’s individual
financial statements for 2008 with the corresponding figures in the consolidated financial
statements.
31/12/2008
Equity
of which: net
profit for the year
(in thousands of Euro)
Parent bank's financial statement
31/12/2007
Equity
of which: net
profit for the year
2,844,153
151,035
2,783,607
110,090
Year results pertaining
to the Group, as to:
- companies consolidated line-by-line -17,030
- companies valued at shareholders’equity -948
-17,030
-948
33,214
12,757
33,214
12,757
Differences compared
to carrying values, as to:
- companies consolidated line-by-line
-3,838
- companies valued at shareholders’equity -28,419
23,226
-19,305
- 24,323
7,729
- 415
- 776
Write-off of dividends
collected during the year from:
- companies consolidated line-by-line
- companies valued at shareholders’equity
-27,688
-2,943
- 33,218
- 8,608
Derecognition
of intercompany profit and loss
10,474
2,226
4,606
1,859
Derecognition of intercompany
capital gains from discontinuing
and contributing operations
-83,831
-66
- 83,765
82
Other consolidation adjustments
9,290
232
9,057
- 1,254
Consolidated financial statement
2,729,851
108,739
2,742,882
113,731
Consolidated equity pertaining to the Parent Bank of 2,729.9 million euro is 114.3 million euro
lower than that reported in the Parent Bank’s individual financial statements. The changes in
consolidated equity are detailed in a specific schedule forming part of the consolidated financial
statements.
Consolidated net income for the year pertaining to the Parent Bank of 108.7 million euro is
42.3 million euro lower than that reported in the Parent Bank’s individual financial statements;
this difference mainly reflects the negative contribution by the subsidiaries BPV Finance (-21.7
million euro after consolidation adjustments) and Nuova Merchant (-4.9 million euro after
consolidation adjustments) which were affected by the difficulties on financial markets, and the
smaller amount of the capital gain reported for consolidation purposes (-19.4 million euro) on
the sale of all the shares in Linea S.p.A. during the year.
109
Information relating to the ownership and sale of treasury shares
Information relating to treasury shares of the Parent Bank and of companies included in the
consolidation is provided in the explanatory notes.
Audit of the consolidated financial statements
The Parent Bank has had its individual and consolidated financial statements audited by KPMG
SpA, who were reappointed as the Group’s auditors for the three-year period 2008-2011 at
the stockholders’ meeting held on 19 April 2008, with the approval of the Board of Statutory
Auditors.
110
PERFORMANCE OF BPVi GROUP COMPANIES
Highlights from the 2008 balance sheets and income statements of the Group’s companies are
presented and discussed below.
The principal aggregates of each of the Group’s banking subsidiaries are presented below,
thereby putting them into perspective within the Group as a whole and providing an overview
of the scale of its banking activities.
Intercompany transactions and balances have not been eliminated from these figures.
Items
(in thousands of Euro)
Loans to customers
Direct deposits
Indirect deposits
Equity
Net income for the year
Number of outlets 2
Number of branches
Number of employees 3
BPVi
Banca
Nuova
Cariprato
Farbanca
Gruppo
BPVi 1
16,018
15,051
12,926
2,844
151.0
455
436
3,508
2,856
3,494
1,271
210
15.2
128
106
899
3,394
2,871
1,671
279
0.5
97
94
990
319 95 21 37 2.7
1
1
29 22,705
21,406
15,890
2,730
108.7
681
637
5,645
Performance of the Parent Bank
Direct deposits
Direct deposits, excluding “liabilities for assets sold but not derecognized”, amounted to 14,271
million euro at 31 December 2008, reporting an increase of 12.2% on the year before (+8.4%
including “liabilities for assets sold but not derecognized”).
Direct deposits
(in millions of Euro)
31/12/2008
Current accounts and unrestricted deposits 5,946
Current accounts and restricted deposits
200
Repurchase agreements and other payables 575
Bonds
7,386
Certificates of deposit and other securities
164
31/12/2007
Changes
(+/-)
%
5,344
22
604
6,571
180
602
178
-29
815
-16
11.3
809.1
-4.8
12.4
-8.9
sub-total
Liabilities for assets sold
but not derecognized
14,271
12,721
1,550 12.2
780
1,164
-384 -33.0
Total direct deposits
.
15,051
13,885
1,166 8.4
The Group’s figures refer to the consolidated financial statements and not to the sum of the companies presented above.
The number of outlets includes bank branches, money shops and private banking offices.
3
As of 31 December 2008.
1
2
111
The changes in the different types of direct deposit reflect strong growth in “bonds” (+12.4%)
and “current accounts and unrestricted deposits” (+11.3%), but a contraction in “repurchase
agreements and other payables” (-4.8%). This downward trend in repurchase agreements in
favour of other types of funding is a positive sign in terms of liquidity, with the Bank closing
such funding transactions with lending transactions generally in the same technical form.
“Certificates of deposit and other securities” and “current accounts and restricted deposits”
have settled for some time now at much reduced levels: while the former posted a decrease over
the twelve months of 8.9%, the later grew by 178 million euro in absolute terms (+809.1%).
With reference to the Bank’s own bond issues, which account for 49% of all direct deposits, the
Bank made no new issues in the year under its European Medium Term Notes programme, after
issuing more than 1,815 million euro in notes in 2007; consequently, the entire change for the
year is attributable to ordinary placement activities with retail customers, with obvious benefits
in terms of diversification of the sources and cost of funding.
“Liabilities for assets sold but not derecognized” were 33.0% lower than at 31 December 2007.
These relate to the “Berica 5 Residential MBS” and “Berica 6 Residential MBS” securitizations
arranged in 2004 and 2006 respectively, which, as discussed in the section on loans, have been
“reinstated” in the balance sheet, as required by IAS 39. In fact, they represent notes issued
by vehicle companies that are backed by securitized home mortgages; their decrease since 31
December 2007 reflects partial repayment of such securities and the Bank’s repurchase of 208.9
million euro in senior and mezzanine notes issued as part of the above securitizations which have
consequently been derecognized.
With reference to the latest securitization known as “Berica 7 Residential MBS”, carried out in
November 2008 and also “reinstated” in the balance sheet under IAS 39, since all the related
asset backed securities (ABS) were subscribed by the originator banks (BPVi, Banca Nuova and
Cariprato), no “liabilities for assets sold but not derecognized” have been recognized.
112
Indirect deposits
Indirect deposits had a total market value of 12,926 million euro at 31 December 2008, reporting
a decrease of 14.4% on a year earlier.
This aggregate has been seriously affected by the recent turmoil on financial markets and
the decline in its value is almost entirely attributable to negative performance in the asset
management sector, which although accounting for only 19% of all indirect deposits,
posted an absolute decrease in value of 1,792 million euro over the year (-42.2%). Assets
under administration, which represent 69% of the total aggregate, also reported a negative
performance although not as large (-5.2%). Pension premiums, accounting for 12% of total
indirect deposits, increased by 7.2% over the year, reflecting the benefits of partnership with the
Cattolica Assicurazioni Group.
Indirect deposits
(in millions of Euro)
Mutual funds
Personal asset management
Pension premiums
Shares
Other securities
Treasury shares
Total indirect deposits
assets under management
retirement savings
assets under administration
31/12/2008
31/12/2007
Changes
(+/-)
%
1,993
457
1,536
1,202
4,029
3,709
3,148
1,094
1,433
1,938
3,773
3,722
-1,155
-637
103
-736
256
-13
-36.7
-58.2
7.2
-38.0
6.8
-0.3
12,926
15,108
-2,182 -14.4
2,450
1,536
8,940
4,242
1,433
9,433
-1,792
103
-493
-42.2
7.2
-5.2
Looking at the various forms of indirect deposits, the sharp contraction in assets under
management, which for some time has witnessed a reduction in volumes due to investor
disaffection for this sector, reflects decreases in both “mutual funds” (-36.7%) and “personal
asset management” (-58.2%). With regard to assets under administration, “shares” were 38.0%
lower mainly because of the steep drop in global share prices, while “other securities” were
6.8% higher. “Treasury shares” were generally stable. Lastly, “pension premiums” posted an
annual increase of 7.2% to 1,536 million euro at 31 December 2008.
113
Loans to customers
The volume of loans to businesses and households in our home regions continued to grow in
a satisfactory fashion in 2008, all of which was funded by the growth in direct deposits from
customers.
Loans to customers
(in millions of Euro)
Ordinary current accounts
Mortgage loans
Syndicated loans
Import/export loans
Other loans
Debt securities
Repurchase agreements
Net non-performing loans 1
31/12/2008
31/12/2007
Changes
(+/-)
%
71
546
73
45
-172
30
40
-14
2.2
10.2
5.0
4.0
-7.4
166.7
571.4
-6.8
3,265
5,910
1,541
1,177
2,160
48
47
193
3,194
5,364
1,468
1,132
2,332
18
7
207
sub-total
Assets sold but not derecognized
14,341
1,677
13.722
1.191
619 486 4.5
40.8
Total net loans
16,018
14,913
1,105 7.4
This does not include non-performing loans related to “assets sold but not derecognized”.
1
Net of impairment adjustments, loans to customers increased by 7.4% on the prior year to 16,018
million euro at 31 December 2008 (+4.5% excluding “assets sold but not derecognized”).
In terms of individual lending products, almost all the different technical forms grew despite
the economic slowdown. In particular, “mortgage loans” grew by 10.2%, “ordinary current
accounts” by 2.2%, “syndicated loans” by 5.0% and “import-export loans” by 4.0%. The
increase in “debt securities” (+166.7%) is mainly due to the reclassification in the year of
certain financial instruments previously classified as “financial assets available for sale”; this
reclassification was permitted under the amendments to IAS 39 endorsed in Regulation EC
1004/2008, as already discussed in an earlier section of this report.
“Repurchase agreements”, of relatively immaterial absolute amount, were 40 million euro higher
(+571.4%), while “other loans” were 7.4% lower.
114
“Mortgage loans” grew at a slower pace than in the past, reflecting a contraction in individual
customer demand throughout the banking industry as a whole, and the new securitization
carried out in November 2008, under which BPVi, Banca Nuova and Cariprato sold a total of
968.4 million euro in performing residential mortgage loans (of which 682.4 million euro related
to BPVi) to a special purpose entity called “Berica 7 Residential MBS Srl”. Like the “Berica 5
Residential Mbs” and “Berica 6 Residential MBS” securitizations, this securitization does not
meet the derecognition requirements of IAS;6 accordingly, the residual securitized assets have
been “reinstated” in the financial statements at 31 December 2008 as “assets sold but not
derecognized” (which have therefore increased by 486 million euro (+40.8%).
“Mortgage loans” nonetheless continued to represent around 37% of total loans (and over 47%
including the securitized mortgages classified in “assets sold but not derecognized”).
Credit risk indicators have deteriorated throughout the banking industry in the wake of the
financial market crisis in the second half of the year and the resulting deterioration in an already
weak economy. These events have had a negative impact on the quality of the Bank’s loan
book, which has deteriorated somewhat at the end of 2008 relative to 31 December 2007. This
deterioration, expressed in terms of the ratio between impaired loans and total loans, was less
than for the banking industry as a whole.
Impaired loans to customers (net of adjustments and including any impaired loans classified as
“assets sold but not derecognized”) were 62.5 million euro higher (+12.5%) at 31 December
2008 than a year earlier; however, as a percentage of total net loans, impaired loans increased by
just 0.16 percentage points, from 3.34% at 31 December 2007 to 3.50% at the end of 2008. The
ratio of net non-performing loans to net loans to customers was 1.38%, marking an improvement
of 0.10 percentage points on the figure of 1.48% reported at the end of 2007.
With regard to the other securitizations carried out before 1 January 2004, the securitized assets were not reinstated
on the first-time adoption of IAS 39, as allowed by paragraph 27 of IFRS 1.
6
115
Looking at the composition of impaired loans, it is mainly the watchlist loans and positions past
due by more than 180 days that have deteriorated most, increasing by 64.3 million euro (+34.5%)
and 11.3 million euro (+19.0%) respectively; non-performing loans have increased by 928
thousand euro (+0.4%), while restructured loans have fallen by 14.0 million euro (-44.3%).
In terms of coverage, meaning the ratio between total provisions and gross exposure, the coverage
of impaired loans has increased from 31.75% at 31 December 2007 to 34.52% at 31 December
2008, mainly due to higher provisions against non-performing loans, whose coverage, ignoring
partial write-offs, has risen from 42.45% at 31 December 2007 to 49.82% at the end of 20087.
Lastly, the “general provision” for “performing” loans amounted to 69.2 million euro at 31 December
2008, providing coverage of 0.45%, down from 0.54% at 31 December 2007. This reduction is mainly
due to the smaller impact of discounting after the cuts in interest rates in the last part of the year.
Equity and regulatory capital
The equity of Banca Popolare di Vicenza amounted to 2,844.2 million euro at 31 December 2008,
reporting an increase of 60.5 million euro (+2.2%) since 31 December 2007.
Equity
(in thousands of Euro)
31/12/2008
Capital stock
Additional paid-in capital
Equity instruments
Valuation reserves
Reserves
Treasury shares
261,460
1,960,355
13,104
38,049
517,131
- 96,981
Equity
Net income for the year
Total equity
31/12/2007
Changes
(+/-)
%
261,656
1,963,297
13,630
- 43,225
478,159
–
- 196
- 2,942
- 526
81,274
38,972
- 96,981
-0.1
-0.1
-3.9
-188.0
8.2
n.s.
2,693,118
2,673,517
19,601
0.7
151,035
110,090
40,945
37.2
2,844,153
2,783,607
60,546 2.2
The decreases of 196 thousand euro in “capital stock” and of 2,942 thousand euro in “additional
paid-in capital” reflect the combined effect of issuing new shares allotted to employees after
achieving a specific length of service and of reimbursing shares to estates of deceased members,
now cancelled.
“Equity instruments” of 13.1 million euro at 31 December 2008 refer to the equity component
embedded in the convertible bond known as “BPVI 13.a Emissione 2007-2015”, placed by the
Parent Bank in July 2007, and reported separately in accordance with IAS 32. The decrease of
526 thousand euro reflects bonds that were bought back but have not yet been resold.
The increase of 81.3 million euro in the “valuation reserves” reflects the changes in fair value
recognized in the year for financial instruments classified as “financial assets available for sale” as well
as 60.7 million euro for cancelling the negative valuation reserves relating to the interest in Cattolica
Assicurazioni after reclassifying it to “equity investments” with effect from 31 October 2008.
The coverage of non-performing loans, including write-offs for bankruptcy proceedings still in progress at 31 December 2008, was 66.63% at year end, while that of gross impaired loans would be 48.01%.
7
116
The “valuation reserves” also include the reserves arising from the valuation of land, buildings and
works of art at deemed cost on the first-time adoption of IAS/IFRS, together with the reserves
relating to special revaluation laws.
The increase of 39.0 million euro in other “reserves” reflects 37.5 million euro in allocations of prior
year net income to the Group’s reserves, and 1.5 million euro in other changes. These reserves also
include reserves formed from prior year earnings, as well as the positive and negative reserves arising
on first-time adoption of IAS-IFRS not recognized in other equity accounts. They also include the
former “reserve for general banking risks” recorded pursuant to Decree 87/92 which, in accordance
with IAS, has been reclassified to equity.
A total of 1,616,346 treasury shares were held at 31 December 2008 with a value of 97.0 million euro. These
were the result of buy-backs in the year using the specific reserve for treasury shares previously set up.
Capital stock comprised 69,722,736 shares at 31 December 2008 compared with 69,775,066 at
31 December 2007, reporting a net decrease of 52,330 reflecting the issue of 5,620 new shares to
employees upon reaching a specific length of service and the cancellation of 57,950 shares. Excluding
the 1,616,346 treasury shares held by the Bank, the number of outstanding shares at 31 December
2008 was 68,106,390.
The shares of the Bank, which is one of the Relevant Issuers listed in CONSOB Resolutions
11.768/98 and 11.862/99, are dematerialized and centralized with Monte Titoli, in accordance with
the provisions of Decree 58/98 and Decree 213/98.
The following table reports the Bank’s purchases and sales of its shares in accordance with art. 18 of
the articles of association.
Treasury shares
Number
of shares
% on Equity 1
Amount
(in thousands of Euro)
31/12/07
Purchases
Sales
–
5,211,730
3,595,384
–
7.47 5.15 –
312,704
215,723
31/12/2008
1,616,346
2.32 96,981
Capital stock at 31 December 2008 was held by 53,329 Members; this was 849 more than at 31
December 2007, reflecting the admission of 3,234 new Members in the year and the departure
of 2,385 Members.
% determined with reference to the number of shares outstanding at year end.
1
117
The amount of the Bank’s capital is adequate and provides reliable coverage of business risks,
while satisfying the minimum requirements established by the Supervisory Authorities.
The Bank’s regulatory capital is made up as follows:
(in millions of Euro)
31/12/2008
31/12/2007
Changes
(+/-)
%
Tier 1 capital
Tier 2 capital
Deductions
2,061.8
823.9
-26.8
1,963.9
728.1
-26.8
97.9
95.8
0.0
5.0
13.2
0.0
Regulatory capital
2,858.9
2,665.2
193.7 7.3
The prudential ratios are as follows:
Capital adeguacy ratios
Core Tier 1 capital ratio
Tier 1 capital ratio
(Tier 1 capital/Risk-weighted assets)
Total capital ratio
(Regulatory capital/ Risk-weighted assets)
31/12/2008
31/12/2007
var.
2008 /2007
12.04%
9.69%
2.4 p.p.
12.04%
9.69%
2.4 p.p.
16.70%
13.15%
3.6 p.p.
Regulatory capital and risk assets were calculated at 31 December 2007 using the previously
applicable rules of Basel I, while those at 31 December 2008 have been determined under the
rules of Basel II.
Comments on the income statement
Banca Popolare di Vicenza closed 2008 with 151.0 million euro in net income, 37.2% above the
prior year. This result is more than satisfactory in view of the context in which it was achieved,
with the most unprecedented financial crisis in recent history starting to spill over into the real
economy in the last part of the year. The Bank was able to face the effects of the crisis in a calm
fashion thanks to its focus on core business and its deep roots in its home areas, combined with
time-honoured attention to a solid balance sheet. Net income primarily reflected the results
of core retail banking activities and careful management of the Bank’s own portfolios, even if
it included the increase in operating costs due to the rapid growth in size in recent years and
the prudent policy of providing against risks and charges, especially necessary at times of great
uncertainty. Income and expenses not relating to the core business, particularly the capital gain
on the sale of the interest in Linea S.p.A., reported a net positive balance of 72 8 million euro
and helped further strengthen the Group’s capital base. This result, combined with the good
resistance of the core business, the establishment of adequate capital buffers against risks and
further potential for growth thanks to our increase in size in recent years make us moderately
optimistic about the future despite the significant uncertainties permeating the environment.
Calculated by deducting the amount reported in line item 130 b) “Net impairment adjustments to financial assets
available for sale” (-24.5 million euro) from the sum of line items 210 “Income from equity investments” (97.1 million
euro) and 240 “Profits/losses from disposals of investments” (-0.2 million euro).
8
118
For the purposes of better appreciating the contribution of the various areas of the Bank’s
operations to net income, trends in the principal performance indicators during 2008 are
discussed below and compared with those in the prior year. Al fine di meglio interpretare il
contributo delle varie aree di attività alla formazione del risultato d’esercizio, si illustrano, nel
prosieguo, le dinamiche delle principali grandezze economiche nel corso dell’esercizio 2008,
comparate con quelle dello scorso anno.
Net interest income
Caption (in thousands of Euro)
10.
20.
30.
Interest income
and similar revenues
Interest expense
and similar charges
Net interest income
31/12/2008
31/12/2007
Changes
(+/-)
%
1,110,538
877,720
232,818
26.5
(704,906)
(522,448)
(182,458)
34.9
405,632
355,272
50,360
14.2
Net interest income of 405.6 million euro was 14.2% up on 2007, reflecting higher volumes as
well as spread management policies, fostered by the favourable trend in market rates in 2008.
Net interest and other banking income
Captions (in thousands of Euro)
31/12/2008
31/12/2007
Changes
(+/-)
%
30.
Net interest income
405,632
355,272
50,360 14.2
40.
50.
Fee and commission income
Fee and commission expense
194,894
(17,325)
193,435
(18,446)
1,459 1,121 0.8
-6.1
60.
Net fee and commission income 177,569
174,989
2,580 1.5
70.
80.
90.
100.
Dividend and similar income
Net trading income
Net hedging gains (losses)
Gains (losses) on disposals/
repurchases of:
a) loans and advances
b) financial assets
available for sale
d) financial liabilities
Net change in financial
assets and liabilities at fair value
55,340
1,485
273
68,299
(18,437)
–
(12,959)
19,922
273
-19.0%
n.s.
n.s.
17,670
(38)
5,122
(17)
12,548
(21)
245.0
123.5
3,961
13,747
4,055
1,084
(94)
12,663
-2.3
n.s.
(3,723)
(2,566)
(1,157)
45,1
Net interest and other
banking income
654,246
582,679
71,567 12.3
110.
120.
119
Net interest and other banking income came to 654.2 million euro in 2008, reporting an increase
of 12.3% on the prior year. This is a particularly satisfying result in view of the difficult
circumstances in which it was achieved.
Net fee and commission income was 1.5% higher than in 2007 at 177.6 million euro. Even
this result is gratifying given the growing loss of customer confidence in financial markets and
the consequently sharp fall in the acceptance of orders and placement of asset management
products. The breakdown of fees and commission by type of business shows a steep contraction
in those from placement of personal asset management products but an increase in those from
the sale of other products, primarily insurance.
Dividend and similar income of 55.3 million euro was 19.0% lower than in the prior year which
had benefited from a number of short-term investment transactions in equities close to their exdiv dates.
Net trading income reported a profit of 1.5 million euro, compared with a loss of 18.4 million
euro in the prior year. Given the major turmoil affecting global financial and stock markets in
2008, this result should be seen in a positive light and reflects the particularly prudent, vigilant
management of the Bank’s trading activities.
Net hedging gains (losses) reported a net gain of 273 thousand euro, having been zero at 31
December 2007.
Gains on disposal of financial assets available for sale (Caption 100 b) amounted to 4.0 million
euro, staying generally in line with the prior year (-2.3%).
Gains on repurchases of financial liabilities (caption 100 d) amounted to 13.7 million euro
(compared with 1.1 million euro in 2007) and mostly refer to the repurchase of part of the senior
and mezzanine notes relating to the fifth and sixth securitizations organized by the Group, which
are “reinstated” in the financial statements.
The net change in financial assets and liabilities at fair value was a negative 3.7 million euro,
compared with a negative 2.6 million euro in the prior year, with this year’s figure penalized by
the negative change in the fair value of junior notes relating to the first three of the securitizations
organized by the Parent Bank.
Comparison of net interest and other banking income reported in 2008 with the prior year
shows increased contributions from net interest income (62.0% versus 61.0%), from net gains
on the disposal or repurchase of financial assets and liabilities, caption 100 (2.7% versus 0.9%)
and from net trading income (0.3% versus -3.2%). Although the net change in financial assets
and liabilities at fair value made a generally stable contribution (-0.6% versus -0.4%), net fee
and commission income made a smaller contribution (27.1% versus 30.0%) as did dividend and
similar income (8.5% versus 11.7%).
120
Net income from financial activities
Captions (in thousands of Euro)
120. Net interest and other
banking income
130.
Net impairment
adjustments to:
a) loans and advances
b) financial assets
available for sale
d) other financial transactions
140. Net income from
financial activities
31/12/2008
31/12/2007
Changes
(+/-)
%
654,246
582,679
71,567 (126,710)
(101,313)
(112,206)
(102,790)
(14,504)
1,477
12.9
-1.4
(24,475)
(922)
(9,117)
(299)
(15,358)
(623)
168.5
208.4
527,536
470,473
57,063 12.3
12.1
Net income from financial activities amounted to 527.5 million euro compared with 470.5 million
euro in the prior year, posting an increase of 12.1%.
Net impairment adjustments to loans and advances were 1.4% lower at 101.3 million euro, down
from 102.8 million euro in the prior year.
Net impairment adjustments to financial assets available for sale amounted to 24.5 million euro,
compared with 9.1 million euro in the prior year. These adjustments include another writedown
of 3.4 million euro against the investment in Hopa Spa, taking its carrying amount to 0.25 euro
per share. Net impairment adjustments also include 15.3 million euro in writedowns against
a structured loan provided under the sale agreement completed in the year relating to all the
shares in Linea S.p.A.
Net impairment adjustments to other financial transactions amounted to 922 thousand euro
(299 thousand euro in 2007) and refer to adjustments against guarantees and commitments to
disburse funds.
Operating costs
Captions (in thousands of Euro)
150.
31/12/2008
31/12/2007
Changes
(+/-)
%
(372,363)
(209,897)
(162,466)
(61,341)
(44,440)
(16,901)
16.5
21.2
10.4
(26,105)
10,773
-41.3
(5,673)
(1,783)
31.4
190.
Administrative costs:
(433,704)
a) payroll
(254,337)
b) other administrative costs
(179,367)
Net provisions
for risks and charges
(15,332)
Net adjustments to property,
plant and equipment
(7,456)
Net adjustments
to intangible assets
(4,430)
Other operating charges/income 26,831
(2,199)
42,339
(2,231)
(15,508)
101.5
-36.6
200.
Operating costs
(364,001)
(70,090)
19.3
160.
170.
180.
(434,091)
121
Operating costs were 19.3% higher at 434.1 million euro, reflecting the natural effects of the
Bank’s recent growth in size.
Analysis of the different components of cost reveals that payroll increased by 21.2% on 2007 to
254.3 million euro, mainly because of the cost of staff in the former UBI branches (not included
at 31 December 2007) and of new recruits to staff newly opened branches. Other administrative
costs climbed by 10.4% to 179.4 million euro, reflecting the costs of the new branches acquired
from the UBI Group and higher costs associated with internally-driven expansion.
Net provisions for risks and charges amounted to 15.3 million euro and were 41.3% lower than
at 31 December 2007; last year’s figure included major provisions against possible negative
outcomes on certain types of financial products acquired from customers, which, given the state
of financial markets, had suggested making suitable provisions against the related risks.
Net adjustments to property, plant and equipment increased by 31.4% from 5.7 million euro
in 2007 to 7.5 million euro in 2008, while those to intangible assets increased by 101.5% from
2.2 to 4.4 million euro; the increase in net adjustments to intangible assets mostly reflects higher
amortization (of 1.6 million euro) after allocating 24.1 million euro of the purchase price paid for
acquiring the former UBI branches to “intangibles” (which reduced the amount provisionally
booked to goodwill in the prior year and reflects the value of the acquired relationships), in
compliance with the treatment envisaged by IFRS 3 “Business combinations”.
Other operating charges/income reported 26.8 million euro in net income, down 36.6% on
42.3 million euro in 2007, partly due to costs of closing out early certain financial instruments
subscribed by customers and costs of renegotiating securitized mortgage loans.
The cost/income ratio1 was 65.42% compared with 60.84% in 2007.
Profit (loss) from current operations before tax
Captions (in thousands of Euro)
210.
240.
250.
Profit (loss)
from equity investments
Gains (losses)
on disposal of investments
Profit (loss) from current
operations before tax
31/12/2008
31/12/2007
Changes
(+/-)
%
97,070
42,628
54,442
127.7
(178)
9
(187)
n.s.
190,337
149,109
41,228
27.6
Profit (loss) from current operations before tax was 27.6% above the prior year at 190.3 million euro.
Profit from equity investments amounted to 97.1 million euro, compared with 42.6 million euro
in 2007, and reflects the capital gain of 110.0 million euro realized on the disposal of the entire
interest in Linea S.p.A. to Compass S.p.A., less the impairment losses recognized against the
value of certain subsidiaries.
This indicator reports administrative costs (caption 150) plus net adjustments to property, plant and equipment and
intangible assets (captions 170 and 180) as a proportion of net interest and other banking income (caption 120) plus
other operating charges/income (caption 190).
1
122
Lastly, losses on disposal of investments amounted to 178 thousand euro compared with gains
of 9 thousand euro in the prior year.
Net income for the year
Captions (in thousands of Euro)
31/12/2008
31/12/2007
Changes
(+/-)
%
250.
Profit (loss) from current
operations before tax
190,337
149,109
41,228
27.6
260.
Income taxes
on current operations
(39,302)
(39,019)
(283)
0.7
270.
Profit (loss) from current
operations after tax
151,035
110,090
40,945
37.2
290.
Net income for the year
151,035
110,090
40,945
37.2
Income taxes amounted to 39.3 million euro (with a tax rate of 20.6%), compared with 39.0
million euro in 2007 (with a tax rate of 26.2%).
Following the above charge for tax, profit (loss) from current operations after tax and net
income for the year amounted to 151.0 million euro, up 37.2% on the prior year.
Performance of other group banks
Banca Nuova S.p.A.
Balance sheet and income statement highlights
(in millions of euro)
Balance sheet highlights
Direct deposits
Indirect deposits
Loans to customers
Total Assets
Risk-weighted assets (RWA)
Equity
(including net income for the year)
Regulatory capital
Income statement highlights
Net interest income
Net interest
and other banking income
Operating costs
of which: payroll
Net income for the year
31/12/2008
31/12/2007
Change
(+/-)
%
3,494.5
1,271.4
2,856.3
4,087.8
2,214.0
2,887.1
1,333.5
2,520.3
3,263.0
2,371.8
607.4
-62.1
336.0
824.8
-157.8
21.0
-4.7
13.3
25.3
-6.7
210.3
186.4
205.0
194.4
5.3
-8.0
2.6
-4.1
98.9
91.8
7.1
7.7
144.4
-108.0
-60.1
15.2
136.9
-103.4
-55.1
10.0
7.5
-4.6
-5
5.2
5.5
4.4
9.1
52.0
123
Other information
31/12/2008
Number of employees at year-end
Number of branches
31/12/2007
899
106
Key performance indicators
Structure ratios (%)
Loans to customers / Total assets
Direct deposits / Total assets
Loans to customers / Direct deposits
Profitability and efficiency ratios(%)
Net income for the year /
Equity excluding net income for the year (ROE)
Net income for the year /
Total average assets (ROAA) (1)
Cost/Income (2)
850
106
Capital adequacy ratios (%)
Core Tier 1
Tier 1 (Tier 1 capital / Total weighted assets)
Total Capital Ratio
(Regulatory capital / Total weighted assets)
%
49
0
5.8
0.0
31/12/2008
31/12/2007
Change
2008/2007
69.9%
85.5%
81.7%
77.2%
88.5% 87.3%
-7.3 p.p.
-3.0 p.p.
-5.6 p.p.
7.8%
5.1%
2.7 p.p.
0.4%
74.2%
0.3%
72.1% 0.1 p.p.
2.1 p.p.
3.4 3.0 17.1%
9.7%
162.4
2.1%
3.70%
1.67%
57.38%
41.82%
3.49%
1.67%
57.10%
42.31%
0.21 p.p.
0.00 p.p.
0.28 p.p.
-0.49 p.p.
6.44%
6.44%
5.29%
5.29%
1.15 p.p.
1.15 p.p.
8.42%
8.20%
0.22 p.p.
Productivity ratios (3)
Direct deposits per employee (in millions of euro)
4.0
Loans to customers per employee (in millions of euro) 3.3
Net interest and other banking
income per employee (in thousands of euro)
165.8
Risk ratios (%)
Net impaired loans/Net loans
Net non-performing loans/Net loans
Non-performing loans coverage (%)
Impaired loans coverage (%)
Change
(+/-)
Banca Nuova, 99.59% owned by Banca Popolare di Vicenza (which carries it at a book value
of 284.1 million euro), is a retail bank with deep roots in Sicily, where it has branches in every
province, and which has gradually expanded into the regions of Calabria and Lazio in recent years.
Its commercial network had 128 outlets at 31 December 2008: 106 bank branches, 17 money
shops and 5 private banking offices.
It had 899 employees at this date, of whom 22 under fixed-term contracts, 7 under
apprenticeship contracts and 24 part-timers, with a net increase of 49 since the end of the prior
Total average assets are determined as the simple average of total assets at the end of the current year and at the end
of the previous year.
2
This is the ratio of administrative costs (line item 150) plus net adjustments to property, plant and equipment and intangible assets (line items 170 and 180) to net interest and other banking income (line item 120) plus other operating
charges/income (line item 190).
3
The productivity indicators are calculated with reference to the average number of employees.
1
124
year. The Financial Promoter network had 150 consultants at 31 December 2008, two fewer
than a year earlier.
Banca Nuova managed to expand its banking business significantly in 2008: the bank’s total
deposits amounted to 4,765 million euro at 31 December 2008, 12.9% more than a year earlier,
while net loans were 13.3% higher at 2,856 million euro.
Direct deposits increased by 607 million euro to 3,494 million euro (+21%). Most of this increase
was attributable to growth in “current accounts and unrestricted deposits” and “bonds”. In fact,
current accounts and unrestricted deposits grew by more than 563 million euro (+31.5%) since 31
December 2007, while bonds increased by around 124 million euro (+19.7%).
Indirect deposits amounted to over 1,271 million euro, reporting a decrease of 63 million euro since
the end of the prior year (-4.7%). In particular, the largest decreases were in the mutual funds and
shares sectors, only partly offset by growth in asset administration and in other securities.
Net loans increased by 336 million euro to 2,856 million euro (13.3%); in detail, “current
accounts” increased by over 111 million euro (+34.6%), “repurchase agreements” by more than
31 million euro (considered exceptional following a transaction at year end), “mortgage loans”
by 162 million euro (+11.2%), “import-export loans ” by more than 10 million euro (+46.1%)
and “debt securities” by 10 million euro (+53.5%). In contrast, “syndicated loans ” decreased
by around 16 million euro (-28.1%) and “other loans” by 130 million euro (-31.3%), mostly
attributable to a loan repaid by the subsidiary Prestinuova.
Assets sold but not derecognized increased by 151 million euro (+75.2%) following the new
multi-originator securitization carried out in the year known as “Berica 7 Residential MBS”.
With reference to the indicators of credit risk, the ratio of net impaired loans to net loans
(including those loans represented by “Assets sold but not derecognized”) went from 3.49% at
31 December 2007 to 3.70% at 31 December 2008, while the ratio of net non-performing loans
to net loans was stable at 1.67%.
In terms of the subsidiary’s income statement, it reported 15.2 million euro in net income for the
year (+51.5% on 2007), particularly reflecting the improvement in net interest income which
was 7.1 million euro higher at 98.9 million euro (+7.8%).
Even though net fee and commission income was generally stable (+0.8%) largely because of
downturn in the asset management business, net interest and other banking income was 7.5
million euro higher at 144.4 million euro (+5.5%).
Net income from financial activities improved by 5.8% to 133.6 million euro.
Operating costs rose by 4.5% to 108 million euro.
Profit (loss) from current operations before tax came to 25.1 million euro, posting an absolute
increase of around 3 million euro (+13.5%) on 2007.
Income taxes were 2.2 million euro lower than in the prior year at 9.9 million euro (-18.1%).
The reduction reflects 1.9 million euro for franking the differences between asset book and tax
values arising from off-book adjustments made up until 31 December 2007 (so-called franking
of Form EC).
Net income for the year came to 15.2 million euro, reporting an absolute increase of 5.2 million
euro (+51.5%) on 2007.
125
Cariprato S.p.A.
Balance sheet and income statement highlights
(in millions of euro)
Balance sheet highlights
Direct deposits
Indirect deposits
Loans to customers
Total Assets
Risk-weighted assets (RWA)
Equity
(including net income for the year)
Regulatory capital
Income statement highlights
Net interest income
Net interest
and other banking income
Operating costs
of which: payroll
Net income for the year
Other information
Number of employees at year-end
Number of branches
126
31/12/2008
31/12/2007
Change
(+/-)
%
2,871
1,671
3,394
3,897
3,041
2,684
2,064
3,193
3,811
3.394
187
-393
201
86
-353
7.0
-19.0
6.3
2.3
-10.4
279.1
267.0
288.8
268.1
-9.7
-1.1
-3.4
-0.4
122.1
109.4
12.7
11.6
161.4
-117.4
-73.2
0.5
156.3
-109.8
-64.7
12.2
5.1
-7.6
-9
-11.7
3.3
6.9
13.1
-96.2
31/12/2008
31/12/2007
990
94
980
92
Change
(+/-)
%
10
2
1.0
2.2
Key performance indicators
Structure ratios (%)
Loans to customers / Total assets
Direct deposits / Total assets
Loans to customers / Direct deposits
Profitability and efficiency ratios (%)
Net income for the year /
Equity excluding net income for the year (ROE)
Net income for the year /
Total average assets (ROAA) (1)
Cost/Income (2)
31/12/2008
31/12/2007
Change
2008/2007
87.1%
73.7%
118.2%
83.8%
70.4%
119.0%
3.3 p.p.
3.3 p.p.
-0.8 p.p.
0.2%
4.4% -4.2 p.p.
0.0%
71.4%
0.3%
66.7% -0.3 p.p.
4.7 p.p.
2.8 3.4 4.0%
3.3%
165.2 0.4%
4.96%
2.16%
39.82%
27.95%
3.84%
1.64%
38.73%
27.68%
1.12 p.p.
0.52 p.p.
0.27 p.p.
1.09 p.p.
8.86%
8.86%
6.47%
6.47%
2.4 p.p.
2.4 p.p.
8.78%
7.90%
0.9 p.p.
Productivity ratios (3)
Direct deposits per employee (in millions of euro)
3.0
Loans to customers per employee (in millions of euro) 3.5
Net interest and other banking
income per employee (in thousands of euro)
165.9
Risk ratios (%)
Net impaired loans/Net loans
Net non-performing loans/Net loans
Non-performing loans coverage (%)
Impaired loans coverage (%)
Capital adequacy ratios (%)
Core Tier 1
Tier 1 (Tier 1 capital / Total weighted assets)
Total Capital Ratio
(Regulatory capital / Total weighted assets)
Cariprato, 79% owned by Banca Popolare di Vicenza (which carries it at a book value of 404.8
million euro), is a retail bank with its home in the Prato business district. It has expanded significantly
in recent years (as many as 25 new branches were opened between 2006 and 2007), with the number
of branches rising from 53 at the end of 2002, concentrated just in the provinces of Prato, Florence
and Pistoia, to 94 at present, which are spread all over Tuscany.
At 31 December 2008, the bank had 990 employees, of whom 89 with part-time contracts.
This was 10 more than a year earlier (+1%) and reflected 36 joiners and 26 leavers. The net
increase of 10 since the end of 2007 involved strengthening both the commercial network and the
management team.
The bank’s total deposits amounted to 4,542 million euro at 31 December 2008, 4.3% less than a year
earlier.
Total average assets are determined as the simple average of total assets at the end of the current year and at the end
of the previous year.
2
This is the ratio of administrative costs (line item 150) plus net adjustments to property, plant and equipment and intangible assets (line items 170 and 180) to net interest and other banking income (line item 120) plus other operating
charges/income (line item 190).
3
The productivity indicators are calculated with reference to the average number of employees.
1
127
Direct deposits from customers amounted to 2,871 million euro at 31 December 2008, up 7.0%
on a year earlier, while indirect deposits were 19.0% lower at 1,671 million euro, with 28.8% of the
decrease attributable to asset management and 9.9% to asset administration, reflecting not only the
collapse in market values, particularly of shares and corporate bonds, but also the transfer of funds
into the bank’s bonds, preferred by customers as a low-risk investment.
Loans to customers rose by 6.3% on 2007 to 3,394 million euro at the end of 2008.
With reference to the indicators of credit risk, the ratio of net impaired loans to net loans (including
those loans represented by “Assets sold but not derecognized”) went from 3.8% at 31 December
2007 to 5.0% at 31 December 2008, while the ratio of net non-performing loans to net loans climbed
from 1.6% to 2.2%.
The coverage of impaired loans went from 27.7% at 31 December 2007 to 28.0% at 31 December
2008, while that of non-performing loans rose from 38.7% to 39.8%.
In terms of the income statement, net interest income rose by 11.7% on 2007 to 122.1 million euro,
while net interest and other banking income climbed by 3.3% to 161.4 million euro.
Net fee and commission income was 4.2% lower, entirely attributable to lower income from
placement activities and operations in the asset administration and management sector. Commission
on commercial operations with customers were stable, while that on the disbursement of syndicated
loans rose considerably.
The negative performance of the local economy caused an increase in impaired loans with a
consequent increase in loan impairment adjustments, which rose from 21.8 million euro in 2007 to
36.7 million euro in 2008 (+68.2%).
Payroll costs, excluding 4.7 million euro in charges for accessing the Solidarity Fund in 2008, climbed
by 5.5%. This partly reflects increases after fully staffing the branches opened in 2007. The growth
of 6.5% in other administrative costs is largely a reflection of the bank’s territorial expansion.
Operating costs as a whole increased by 6.9%.
As a consequence of the above factors, profit from current operations before tax came to 7.2 million
euro, compared with 24.4 million euro in 2007, while net income for the year was 96.2% lower at
0.46 million euro, down from 12.2 million euro in 2007.
128
Farbanca S.p.A.
Balance sheet and income statement highlights
(in millions of euro)
Balance sheet highlights
Direct deposits
Indirect deposits
Loans to customers
Total Assets
Risk-weighted assets (RWA)
Equity
(including net income for the year)
Regulatory capital
Income statement highlights
Net interest income
Net interest
and other banking income
Operating costs
of which: payroll
Net income for the year
Other information
Number of employees at year-end
Number of branches
31/12/2008
31/12/2007
Change
(+/-)
%
95.5
21.2
319.0
341.2
287.5
65.0
25.7
206.0
239.5
226.2
30.5
-4.5
113.0
101.7
61.3
46.9
-17.5
54.9
42.5
27.1
37.4
35.9
35.8
34.7
1.6
1.2
4.5
3.5
8.9
6.1
2.8
45.9
9.7
-4.2
-2.4
2.7
6.7
-4.0
-1.8
1.6
3.0
-0.2
-0.6
1.1
44.8
5.0
33.3
68.8
31/12/2008
31/12/2007
29
1
28
1
Change
(+/-)
%
1
0
3.6
0.0
129
Key performance indicators
Structure ratios (%)
Loans to customers / Total assets
Direct deposits / Total assets
Loans to customers / Direct deposits
Profitability and efficiency ratios (%)
Net income for the year /
Equity excluding net income for the year (ROE)
Net income for the year /
Total average assets (ROAA) (1)
Cost/Income (2)
31/12/2008
31/12/2007
Change
2008/2007
93.5%
28.0%
334.0%
86.0% 27.1% 316.9%
7.5 p.p.
0.9 p.p.
17.1 p.p.
7.8%
4.7%
3.1 p.p.
0.9%
44.3%
0.7% 58.0%
0.2 p.p.
-13.7 p.p.
2.3 7.4 41.9%
49.5%
239.3 39.8%
1.41%
0.20%
76.61%
37.53%
1.90%
0.28%
66.28%
28.06%
-0.49 p.p.
-0.08 p.p.
10.33 p.p.
9.47 p.p.
12.49%
12.49%
15.34%
15.34%
-2.9 p.p.
-2.9 p.p.
12.49%
15.34%
-2.9 p.p.
Productivity ratios(3)
Direct deposits per employee (in millions of euro)
3.3
Loans to customers per employee (in millions of euro) 11.0
Net interest and other banking
income per employee (in thousands of euro
334.5
Risk ratios (%)
Net impaired loans/Net loans
Net non-performing loans/Net loans
Non-performing loans coverage (%)
Impaired loans coverage (%)
Capital adequacy ratios (%)
Core Tier 1
Tier 1 (Tier 1 capital / Total weighted assets)
Total Capital Ratio
Total Capital Ratio (Regulatory capital /
Total weighted assets)
Farbanca is an on-line bank specializing in the offer of banking services to pharmacies; the
Parent Bank Banca Popolare di Vicenza owns a direct interest of 47.52%, carried at a book
value of 22.9 million euro.
It had 29 employees at 31 December 2008; its commercial structure at this date was unchanged,
with three representative offices in Milan, Naples and Catania which follow customers in these
areas, while the office in Bologna follows all other customers. The bank has a team of financial
promoter employees for door-to-door services, who have been trained in-house to acquire
knowledge of this sector and the ability to serve the bank’s pharmacist customers.
Net of impairment adjustments, loans amounted to 319.0 million euro at 31 December 2008,
54.9% more than at 31 December 2007; direct deposits climbed by 47.0% to 95.5 million euro
while indirect deposits fell by 17.6% to 21.2 million euro.
Total average assets are determined as the simple average of total assets at the end of the current year and at the end
of the previous year.
2
This is the ratio of administrative costs (line item 150) plus net adjustments to property, plant and equipment and intangible assets (line items 170 and 180) to net interest and other banking income (line item 120) plus other operating
charges/income (line item 190).
3
The productivity indicators are calculated with reference to the average number of employees.
1
130
The income statement reports 9.7 million euro in net interest and other banking income, an
increase of 43.8% on the prior year primarily thanks to a 45.1% growth in net interest income to
8.9 million euro, reflecting significant growth both in average volumes and in market rates.
Net impairment adjustments to loans amounted to 1.1 million euro, compared with 141 thousand
euro in writebacks in 2007.
Operating costs were 5.5% higher at 4.2 million euro, up from 4.0 million euro in 2007. The
containment of costs combined with an increase in margins helped the cost/income ratio improve
from 58.0% in 2007 to 44.3% in 2008.
Profit (loss) from current operations before tax was significantly higher, climbing from 2.8 million
euro in 2007 to 4.3 million euro at 31 December 2008 (+52.0%).
Net income for the year soared 70.9% to 2.7 million euro from 1.5 million euro in 2007.
Performance of other group companies
PrestiNuova S.p.A.
Banca Popolare di Vicenza has a direct interest of 6.33% in PrestiNuova and an indirect one of
88.67% through Banca Nuova; this company has a total carrying amount 33.1 million euro. Its core
business comprises “lending secured against one-fifth of salary/pension” and loans, particularly to
public-sector employees, that are repaid through withholdings from salaries/pensions.
In fact, PrestiNuova was set up to rationalize and enhance the Group’s existing business in the
consumer credit sector, especially after Banca Nuova made a three-year agreement in 2004 with
INPDAP (Italy’s social security agency for public-sector employees) for the disbursement of
loans to pensioners as well, with repayment automatically deducted at source. This agreement
was renewed during the second half of 2007. The temporary business group (comprising
PrestiNuova, Banca Popolare di Vicenza, Banca Nuova and Cassa di Risparmio di Prato) is one
of the leading banks and financial institutions partaking in the new agreement (which involves
managing loans secured against/repaid from pensions and public-sector employee wages, and
disbursing specific consumer loans and mortgages). This has placed PrestiNuova in a position of
privilege as well as offering it important opportunities for development.
The company’s distribution network at 31 December 2008 comprised 25 offices within branches
of group banks and 4 separate offices in the cities of Genoa, Naples, Padua and Vicenza.
PrestiNuova had 65 employees at 31 December 2008.
At 31 December 2008 “Loans secured against one-fifth of salary”, representing all of the
company’s lending, amounted to 368.5 million euro, net of impairment adjustments, compared
with 313.4 million euro at 31 December 2007 (+17.6%).
In terms of its income statement, Prestinuova closed 2008 with 2.8 million euro in net income,
1.7% more than the year before.
Net interest income was 16.4% higher than in 2007 at 10.3 million euro, accounting for 91.1%
of net interest and other banking income.
Net fee and commission income of 1.0 million euro accounted for the remaining 8.9% of net
interest and other banking income, most of which commission income passed back to the
company from insurance companies in relation to life and job-loss insurance policies taken out
by customers to secure the loans received.
131
Net interest and other banking income was 13.4% up on the prior year at 11.4 million euro.
Net impairment adjustments to loans came to 1.2 million euro in 2008 compared with 201
thousand euro in 2007.
Administrative costs were 24.6% higher at 5.8 million euro, of which 3.9 million euro related
to payroll costs (+27.0%) and 1.9 million euro to other administrative costs (+20.0%). The
increase in administrative costs particularly reflects investment in strengthening the company’s
structure and sales network.
Profit from current operations before tax came to 4.9 million euro, down 6.1% on 2007.
The cost/income ratio, serving as an overall indicator of operating performance, was 50.5% in
2008 compared with 49.7% in the previous year.
After deducting 1.8 million euro in tax (corresponding to a tax rate of 39.6%), net income for
the year came to 2.8 million euro, an increase of 1.7% on the prior year.
BPV Finance (International) Plc
This Irish-registered company is 99.99% owned by Banca Popolare di Vicenza and operates out
of Dublin’s International Financial Services Centre. The carrying amount of this investment is
93.4 million euro. BPV Finance specializes in proprietary trading, and carries out its business by
investing in securities of Italian and international companies and by providing loans to foreign
subsidiaries of the Group’s corporate customers in Italy. More specifically, the company’s
portfolio, which has a generally high rating, mostly consists of bonds issued by European and
US banks and financial institutions, corporate securities, asset backed securities (ABS) (with
European and US collateral), shares traded on the Italian Stock Exchange and commercial loans
granted to foreign subsidiaries of Italian companies.
The year 2008 was a rather critical one for BPV Finance with the recent financial crisis having
a major impact on its investment portfolio, which suffered severe losses in view of its typical
investment activities, the types of securities in its portfolio and the evident instability of financial
markets during the year.
The portfolio of banking securities was hard hit by this crisis, being the prime sector affected by
defaults on US subprime loans. BPV Finance nonetheless managed to limit its losses by reducing
exposure to positions considered most at risk and by exploiting the few market opportunities
emerging during the year.
The corporate portfolio suffered less than the financial sector one, even if it now reflects
expectations for lower profits in every segment of industry; BPV Finance’s exposure to the
corporate segment is nonetheless very limited.
The subsidiary’s ABS portfolio suffered serious losses in 2008, mainly because of the impairment
of certain positions relating to European residential mortgages and to the commercial sector.
Despite the high credit rating of the bonds held, this portfolio is exposed to the market risks of
this sector, even if the portfolio does not contain any “toxic” securities and its exposure to the
United States is only marginal.
The subsidiary’s equity portfolio suffered from its exposure to the financial sector, with regard
to financial instruments held both for trading and for investment purposes. This portfolio
also suffered a major loss on a single position relating to a hedge fund associated with a recent
financial fraud by a US businessman, that came to light in December 2008.
132
As a result, the subsidiary closed 2008 with a loss of 37.2 million euro, with a negative
contribution on the Group’s result of 21.7 million euro (after consolidation adjustments), and
a reduction of 7.6 million euro in its equity for changes in the fair value of available-for-sale
financial instruments. The company’s equity amounted to 41.2 million euro at 31 December 2008.
B.P.Vi Fondi SGR S.p.A.
This company is 50% controlled by Banca Popolare di Vicenza, which carries it at a value of 5.2 million
euro. B.P.Vi Fondi acts as the asset manager for the entire Banca Popolare di Vicenza Group and
supports the placement business by the provision of training and information to the sales network.
Verona Gestioni Sgr was merged into BPVi Fondi Sgr in November 2008, with the goals of creating
a “product factory” devoted to the asset management sector at the service of the BPVi Group and
Cattolica Assicurazioni and of achieving major synergies through this combination.
The company reported a considerable outflow of assets in 2008, like for the rest of the asset management
industry nationwide, causing a contraction in the assets under management. This trend was particularly
affected by customer disaffection for asset management products, especially by those customers with a
low propensity for risk, who preferred liquid investments with known returns given the highly uncertain
and volatile situation on financial markets. The contraction in volumes had a consequent impact on the
company’s results, which closed 2008 with 914 thousand euro in net income.
Nordest Merchant S.p.A.
This company, 80% owned by Banca Popolare di Vicenza and reported in its financial
statements at a carrying value of 3.3 million euro, is the Group’s merchant bank. Its main
business is the provision of extraordinary finance to small and medium enterprises, particularly
involving acquisition financing, corporate finance and mergers and acquisitions, also through
its two wholly-owned managers of closed-end and speculative investment funds (NEM Sgr and
NEM 2 Sgr). The company reported 828 thousand euro in net income for 2008.
NEM SGR S.p.A.
This wholly-owned subsidiary of Nordest Merchant S.p.A. carries out collective asset
management activities by promoting, launching and managing closed-end mutual funds. The
company reported 433 thousand euro in net income for 2008.
NEM 2 SGR S.p.A.
This company, formed in October 2006 as a wholly-owned subsidiary of Nordest Merchant
S.p.A, carries out collective asset management by promoting, launching and managing
speculative mutual funds and particularly mezzanine funds. NEM 2 SGR, in operation since
May 2007, continued to manage the “NEM Mezzanine” fund throughout 2008 but terminated
“NEM Mezzanine II”, a new speculative fund, in advance of its natural expiry. The company
reported 579 thousand euro in net income for 2008.
Nuova Merchant S.p.A.
This wholly-owned subsidiary of the Banca Popolare di Vicenza Group provides support and
development services for business projects in Central and Southern Italy. Nuova Merchant
closed 2008 with a loss of 3.5 million euro. As a result of the subsidiary’s negative performance,
the Parent Bank voted to cover its losses and reinstate its capital stock to the legal minimum after
having resolved to transform its legal status from that of an “S.p.A.” (joint stock company) to an
“S.r.l.” (limited liability company). In order to ensure continued business, it was also resolved that
the company would be absorbed by Nordest Merchant S.p.A., a BPVi Group company also active
in the merchant banking sector. The merger will come into effect during the first half of 2009.
133
Servizi Bancari S.p.A.
This wholly-owned subsidiary of Banca Popolare di Vicenza provides back office and IT services
to the Group’s companies. The transformation of Servizi Bancari from a joint stock company into
a co-operative came into effect in February 2009; this transformation had been approved in an
extraordinary stockholders’ meeting in December 2008 with the aim of optimizing the benefits of
rationalizing back office processes for the banking group as a whole. In addition, during the same
month Banca Popolare di Vicenza, Cariprato and Banca Nuova formalized the transfer of their
respective back offices to Servizi Bancari, as envisaged in the Business Plan for 2008-2011; at the
same time, Servizi Bancari transferred its ICT activities to Banca Popolare di Vicenza.
The company reported 324 thousand euro in net income for 2008.
Immobiliare Stampa S.p.A.
This wholly-owned subsidiary of Banca Popolare di Vicenza, with a carrying value of 195.9 million euro,
manages the real estate portfolio of Banca Popolare di Vicenza and provides it, along with Cariprato
and Banca Nuova, with real estate services, as well as carrying out administrative activities relating to the
management of group properties leased to third parties and of third-party properties leased by group
companies. The company reported 2.8 million euro in net income for 2008.
Monforte 19 S.r.l.
This company, a wholly-owned subsidiary of Banca Popolare di Vicenza, is the owner of two
prestigious buildings in Milan, let to third parties outside the banking group. This company’s
carrying amount is 13.7 million euro. It closed 2008 with a loss of 1.7 million euro.
ATYPICAL AND/OR UNUSUAL TRANSACTIONS
Atypical and/or unusual transactions are defined as all significant transactions, as defined in the
explanatory notes to the condensed consolidated, which due to the nature of the counterparties,
the purpose of the transactions, the method of determining the transfer price or the timing of the
event (proximity to the accounting reference date) may give rise to doubts about the correctness/
completeness of the information reported in the financial statements, about possible conflicts
of interest, the safeguarding of company assets or the protection of minority stockholders. As
required by CONSOB Communication 6064293 dated 28 July 2006, it is reported that no
atypical and/or unusual transactions were undertaken in 2008 such as to have a significant
impact on the balance sheet, results of operations and financial position of the Banca Popolare
di Vicenza Group.
134
INVESTOR PROTECTION ACT: NEW FIGURE
OF THE “FINANCIAL REPORTING MANAGER”
The process of revising the rules and models of corporate governance already started for listed
companies under Law 262 dated 28 December 2005 (“Provisions for the protection of investors
and regulation of financial markets”, which amended the Consolidated Financial Markets Act
(Decree 58/98), has been extended under Decree 195 dated 6 November 2007 to companies
which issue financial instruments that are admitted to trading on regulated markets; the latter
decree was in implementation of the Transparency Directive (Directive 2004/109/EC) on the
harmonization of transparency requirements.
Like with the US experience of implementing the Sarbanes-Oxley Act, these laws address the
problems of financial markets, and enhance and amend the rules on corporate governance,
banking transparency, auditing, systems of administration and control, and the system of
penalties and fines, with the aim of integrating and perfecting the tools for protecting investors
and restoring confidence in the markets and their credibility.
These new laws have introduced the new figure of the “Financial reporting manager” (art. 154bis – Consolidated Financial Markets Act) and establish that the Board of Directors (or other
delegated bodies) and the Financial Reporting Manager have specific responsibilities and duties
in order to ensure the true and fair presentation of the balance sheet, income statement and
financial position of the issuer and of the group of companies included in the consolidation.
Banca Popolare di Vicenza has issued bonds that are listed on the Luxembourg Stock Exchange
as part of its European Medium Term Notes programme, choosing Italy as its member state of
origin. As a result, it is now obliged under art. 154-bis of the Consolidated Financial Markets
Act as amended by Decree 195/2007 which adopted the Transparency Directive, to establish the
position of a Financial Reporting Manager.
In view of these legal requirements, the Parent Bank’s Board of Directors:
− amended the Bank’s articles of association (art. 39) on 3 June 2008 to establish the position
of “Financial Reporting Manager”, as well as the required experience that such person must
have and the methods of their appointment;
− appointed Franco Tonato, the Deputy General Manager in charge of the Financial Reporting
and Equity Investments Department, as Financial Reporting Manager on 17 June 2008,
after verifying his integrity and experience and having obtained the consent of the Board of
Statutory Auditors;
− delegated its functions on 28 August 2008 regarding the attestation under art. 154-bis of the
Consolidated Financial Markets Act to Divo Gronchi, the Managing Director;
− approved on 23 September 2008 the Governance and Control Model for accounting and
administrative processes (Organizational and methodological model of the Financial
Reporting Manager).
In compliance with the mandate received from the Board of Directors, the Financial Reporting
Manager had rapidly embarked on a project with the assistance of Deloitte Consulting,
designed:
− to foster full compliance with the new law, with particular reference to the contents of art.154bis of the Consolidated Financial Markets Act;
− to adopt a method of governance and control that ensures the Financial Reporting Manager
a constant and complete vision of the areas of business that are effectively relevant for the
purposes of preparing the company’s financial reports.
135
This project, which was started in July 2008, involved two modules:
− Module 1: Design of the Financial Reporting Manager Model;
− Module 2: Development and application of the Model to the processes of Credit, Finance and
Consolidation, deemed to be particularly “sensitive” for financial reporting purposes.
Module 1 was completed on 23 September 2008 when the Board of Directors of Banca Popolare
di Vicenza approved the Financial Reporting Manager Governance and Control Model and the
related operational manual.
Module 2, which started in September 2008, has developed and applied the Model relating to:
− the process of Credit at Banca Popolare di Vicenza and its subsidiaries Cariprato and Banca Nuova;
− the process of Finance at Banca Popolare di Vicenza and BPV Finance;
− the process of the Group’s financial consolidation.
The review of the adequacy of the processes examined revealed that the Group is exposed to a
generally “acceptable” level of accounting and administrative risk.
These results provide top management and the Financial Reporting Manager with reasonably
certainty that the above processes which generate accounting data are adequately controlled
and that the related controls are effectively applied, and allow the Financial Reporting Manager
and Managing Director to make their attestation on the individual and consolidated financial
statements for 2008.
SIGNIFICANT SUBSEQUENT EVENTS
With reference to the disclosure of significant events subsequent to year end, required by article
2428 (5) of the Italian Civil Code, this information can be found in the explanatory notes in Part
A “Accounting policies” - Section 3 “Subsequent events”.
OUTLOOK FOR OPERATIONS
The latest economic data and market surveys confirm that the Euro-zone and its principal trading
partners are going through a prolonged period of major economic slowdown, made worse by a
persistent and exceptionally high level of uncertainty. The latest forecasts for 2009 have revised
down economic growth in the Euro-zone to around -2.5%, with only a slight recovery in 2010.
Inflationary pressures are diminishing in the Euro-zone. Annual inflation could come down even
more in coming months, mainly because of the underlying effects of past trends in energy prices,
and by mid-year it could reach a very low level indeed. However, inflation is expected to start
increasing again in the second half of the year because of the same underlying effects.
As for the Italian economy, the signs are that 2009 will also be a year of recession. GDP is
expected to contract by around 2.5% relative to 2008, the same amount currently estimated for
the Euro-zone as a whole. The additional contraction in economic activity in 2009 will be mostly
determined by the strong adverse impact bequeathed by the downturn in the last part of 2008 to
136
the current year. Furthermore, the most recent economic indicators, especially in the first part of
2009, reveal a situation dominated, with few exceptions, by negative signs. There are a few weak
signs of improvement in consumer confidence, thanks to the rapid retreat in inflation, while the
news relating to industrial activity continues to be very bad. In fact, business confidence is at
an all-time low, affected by a fresh shrinkage in order books for both the domestic and export
markets, while there is a continued increase in the number of businesses that are practising
forms of credit rationing to others.
As for credit markets, the outlook is equally difficult and uncertain for the whole of 2009, due
not only to the slower growth in volumes intermediated but also to the expected reduction
in the spread between banking lending and borrowing rates. In fact, the business of financial
intermediaries will probably continue to be severely affected throughout 2009 by the effects
of the liquidity crisis exploding in 2008. This factor, combined with the deterioration in the
macroeconomic environment will cause a further slowdown in the growth in bank lending. With
continued lack of confidence on the interbank market, the need for banks to satisfy their funding
requirements should carry on supporting the growing trend in direct funding from traditional
channels, especially from bonds. The worsening economic scenario will cause an increase in
problem loans (watchlist and non-performing) both in the household and corporate segments,
with a consequent rise in risk indices. As regards the asset management sector, the liquidity needs
of banking intermediaries and continued high demand for government debt securities by savers
should penalize net inflows to funds and personal asset management, causing another contraction
in volumes, which are expected to start rising only in 2010. The profitability and efficiency of the
banking system is expected to worsen in 2009 relative to 2008, basically because of a contraction
in net interest and other banking income and an increase in adjustments, only partly offset by
greater focus on reducing operating costs. Income, in particular, could be affected by reduced
volumes of lending and a reduction in the spread between bank lending and borrowing rates, as
well as by another decrease in asset management revenue.
In this decidedly unfavourable context that is opening up for 2009, the BPVi Group is seeking
to face the risks and operational difficulties with prudence, but also with reasonable optimism,
in compliance with the values of a co-operative bank at the service of its territory. The level
of capitalization achieved, considered adequate and reassuring, and the policy of reducing
liquidity risks, implemented by developing “traditional” direct funding from customers and
using and increasing the quantity of securities that can be refinanced with the ECB, should
make it possible to provide constant support to companies and individuals, through a growth in
lending, albeit selectively, by exploiting the competitive advantage typical of local banks, based
on their extensive knowledge of local business, supported by the new methods and instruments
for more effective credit risk management described in this report. The Parent Bank’s Board of
Directors has approved a budget which forecasts loans to grow by more than 10%, dependent
on the Group’s ability to finance this with direct customer deposits. A key contribution to the
Group’s profitability should nonetheless come, as predicted in the Business Plan 2008-2011 and
confirmed in the Budget for 2009, from enlargement of the customer base, full operation of the
new branches, resulting from recent internal and external-led growth, and from full exploitation
of the strategic partnerships in the sectors of insurance/pensions and asset management. There
nonetheless continue to be high risks relating to the economy and strong uncertainties over the
recovery in financial markets, which could cause a higher-than-expected level of adjustments
and an insufficient contribution from trading activity, with a consequently negative impact on
the Group’s earnings. In summary, as stated in the Budget for 2009, the BPVi Group considers
that it is adequately “equipped” to face the risks and uncertainties of the current year and to
continue effectively pursuing its corporate mission, with the achievement of another positive set
of results in 2009.
137
PROPOSED ALLOCATION OF NET INCOME
Stockholders,
We propose that you should approve the following allocation to equity reserves out of the net
income for the year, which amounted to Euro 151,035,348.32:
Euro
Euro
Euro
10,000,000.00 = to the Legal reserve;
32,000,000.00 = to the Extraordinary reserve;
28,000,000.00 = to the reserve for the purchase of treasury shares.
Following these allocations, we propose that you allocate the residual amount of Euro
81,035,348.32 as follows:
Residual income available for allocation
•
•
To the Stockholders:
– € 1.15 or each of the 68,106,390 shares outstanding with
full enjoyment rights (on the basis described below)
To the Directors
• To social support, charities, culture and the public interest
Total
81,035,348.32
78,322,348.50
1,437,158.47
1,275,841.35
81,035,348.32
The dividends declared will become payable with a value date of 30 April 2009.
In terms of how the dividend will be paid, we propose making the payment partly in cash
(12.50%) and partly by allotment of the treasury shares held by the Bank (87.50%).
The treasury shares held by the Bank would be allotted to each stockholder in proportion to the
shares already held, as rounded down if the number of shares due is not a whole number. Any
fractions of shares would be also be settled as a cash payment.
The above proposal is justified by the need to strengthen consolidated stockholders’ equity and
improve the Group’s prudential coefficients. Considering that the shares to be allotted were
purchased by the Bank at a price of 60 euro per share, this method of payment will not dilute
the stockholders, which would be the situation in the event of a capitalization issue of shares.
.
138
GLOSSARY
ABS
Securities deriving from securitizations and, therefore, guaranteed
(Asset backed securities) by a portfolio comprising various underlying assets (consumer loans,
credit cards, mortgages, lease installments etc.).
Acquisition financing Loans financing the acquisition of businesses
ALMS
Asset & Liability Management System. This is an instrument for
measuring interest rate risk relating to interest-bearing assets and
liabilities and identifies how changes in rate curves influence the Bank’s
future profit margins.
The ALMS is a valid tool for management allowing it to assess ex-ante at
what level of risk the Bank intends to position itself in expected financial
scenarios and to estimate the value of balance sheet items by discounting
future cash flows, thus keeping a constant eye on the Bank’s value.
Euro-zone
The group of countries which have adopted the euro as the single
currency. The Euro-zone comprises the following countries: Belgium,
Germany, Greece, Spain, France, Ireland, Italy, Cyprus, Luxembourg,
Malta, Holland, Austria, Portugal, Finland, Slovenia and, starting from
1 January 2009, Slovakia.
Assessment An assessment is an evaluation involving an opinion on the likely turn of
the events assessed.
Asset management
The management of wealth on behalf of third parties, comprising
collective management (open-end and closed-end mutual funds,
real estate funds, pension funds and SICAVs), endowment assurance
products and individual management (by banks, brokers and trust
companies).
ATM
Automatic Teller Machine: a machine for dispensing cash. The
“Bancomat” machines installed by banks are ATMs.
Back office
The department of a financial institution which deals with all the
disclosure, accounting and administrative requirements relating to
transactions carried out by the front office (branches).
Backtesting
Retrospective analysis to test the reliability of measurements of the
sources of risk associated with asset positions.
Banking book
Generally relates to securities and financial instruments in general,
identifying that part of the investment portfolio held for internal purposes.
ECB European Central Bank. This meets periodically to analyze the economic
situation in Europe (GDP, inflation, unemployment rate etc) and to
decide monetary policy.
Benchmark
Indicator, measure, reference parameter against which a company
assesses its performance relating to products, services, business
processes.
139
Securitization
A securitization represents a special issue of bonds with the payment
of coupons and the redemption of principal on maturity funded by
the cash flows deriving from a portfolio of financial assets (mortgages,
commercial paper, leasing contracts) held by the vehicle company (v.)
issuing the securitization. Each securitization is divided into various
tranches of bonds with different ratings (from AAA to BBB or even
lower), depending on the credit risk involved.
CDO (Collateralised Securities issued as part of securitization transactions, guaranteed by
Debt Obligations)
an underlying represented by loans, securities or other financial assets.
Certificates
These are derivative instruments quoted on a market in the form of
negotiable securities. They replicate the performance of an underlying
asset. They can have a leverage effect or otherwise. The issuer who
quotes them is liable for reimbursing them to the holder at maturity.
Compliance (function) The compliance function serves to prevent the risk of non-compliance
by company activity with compulsory regulations and laws or selfregulatory ones (for example, articles of association, codes of conduct,
self-regulatory codes etc.).
140
Economic trend
This indicates the general state of the national economy and its related
growth trend.
Consob
The “Commissione Nazionale per le Società e la Borsa” (Italian
stockmarket regulator), set up under Law 216 dated 7 June 1974, is
an independent administrative authority, with a separate legal identity
and full autonomy under Law 281/1985, whose activities are aimed at
investor protection, and the efficiency, transparency and development of
the Italian stock market.
Corporate finance
Comprises the full range of products offered by the Bank to meet the
financing and consultancy needs of businesses.
Cost income
An economic indicator which expresses in percentage terms the ratio
between a bank’s cost and its income. The lower it is the more efficient
the bank..
Performing loans
Loans for which no risk of default is perceived.
Creditor protection
insurance
An insurance policy combined with financial products which allow
customers to insure the residual debt or repayment instalment against
the occurrence of events that might make such repayment difficult (eg.
death, permanent disability or loss of employment).
Period
-on-period growth Growth relative to the previous reporting period
(for example, the previous quarter).
Year-on-year growth
Growth relative to the same period in the prior year.
CRM (Customer
Relationship
Management)
Methods and software products that contribute to optimizing
the management of customer relationships.
Cross selling
This is an indicator of the average number of products held by each
customer; the higher the number of products held, the greater the
degree of customer loyalty and the more profitable the relationship.
Probability
of default (PD)
The probability that a counterparty enters a state of default, even if
temporarily, before the end of the reference period (one year). This
measure is the output of a rating system.
Euribor
Euribor (Euro Interbank Offered Rate) is the principal market reference
rate and is calculated as the weighted average of interest rates applied
to financial transactions in euro between prime European banks. It is
published on a daily basis by the European Banking Federation with
quotations for 1 month, 3 month and 6 month maturities.
Fair Value
The amount at which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
FED
Federal Reserve System. This is the central bank of the United States,
authorized by Congress to issue money and implement monetary policy;
it thus determines the quantity of the money supply and sets the level of
interest rates.
Financial Stability
Forum (FSF)
The FSF is an international entity created by the G7 in February 1999
with a view to promoting the stability of the international financial
system. The Forum comprises senior members from the national
financial authorities (e.g. central banks, supervisory authorities, treasury
departments), international financial institutions and international
supervisory and regulatory bodies, committees of central bank experts
and the European Central Bank. Mario Draghi, governor of the Bank
of Italy, is currently chairman of the Forum. The FSF maintains a small
secretariat at the Bank for International Settlements in Basel.
Governance This term is used to refer to the governing bodies of a company and the
associated rules (voting rights, hierarchies etc.). It indicates the set of
principles and processes adopted by a company to create value for its
stockholders and the well-being of its other stakeholders.
Home banking, Telematic connection to access bank accounts, carry out transactions
Remote banking and check movements and terms and conditions.
House organ
Periodic publication by a business to communicate with its employees
and/or customers.
IAS/IFRS
International Accounting Standards/International Financial Reporting
Standards. These are the international accounting standards issued
by the IASB (International Accounting Standards Board), whose
application is compulsory (under a decree published in November
2004) for the purposes of preparing separate and consolidated financial
statements by a wide array of companies, including banks.
Impairment
In the context of international accounting standards (IAS), impairment
represents the loss in the value of an asset that is recognized if its
carrying amount exceeds its recoverable value, being the amount that
141
could be obtained by selling it or using it in the business. Impairment
testing must be performed on all assets, except for those measured at fair
value since, in this case, any losses (or gains) are implicit in such value.
ISAE ISAE (Institute for studies and economic analysis) is a public research
body that mainly carries out analysis and studies in support of the social
and economic policy decisions taken by the government, parliament and
the public administration.
ISTAT
Italy’s publicly-operated central statistics office. It has been in operation
since 1926 and is the principal producer of official statistics in support
of citizens and public policy-makers.
ISVAP
This institute supervises the insurance industry. It has a separate legal
identity under public law and was set up under Law 576 dated 12
August 1982 to supervise insurance and reinsurance companies, and all
other parties governed by the law on private insurers, including agents
and insurance brokers. ISVAP carries out its duties on the basis of
government-determined policy.
Joint venture
A company or business set up under joint ownership for a specific
purpose.
Mark-down
Negative differential relative to a reference indicator, normally an
interbank rate, applied to the rate on customer deposits.
Mark-up
Positive differential relative to a reference indicator, normally an
interbank rate, applied to the rate on loans to customers.
Merchant Banking
This comprises a series of services to companies such as: investments in
risk capital, advice on special financing transactions etc., mainly for the
purpose of company reorganization, growth in business, or satisfaction
of financial needs in view of a subsequent sell-off.
Mezzanine financing A type of financing with characteristics partly similar to debt and partly
similar to an equity interest. It generally takes the form of convertible
bonds or warrants.
142
Mission
A clear statement of strategic objectives that a company wants to achieve
and which must be widely shared by its entire organization.
Multi-channel
activities The offer of retail banking products and services both through
traditional physical channels (branches) and through telematic channels
OTC (market)
Over the counter market. All those “markets” in which financial assets
are traded other than official regulated ones. The methods of contracting
are not standardized and it is possible to agree “atypical” contracts.
Securities traded on an OTC market are generally less liquid that those
traded on official markets.
Outlook
When used by rating agencies, this means a company’s forecast or
prospects.
GDP
Acronym of Gross Domestic Product. It refers to the value of all goods
and services produced by an economy, plus indirect taxes on imports
less goods for intermediate consumption. It is the fundamental measure
of economic activity. In national accounting, GDP is the same as
national income.
POS
POS (Points of Sale) are small terminals at cash registers in shops and
supermarkets used for making payments with debit or credit cards.
Rating
Classification or rating of an issuer of securities on international financial
markets, by a specialist agency. A rating expresses the creditworthiness
of issuers of bonds using letters that indicate the debtor’s reliability.
For example, a triple A (AAA) rating represents the highest quality
investment grade; the scores descend progressively (AA, A, BBB, BB,
B). Triple C (CCC) ratings are awarded to the least reliable debtors.
Recession
Negative economic situation featuring a reduction in industrial output, a
fall in consumption, and a decrease in household income.
Risk management
This refers to all practices (measurements, estimates, analyses, actions)
that allow the Bank to be constantly and promptly informed about
the status of risks to which it is exposed and any changes therein
and to be able to intervene when the risks requires mitigating and/or
the instruments and functions of control require revision. The Risk
Management unit is independent from the units that assume risk and
is responsible for developing methods and principles for measuring
credit, financial and operational risks so as to let top management and
the Board of Directors govern the exposure to such risks. The Risk
Management unit is therefore part of the wider spectrum of the Bank’s
risk management.
Sec Servizi
SEC SERVIZI is a credit and finance outsourcing co-operative which
provides highly innovative services ranging from software applications,
centralized back office services and advanced multi-channel solutions,
consulting, training and support services.
Sgr
SGRs (Società di Gestione del Risparmio) or asset management
companies are companies authorized to promote, set up, organize and
manage the assets of a mutual fund (collective asset management),
keeping their own assets separate from those of the fund. An SGR can
also manage funds set up by other asset management companies.
Small business
Market segment relating to small and very small businesses (typically
tradesmen and shopkeepers).
Stress testing
Simulation used to measure the impact of extreme market scenarios on
the bank’s overall exposure to risk.
Subprime
Literally “less than prime”, being a residential mortgage that carries more
risk that prime quality US mortgages. Sub-prime mortgages are granted to
143
low quality borrowers: in many cases, installments in the first two years are
extremely low. Alt-A mortgages fall half way between sub-prime (for high
risk borrowers) and prime (top-end borrowers), and target borrowers
with low savings.
144
VaR
Value at Risk is an estimate of the expected potential loss on a portfolio
of financial instruments in a specified time period, with a defined level
of probability, upon the occurrence of unfavourable market conditions.
Vip
Category of very wealthy customers who require advisory services and
sophisticated investment management.
FINANCIAL STATEMENTs
BANCA POPOLARE DI VICENZA
BALANCE SHEET
(in thousands of Euro)
Assets
31.12.2008
31.12.2007
Equity and Liabilities
31.12.2008
31.12.2007
10. Cash and balances with central banks
99,973,419 108,425,370
10. Deposits from banks
3,620,928,410 3,433,575,122
20. Financial assets held for trading
704,704,825 796,391,192
20. Due to customers
7,503,635,137 7,216,764,487
30. Financial assets at fair value
17,077,054 25,792,223
30. Debt securities in issue
4,609,152,490 4,566,190,907
40. Financial assets available for sale
344,924,159 656,373,763
40. Financial liabilities held for trading
3,153,912,386 2,690,551,667
50. Financial liabilities at fair value
70. Loans and advances to customers 16,017,622,149 14,939,215,395
60. Hedging derivatives
16,677,368 -
90 . Fair value change of assets in hedged portfolios (+/-)
80. Tax liabilities:
91,411,434 a) current
44,441,441 52,620,952 b) deferred
46,969,993 21,774,583 74,395,535
60. Loans and advances to banks
100. Equity investments
110. Property, plant and equipment
16,950,558 -
1,391,841,795 1,107,185,447
45,309,013 42,474,229
120. Intangible assets
706,091,429 of which: - goodwill
679,580,932 705,588,934 711,243,074
130. Tax assets
125,971,954 a) current
42,040,803 21,607,258 b) deferred 83,931,151 73,666,280 95,273,538
140. Non-current assets held for sale
– 150. Other assets
256,290,829 618,361,569 621,977,800
2,938,129,959 2,185,335,769
100. Other liabilities
526,928,876 408,669,247
110. Provision for severance indemnities
51,759,578 51,814,097
120. Provisions for risks and charges
59,532,239 b) other provisions
59,532,239 68,697,406 68,697,406
130. Valuation reserves
38,048,247 (43,225,395)
81,928,764
150. Equity instruments
13,104,216 13,629,996
156,172,462
160. Reserves
517,130,455 478,158,674
170. Additional paid-in capital
1,960,354,744 1,963,296,772
180. Capital stock
261,460,260 261,656,498
190. Treasury shares (-)
(96,980,760)
-
200. Net income (loss) for the year (+/-)
151,035,348 110,090,209
Total assets 22,880,669,570 21,411,027,124
147
Total Equity and Liabilities 22,880,669,570 21,411,027,124
148
BANCA POPOLARE DI VICENZA
INCOME STATEMENT
(in thousands of Euro)
Captions
31.12.2008
31.12.2007
10. Interest income and similar revenues
1,110,537,966 877,720,355
20. Interest expense and similar charges
(704,906,191) (522,448,280)
30. Net interest income
405,631,775 355,272,075
40. Fee and commission income
194,894,172 193,434,776
50. Fee and commission expense
(17,325,477)
(18,446,032)
60. Net fee and commission income
177,568,695 174,988,744
70. Dividend and similar income
55,339,748 68,299,335
80. Net trading income
1,485,332 (18,437,536)
90. Fair vale adjustments in hedge accounting
273,190 -
Gains (losses) on disposal or repurchase of:
17,670,169 a) loans and advances
(37,474)
(16,717)
b) financial assets available for sale
3,960,776 4,054,957 d) financial liabilities
13,746,867 1,084,317 5,122,557
100.
110. Net change in financial assets and liabilities at fair value (3,723,069)
(2,566,634)
120. Net interest and other banking income
654,245,840 582,678,541
130.
Net impairment adjustments to: (126,709,595) (112,205,499)
a) loans and advances
(101,312,312)
(102,790,209)
b) financial assets available for sale
(24,474,994)
(9,116,990)
d) other financial transactions
(922,289)
(298,300)
140. Net income from financial activities
527,536,245 470,473,042
150. Administrative costs: (433,703,378) (372,363,369)
a) payroll
(254,336,596)
(209,896,967)
b) other administrative costs
(179,366,782)
(162,466,402)
160. Net provisions for risks and charges
(15,331,836)
(26,104,834)
170. Net adjustments to property, plant and equipment
(7,455,828)
(5,673,226)
180. Net adjustments to intangible assets
(4,430,135)
(2,198,992)
190. Other operating charges/income
26,830,665 42,339,155
200. Operating costs
(434,090,512) (364,001,266)
210. Profit (loss) from equity investments
97,069,566 42,627,679
240. Gains (losses) on disposal of investments
(177,827)
9,438
250. Profit (loss) from current operations before tax
190,337,472 149,108,893
260. Income taxes on current operations
(39,302,124)
(39,018,684)
270. Profit (loss) from current operations after tax
151,035,348 110,090,209
290. Net income (loss) for the year
151,035,348 110,090,209
149
CHANGES IN 2008 EQUITY
Balance at
Changes to
Balance at
Allocation of prior year
31/12/2007
opening
01/01/2008
results
balances
Reserves Dividends and
other
allocations
Capital stock: 261,656,498 a) ordinary shares 261,656,498 b) other shares
–
– 261,656,498 – 261,656,498 –
–
–
–
–
–
–
–
Additional paid–in capital 1,963,296,772 – 1,963,296,772 –
–
Reserves: 478,158,674 a) from earnings 321,757,942 b) other 156,400,732 – 478,158,674 37,500,000 – 321,757,942 17,500,000 – 156,400,732 20,000,000 –
–
–
Valuation reserves: (43,225,395)
a) available for sale assets (45,325,689)
b) cash flow hedges
–
c) other 2,100,294 – property, plant and equipment –
– special revaluation laws 2,100,294 – (43,225,395)
– (45,325,689)
–
–
– 2,100,294 –
–
– 2,100,294 –
–
–
–
–
–
–
–
–
–
–
–
Equity instruments 13,629,996 – 13,629,996 –
– Treasury shares
–
–
–
–
–
Net income (loss) for the year 110,090,209 – 110,090,209 (37,500,000) (72,590,209)
Equity 2,783,606,754 – 2,783,606,754 The “Issue of new shares” is stated net of the cancellations recorded during the year,
150
– (72,590,209)
Changes
in reserves
–
–
–
Issue
of new
shares
Purchase of
treasury
shares
Changes in the year
Equity at
Equity transactions
Net income
31/12/2008
Extraordinary
Change in
Derivatives
Stock
(loss)
distribution
equity on treasury
Options
for the year
of dividends
instruments
shares
(196,238)
(196,238)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 261,460,260
– 261,460,260
–
–
– (2,942,028)
–
–
–
–
–
– 1,960,354,744
1,471,781 –
1,471,781 – –
–
–
–
–
– –
–
–
–
–
–
–
–
– 517,130,455
– 340,729,723
– 176,400,732
81,273,642 81,273,642 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 38,048,247
– 35,947,953
–
–
– 2,100,294
–
–
– 2,100,294
–
–
–
(525,780)
–
–
– 13,104,216
–
– (96,980,760)
–
–
–
–
– (96,980,760)
–
–
–
–
–
–
– 151,035,348 151,035,348
82,745,423 (3,138,266) (96,980,760)
–
(525,780)
–
– 151,035,348 2,844,152,510
151
CHANGES IN 2007 EQUITY
Balance at
Changes to
Balance at
Allocation of prior year
31/12/2006
opening
01/01/2007
results
balances
Reserves Dividends and
other
allocations
Capital stock: 230,868,285 a) ordinary shares 230,868,285 b) other shares
–
– 230,868,285 – 230,868,285 –
–
–
–
–
–
–
–
Additional paid–in capital 1,557,855,602 – 1,557,855,602 –
–
Reserves: 410,244,233 a) from earnings 283,843,501 b) other 126,400,732 – 410,244,233 54,600,000 – 283,843,501 24,600,000 – 126,400,732 30,000,000 –
–
–
Valuation reserves: 16,724,407 a) available for sale assets 14,624,113 b) cash flow hedges
–
c) other 2,100,294 – property, plant and equipment –
– special revaluation laws 2,100,294 – 16,724,407 – 14,624,113 –
–
– 2,100,294 –
–
– 2,100,294 –
–
–
–
–
–
–
–
–
–
–
–
Equity instruments 12,053,948 – 12,053,948 –
– Treasury shares
–
–
–
–
–
Net income (loss) for the year 120,025,063 – 120,025,063 (54,600,000) (65,425,063)
Equity 2,347,771,538 – 2,347,771,538 The “Issue of new shares” is stated net of the cancellations recorded during the year,
152
– (65,425,063)
Changes
in reserves
Issue
of new
shares
Purchase of
treasury
shares
Changes in the year
Equity at
Equity transactions
Net income
31/12/2007
Extraordinary
Change in
Derivatives
Stock
(loss)
distribution
equity on treasury
Options
for the year
of dividends
instruments
shares
– 30,788,213 – 30,788,213 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 261,656,498
– 261,656,498
–
–
– 405,441,170 –
–
–
–
–
– 1,963,296,772
1,260,493 –
1,260,493 – –
–
–
– 12,053,948 – 12,053,948 –
–
–
–
–
–
–
–
– 478,158,674
– 321,757,942
– 156,400,732
(59,949,802)
(59,949,802)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (43,225,395)
– (45,325,689)
–
–
– 2,100,294
–
–
– 2,100,294
–
–
–
1,576,048 –
–
– 13,629,996
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 110,090,209 110,090,209
(58,689,309) 436,229,383 –
– 13,629,996 –
– 110,090,209 2,783,606,754
–
153
CASH FLOW STATEMENT
Direct method
A. OPERATING ACTIVITIES
31–12–2008
31–12–2007
1 Operations
165,274,241 216,595,662
1,092,195,481 (704,906,191)
27,547,992 177,568,695 (245,293,495)
(169,366,782)
26,830,665 (39,302,124)
867,791,527
(512,776,326)
29,357,904
174,988,744
(191,150,723)
(159,177,500)
46,580,720
(39,018,684)
2. Liquidity generated/absorbed by financial assets (1,445,577,804)
(2,842,215,436)
(3,209,633)
16,242,169 68,911,604 (977,094,442)
(400,781,719)
(62,579,000)
(87,066,783)
561,952,635
2,400,885
(276,152,000)
(2,344,860,309)
(752,584,841)
(5,625,903)
(27,345,903)
3. Liquidity generated/absorbed by financial liabilities1,258,709,373 2,732,607,964
(189,001,712)
376,355,000 286,870,650 42,961,583 (3,616,231)
617,684,190 127,455,893 89,224,664
1,537,303,684
85,707,828
243,161,421
7,465,306
722,627,000
47,118,061
Net liquidity generated/absorbed by operating activities (21,594,190)
106,988,190
– Interest income collected (+)
– Interest expense paid (–)
– Dividend and similar income
– Net fee and commission income (+/–)
– Payroll costs (–)
– Other costs (–)
– Other revenues (+)
– Taxation (–)
– Financial assets held for trading
– Financial assets at fair value
– Financial assets available for sale
– Loans and advances to customers
– Loans and advances to banks: demand
– Loans and advances to banks: other receivables
– Other assets
– Deposits from banks: demand
– Deposits from banks: other payables
– Due to customers
– Debt securities in issue
– Financial liabilities held for trading
– Financial liabilities at fair value
– Other liabilities
B. INVESTING ACTIVITIES
1. Liquidity generated by
222,363,600 113,143,431
194,300,000 27,791,756 271,844 74,147,000
38,941,431
55,000
2. Liquidity absorbed by
(35,986,346)
(581,841,173)
(24,286,500)
(10,515,798)
(1,184,048)
–
(82,555,000)
(13,448,754)
(4,484,000)
(481,353,419)
Net liquidity generated/absorbed by investing activities 186,377,254 (468,697,742)
154
– Disposal of equity investments (1)
– Dividends collected on equity investments
– Disposal of property, plant and equipment
– Purchase of equity investments
– Purchase of property, plant and equipment
– Purchase of intangible assets
– Purchase of businesses
C. FUNDING ACTIVITIES
– Issue/purchase of treasury shares
– Issue/Purchases of equity instruments
– Distribution of dividends and other purposes
(100,119,026)
(525,780)
(72,590,209)
436,229,383
–
(61,564,876)
Net liquidity generated/absorbed by funding activities (173,235,015)
374,664,507
NET LIQUIDITY GENERATED/ABSORBED
IN THE YEAR
(8,451,951)
12,954,955
RECONCILIATION
Captions
31–12–2008
31–12–2007
Cash and cash equivalents at the beginning of the year
108,425,370 95,470,415
Net liquidity generated/absorbed in the year
(8,451,951)
12,954,955
Cash and cash equivalents at the end of the year
99,973,419 108,425,370
(1)This item includes the sale of the entire interest held in Linea SpA, classified in 2007 under
“Non-current assets held for sale”.
The statement of cash flows presented above was prepared using the “direct” method envisaged by
IAS 7 and reports the “cash flows” from the Bank’s operating, investing and financing activities.
155
EXPLANATORY NOTES TO THE
FINANCIAL STATEMENTS
Part A – Accounting policies
Part B – Information on the balance sheet
Part C – Information on the income statement
Part D – Segment information
Part E – Information on risks and related hedging policy
Part F – Information on equity
Part G – Combinations of companies and businesses
Part H – Related-party transactions
Part I – Equity-settled payment arrangements
157
Parte A
ACCOUNTING POLICIES
A. 1 - GENERAL INFORMATION
Section 1 - Declaration of conformity with IFRS
The financial statements consist of the balance sheet, the income statement, the statement of
changes in equity, the statement of cash flows and these explanatory notes, accompanied by the
report of the Board of Directors; they have been prepared in accordance with the International
Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued
by the International Accounting Standards Board (IASB) and endorsed by the European
Commission under the procedure in art. 6 of Regulation (EC) 1606/2002 and in force at the
balance sheet date, including the related interpretations of the International Financial Reporting
Interpretations Committee (IFRIC).
Section 2 - Basis of preparation
The financial statements are prepared on a going concern basis and with reference to the general
criteria listed below:
– true and fair view;
– matching principle;
– consistency of comparison;
– no-offset, except where specifically allowed;
– substance over form;
– prudence.
Consistent with art. 9 of Decree 38/2005, the financial statements have been prepared with
reference to the formats and rules specified in Bank of Italy Circular 262 dated 22 December
2005. Additional information, considered necessary to give a true and fair view of the financial
statements, has also been provided even if not specifically required by the regulations.
The amounts contained in the balance sheet, the income statement, the statement of changes in
equity and the statement of cash flows are stated in euro, while these explanatory notes, except
where indicated otherwise, are stated in thousands of euro. The roundings have been made in
accordance with the related regulations.
Going concern
The joint co-ordination committee for IAS/IFRS application between the Bank of Italy, Consob
and Isvap (Italy’s insurance industry regulator) issued its document no. 2 on 6 February 2009
entitled “Disclosures in financial reports on going concern, financial risks, impairment testing and
estimation uncertainty”. This document requires management to carry out a particularly detailed
review in relation to the presumption of going concern.
Paragraphs 23-24 of IAS 1 establish that: “When preparing financial statements, management
shall make an assessment of an entity’s ability to continue as a going concern. Financial statements
shall be prepared on a going concern basis unless management either intends to liquidate the
entity or to cease trading, or has no realistic alternative but to do so. When management is aware,
in making its assessment, of material uncertainties related to events or conditions that may cast
significant doubt upon the entity’s ability to continue as a going concern, those uncertainties shall
be disclosed. When financial statements are not prepared on a going concern basis, that fact shall
be disclosed, together with the basis on which the financial statements are prepared and the reason
why the entity is not regarded as a going concern”.
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The current conditions of financial markets and of the real economy and the negative short/
medium-term forecasts mean that the presumption of going concern must now be assessed
particularly thoroughly.
Having examined the risks and uncertainties associated with the current macroeconomic
context, the Bank can reasonably expect to carry on its operations in the foreseeable future and
so its financial statements for 2008 have been prepared on a going concern basis.
Uncertainties associated with liquidity, credit and earnings risks are viewed as not significant and
in any case not such as to cast doubt upon the Bank’s ability to continue as a going concern, also
in view of the constant growth in the Bank’s earnings in recent years, the good quality of its loan
book and its ease of access to financial resources. For more details, please refer to the paragraph
on “Outlook for operations” in the directors’ report.
Section 3 – Subsequent events
There have been no significant events since the date of the financial statements (31 December
2008) and the date of their approval by the Board of Directors (24 March 2009), except as
indicated below.
On 28 January 2009 the Lazio regional Tax Tribunal accepted the appeal by Banca Popolare di
Vicenza and cancelled the action taken by the Italian Antitrust Authority in August 2008 against
the Bank, relating to alleged unfair business practice involving the transferability of mortgages
at zero charge (as allowed by art. 8 of Decree 7 dated 31 January 2007, as amended by Law 40
dated 2 April 2007 and Law 244 dated 24 December 2007).
On 1 March 2009, the Bank acquired the Corporate Business Unit (CBU) of Banca Popolare
Commercio e Industria in Brescia. The acquisition of the Corporate Business Unit, comprising
corporate customers in the provinces of Brescia and Bergamo, forms part of the previous
acquisition on 31 December 2007 of 18 bank branches located in these provinces, and so has
taken place without the Bank paying any additional consideration. More details about these
acquisitions can be found in Part G of these Explanatory Notes.
Section 4 – Other matters
The figures contained in the balance sheet, income statement, statement of changes in equity,
cash flow statement and the tables in Part B and Part C of these explanatory notes are all
presented on a comparative basis with those at 31 December 2007. Line items in the balance
sheet and income statement and in the tables in the explanatory notes are not presented if their
balance is zero in both years.
As from the date of these financial statements, the emoluments of the Board of Statutory
Auditors and related reimbursement of expenses are being classified in “Payroll costs”
(previously they were reported in “Other administrative costs”); this reclassification is to comply
with the Bank of Italy’s instructions regarding financial statements of banks and financial
institutions. These amounts have consequently been reclassified in the income statement and
related notes for 2007.
The financial statements have been audited by KPMG S.p.A., an independent firm of
auditors. The financial statements are also accompanied by the attestation of the Financial
Reporting Manager, as required by art. 154-bis, para. 5, of Decree 58/98 (Italy’s Consolidated
Financial Markets Act – TUF) as amended by Decree 195/2007 which implemented the EU’s
Transparency Directive.
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Estimation uncertainty and risks
As indicated in the explanatory notes, estimation processes have been completed in support of the
carrying amount of the more significant items requiring valuation in the financial statements at 31
December 2008, as required by prevailing accounting standards and relevant regulation. These
processes are largely based on estimating the future recoverability of amounts reported in the
financial statements in accordance with rules dictated by current regulation and have been performed
on a going concern basis, ie. valuations are not based on the assumption of a forced sale.
The outcome of this work supports the carrying amount of these items at 31 December 2008.
It should be stated, however, that this valuation process was particularly complex in view of
the current macroeconomic and market context, featuring abnormal volatility in all financial
measures used for valuation purposes, and the consequent difficulty in making even short-term
forecasts for these financial parameters which have a significant impact on estimates.
The parameters and information used for verifying the values mentioned above have been heavily
affected by the particularly uncertain macroeconomic and market environment which could, like
in recent months, experience currently unforeseeable rapid changes, with a consequent impact
on the amounts reported in the financial statements at 31 December 2008.
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A.2 - PART RELATING TO THE PRINCIPAL FINANCIAL
STATEMENT LINE ITEMS
This section describes the accounting policies adopted for the preparation of the financial
statements as of 31 December 2008. These policies were applied on a basis consistent with
those adopted for the preparation of the 2007 financial statements, which were also prepared
under IAS/IFRS, except for the changes to IAS 39 “Financial instruments: recognition and
measurement” and to IFRS 7 “Financial instruments: disclosures” contained in the document
“Reclassification of Financial Assets”, published by the IASB on 13 October 2008 and endorsed
by the European Commission on 15 October 2008 with Regulation EC 1004/2008.
ASSETS
1. Financial assets held for trading
Classification
This line item comprises the financial instruments held for trading in the short term; specifically:
• debt securities, whether listed or unlisted, held for trading;
• listed equity instruments held for trading;
• unlisted equity instruments held for trading, but only if their fair value can be determined on
a reliable basis;
• asset-backed debt securities (ABS), senior or mezzanine, issued by special-purpose vehicles
(SPV) as part of securitizations by the Parent Bank or by third parties;
• structured securities;
• units in mutual funds and sicavs held for trading;
• derivative contracts with a positive fair value at the reporting date, except for contracts that
are designated as effective hedging instruments; if the fair value of a derivative contract
subsequently becomes negative it is recorded as a financial liability held for trading.
Derivative contracts include embedded derivatives which are attached to a primary financial
instrument, known as the “host contract”, and forward transactions in currencies, securities,
goods and precious metals. An embedded derivative is recognized separately from the host
contract when all of the following conditions are satisfied:
1. its economic and risk characteristics are not closely correlated with those of the “host”
instrument;
2. the separated embedded instrument meets the definition of a derivative;
3. the hybrid instrument is not carried at fair value through the income statement.
Financial instruments are designated as financial assets held for trading upon initial accounting
recognition. They cannot be subsequently reclassified, except as provided by paragraphs 50 to
54 of IAS 39, as amended by Regulation (EC) 1004/2008 of the European Commission issued
on 15 October 2008.
Recognition
The initial recognition of financial assets held for trading takes place: on the settlement date for
debt securities, equity instruments and units in mutual funds and sicavs; on the subscription date
for derivative contracts.
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Financial assets held for trading are initially recognized at their fair value and the transaction
costs and/or income directly attributable to them are not recognized. The fair value of
instruments acquired on market terms is represented by their purchase cost.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, financial assets held for trading are stated at fair value through
the income statement. IAS 39 defines fair value as “the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in an arms’-length
transaction”. For the determination of fair value, please refer to paragraph 4 “Criteria for
determining fair value” in the “Other information” section of Part A.
If the fair value of financial assets cannot be determined reliably, they are stated at cost and
recorded as “financial assets available for sale“.
Gains and losses realized on sale or redemption and unrealized gains and losses deriving from
changes in the fair value of financial assets/liabilities held for trading are classified in the “net
trading profit (loss)” caption of the income statement, together with the effect of measuring
foreign currency monetary assets and liabilities.
Derecognition
Financial assets held for trading are derecognized when the contractual rights over the related
cash flows expire or when the financial asset is transferred together with substantially all the
contractual risks and benefits associated with its ownership.
2. Financial assets at fair value
Classification
This line item comprises the assets or groups of assets designated at fair value through the
income statement, under the fair-value option (FVO) envisaged by IAS 39. In particular, the
FVO is used when it eliminates or significantly reduces accounting imbalances deriving from
the inconsistent recognition of financial instruments that are correlated (natural hedges)
or covered by derivative contracts which, due to difficulties and complexities, cannot be
recognised as hedges. The FVO is also used in the presence of an embedded derivative that
meets the conditions described in paragraph 11 of IAS 39. This avoids separating it from the
host instrument by stating the entire financial instrument at fair value.
Financial instruments are designated as financial assets at fair value upon initial recognition.
They cannot be reclassified subsequently.
Recognition, measurement, derecognition and recording of components affecting the income
statement
The principles applying to the recognition, measurement and derecognition of financial assets at
fair value are the same as those relating to “financial assets held for trading”.
Gains and losses realized on sale or redemption and unrealized gains and losses deriving from
changes in the fair value of financial assets/liabilities at fair value are classified as “net trading
profit (loss) financial assets and liabilities at fair value” in the income statement.
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3. Financial assets available for sale
Classification
This line item comprises the non-derivative financial assets that are not classified in the other
categories envisaged by IAS 39. Accordingly, this is a residual category that includes for example:
• unlisted equities, unless originally attributed to the portfolio of financial assets held for
trading;
• securities that guarantee transactions arranged with third parties, if not classified elsewhere;
• units in mutual funds and sicavs, unless originally attributed to the portfolio of financial assets
held for trading;
• junior asset-backed debt securities issued by SPVs as part of own or third-party
securitizations;
• equity investments that do not represent interests in subsidiaries, associates or joint ventures;
• other debt and equity instruments that cannot be classified into the above categories.
Financial instruments are designated as financial assets available for sale upon initial recognition.
They cannot be subsequently reclassified, except as provided by paragraphs 50 to 54 of IAS 39, as
amended by Regulation (EC) 1004/2008 of the European Commission issued on 15 October 2008.
Recognition
Financial assets available for sale are initially recognized on the settlement date, on the basis of
their fair value, as uplifted by any directly-attributable acquisition costs.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, AFS financial assets are stated at fair value; the profits and
losses deriving from any changes in fair value are recorded in a specific equity reserve until the
financial assets concerned are derecognized or a permanent impairment of value is recognized.
If an AFS financial asset suffers an impairment loss, the accumulated unrealized losses deferred
to equity are released to “net impairment adjustments to financial assets available for sale” in
the income statement. Write-backs of AFS financial instruments are credited to the income
statement if they are debt securities or to equity if they are equity instruments.
Fair value is determined on the basis described in relation to financial assets held for trading. If
the fair value of financial assets cannot be determined on a reliable basis, they are stated at cost.
The interest income on these financial assets is determined using the effective interest method.
Any exchange gains or losses on AFS financial assets are recorded in the income statement if
they relate to monetary items (e.g. debt securities) and as part of equity if they relate to nonmonetary items (e.g. equity instruments).
Derecognition
AFS financial assets are derecognized when the contractual rights over the related cash flows
expire or when the financial asset is transferred together with substantially all the contractual
risks and benefits associated with its ownership.
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4. Financial assets held to maturity
Classification
This category comprises debt instruments quoted in “active markets”, with fixed maturities and
fixed or determinable payments, which the Bank intends and is able to hold until maturity. These
include debt securities with maturities/residual lives of not less than 24 months which comply
with the quantitative limits established at Group level, as authorized by the Board of Directors.
Financial instruments are designated as financial assets held to maturity upon initial recognition.
They cannot be subsequently reclassified, except as provided by paragraphs 50 to 54 of IAS 39, as
amended by Regulation (EC) 1004/2008 of the European Commission issued on 15 October 2008.
Recognition
Financial assets held to maturity are initially recognized on the settlement date, on the basis of
their fair value, as uplifted by any directly-attributable acquisition costs.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, financial assets held to maturity are measured at amortized
cost, using the effective interest method. Profits and losses relating to these assets held to
maturity are recorded in the income statement at the time of derecognition.
An impairment test is carried out at the reporting date to check for objective evidence of any
loss in value. Any losses identified are charged to the income statement under “net impairment
adjustments to financial assets held to up to maturity”. If the reasons for such losses cease
to apply due to events subsequent to the write-down, the original amounts are reinstated by
crediting the related write-backs to the income statement.
Write-backs do not exceed the amortized cost that the instrument would have had in the absence
of earlier write-downs.
The interest income on these financial assets is determined using the effective interest method.
Derecognition
Financial assets held to maturity are derecognized when the contractual rights over the related
cash flows expire or when the financial asset is transferred together with substantially all the
contractual risks and benefits associated with its ownership.
5. Loans and advances to banks
Classification
This line item comprises financial assets due from banks (current accounts, guarantee deposits,
debt securities, etc.) that have been classified in the loan portfolio.
Details of the recognition, measurement, derecognition and recording of these loans can be
found in the subsequent note on “loans and advances to customers”.
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6. Loans and advances to customers
Classification
Loans to customers include short and long-term finance granted directly to customers or
purchased from third parties, which is repayable on fixed or determinable dates and is not
quoted in an active market.
This category also includes debt securities not quoted in an active market acquired on initial
placement, where the lending element prevails over the investment element, and the purchase
essentially represents the granting of a loan.
Financial instruments are designated as loans and advances to customers upon initial recognition.
They cannot be subsequently reclassified, except as provided by the amendment to IAS 39
“Financial instruments: recognition and measurement” contained in the document “Reclassification
of Financial Assets” approved by the European Commission on 15 October 2008.
Recognition
The initial recognition of a loan takes place on the grant date or, in the case of debt securities,
on the settlement date, with reference to the fair value of the financial instrument. This is the
amount paid out, or the subscription price, including the directly-related and determinable costs
and commissions applying from the start of the transaction.
Costs with the above characteristics are excluded if they are reimbursable by the borrower or
represent normal internal administrative costs.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, loans to customers are measured at amortized cost. This is their
initially-recorded value as decreased/increased by repayments of principal, write-downs/writebacks and the amortization – determined using the effective interest method – of the difference
between the amount paid out and that repayable on maturity, which typically represents costs/
income directly attributable to the individual loans.
The effective interest rate is the rate that discounts the flow of estimated future payments over
the expected duration of the loan so as to obtain exactly the net book value at the time of initial
recognition, which includes directly-related transaction costs and all fees paid or received
between the contracting parties. This financial method of accounting distributes the economic
effect of costs/income over the expected residual life of each loan.
Estimates of the flows and the contractual duration of the loan take account of all contractual
clauses that could influence the amounts and due dates (such as early repayments and the
various options that can be exercised), but without considering any expected losses on the loan.
The amortized cost method is not applied to short-term loans, since the discounting effect would
be negligible, and these are therefore stated at historical cost. The same measurement criterion is
applied to loans without a fixed repayment date or which are repayable upon demand.
In addition, an analysis is performed to identify any problem loans for which there is objective
evidence of possible impairment. This category includes loans classified as “non-performing”,
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“watchlist”, “restructured” or “past due”, as defined by the supervisory regulations.
The adjustment to the value of each loan represents the difference between its amortized cost (or
historical cost for short-term and demand loans) at the time of measurement and the discounted
value of the related future cash flows, determined using the original effective interest rate.
Key elements in determining the present value of future cash flows comprise the estimated
realizable value of loans, also taking account of any available guarantees, the expected timing of
recoveries and the forecast loan-recovery costs. Cash flows relating to loans due to be recovered
in the short term are not discounted.
In particular, the approach taken for determining case-by-case the recoverable value of nonperforming loans depends on their amount:
• up to Euro 25,000, the positions are analyzed case-by-case but are not discounted, since they
are frequently not taken to court, but sold after the usual attempts to obtain recovery on an
amicable basis - these loans generally remain in this category for not more than 12/18 months,
representing the short term;
• from Euro 25,000 to Euro 150,000, the positions are analyzed on a case-by-case basis to
estimate the amount recoverable, which is discounted over the average recovery period, as
determined with reference to historical-statistical information;
• amounts exceeding Euro 150,000 are analyzed on a case-by-case basis to estimate the amount
recoverable, which is discounted over the likely recovery period, as determined by the
competent corporate functions.
Watchlist loans exceeding Euro 150,000 are analyzed on a case-by-case basis to estimate the
amount recoverable, which is discounted over the likely average recovery period, as determined
on the basis of historical-statistical information.
Watchlist loans falling below the above threshold are assessed on an overall basis according to
their amount:
• up to Euro 25,000, the assessment is carried out using probability of default (PD) and loss
given default (LGD) parameters estimated for the specific class; these positions are not
discounted, since they will be settled and/or sold within 12-18 months of being classified as
non-performing;
• from Euro 25,000 to Euro 150,000, the assessment is carried out using the PD and LGD
parameters estimated for the specific class, with the related future nominal cash flows
discounted over the estimated average recovery period, as determined with reference to
historical-statistical information.
Restructured loans are valued by discounting the “implied” loss arising from restructuring the
position. If restructured loans are predicted to produce a loss over and above the “implied”
loss above, they are immediately put on the watchlist and valued in accordance with the rules
applying to this category.
Loans past due are written down on an overall basis. This test is performed by grouping
loans into categories that reflect a similar degree of risk. The related loss percentages are then
estimated with reference to historical information, in order to measure the inherent loss for each
category of loan. Estimated future cash flows are determined using PD and LGD parameters
by technical form and the resulting flows are discounted on the basis of average recovery times,
determined with reference to historical-statistical information.
Loans for which no objective evidence of loss has been individually identified, i.e. performing
loans, including those to residents in countries at risk, are subjected to impairment testing on an
overall basis. This test is performed by grouping loans into categories that reflect a similar degree
of risk. The related loss percentages are then estimated with reference to historical information,
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in order to measure the inherent loss for each category of loan. Estimated future cash flows
are also determined using PD and LGD parameters by technical form and the resulting flows
are discounted on the basis of average recovery times, determined with reference to historicalstatistical information.
No write-downs are recorded in relation to loans represented by repurchase agreements, since
they are not subject to lending risk, or to loans to Group companies, non-profit organizations
and local and public administrations.
Provisions made for an impaired loan are only reversed if the credit quality has improved to the
extent that timely recovery of the principal and interest, with respect to the original terms for the
loan contract, is reasonably certain, or if the amount actually recovered exceeds the recoverable
amount estimated previously. Write-backs include the positive effect of discounting adjustments
made due to the progressive reduction in the estimated time required to recover the related loans.
Adjustments, net of previous provisions and the partial or total recovery of amounts previously
written down, are recorded in income statement line item 130 a) “net impairment adjustments to
loans and advances”.
Derecognition
Loans are derecognized as assets when they are deemed to be unrecoverable or are transferred
together with substantially all the related risks and benefits.
7. Hedging derivatives
Classification
This line item reports the derivative contracts designated as effective hedging instruments
which have a positive fair value at the reporting date. If the fair value of a derivative contract
subsequently becomes negative it is recorded as a liability in the corresponding line item.
Derivative contracts are intended to neutralize possible losses on certain elements or groups of
elements due to a given risk (e.g. a rise in interest rates), via the generation of profits if the events
associated with that risk should actually occur.
Derivatives not held for hedging purposes are classified as “financial assets held for trading”.
At the time that a hedging derivative is arranged, the Bank classifies it as one of the following
types of hedge:
• fair value hedge of a given asset or liability: the objective is to hedge the exposure to changes
in fair value of an item caused by given risks;
• cash flow hedge attributable to a particular asset or liability: the objective is to hedge the
exposure to changes in the future cash flows associated with an item caused by given risks;
• hedge of the effects of an investment denominated in foreign currency: the objective is to
hedge the risks associated with investing in a foreign operation denominated in foreign
currency.
Hedges can refer to individual financial instruments and/or groups of financial assets/liabilities.
The derivative instrument is classified as a hedge if it has been formally designated as such, there
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is a documented relationship between the hedged instrument and the hedging instrument, and it is
effective – prospectively and retrospectively – both at the start of the hedge and throughout its life.
A hedge is considered effective if the hedging instrument is able to generate a cash flow or a
change in fair value that is consistent with that of the hedged instrument. More precisely, the
hedge is effective when changes in the fair value (or cash flows) of the hedging instrument
neutralize the changes in the hedged instrument, deriving from the risk being hedged, within an
interval of 80%-125%.
The effectiveness of the hedge is assessed at the start of the hedge and throughout its life and, in
particular, on each reporting date, using:
• prospective tests that justify the adoption of hedge accounting by showing the expected
effectiveness of the hedge in future periods;
• retrospective tests that show the effectiveness of the hedge during the reference period.
If the tests do not confirm the effectiveness of the hedge, the hedge accounting described above
is terminated and the related derivative contract is reclassified among the “financial assets held
for trading”.
In addition, transactions are no longer classified as hedges if:
• the hedge created by the derivative ceases;
• the derivative expires, is sold, terminated or exercised;
• the hedged item is sold, expires or is redeemed;
• the hedge no longer meets the criteria to qualify for hedge accounting.
Recognition
The initial recognition of hedging derivatives takes place when their fair value is determined.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, hedging derivatives are stated at fair value on the basis
described below:
• in the case of fair value hedges, changes in the value of the hedged instrument and the
hedging instrument are reflected in the income statement, in order to offset effectively
changes in the fair value of the hedged item against the opposite changes in the fair value of
the hedging instrument. Any difference, representing the ineffective portion of the hedge,
therefore represents the net economic effect of the hedge;
• in the case of cash flow hedges, changes in the fair value of the derivative are recorded in
equity, to the extent that the hedge is effective, and are only released to the income statement
when the related cash flows are actually generated by the hedged item. If the hedge is not
effective, changes in the fair value of the hedging contract are recorded in the income
statement;
• hedges of investments denominated in foreign currency are recorded in the same way as cash
flow hedges.
Hedging instruments only consist of derivative contracts, excluding therefore any internal deals
or other types of financial instrument.
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Derecognition
Hedging derivatives are derecognized on disposal, if this substantially involves the transfer
of all the risks and benefits associated with them. If the hedge becomes ineffective, the hedge
accounting described above ceases and the derivative contract is reclassified to “financial assets
held for trading”.
8. Equity investments
Classification
This line item comprises investments in subsidiary and associated companies and joint ventures.
Recognition
Equity investments are recorded in the financial statements at their acquisition cost inclusive of
incidental expenses.
Measurement criteria
Equity investments are tested for impairment by estimating their recoverable amount, which
takes account of the present value of future cash flows generated by equity investment, including
the value of its ultimate sale and/or other factors.
If the recoverable amount is less that book value, the difference is recognized in the income
statement under “Profit (loss) from equity investments”.
If the reasons for such impairment cease to apply due to events subsequent to its recognition,
the write-down is reversed through the income statement in the same line item as above, but for
no more than the amount of the original impairment loss.
Derecognition
Equity investments are derecognized on expiry of the contractual rights over the related financial
flows, or when the investment is sold with the transfer of essentially all the related risks and
benefits of ownership.
Recognition of components affecting the income statement
Consistent with IAS 18, dividends are recorded when the stockholders’ right to receive them
is established, which is subsequent to the related resolution adopted by the stockholders of the
declaring company.
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9. Property, plant and equipment
Classification
This line item comprises the fixed assets held for use in the generation of income, for rent or
for administrative purposes, such as land, business property, investment property, installations,
furniture, furnishings and all types of equipment.
Business property is that held for the provision of services or for administrative purposes,
while investment property is that owned to earn rental income and/or with a view to capital
appreciation.
Property, plant and equipment also include leasehold improvements, if they can be separated
from the related assets. If these items are expected to generate future benefits, but are not
functionally and operationally independent, they are classified as “other assets” and depreciated
over the expected useful life of the improvements or the residual lease period, whichever is
shorter.
Amounts paid in advance to acquire and restructure assets not yet used for productive purposes
are capitalized, but not depreciated.
Recognition
Property, plant and equipment are initially recorded at cost, including all directly attributable
costs of bringing them to working condition. Expenditure that improves an asset or increases
the future economic benefits expected from the asset is allocated to the asset concerned and
depreciated over its remaining useful life.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, property, plant and equipment are stated at cost, net of
accumulated depreciation and any impairment write-downs, consistent with the “cost model”
described in para. 30 of IAS 16.
Property, plant and equipment are systematically depreciated over their useful lives on a straightline basis, except for:
• land, whether acquired separately or included in the value of buildings, which is not
depreciated since it has an unlimited useful life. With regard to free-standing properties,
the value of the land is separated from the value of the related buildings by internal and/or
independent expert appraisals, unless this information is directly available from the purchase
contract;
• works of art, which are not depreciated since they normally have an indefinite useful life and
their value is likely to increase over time;
• investment properties, which are stated at fair value in accordance with IAS 40.
The investment properties covered by IAS 40 are stated at the market value determined by
independent appraisals and changes in their fair value are recorded in “net gains (losses) arising
on fair value adjustments to property, plant and equipment and intangible assets” in the income
statement.
The depreciation charge for assets acquired during the year is determined on a daily basis from
the time they enter into service. The depreciation charge for assets sold and/or retired during the
year is determined on a daily basis up to the date of disposal and/or retirement.
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At each reporting date, if there is evidence that the value of an asset may be impaired, its
carrying value is compared with its recoverable value, being either its fair value net of any selling
costs or its value in use, represented by the present value of the future cash flows to be generated
by the asset, whichever is greater. Any adjustments are recorded in the “net adjustments to the
value of property, plant and equipment” caption of the income statement.
If the reasons for recognizing an impairment loss cease to apply, the consequent write-back
cannot cause the value of the asset to exceed its net book value (after depreciation) had no
impairment losses been recognized in prior years.
Derecognition
Property, plant and equipment are derecognized upon disposal or when they are retired from
use on a permanent basis and no economic benefits are expected from their disposal.
10. Intangible assets
Classification
This line item reports non-monetary assets without physical form that have the following
characteristics:
• identifiability;
• control over the assets concerned;
• existence of future economic benefits.
If any one of these characteristics is missing, the related purchase or internally-generated cost is
expensed in the year incurred.
Intangible assets include, in particular, applications software used for a number of years and
other identifiable intangible assets over which the Group has legal or contractual rights.
This line item also includes goodwill, representing the positive difference between the purchase
cost and the fair value of assets and liabilities acquired as a result of business combinations. In
particular, an intangible asset is recorded as goodwill when the positive difference between the
fair value of the net assets acquired and their purchase cost (including related charges) represents
the ability of the investment to generate future earnings. If this difference is negative (badwill) or
if the goodwill is not justified by the acquired company’s ability to generate future earnings, the
difference is recorded directly in the income statement.
Recognition
Intangible assets are initially recorded at cost, including any directly-related charges.
Measurement criteria
Subsequent to initial recognition, intangible assets are stated at cost, net of accumulated
amortization and any impairment losses, in accordance with the “cost model” described in para.
74 of IAS 38.
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Intangible assets are amortized systematically each year on a straight-line basis over their
estimated useful lives. The amortization charge for assets acquired during the year is determined
on a daily basis from the time they enter into service. The amortization charge for those sold
and/or retired during the year is determined on a daily basis up to the date of disposal and/or
retirement.
Assets with an indefinite useful life, such as goodwill, are not amortized but are subjected to
periodic impairment testing of the fairness of their carrying value, as required by IAS 36. Any
reductions in value, representing the difference between the recorded value of the asset and its
recoverable value, are charged to the “adjustment of goodwill” caption of the income statement.
Derecognition
Intangible assets are eliminated from the balance sheet if no future economic benefits are
expected or on disposal.
11. Deferred tax assets and liabilities
Current and deferred income taxes are calculated in accordance with current fiscal legislation.
Income taxes reported in the income statement represent a prudent estimate of the current tax
charge and the related changes in deferred tax assets and liabilities. In particular, deferred tax assets
and liabilities are determined with reference to temporary differences between the book value of
assets and liabilities and their tax bases. Deferred tax assets are recognized if they are likely to be
recoverable, determined with reference to the Bank’s ongoing ability to generate taxable income.
Deferred tax assets and liabilities are recorded in the balance sheet as, respectively, “Tax assets”
and “Tax liabilities”, on an open account basis without offset.
In the case of current taxes, payments on account for individual taxes are offset against the
related tax payable, with positive balances reported as “current tax assets” and negative balances
as “current tax liabilities”.
Taxes are recorded in the income statement, except for those relating to changes in the fair
value of AFS financial assets or of cash flow hedges or hedges of net investments in a foreign
operation, which are recognized directly in equity.
In accordance with para. 52b of IAS 12, no provision for deferred taxation has been recorded
in relation to the reserves and revaluation surpluses that are in suspense for tax purposes, since
their distribution is not envisaged; in this regard, the Bank has not carried out, and has no
short or medium-term plans to carry out, any activities which could give rise to the payment of
deferred taxes.
12. Non-current assets held for sale
Classification
This line item comprises all the non-current assets and groups of assets held for sale pursuant
to IFRS 5, as well as those assets and groups of assets whose book value will principally be
recovered through sale rather than via continuous use.
172
Measurement criteria
These assets are measured at the lower of their carrying value or their fair value, net of selling
costs, except for the following assets which continue to be valued in accordance with the related
accounting policies:
• deferred tax assets;
• assets deriving from employee benefits;
• financial instruments;
• investment property.
Recognition of components affecting the income statement
Income (interest income, dividends etc.) and expenses (interest expense, depreciation etc.)
relating to “groups of assets” and related liabilities held for sale are classified, net of the related
current and deferred taxation, in the “profit (loss) from disposal groups, net of taxation” caption
of the income statement. Income and expenses relating to “individual, non-current assets” held
for sale continue to be recorded in the line items concerned.
173
LIABILITIES
1. Deposits from banks, due to customers and debt securities in issue
Classification
Deposits from banks, due to customers and debt securities in issue include the various forms
of interbank and customer funding, together with the funds gathered by issuing various types
of bond and certificates of deposit, net of any amounts repurchased by the Bank. This line item
also includes securities which are due at the balance sheet date but have not yet been redeemed.
Recognition
These financial liabilities are initially recorded on receipt of the amounts collected or on the
issue of the debt securities.
They are initially measured at the fair value of the liabilities, usually corresponding to the
amount collected or the issue price, plus any additional costs/proceeds directly attributable
to the individual funding transaction or issue and not reimbursed by the creditor. Internal
administrative costs are excluded. The implicit derivatives embedded in the above financial
liabilities are separated and valued in accordance with IAS 32 and 39.
Measurement criteria
Following initial recognition, the above financial liabilities are stated at amortized cost using the
effective interest method, except that short-term liabilities continue to be stated at nominal value
since the effect of discounting is negligible.
Derecognition
Financial liabilities are derecognized when they expire or are settled. Derecognition also applies
when issued securities are repurchased, even if this acquisition is only temporary. Any differences
between the book value of the derecognized liability and the amount paid is recorded in the
“profit (loss) from disposal or repurchase of financial liabilities” caption of the income statement.
If, subsequent to repurchase, the Bank places its own securities back in the market, this transaction
is treated as a new issue and the liabilities are recorded at the new placement price.
2. Financial liabilities held for trading
Classification
This line item reports the negative fair value of derivatives not designated as effective hedging
instruments, liabilities arising from technical mismatches generated by trading in securities.
Derivative contracts include embedded derivatives which are attached to a primary financial
instrument, known as the “host contract”, and forward transactions in currencies, securities,
174
goods and precious metals. An embedded derivative is recognized separately from the host
contract when all of the following conditions are satisfied:
1. its economic and risk characteristics are not closely correlated with those of the “host”
instrument;
2. the separated embedded instrument meets the definition of a derivative;
3. the hybrid instrument is not carried at fair value through the income statement.
If the fair value of a derivative contract subsequently becomes positive it is recorded as a
financial asset held for trading.
Financial instruments are designated as financial liabilities held for trading upon initial
recognition. They cannot be reclassified subsequently.
Measurement criteria
All financial liabilities held for trading are stated at fair value, determined on the basis described in
paragraph 4 “Criteria for determining fair value” in the “Other information” section of Part A.
3. Financial liabilities at fair value
Classification
This line item comprises those financial liabilities or groups of financial liabilities stated at fair value
through the income statement, following exercise of the fair value option envisaged by IAS 39.
Financial instruments are designated as financial liabilities held for trading upon initial
recognition. They cannot be reclassified subsequently.
At the reporting date, this line item comprises own bonds hedged for interest rate and/or price
risk by derivative contracts, as well as bonds with an embedded derivative contract that has not
been separated out.
Recognition, measurement, derecognition and recording of components affecting the income statement
The recognition, measurement, derecognition and recording of the effects on the income
statement of the above financial liabilities are described in the earlier paragraph on “financial
assets at fair value”.
4. Hedging derivatives
This line item reports the financial derivatives designated as effective hedging instruments which
have a negative fair value at the balance sheet date. The recognition, measurement, derecognition
and recording of the related effects on the income statement are described in the paragraph on
the corresponding asset line item.
If the fair value of a derivative contract subsequently becomes positive it is recorded as an asset
in the corresponding line item.
175
5. Liabilities associated with non-current assets held for sale
Reference is made to the paragraph on “non-current assets and groups of assets held for sale”.
6. Provision for severance indemnities
According to IFRIC, the provision for severance indemnities is a “post-employment benefit”
qualifying as a “defined-benefit plan”, the value of which according to IAS 19 must be
determined on an actuarial basis. As a consequence, the year-end actuarial valuation of this line
item is carried out with reference to earned benefits using the projected unit credit method. This
method involves the projection of future payments with reference to historical and statistical
analyses and probabilities, adopting suitable demographic techniques. This makes it possible to
calculate the severance indemnities accruing at a specific date on an actuarial basis, distributing
the cost over the entire remaining service of the current workforce, and no longer presenting
them as a cost payable as if the business were to cease trading on the balance sheet date.
The provision for severance indemnities has been valued by an independent actuary using the
method outlined above.
7. Provisions for risks and charges
In accordance with IAS 37, the provisions for risks and charges reflect known obligations (legal
or implicit) deriving from past events, the settlement of which is likely to involve the use of
economic resources whose timing and extent are uncertain, on condition that a reliable estimate
can be made of the amount needed to settle them. If settlement of the liability is likely to be
deferred and the effect of discounting would be significant, the provisions are discounted using
current market rates.
Increases in provisions for risks and charges are recorded in the appropriate line items of the
income statements, depending on the “nature” of the expense. In particular, provisions for
future personnel expenses in connection with bonuses and other incentive schemes are classified
in “Payroll” costs, provisions for tax risks and charges are classified in “Income taxes” and
provisions for potential losses not directly attributable to specific line items in the income
statement are reported in “Net provisions for risks and charges”.
8. Equity instruments
This line item reports the carrying value of bonds convertible into treasury shares, determined
in accordance with IAS 32, since these represent equity instruments other than capital stock and
reserves.
176
OTHER INFORMATION
1. Treasury shares
Treasury shares acquired by the Bank are deducted from equity. No profit or loss deriving from
the purchase, sale, issue or cancellation of treasury shares is booked to the income statement.
Differences between the purchase and selling prices for these transactions are booked to equity.
Any costs incurred for the purchase of treasury shares are deducted from equity, on condition
that they are marginal costs directly attributable to these transactions that would not otherwise
have been incurred.
2. Transactions in foreign currency
Foreign currency transactions are initially recognized in euro, by translating the foreign currency
amount using the exchange rate prevailing on the date of the transaction.
Foreign currency assets and liabilities are subsequently translated to euro using period-end
exchange rates. With regard to repurchase agreements and derivative contracts denominated in
foreign currencies, reference is made to the paragraphs on financial assets and liabilities held for
trading.
Exchange differences deriving from the settlement of monetary items or from the translation of
monetary items using rates other than the initial translation rate, or the closing rate at the end
of prior periods, are recorded in the “net trading income” caption of income statement for the
period, to the extent that they relate to foreign currency assets and liabilities other than those
carried at fair value, those whose fair value and cash flows are hedged, and hedging derivatives.
3. Repurchase agreements
Repurchase agreements are treated as loans against securities and the amounts received and
paid are recorded as payables and loans. In particular, spot sales with forward repurchases are
recorded as a payable for the spot amount collected, while spot purchases with forward resales
are recorded as a receivable for the spot amount paid.
The cost of borrowing and income from lending, comprising interest coupons on securities and
the differential between the spot and forward prices for such securities, are recorded as interest
in the statement of income. These transactions do not determine movements in the securities
portfolio.
4. Criteria for determining fair value
The following criteria are used to determine the fair value of securities:
• Securities listed on active markets:
The fair value of financial instruments listed on active markets is represented by the following prices:
– equity instruments and debt securities listed on the Italian Stock Exchange: the official price
on the last trading day of the reference period;
177
– equity instruments and debt securities listed on foreign stock exchanges: the official price (or
other equivalent price) on the last day of the reference period;
– units in mutual funds and sicavs: the official price (or other equivalent price) of the units on
the last day of the reference period.
• Securities not listed on active markets:
The fair value of financial instruments not listed on active markets is represented by the
following prices:
– shares in cooperative banks: the latest price set by the Board of Directors/Stockholders’
Meeting of the issuing bank;
– units in mutual funds and sicavs: the latest value of the units communicated by the
management company;
– capital accumulation insurance policies: the redemption value determined with reference to
the issue regulations;
– for other debt securities and equities, in the following order:
• the reference price for recent transactions;
• the prices indicated by reliable information sources, where available, such as ICMA,
BLOOMBERG, REUTERS;
• the price obtained by applying valuation techniques that are generally accepted by market
participants, such as:
• for debt securities, their cash flows discounted using the reference rates applying at year
end for equivalent residual maturities, taking account of any “counterparty risk” and/or
“liquidity risk”;
• for equities of significant value, the amount established by independent appraisals, or
based on recent similar transactions where available, or otherwise the value of the related
interest held in the equity reported in the company’s latest approved financial statements;
• the price supplied by the issuer, as suitably adjusted to take account of any “counterparty
risk” and/or “liquidity risk”;
• their purchase price, as adjusted for any impairment, if fair value cannot be measured
reliably in the manner indicated above.
The following criteria are used to determine the fair value of derivative contracts:
– derivative contracts traded on regulated markets: their fair value is deemed to be their market
price on the last trading day of the year;
– derivative contracts traded over the counter: their fair value is deemed to be their market
value at the reference date, determined in the following manner depending on the type of
contract:
• contracts on interest rates: market value is taken to be the so-called “replacement cost”,
determined by discounting back to the expected settlement dates, the differences between
flows at contract rates and flows at market rates, calculated on an objective basis, current
at year-end for equivalent residual maturities;
• option contracts on securities and other assets: market value, represented by the theoretical
premium at the reference date, is determined by using the Black & Scholes formula, or
other equivalent methods;
• forward currency transactions: market value is determined using the forward exchange rate
current at the above date, for maturities corresponding to those of the transactions concerned;
• forward transactions in securities, commodities or precious metals: market value is
represented by the “forward” price current at the above date, for maturities corresponding
to those of the underlying asset.
The fair value of over-the-counter contracts is determined by adjusting their market value, if
positive, by the credit risk associated with the counterparty.
178
Part B
INFORMATION ON THE BALANCE SHEET
ASSETS
SECTION 1
Cash and balances with central banks – Line item 10
1.1 Cash and balances with central banks: analysis
31/12/2008
31/12/2007
a) Cash
b) Unrestricted deposits with central banks
99,973 –
108,425
–
Total
99,973 108,425
179
SECTION 2
Financial assets held for trading – Line item 20
2.1 Financial assets held for trading: breakdown by type
Items/Amounts
A.
1.
2.
3.
4.
5.
6.
31/12/2007
Listed
Unlisted
Cash assets
Debt securities
–
23,596 46,911 1.1 Structured securities
–
6,945 4,726 1.2 Other debt securities
–
16,651 42,185 Equities
2,338 –
11,507 Mutual funds –
–
4,354 Loans
–
–
–
4.1 Repurchase agreements
–
–
–
4.2 Other
–
–
–
Impaired assets
–
–
–
Assets sold but not derecognized
–
7,179 76,924 Total A
B.
1.
2. 31/12/2008
Listed
Unlisted
139,696 131,334
Derivatives
Financial derivatives
–
671,592 –
1.1 for trading
–
542,248 –
1.2 connected with the fair value option
–
129,344 –
1.3 other
–
–
–
Credit derivatives –
–
–
2.1 for trading
–
–
–
2.2 “connected with the fair value option” – –
–
2.3 other
–
–
–
525,361
500,329
25,032
–
–
–
–
–
Total B
Total (A+B)
2,338 30,775 93,261
16,905
76,356
–
34,445
–
–
–
–
3,628
–
671,592 –
525,361
2,338 702,367 139,696 656,695
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding
“repurchase agreements” with customers and banks.
The decrease in this overall balance is mostly due to the Bank’s wish to reduce its exposure to
financial instruments held for short-term trading in view of the highly volatile state of financial
markets and associated negative performance.
This line item also reflects Euro 45,326 in reclassifications during the year of certain financial
instruments to “Financial assets available for sale” as a result of the amendments to IAS 39
“Financial instruments: recognition and measurement” contained in the “Reclassification of
Financial Assets” published by the IASB on 13 October 2008 and endorsed by the European
Commission on 15 October 2008 with Regulation EC 1004/2008, which has been fully discussed
in the relevant section of this report.
180
2.2 Financial assets held for trading: analysis by debtor/issuer
Items/Amounts
31/12/2008
31/12/2007
A. CASH ASSETS
1.
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
23,596 –
–
21,370 2,226 140,172
7,310
–
103,881
28,981
2,338 112 2,226 152 –
2,074 –
11,507
10,695
812
–
–
812
–
3. Mutual funds
–
38,799
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
7,179 –
–
7,179 –
80,552
–
–
80,552
–
33,113 271,030
B. DERIVATIVES
a) Banks
550,977 b) Customers
120,615 384,380
140,981
Total B
671,592 525,361
Total (A+B)
704,705 796,391
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non–financial companies
– other
Total A
During the year the Bank used bilateral offsetting arrangements relating to operations in over-the-counter
derivatives with principal market counterparties, giving the option to offset creditor positions against
debtor positions in the event of counterparty default.
181
For the purposes of mitigating credit risk further, specific Credit Support Annex contracts have been
entered with the Bank’s most frequent counterparties with the aim of regulating the provision of cash
collateral financial guarantees.
2.3 Financial assets held for trading: derivative
Type of derivatives/Underlying assets
Interest
rates
Currency
and gold
Equities
Loans
Other
31/12/08
31/12/07
A. Listed derivatives
1. Financial derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
– Options purchased
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
– Options purchased
–
–
–
–
–
– Other derivatives
–
–
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total A
–
–
B. Unlisted derivatives
1. Financial derivatives
615,137 33,523 15,222 –
7,710 671,592 a) With exchange of capital
– 33,523 –
–
– 33,523 – Options purchased
– 15,303 –
–
– 15,303 – Other derivatives
– 18,220 –
–
– 18,220 b) Without exchange of capital 615,137 – 15,222 –
7,710 638,069 – Options purchased
133,582 – 15,222 –
– 148,804 – Other derivatives
481,555 –
–
–
7,710 489,265 2. Credit derivatives
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
525,361
21,997
12,377
9,620
503,364
206,684
296,680
–
–
–
Total B
615,137 33,523 15,222 –
7,710 671,592 525,361
Total (A+B)
615,137 33,523 15,222 –
7,710 671,592 525,361
182
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2.4 Financial assets held for trading other than those sold and not recognized and impaired assets:
changes during the year
Debt securities
Equities
A. Opening balance
Mutual
funds
Loans
Total
140,172 11,507 38,799 - 190,478
B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Other changes
1,992,538 1,989,906 245 2,387 69,060 68,691 22 347 25 -
-
25 - 2,061,623
- 2,058,597
-
267
- 2,759
C. Decreases
C1.Disposals
C2.Redemptions
C3. Negative changes in fair value
C4.Other changes
2,109,114 2,034,715 22,249 1,409 50,741 78,229 65,212 -
644 12,373 38,824 1,659 4,435 -
32,730 - 2,226,167
- 2,101,586
- 26,684
- 2,053
- 95,844
23,596 2,338 -
D. Closing balance
-
25,934
Other changes” in lines B3. and C4. report trading profits and losses respectively, recognized in
the income statement in line item 80 “Net trading income”.
“Other decreases” in debt securities also include Euro 2,175 in differentials between opening
and closing coupons and Euro 52 in differentials between opening and closing issue discounts.
Line C.4 also includes the reclassification of debt securities (Euro 9,998), equities (Euro 7,206)
and mutual funds (Euro 28,123) to “Financial assets available for sale”, permitted under the
amendments to IAS 39 “Financial instruments: recognition and measurement contained in the
document “Reclassification of Financial Assets”.
183
SECTION 3
Financial assets at fair value - Line item 30
3.1 Financial assets at fair value: breakdown by type
Items/Amounts
31/12/2008
Listed
Unlisted
31/12/2007
Listed
Unlisted
1. Debt securities
1.1 Structured securities
1.2 Other debt securities
–
–
–
17,077 –
17,077 –
–
–
25,792
–
25,792
2. Equities
–
–
–
–
3. Mutual funds –
–
–
–
4. Loans
4.1 Repurchase agreements
4.2 Other
–
–
–
–
–
–
–
–
–
–
–
–
5. Impaired assets
–
–
–
–
6. Assets sold but not derecognized
–
–
–
–
Total
–
17,077 –
25,792
Cost
–
51,364 –
50,926
This line item comprises the junior securities deriving from “own” securitizations carried out
by the Bank in prior years, which are measured at fair value using a financial-mathematical
model, developed together with an independent specialist firm of consultants, that measures the
performance of the assets underlying these securities. These valuations were based on the results
of the individual underlying transactions at the reference date, using specific assumptions about
the principal variables that affect performance (rate of early loan repayments, rate of recognition
of non-performing loans, percentage of expected losses, etc.).
The application of the fair value option to these securities reduces the mismatch with the related
back-to-back swaps arranged as part of the securitizations which are highly correlated with the
junior securities.
184
3.2 Financial assets at fair value: analysis by debtor/issuer
Items/Amounts
1.
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
31/12/2008
31/12/2007
17,077 –
–
–
17,077 25,792
–
–
–
25,792
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non–financial companies
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Mutual funds
–
–
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
17,077 25,792
Total
185
3.3 Assets at fair value, other than those sold but not derecognized and impaired assets: changes
during the year
A. Opening balance
Debt
Equities
securities Mutual
funds
Loans
Total
25,792 –
–
–
25,792
B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Other changes
1,027 –
–
1,027 –
–
–
–
–
–
–
–
–
–
–
–
1,027
–
–
1,027
C. Decreases
C1.Disposals
C2.Redemptions
C3.Negative changes in fair value
C4.Other changes
9,742 –
2,215 7,527 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,742
–
2,215
7,527
–
17,077 –
–
–
17,077
D. Closing balance
The “Other changes” reported in line B3. include the profits (Euro 1,014) deriving from the
early redemption of certain tranches of the above junior securities, which are recorded in line
item 110 “Net change in financial assets and liabilities at fair value” of the income statement.
They also include the differential (Euro 13) between opening and closing accruals.
The “Negative changes in fair value” in line C3. relating to the valuation of these junior securities
have their matching entry in line item 110 “Net change in financial assets and liabilities at fair
value” of the income statement. They have been partially offset by the collection during the year
of related interest income and additional returns, totaling Euro 3,906, recorded respectively in
line items 10 “Interest income and similar revenues” and 190 “Other operating charges/income”
of the income statement respectively.
186
SECTION 4
Financial assets available for sale – Line item 40
4.1 Financial assets available for sale: breakdown by type
Items/Amounts
31/12/2008
Listed
Unlisted
31/12/2007
Listed
Unlisted
1. Debt securities
1.1 Structured securities
1.2 Other debt securities
31,797 –
31,797 45,995 252 45,743 209,522 –
209,522 109,742
252
109,490
2. Equities
2.1 Carried at fair value
2.2 Carried at cost
21,828 21,828 –
113,193 111,118 2,075 211,394 211,394 –
92,452
90,015
2,437
3. Mutual funds
–
88,185 4,235 29,029
4. Loans
–
9,700 –
–
5. Impaired assets
–
–
–
–
6. Assets sold but not derecognized
34,226 –
–
–
Total
87,851 257,073 425,151 231,223
“Unlisted equities carried at cost” refer to certain individually immaterial equity interests, whose
fair value cannot be reliably or verifiably determined and so are reported at cost, as adjusted for
any impairment.
“Loans” relate to a loan granted under the sale of the entire interest in Linea SpA to Compass
SpA (Mediobanca Group) which, in accordance with IAS 39, has been recognized as “Financial
assets available for sale” because its repayment does not depend on the counterparty’s
creditworthiness but instead on the performance of one of its loan books.
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding
“repurchase agreements” with customers and banks.
The interest in Cattolica Assicurazioni ScpA was reclassified from “Financial assets available
for sale” to “Equity investments” during the year. In fact, on 31 October 2008, this company
acquired 348,000 shares in Banca Popolare di Vicenza, corresponding to 0.50% of its capital
stock, for a figure of Euro 20.9 thousand, making it one of the Group’s largest stockholders.
This has sealed the existing strategic and business alliance between the two Groups, further
strengthening their major partnership in the sector of insurance, banking and financial services.
The cross-representation on the Boards of Directors of the two companies further confirms
the great importance and merit of this partnership. These circumstances have underlined
the existence of a “significant influence” between the Banca Popolare di Vicenza Group and
Cattolica Assicurazioni, as defined by IAS 28 “Investments in associates”, also confirmed in the
specific opinion prepared by an independent expert, with the consequent need to reclassify the
6,093,915 shares (a 11.83% interest) held by the Bank in Cattolica Assicurazioni from “Financial
assets available for sale” to “Equity investments in associated companies”. The investment
187
has been reclassified at its carrying value, thereby completely cancelling the valuation reserve
previously recognized.
This line item also reflects reclassification during the year of certain financial instruments to
“Financial assets available for sale” as a result of the amendments to IAS 39 “Financial
instruments: recognition and measurement” contained in the “Reclassification of Financial
Assets” endorsed by the European Commission on 15 October 2008 with Regulation EC
1004/2008, which has been fully discussed in the relevant section of the report on operations.
4.2 Financial assets available for sale: analysis by debtor/issuer
Items/Amounts
1.
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non–financial companies
– other
3. Mutual funds
31/12/2007
77,792 26,288 211 6,089 45,204 319,264
39,061
350
63,110
216,743
135,021 56,892 78,129 –
51,741 26,388 –
303,846
34,290
269,556
210,910
33,410
25,236
–
88,185 33,264
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
9,700 –
–
–
9,700 –
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
34,226 12,869 –
21,357 –
–
–
–
–
–
344,924 656,374
Total
188
31/12/2008
4.5 Financial assets available for sale (other than those sold but not derecognized and impaired
assets): changes during the year
Debt
Equities
securities
Mutual
funds
A. Opening balance
319,264 303,846 33,264 – 656,374
60,676 23,211 28,453 –
X
–
7,206 1,806 70,155 41,218 814 –
–
–
28,123 –
25,000 169,536
25,000 89,868
– 32,336
–
–
–
–
–
–
– 45,327
– 2,005
255,177 229,501 69,749 11,830 105,165 –
3,292 3,209 1,097 3,530 1,097 3,530 –
–
73,532 210,910 2,342 22 15,234 6,262 –
5,343 3,629 3,629 –
–
–
15,300 –
–
–
15,300 15,300 –
–
–
77,792 135,021 88,185 B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Writebacks
– booked to income statement
– booked to equity
B4.Transfers from other asset portfolios
B5.Other changes
C. Decreases
C1.Disposals
C2.Redemptions
C3.Negative changes in fair value
C4.Impairment writedowns
– booked to income statement
– booked to equity
C5.Transfers to other asset portfolios C6.Other changes
D. Closing balance
13,705 439 3,069 –
–
–
9,998 199 Loans
Total
515,212
87,841
105,165
11,844
23,556
23,556
–
284,442
2,364
9,700 310,698
Line B4. “Transfers from other asset portfolios” reports reclassifications of financial instruments
from “Financial assets held for trading” in application of the amendments to IAS 39 discussed in
section 4.1.
Similarly, line C5. “Transfers to other asset portfolios” reports reclassifications of financial
instruments to “Loans and advances to banks” (Euro 44,131) and to “Loans and advances to
customers” (Euro 29,401) in application of the amendments to IAS 39; The “Equities” column
of line C5. reports the reclassification of Cattolica Assicurazioni from “Financial assets available
for sale” to “Equity investments”, as discussed earlier.
“Impairment writedowns” reported in line C4. refer to impairment losses recognized under IAS
39 against some of the financial instruments held by the Bank.
Other changes” in lines B5. and C6. report the profits and losses respectively arising on
reimbursement/disposal of financial assets held for sale, recognized in the income statement in
line item 100 “Gains (losses) on disposal/repurchase” along with the reversal to income of the
related “Valuation reserves” from equity.
“Other changes” in line C6 include the differential between opening and closing coupons (Euro
1,058) and the differential between opening and closing issued discounts (Euro 75), as well as
the amortized cost adjustment for the year (Euro 110) recognized as a deduction from interest
income.
189
SECTION 5
Financial assets held to maturity – Line item 50
Nothing has been classified in this section because the Bank does not hold any financial assets
falling into this category.
190
SECTION 6
Loans and advances to banks – Line item 60
6.1 Loans and advances to banks: breakdown by type
Type of transaction/Amounts
A.
1.
2.
3.
4.
Deposits with central banks
Time deposits
Compulsory reserve
Repurchase agreements
Other
B.
1.
2.
3.
4.
5.
6.
Due from other banks
Current accounts and sight deposits Time deposits
Other loans
3.1 Repurchase agreements
3.2 Finance leases
3.3 Other
Debt securities
4.1 Structured securities
4.2 Other debt securities
Impaired assets
Assets sold but not derecognized
31/12/2008
31/12/2007
177,555 1,705 175,850 –
–
17,355
–
17,355
–
–
2,976,357 662,801 831,541 663,645 594,369 –
69,276 522,812 –
522,812 911 294,647 2,673,197
600,222
860,118
1,053,679
1,039,375
–
14,304
128,637
–
128,637
–
30,541
Total (book value)
3,153,912 2,690,552
Total (fair value)
3,142,121 2,691,588
The increase in the compulsory reserve reflects centralization under the Bank of this obligation
for its subsidiaries.
“Assets sold but not derecognized” relate to debt securities classified in this category which have
been temporarily sold under funding “repurchase agreements” with customers.
The increase in “Debt securities” reported in lines 4. and 6. includes Euro 44,131 for transferring
certain financial assets from “Financial assets available for sale” in application of the amendments
to IAS 39 and Euro 588,279 for the purchase of bonds issued by Mediobanca, subscribed as part of
the sale, agreed in the year, of the entire interest in Linea S.p.A. to Compass S.p.A. (a Mediobanca
Group company) in substitution of loans granted to the former investee company.
In view of the predominantly short-term nature of loans to banks, except for debt securities,
their fair value is conventionally taken to be their carrying amount.
The fair value of debt securities classified in this line item is calculated in the same way as for
similar financial instruments classified in other balance sheet line items, as described in Part A of
these explanatory notes.
Impaired assets refer to a single loan to a Russian bank, classified on the watchlist after having
difficulty in recovering it. A writedown of Euro 297 has been recorded against this exposure.
191
SECTION 7
Loans and advances to customers – Line item 70
7.1 Loans and advances to customers: breakdown by type
Type of transaction/Amounts
31/12/2008
31/12/2007
1. Current accounts
2. Repurchase agreements
3. Mortgages
4. Credit cards, personal loans
and assignments of one–fifth of salary 5. Finance leases
6. Factoring
7. Other transactions
8. Debt securities
8.1 Structured securities
8.2 Other debt securities
9. Impaired assets
10. Assets sold but not derecognized
3,169,816 46,403 6,950,106 2,991,356
7,213
6,506,802
72,678 –
–
3,558,986 48,119 –
48,119 494,440 1,677,074 84,680
–
–
3,687,292
18,373
–
18,373
452,657
1,190,842
Total (book value)
16,017,622 14,939,215
Total (fair value)
16,044,926 15,409,137
Assets sold but not derecognized mainly relate to the mortgages sold as part of the securitizations
known as “Berica 5 Residential MBS”, “Berica 6 Residential MBS” and “Berica 7 Residential
MBS” which, since they do not satisfy the IAS 39 requirements for derecognition, have been
“reinstated” in the financial statements.
The securitization known as “Berica 7 Residential MBS”, the Group’s 7th such operation and
the 4th multioriginator kind, commenced on 1 October 2008 with the without-recourse sale of
performing mortgages to a special purpose entity. This operation was completed in November
with the issue of Euro 1,005 million in asset backed securities (of which Euro 930 million in Senior
notes and Euro 75 million in Junior notes), all of which subscribed by the originator banks. The
Senior notes have been used for refinancing with the European Central Bank.
The increase in “Debt securities” reported in line 8. refers to the transfer of certain financial
instruments from “Financial assets available for sale” (Euro 29,401), in application of the
amendments to IAS 39 “Financial instruments: recognition and measurement”.
The fair value of loans and advances to customers corresponds to the sum of the future cash
flows from the outstanding loans, including interest, discounted with reference to a risk-free rate
curve. The nominal cash flows are adjusted for expected losses using the probability of default
(PD) and loss-given-default (LGD) parameters attributed to each class of risk. The fair value
calculation is made for each individual long-term loan, while the fair value of “on demand”
relationships is conventionally taken to be their carrying value.
192
7.2 Loans and advances to customers: analysis by debtor/issuer
Type of transaction/Amounts
31/12/2008
31/12/2007
1. Debt securities:
a) Governments
b) Other public entities
c) Other issuers
– non–financial companies
– financial companies
– insurance companies
– other
48,119 –
–
48,119 –
48,119 –
–
18,373
–
–
18,373
–
18,373
–
–
2. Loans to:
a) Governments
b) Other public entities
c) Other issuers
– non–financial companies
– financial companies
– insurance companies
– other
13,797,989 –
11,966 13,786,023 9,875,611 1,124,385 23,033 2,762,994 13,277,343
–
9,693
13,267,650
8,646,004
1,480,830
641
3,140,175
3. Impaired assets
a) Governments
b) Other public entities
c) Other issuers
– non–financial companies
– financial companies
– insurance companies
– other
494,440 –
–
494,440 348,379 171 –
145,890 452,657
–
–
452,657
349,668
295
–
102,694
1,677,074 –
–
1,677,074 9,272 –
–
1,667,802 1,190,842
–
–
1,190,842
–
–
–
1,190,842
16,017,622 14,939,215
4. Assets sold but not derecognized
a) Governments
b) Other public entities
c) Other issuers
– non–financial companies
– financial companies
– insurance companies
– other
Total
Exposures to “non–financial companies” relating to “assets sold but not derecognized” mostly
refer to dept securities temporarily sold “repurchase agreements” with customers.
193
SECTION 8
Hedging derivatives – Line item 80
Nothing has been classified in this section because the Bank does not hold any derivatives
falling into this category.
SECTION 9
Remeasurement of financial assets backed by general hedges – Line item 90
9.1 Remeasurement of hedged assets: analysis by hedged portfolio
Remeasurement of financial assets backed by general hedges
1. Positive fair value
1.1 in specific portfolios:
a) loans and receivables
b) assets available for sale
1.2 Aggregate
2. Negative fair value
2.1 in specific portfolios:
a) loans and receivables
b) assets available for sale
2.2 Aggregate
31/12/2008
16,951 16,951 16,951 –
–
–
–
–
–
–
31/12/2007
–
–
–
–
–
–
–
–
–
–
Total
16,951 –
The above table reports changes in the fair value of medium/long-term fixed-rate loans
negotiations with costumers which have been hedged from the second half of 2008 using interest
rate swaps in order to limit/reduce exposure to interest rate risk.
The Bank has selected Macro Fair Value Hedging as the accounting method for representing
these hedges in the financial statements. Consequently, the remeasurement of hedged assets
in compliance with IAS 39 is reported in this line item, with the matching entry recognized in
line item 90 “Net hedging gains (losses)” of the income statement, together with the results of
measuring the associated hedging derivatives.
9.2 Assets backed by macro hedges of interest rate risk: breakdown
Remeasurement of financial assets backed by general hedges
194
31/12/2008
31/12/2007
1. Loans and receivables
2. Assets available for sale
3. Portfolio
281,802 –
–
–
–
–
Total
281,802 –
SECTION 10
Equity investments – Line item 100
10.1 Equity investments in subsidiary companies, companies under joint control (carried at equity)
and those over which significant influence is exercised: disclosures
Name
Location
% held
1. CASSA DI RISPARMIO DI PRATO SpA
Capital stock Euro 153.300.000
in shares of par value Euro 76,65
PRATO
79.00
2. BANCA NUOVA SpA
Capital stock Euro 42.690.211
in shares of par value Euro 4,3
PALERMO
99.59
3. IMMOBILIARE STAMPA SpA
Capital stock Euro 125.000.000
in shares of par value Euro 500
VICENZA
100.00
4. BPV FINANCE INTERNATIONAL PLC
Capital stock Euro 103.291
in shares of par value Euro 1
DUBLINO
99.99
5. FARBANCA SpA
Capital stock Euro 28.242.100
in shares of par value Euro 10
BOLOGNA
47.52
6. MONFORTE 19 SRL
Capital stock Euro 10.000
in shares of par value Euro 1
VICENZA
100.00
7. B.P.VI FONDI Sgr SpA
Capital stock Euro 10.000.000
in shares of par value Euro 5
VICENZA
50.00
8. NORDEST MERCHANT SpA
Capital stock Euro 2.000.000
in shares of par value Euro 1
VICENZA
80.00
9. PRESTINUOVA SpA 1
Capital stock Euro 25.263.160
in shares of par value Euro 10
PALERMO
6.33
10. NUOVA MERCHANT SPA
Capital stock Euro 120.000
in shares of par value Euro 1
ROMA
11. SERVIZI BANCARI ScpA
Capital stock Euro 100.000
in shares of par value Euro 50
VICENZA
A. SUBSIDIARY COMPANIES
100.00
97.00
195
Name
Location
% held
C. ASSOCIATED COMPANIES 1. BERICA VITA SpA
Capital stock Euro 31.000.000
in shares of par value Euro 10
VICENZA
49.00
2. SEC SERVIZI SCpA
Capital stock Euro 25.000.000
in shares of par value Euro 1
PADOVA
47.04
3. VICENZA LIFE LTD
Capital stock Euro 634.850
in shares of par value Euro 1
DUBLINO
50.00
4. ABC ASSICURA SpA
Capital stock Euro 8.925.000
in shares of par value Euro 0,51
VERONA
50.00
5. 21 INVESTIMENTI PARTNERS SpA
Capital stock Euro 4.250.000
in shares of par value Euro 1
TREVISO
20.00
6. MAGAZZINI GENERALI MERCI E DERRATE SpA
Capital stock Euro 1.241.317
in shares of par value Euro 5,17
VICENZA
25.00
7. CATTOLICA-BPVI MEDIAZIONE CREDITIZIA SPA
Capital stock Euro 300.000
in shares of par value Euro 1
VICENZA
50.00
8. SOCIETA’ CATTOLICA DI ASSICURAZIONE Scarl
Capital stock Euro 154.536.612
in shares of par value Euro 3”
VERONA
12.72
1
indirectly controlled through Banca Nuova which owns 88.67% of capital stock.
The percentage interest in equity also reflects the voting rights at stockholders’ meetings.
196
10.2 Equity investments in subsidiary companies, companies under joint control and those over
which significant influence is exercised: accounting information
Name
Total assets Total revenues
Net income (loss)
Equity1
Book
value
Fair
value
A. SUBSIDIARY COMPANIES
1. CASSA DI RISPARMIO DI PRATO SpA 3,896,523 283,183 462 279,120 404,765
x
2. BANCA NUOVA SpA
4,087,782 262,262 15,211 210,287 284,143
x
3. IMMOBILIARE STAMPA SpA
228,311 15,423 2,832 199,250 195,880
x
4. BPV FINANCE INTERNATIONAL Plc
537,493 35,893 (37,166)
41,172 93,418
x
5. FARBANCA SpA
341,159 19,450 2,656 37,356 22,884
x
6. MONFORTE 19 Srl
117,791 1,071 (1,685)
3,314 13,734
x
7. B,P,VI FONDI Sgr SpA
23,669 17,549 914 18,538 25,778
x
8. NORDEST MERCHANT SpA 7,447 4,694 828 5,853 3,280
x
9. PRESTINUOVA SpA
376,590 26,854 2,804 38,073 1,933
x
10. NUOVA MERCHANT SpA
2,493 319 (3,511)
(155)
0
x
11. SERVIZI BANCARI ScpA
4,089 8,113 324 953 428
x
TOTAL SUBSIDIARY COMPANIES
1,046,242
C. ASSOCIATED COMPANIES 1. BERICA VITA SpA
645,039 127,525 (22,110)
12,104 16,683
n.a.
2. SEC SERVIZI SCpA
65,741 106,736 –
27,091 12,411
n.a.
3. VICENZA LIFE Ltd
992,094 196,783 3,122 18,409 10,090
n.a.
4. ABC ASSICURA SpA
37,713 14,508 (1,162)
7,741 5,305
n.a.
9,921 1,584 455 9,430 3,816
n.a.
5,424 2,079 31 1,515 314
n.a.
956 83 (263)
814 550
n.a.
16,152,963 3,316,721 28,645 1,151,197 296,431
162,530
5. 21 INVESTIMENTI PARTNERS SpA 6.
7.
8.
MAGAZZINI GENERALI MERCI
E DERRATE SpA CATTOLICA– BPVI MEDIAZIONE
CREDITIZIA SpA
SOCIETA’ CATTOLICA
DI ASSICURAZIONE SCARL
TOTAL ASSOCIATED COMPANIES
1
345,600
equity includes net income (loss) for the year
The figures presented in this table relate to the latest approved financial statements of these
197
companies at 31 December 2008, except for Magazzini Generali Merci e Derrate SpA and 21 Investimenti Partners S.p.A. whose figures refer to their financial statements at 31 December 2007.
The figures relating to Società Cattolica di Assicurazione S.c.a.r.l. have been taken from the consolidated financial statements of the Cattolica Assicurazioni Group at 31 December 2008.
Assessments of the value of equity investments have not revealed the existence of any impairment losses requiring recognition in the income statement under IAS 36, except for the subsidiaries BPV Finance and Nuova Merchant for which impairment losses of Euro 10,000 and Euro
4,002 respectively have been recognized, reflecting their losses for the year.
With particular reference to the equity investment in Cattolica Assicurazioni, given its highly
volatile share price from the date of acquisition to the balance sheet date due to general stockmarket trends, and given the non-speculative nature of this investment, it has been decided to
value it using a model based on fundamentals, namely the Dividend Discount Model, as adjusted
to take account of the benefits that the partnership with this company (lasting 5 years and automatically renewable for another 5) will bring to the Group in terms of insurance sales in the loss
sector and synergies in asset management. The results of the valuation, performed by an outside
specialist company, have revealed that the value of the equity investment in Cattolica Assicurazioni is in line with its carrying amount.
198
10.3 Equity investments: changes during the year
31/12/2008
31/12/2007
A. Opening balance
1,107,185 1,138,078
B. Increases
B.1 Purchases
B.2 Writebacks
B.3 Revaluations
B.4 Other changes
299,230 24,286 –
–
274,944 125,578
82,555
–
–
43,023
C. Decreases
C.1 Sales
C.2 Adjustments
C.3 Other changes
14,573 48 14,002 523 156,471
74,147
–
82,324
1,391,842 1,107,185
E. Total revaluations
–
–
F. Total adjustments
14,002 –
D. Closing balance
“Purchases” reported in line B.1 refer to:
• Euro 21,522 for acquiring 458,000 shares in Cattolica Assicurazioni from the subsidiary BPV
Finance at the original carrying amount recorded by the subsidiary;
• Euro 2,322 in payments on capital account to Nuova Merchant to cover its losses;
• Euro 400 in payments on capital account to Cattolica-BPVI Mediazione Creditizia;
• Euro 42 to acquire another 0.8% of Farbanca SpA.
“Other changes” reported in line B.4 include the reclassification of Euro 274,909 from
“Financial assets available for sale” in relation to the interest in Cattolica Assicurazioni, as
discussed in the earlier Section 4 of these notes.
“Sales” reported in line C.1 refer to the disposal of 3% of Servizi Bancari S.c.p.A. to the
subsidiaries Banca Nuova (1%), Cassa di Risparmio di Prato (1%) and FarBanca (1%).
“Adjustments” in line C.2 comprise Euro 10,000 in impairment of investment in the subsidiary
BPV Finance and Euro 4,002 for writing down the investment in the subsidiary Nuova Merchant
after its capital was reduced to zero because of losses.
“Other changes” in line C.3 all refer to the distribution of an extraordinary dividend by 21
Investimenti Partners S.p.A out of its existing additional paid-in capital.
199
SECTION 11
Property, plant and equipment – Line item 110
11.1 Property, plant and equipment: analysis of assets carried at cost
Assets/Amounts
31/12/2008
31/12/2007
A. Assets used in business
1.1 Owned
a) Land
b) Buildings
c) Furniture
d) IT equipment
e) Other
1.2 Purchased under finance leases a) Land
b) Buildings
c) Furniture
d) IT equipment
e) Other
44,615 1,597 4,024 9,176 4,137 25,681 694 309 385 –
–
–
41,780
1,388
3,169
7,894
3,915
25,414
694
–
694
–
–
–
Total A
45,309 42,474
B. Investment property
2.1 owned
–
–
a) Land
–
–
b) Buildings
–
–
2.2 purchased under finance leases
–
–
a) Land
–
–
b) Buildings
–
–
Total B
Total (A+B)
200
–
–
45,309 42,474
11.3 Property, plant and equipment used for business purposes: changes during the year
Land
Buildings
Furniture
IT
equipment
Other
Total
1,388 4,059 34,683 20,560 55,945 116,635
–
196 26,789 16,645 30,531 74,161
1,388 3,863 7,894 3,915 25,414 42,474
518 209 –
–
–
–
–
–
–
309 961 961 –
–
–
–
–
–
–
–
3,095 3,085 –
–
–
–
–
–
–
10 1,968 1,965 –
–
–
–
–
–
–
3
4,333 4,296 –
–
–
–
–
–
–
37 10,875
10,516
–
–
–
–
–
–
–
359
–
–
–
–
–
–
–
–
–
–
–
–
–
–
415 –
106 –
–
–
–
–
–
–
–
–
–
309 1,813 97 1,716 –
–
–
–
–
–
–
–
–
–
–
1,746 47 1,699 –
–
–
–
–
–
–
–
–
–
–
4,066 127 3,935 –
–
–
–
–
–
–
–
–
–
4
8,040
271
7,456
–
–
–
–
–
–
–
–
–
–
313
1,906 4,409 9,176 4,137 25,681 45,309
–
302 28,505 18,344 34,466 81,617
1,906 4,711 37,681 22,481 60,147 126,926
–
–
–
–
–
–
A. Opening gross amount A.1Total net reductions in value A.2Opening net amount B. Increases:
B.1Purchases
B.2Capitalized improvement expenditure B.3Writebacks
B.4Fair value increases booked to:
a) equity
b) income statement
B.5Positive exchange rate adjustments
B.6Transfers from investment property B.7Other changes
C. Decreases
C.1Sales
C.2Depreciation
C.3Impairment charges booked to:
a) equity
b) statement of income
C.4Fair value decreases booked to:
a) equity
b) income statement
C.5Negative exchange rate adjustments C.6Transfers to:
a) investment property
b) assets held for sale
C.7Other changes
D. Closing net amount
D.1Total net reductions in value
D.2Closing gross amount E. Carried at cost
“Other changes” in lines B.7 and C.7 referring to Land and Buildings relate to the reclassification of
the value of land on which stands a building purchased under finance lease last year.
The remaining “Other changes” refer to profits and losses arising on the sale and/or retirement
of certain assets and recognized in line item 240 “Gains (losses) on disposal of investments” of the
income statement.
201
Property, plant and equipment are systematically depreciated each year on a straight-line basis,
using rates that reflect the residual technical and economic useful lives of the related assets, reported below:
Buildings
Furnishings
Furniture and ordinary office machines
Vehicles
Lifting equipment
Miscellaneous equipment
Electronic/electromechanical machines
Filming equipment/alarms
Temporary buildings
Communications equipment
Armoured counters
Lifting trucks
%
3
15
12
25
7.5
15
20
30
10
25
20
20
The value of land associated with free-standing property has been separated from the value of
the building and is not depreciated since it has an indefinite useful life.
202
SECTION 12
Intangible assets – Line item 120
12.1 Intangible assets: analysis by type
Assets/Amounts
31/12/2008
Finite
Indefinite
life
life
31/12/2007
Finite
Indefinite
life
life
x
679,581 –
A.1Goodwill
A.2Other intangible assets
26,510 –
5,654 A.2.1 Carried at cost: 26,510 –
5,654 a) Intangible assets
generated internally
–
–
–
b) Other assets
26,510 –
5,654 A.2.2 Carried at fair value:
–
–
–
a) Intangible assets
generated internally
–
–
–
b) Other assets
–
–
–
Total
26,510 679,581 5,654 705,589
–
–
–
–
–
–
705,589
Line A.1 “Goodwill” includes:
• Euro 195,462 in residual goodwill paid for the purchase of banking businesses by four
subsidiary banks in 2000;
• Euro 36,591 in residual goodwill of the 26 bank branches acquired in 2001 from certain
banks in the Intesa Group;
• Euro 144 in residual goodwill paid to acquire the Call Center from the former subsidiary
Banca Idea SpA in 2002;
• Euro 4,177 in residual goodwill paid to acquire the branch network of the former subsidiary
Banca Idea SpA in 2003;
• Euro 443,207 in goodwill paid to acquire 61 branches from the UBI Group on 31 December 2007.
The carrying value of this goodwill has been tested for impairment in accordance with IAS 36,
since it represents an intangible asset with an indefinite useful life. The results of these tests are
discussed in the specific paragraph later on in this section.
The increase in “Other intangible assets” (line A.2) mostly refers to intangibles identified as
part of the purchase price allocation process relating to the acquisition of 61 branches from
the UBI Group at the end of 2007. In fact, IFRS 3 states that the cost of a business combination
(such as the acquisition of the 61 UBI branches) must be accounted for using the purchase
method and that the price paid be allocated to the assets acquired and liabilities assumed as
measured at their respective fair values. The “intangibles” identified of Euro 24,100, expressing
the value of the relationships acquired, have been recognized as intangible assets at their fair
value, while deducting a corresponding amount from the goodwill provisionally recognized
upon initially accounting for these branches at the end of 2007. As assets with a finite useful life,
these “intangibles” are being amortized over the period they are expected to benefit (the average
life is estimated as 17 years for intangibles relating to individual customers and as 12 years for
corporate customers, corresponding to the related retention rates). The annual amortization
charge for the “intangibles” identified is Euro 1,649.
203
The other intangible assets classified in A.2.1 “Other intangible assets” mainly refer to
capitalized software and user licenses.
Information about impairment testing of goodwill and intangible assets with an indefinite useful
life (IAS 36, para. 134-137)
The CGU (Cash Generating Unit) tested to verify the book value of its goodwill is the CGU
Banca Popolare di Vicenza (referring to the legal entity Banca Popolare di Vicenza net of its
equity investments and consequent effects on equity and income);
The following table reports the value of goodwill allocated to the CGU:
CGUGOODWILL
Banca Popolare di Vicenza
679,581
The value in use and market/disposal value have been determined for this CGU. Not only is
this approach consistent with IAS 36, which requires a CGU’s carrying amount to be compared
with the higher of its value in use and market/disposal value, it is also appropriate in view of
current market uncertainty, causing the making of financial forecasts to be particularly difficult
and uncertain.
The different valuation techniques fall into the following core categories:
• analytical methods (for determining value in use)
• market methods (for determining fair value)
Analytical methods
In compliance with recent valuation practice, the adoption of value in use as the measure for
determining recoverable amount involves using methods based on estimating future income
or cash flow, such as for example, the dividends that a CGU is able to produce in the future
(Dividend Discount Model - DDM, with reference to “Excess Capital”).
The Dividend Discount Model is a variation on the cash flow method. In particular, this method,
in its “Excess Capital” variant, establishes that the economic value of a financial company is
given by discounting a stream of dividends determined on the basis of minimum capital
requirements dictated by the regulator.
Value in use has therefore been determined using methods currently adopted by sector players
(Dividend Discount Model).
Market methods
The two principal market methods are:
• the stockmarket quotations/market multiples method
• the comparable transactions method
The stockmarket quotations/market multiples method is based on analyzing listed companies
similar to the one being valued and particularly the relationship between the market value of
such companies and their balance sheet and profit indicators.
The comparable transactions method adopts a similar approach to that of the market multiples
method and involves analyzing the relationship between prices reported for company/business
acquisitions and the balance sheet and profit indicators of such companies.
204
The multiples of Italian listed banks have been considerably volatile in recent years. In fact,
Price/Book Value (P/BV) ratios have gone from 2 in 2007 to multiples ranging between 0.2 and
0.4 at the start of 2009, reflecting the general decline in all stocks in the Italian banking sector.
Despite the Bank of Italy’s reassurances about the relatively greater solidity of our banking
system compared with other countries, in the week from 16 to 20 February the sector index in
Milan lost 17%, more than the general Stoxx one (-14%). As noted in the specialist press (Il
Sole 24 Ore of 21 February 2009) “the markets are no longer capable of distinguishing healthy
companies from those in crisis”. Consequently, we are of the opinion that in the current market
context stockmarket multiples cannot be used as an indicator of market/disposal value.
It has been decided instead to refer to multiples for comparable transactions, provided there are
a sufficient, appropriate number of recent transactions.
Value in use and market value were both higher than book value for the above CGU.
Analytical methods: financial and economic projections
The method adopted for determining value in use (specifically DDM), is based on constructing
the economic and financial projects needed to determine the estimated dividends that the CGU
is able to produce in the future.
The Board of Directors approved the Business Plan for 2008 – 2011 on 11 September 2008, ie.
before the bankruptcy of Lehman Brothers and the steady deterioration in the macroeconomic
environment. This plan was prepared using assumptions that, despite being based on estimates
by primary forecasting institutes, now appear to be superseded by events, at least as far as the
specific planning period is concerned.
In recent months the economic, financial and operating scenario for the sector has experienced
changes that are without precedent in recent history and still appears to feature exceptional
levels of uncertainty regarding the outlook for the real economy, financial markets and the
associated developments in monetary policy, as stated more than once by the ECB in its latest
bulletin in February 2009.
Since we are aware that the Business Plan for 2008-2011 has been prepared on the basis of
macroeconomic and operating assumptions that are no longer realistic, at least with reference to
the specific planning period, and that the Budget for 2009 subsequently prepared now appears
to be superseded, at least in part, by the current scenario and by the high degree of uncertainty
affecting the current outlook, we have prepared separate financial and economic projections for
valuation purposes based on the specific assumptions set of below and which have been tested
for sensitivity.
General approach used for making forecasts
The simulations/projections developed for DDM application purposes are based on the 2009
Budget, as revised solely to take account of the impact of adjusting rates and spreads for new
assumptions regarding trends in market rates but not for any other corrective actions; in the case
of Banca Popolare di Vicenza, the cost of credit has also been prudently revised with reference
to the amount of impaired loans.
The assumptions regarding rates are based on expectations reflected in the current rate curve
and on estimates contained in the Forecast published by Prometeia in January 2009.
The estimates for 2010 and 2011 have been prepared with reference to the growth rates
contained in the Plan, taking account of the need to ensure balanced growth in deposits and
lending and of certain specific assumptions particularly relating to the cost of credit.
205
The estimates for 2012 and 2013 are a steady-state projection that assumes a gradual convergence
of industry growth rates (based on the projections contained in the latest Forecast Bank Results
by Prometeia)
Consequently, these projections cannot be treated as a revision of the Business Plan, or even less,
of the budget; instead, they are a forecast of the possible evolution in the Bank’s results based on
specific assumptions, that take account of projections by forecasting institutes, and specifically
prepared in order to have the information needed for the purposes of impairment testing.
In addition, for the purposes of determining terminal value, it has been assumed that a steadystate level of income will be achieved based on a zero-growth extrapolation from the plan.
Summary of the assumptions used for deriving terminal value:
CGU
Method of calculation
Growth Rate
Post-tax discount
terminal value
(g)
rate
Banca Popolare di Vicenza
Steady state return
2%
8,48%
The comparable transactions method has referred to transactions in Italy in the second half of
2008 relating to multiples on equity, total deposits (as the value of goodwill).
206
12.2 Intangible assets: changes during the year
Goodwill
Other intangible assets:
generated internally
Finite
Indefinite
Other intangible assets: Other
Finite
Indefinite
Total
A. Opening balance
853,525 –
–
8,265 –
861,790
A.1Total net reductions in value
147,936 –
–
2,611 –
150,547
A.2Opening net amount
705,589 –
–
5,654 –
711,243
B. Increases
16,747 B.1Purchases
B.2Increases in internally generated
intangible assets X
B.3Writebacks
X
B.4Positive changes in fair value
X
– booked to equity –
– booked to income statement
–
B.5Positive exchange rate adjustments
X
B.6Other changes
16,747 –
–
–
–
25,286 1,186 –
–
42,033
1,186
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,100 –
–
–
–
–
–
–
–
–
–
–
40,847
C. Decreases
42,755 C.1Sales
–
C.2Adjustments
– Amortization
–
– Writedowns
–
• equity
–
• income statement
–
C.3Negative changes in fair value
–
– booked to equity
–
– booked to income statement
–
C.4Transfers to non–current assets held for sale –
C.5Negative exchange rate adjustments
C.6Other changes
42,755 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,430 –
4,430 4,430 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47,185
–
4,430
4,430
–
–
–
–
–
–
–
–
42,755
D. Closing net amount
679,581 –
–
26,510 –
706,091
D.1Total net value adjustments 147,936 –
–
7,041 –
154,977
E. Closing gross amount
827,517 –
–
33,551 –
861,068
–
–
–
–
–
–
F. Carried at cost
The opening balance of “Other intangible assets” does not include those assets which had been
fully amortized at the end of the prior year.
“Other increases” in goodwill mostly refer to related costs (legal and notary fees, indirect taxes)
incurred by the Bank in relation to the acquisition of the UBI branches.
207
Other decreases” in goodwill reflect Euro 18,655 for adjusting the provisional price of the UBI
branches previously recorded and Euro 24,100 for reclassifying to “Other intangible assets”
the “intangibles” identified as part of the purchase price allocation process (this same amount
features in the “Other increases” in “Other intangible assets”).
Intangible assets, except goodwill, are amortized systematically each year on a straight-line basis
over their estimated useful lives.
Le “Altre variazioni” in diminuzione degli avviamenti si riferiscono per euro 18.655 alla rettifica
del prezzo provvisorio degli sportelli UBI precedentemente iscritto e per euro 24.100 alla
riclassifica tra le “Altre attività immateriali” di “intangibili” identificati nell’ambito del già citato
processo di Purchase Price Allocation (la stessa risulta inoltre esposta tra le “Altre variazioni” in
aumento delle “Altre attività immateriali” della tabella in esame).
Le attività immateriali, con l’eccezione dell’avviamento, sono sistematicamente ammortizzate
in ogni esercizio sulla base della stima della loro vita utile utilizzando come criterio di
ammortamento il metodo a quote costanti.
SECTION 13
Tax assets and liabilities – Asset Line item 130 and liability line item 80
13.1 Deferred tax assets: analysis
208
31/12/2008
31/12/2007
– Adjustments to loans to customers
– Taxed provisions for risks and charges
– Adjustments to junior securities
– Effect of continuing involvement in own securitizations – Writedowns of financial assets available for sale
– Writedown of equities
– Amortization of non–deductible portion of goodwill
– Deferred charges expensed to income statement
– portion deductible in future years
– Other 46,733 16,236 8,861 7,470 1,770 2,401 –
35,123
18,323
7,818
4,990
3,518
1,667
985
–
460 501
741
Total
83,931 73,666
13.2 Deferred tax liabilities: analysis
31/12/2008
31/12/2007
– Tax implications of goodwill amortization
– Effect of continuing involvement in own securitizations – Revaluations of financial assets available for sale
– Effect of actuarial valuation of severance indemnities
– Revaluation of works of art on First Time Application
– Untaxed revaluation of own securities – Deferred capital gains on non–current financial assets
– Other 27,532 11,479 5,637 1,075 846 285 80 36 9,354
5,056
4,187
1,774
720
448
160
76
Total
46,970 21,775
13.3 Change in deferred tax assets (with matching entry in income statement)
31/12/2008
31/12/2007
1. Opening balance
70,148 86,344
2. Increases
2.1 Deferred tax assets recorded during the year a) relating to prior years b) due to changes in accounting policies
c) writebacks
d) other
2.2 New taxes or increases in tax rates 2.3 Other increases
28,352 28,352 2,097 –
–
26,255 –
–
28,692
28,692
–
–
–
28,692
–
–
3. Decreases
3.1 Deferred tax assets reversing during the year
a) reversals b) written down as no longer recoverable
c) change in accounting policies
3.2 Reduction in tax rates 3.3 Other decreases
16,339 16,151 16,151 –
–
–
188 44,888
24,558
22,691
1,867
–
8,263
12,067
4. Closing balance
82,161 70,148
Line 2.1 a) reflects the recognition of deferred tax assets for IRAP (Italian regional business tax)
following changes to the law contained in Decree 185 of 29 November 2008, as converted with
amendments into Law 2 of 28 January 2009.
209
13.4 Change in deferred tax liabilities (with matching entry in income statement)
31/12/2008
31/12/2007
1. Opening balance
17,587 49,170
2. Increases
2.1 Deferred tax liabilities recorded during the year a) relating to prior years
b) due to changes in accounting policies
c) other
2.2 New taxes or increases in tax rates
2.3 Other increases
25,088 25,088 1,087 –
24,001 –
–
19,150
19,150
–
–
19,150
–
–
3. Decreases
3.1 Deferred tax liabilities eliminated during the year a) reversals
b) due to changes in accounting policies
c) other
3.2 Reduction in tax rates
3.3 Other decreases
1,342 1,326 1,326 –
–
–
16 50,733
28,403
27,827
–
576
4,887
17,443
41,333 17,587
4. Closing balance
Line 2.1 a) reflects deferred tax liabilities for prior year IRAP following changes to the law
contained in Decree 185 of 29 November 2008, as converted with amendments into Law 2 of 28
January 2009.
210
13.5 Change in deferred tax assets (with matching entry to equity)
31/12/2008
31/12/2007
1. Opening balance
3,518 250
2. Increases
2.1 Deferred tax assets recorded during the year
a) relating to prior years
b) due to changes in accounting policies c) other
2.2 New taxes or increases in tax rates
2.3 Other increases
1,115 608 –
–
608 –
507 3,518
3,518
–
–
3,518
–
–
3. Decreases
3.1 Deferred tax assets reversing during the year
a) reversals
b) written down as no longer recoverable
c) due to changes in accounting policies
3.2 Reduction in tax rates
3.3 Other decreases
2,863 2,863 2,863 –
–
–
–
250
–
–
–
–
–
250
4. Closing balance
1,770 3,518
13.6 Change in deferred tax liabilities (with matching entry to equity)
31/12/2008
31/12/2007
1. Opening balance
4,188 6,190
2. Increases
2.1 Deferred tax liabilities recorded during the year
a) relating to prior years
b) due to changes in accounting policies c) other
2.2 New taxes or increases in tax rates
2.3 Other increases
2,987 2,986 –
–
2,986 –
1
1,943
1,943
–
–
1,943
–
–
3. Decreases
3.1 Deferred tax assets reversing during the year
a) reversals
b) due to changes in accounting policies
c) other
3.2 Reduction in tax rates
3.3 Other decreases
1,538 1,538 1,538 –
–
–
–
3,945
2,813
2,813
–
–
1,114
18
4. Closing balance
5,637 4,188
211
13.7 Other information
“Current tax assets” are broken down as follows:
31/12/2008
31/12/2007
1. Direct tax assets
2. Indirect tax assets 3. Other current tax assets
25,394 11,476 5,171 –
13,828
7,779
Totale 42,041 21,607
As regards the Bank’s tax situation, in order to reduce the risk of potential disputes with the tax
authorities, the Bank decided to take advantage of the so-called “tombstone tax amnesty” for
VAT purposes as per Law 289 of 27/12/2002, settling tax years 1997 to 2002; advantage was
also taken for income tax purposes of art. 8 (the so-called “simple integration”) of the same law,
at the same time avoiding the two-year extension of the period of assessment envisaged in the
provision. Therefore, as far as both direct income tax and VAT are concerned, the last year that
has been closed is 2003.
In previous years the Italian tax authorities sent the Bank two assessments for alleged
irregularities in calculating and paying IRAP in relation to fiscal years 2003 and 2004, against
which the Bank duly appealed. The relating rulings were published in 2008, which partially
accepted the Bank’s defence.
In February 2008 the Vicenza branch of the Tax Police started a partial investigation into VAT
for fiscal years 2003-2006, which ended in March 2008 with the issue of the related report of
findings. After examining the Bank’s memorandum, the tax authorities instructed that this report
be archived for all the years in dispute.
Lastly, it is reported that the Bank has exercised the option under art. 117 et seq. of the Income
Tax Consolidation Act to file for tax on a group basis, together with its subsidiaries Cassa di
Risparmio di Prato, Immobiliare Stampa and BPVi Fondi Sgr, for the three-year period 20062008. The latter left the tax group in 2007 after it ceased to be a subsidiary following the Bank’s
sale of 50% of its shares. During 2008 the subsidiary Monforte S.r.l. joined the tax group for the
three-year period 2008-2010.
212
SECTION 14
Non-current assets held for sale and associated liabilities – Asset line item 140
and liability line item 90
14.1 Non-current assets held for sale and associated liabilities: analysis by type
A.
A.1
A.2
A.3
A.4
31/12/2008
31/12/2007
Individual assets
Equity investments
–
Property, plant and equipment
–
Intangible assets –
Other non–current assets
–
81,929
–
–
–
Total A
–
81,929
B. Groups of assets (discontinued operations)
B.1 Financial assets held for trading
–
B.2 Financial assets at fair value
–
B.3 Financial assets available for sale
–
B.4 Financial assets held to maturity
–
B.5 Loans and advances to banks
–
B.6 Loans and advances to customers
–
B.7 Equity investments
–
B.8 Property, plant and equipment
–
B.9 Intangible assets
–
B.10Other assets
–
–
–
–
–
–
–
–
–
–
–
Total B
–
–
Liabilities associated with assets held for sale
Payables
–
Securities
–
Other liabilities
–
–
–
–
C.
C.1
C.2
C.3
Total C
–
–
D. Liabilities associated with assets held for sale
D.1 Deposits from banks
–
D.2 Due to customers
–
D.3 Debt securities in issue
–
D.4 Financial liabilities held for trading
–
D.5 Financial liabilities at fair value
–
D.6 Provisions
–
D.7 Other liabilities
–
–
–
–
–
–
–
–
Total D
–
–
213
At 31 December 2007, line A.1 referred to the entire interest (47.9625% of capital stock) held
in Linea SpA, reclassified to non-current assets held for sale, in compliance with IFRS 5, after
signing a contract in December for this company’s sale that was awaiting completion at year end.
This sale was completed on 27 June 2008 and resulted in the recognition of a capital gain, net of
related costs, of Euro 111,037 in line item 210 “Profit (loss) from equity investments”.
SECTION 15
Other assets – Line item 150
15.1 Other assets: analysis
1. Miscellaneous debits in transit 2. Miscellaneous security transactions
3. Amounts recorded on the last day of the year
4. Checks drawn on third parties sent for collection
5. Adjustments to non-liquid portion
of notes discounted with recourse
6. Accrued income and prepaid expenses
not allocated to specific accounts
7. Leasehold improvements
8. Items awaiting allocation
9. Differences on elimination
10. Other miscellaneous items
Total
31/12/2008
31/12/2007
25,073 5,078 89,998 2,676 27,312
166
59,204
10,109
19,566 14,090
17,811 10,759 503 43,750 41,077 12,580
9,382
704
22,625
256,291 156,172
“Leasehold improvements” consist of improvement expenditure that cannot be separated
from the assets themselves, meaning that it cannot be separately recognized in property, plant
and equipment. These costs are amortized over the period they are expected to benefit or the
residual duration of the lease, whichever is shorter.
“Amounts recorded on the last day of the year” refer to items almost all of which settled in the
first few days of the new year.
In compliance with the clarifications and explanations contained in a recent letter from the
Supervisory Authorities to bank intermediaries, as from 31 December 2008 “Other assets”
include “operating receivables” previously classified in “Loans and advances to customers”.
214
LIABILITIES AND EQUITY
SECTION 1
Deposits from banks – Line item 10
1.1 Deposits from banks: breakdown by type
31/12/2008
31/12/2007
1. Due to central banks
701,185 2. Due to other banks 2,919,743 2.1 Current accounts and sight deposits
166,254 2.2 Time deposits
2,160,919 2.3 Loans
523,659 2.3.1 Finance leases
–
2.3.2 Other
523,659 2.4 Payables for commitments to repurchase
own equity instruments –
2.5 Liabilities relating to assets sold but not derecognized 68,892 2.5.1 Repurchase agreements
68,892 2.5.2 Other
–
2.6 Other payables
19 85,086
3,348,489
542,609
2,203,487
521,467
–
521,467
Total
3,620,928 3,433,575
Fair value
3,620,928 3,433,575
–
80,926
80,926
–
–
The increase in “Due to central banks” mainly reflects refinancing activity, through repurchase
agreements, directly with the European Central Bank.
“Loans: other” in line 2.3.2 include funding repurchase agreements arranged to match equivalent
lending repurchase agreements classified as loans to banks or to customers. Funding repurchase
agreements arranged using investment securities are classified in line 2.5.1.
In view of the predominantly short-term nature of deposits from banks, their fair value is
conventionally taken to be their carrying amount.
215
SECTION 2
Due to customers – Line item 20
2.1 Due to customers: breakdown by type
31/12/2008
31/12/2007
5,946,150 200,216 416 303,410 4
303,406 5,344,279
22,463
510
570,550
–
570,550
–
–
1,044,014 263,947 780,067 9,429 1,193,902
30,267
1,163,635
85,060
Total
7,503,635 7,216,764
Fair value
7,503,635 7,216,764
1.
2.
3.
4.
5.
6. 7.
Current accounts and sight deposits
Time deposits
Public funds administered
Loans
4.1 Finance leases
4.2 Other
Payables for commitments to repurchase
own equity instruments
Liabilities relating to assets sold
but not derecognized
6.1 Repurchase agreements
6.2 Other
Other payables
“Liabilities relating to assets sold but not derecognized”, included in line 6.2, represent
the matching entry for the mortgages sold as part of the securitizations known as “Berica 5
Residential MBS” and “Berica 6 Residential MBS” which, since they do not satisfy the IAS 39
requirements for derecognition, have been “reinstated” in the financial statements as “assets sold
but not derecognized” reported under line item 70 “loans and advances to customers”.
The related decrease mostly refers to the repurchase in the year of Senior and Mezzanine notes
issued in relation to the above securitizations. The repurchased securities have been used for
refinancing at the European Central Bank and/or lodged with the Bank of Italy to guarantee the
Group’s daily settlements.
With reference to the “Berica 7 Residential MBS” securitization completed in the year and
also reinstated in the balance sheet, no “liabilities for assets sold but not derecognized” have
been recognized because the related asset backed securities have been subscribed in full by the
originators.
“Loans: other” in line 4.2 include funding repurchase agreements arranged to match equivalent
lending repurchase agreements classified as loans to banks or to customers. Funding repurchase
agreements arranged using investment securities are classified in line 6.1.
In view of the predominantly sight and/or short-term nature of amounts due to customers, their
fair value is conventionally taken to be their carrying amount.
216
SECTION 3
Debt securities in issue – Line item 30
3.1 Debt securities in issue: breakdown by type
Type of transactions/Members of the group
31/12/2008
Book value Fair value 31/12/2007
Book value Fair value
A. Listed securities
1. Bonds
1.1 structured
1.2 other
2. Other securities
2.1 structured
2.2 other
B. Unlisted securities
1. Bonds
1.1 structured
1.2 other
2. Other securities
2.1 structured
2.2 other
–
–
–
–
–
–
–
4,609,152 4,447,405 –
4,447,405 161,747 –
161,747 –
–
–
–
–
–
–
4,910,261 4,748,514 –
4,748,514 161,747 –
161,747 –
–
–
–
–
–
–
4,566,191 4,385,562 –
4,385,562 180,629 –
180,629 –
–
–
–
–
–
–
4,335,427
4,154,798
–
4,154,798
180,629
–
180,629
Total
4,609,152 4,910,261 4,566,191 4,335,427
3.2 Detail of line item 30 “Debt securities in issue”: subordinated securities
Debt securities in issue
31/12/2008
31/12/2007
761,850 768,059
217
The subordinated bonds classified in this line item are analyzed below:
Isin code
Issue date Maturity
Rate Interest rate
Nominal
value
Book
value
IT0003444574
02/05/2003
02/05/2009
T.F.
2,25%
8.298 8,534
IT0003631659
23/03/2004
23/03/2011
T.F.
4,05%
9.777 9,883
IT0003631642
02/04/2004
02/04/2009
T.F.
3,64%
24.731 24,951
IT0003662498
21/05/2004
21/05/2010
T.F.
3,95%
23.359 23,460
IT0003699649
16/08/2004
16/08/2010
T.F.
4,10%
13.941 14,147
IT0003748511
30/11/2004
30/11/2011
T.F.
3,49%
48.932 48,987
XS0210870415
03/02/2005
03/02/2015
T.V. Euribor3m + 0,45
200.000 201,383
30/07/2007
30/07/2015
T.F.
2,15%
241.451 230,756
IT0004189343 1 XS0336683254
20/12/2007
20/12/2017
T.V. Euribor3m + 2,35
200.000 199,749
Total
770,489 761,850
1
Bond with right of conversion into Banca Popolare di Vicenza ordinary shares: the bonds can be converted into capital stock in a ratio of 2 shares of par value Euro 3.75 each for every bond of nominal value Euro 124 each. The conversion ratio will be changed in the event of a bonus increase in capital via the issue of shares. The right to convert
can be exercised from 1 October 2010 to 31 December 2010. The shares delivered to the bondholders who decide
to convert will have dividend and voting rights from 1 January 2011. Bondholders are entitled to convert early in the
event of extraordinary operations involving capital, except for mergers with other companies in the Banca Popolare di
Vicenza Group or with companies controlled by the issuer.
All the above subordinated bonds have an early redemption clause that allows the Bank to
redeem them early, not less than 18 months after the final date of placement, following prior
authorization from the Bank of Italy and giving at least one month’s notice.
Furthermore, all the above bonds contain a subordination clause whereby, on liquidation of
the Bank, they would be redeemed only after all other creditors, not subordinated to the same
extent, have been satisfied.
All the above bonds are included in the calculation of the Bank’s regulatory capital, on the basis
established in Circular 155 dated 18 December 1991 - XIIth update “Instructions for reporting
regulatory capital and prudent parameters”.
218
SECTION 4
Financial liabilities held for trading – Line item 40
4.1 Financial liabilities held for trading: breakdown by type
Type of transaction/Members of the group31/12/200831/12/2007
VN FV
FV* VN FV
Q
NQ Q
NQ FV*
A. Cash liabilities
1. Due to other banks
–
–
–
–
–
–
–
2. Due to customers
–
–
–
–
–
–
–
3. Debt securities in issue
–
–
–
–
–
–
–
3.1 Bonds
–
–
–
x
–
–
–
3.1.1 Structured
–
–
–
–
–
–
–
3.1.2 Other bonds
–
–
–
–
–
–
–
3.2 Other securities
–
–
–
x
–
–
–
3.2.1 Structuredi
–
–
–
–
–
–
–
3.2.2 Other
–
–
–
–
–
–
–
–
–
–
x
–
–
x
–
–
Total A
–
–
Derivatives
Financial derivatives
x
– 618,362 x
x
– 621,978 1.1 For trading
x
– 573,017 x
x
– 537,901 1.2 Connected with the fair value option x – 45,345 x
x
– 84,077 1.3 Other
x
–
–
x
x
–
–
Other
x
–
–
x
x
–
–
2.1 For trading
x
–
–
x
x
–
–
2.2 Connected with the fair value option x –
–
x
x
–
–
2.3 Other
x
–
–
x
x
–
–
x
x
x
x
x
x
x
x
B.
1.
2.
–
–
–
–
–
–
Total B
x
– 618,362 x
x
– 621,978 x
Total (A+B)
x
– 618,362 x
x
– 621,978 x
FV
FV*
VN
Q
NQ
=
=
=
=
=
Fair value
Fair value calculated excluding the differences in value due to changes in the issuer’s credit rating since the issue date
Nominal or notional value
Listed
Unlisted
219
4.4 Financial liabilities held for trading: derivatives
Type of derivatives/Underlying assets
31/12/2008
31/12/2007
A) Listed derivatives
1) Financial derivatives:
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
– Options issued
–
–
–
–
–
–
– Other derivatives
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
– Options issued
–
–
–
–
–
–
– Other derivatives
–
–
–
–
–
–
2) Credit derivatives:
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total A
–
–
B.) Unlisted derivatives
1) Financial derivatives:
573,986 25,075 15,223 –
4,078 618,362 a) With exchange of capital
– 25,075 –
–
– 25,075 – Options issued
–
7,959 –
–
–
7,959 – Other derivatives
– 17,116 –
–
– 17,116 b) Without exchange of capital 573,986 – 15,223 –
4,078 593,287 – Options issued
183,709 – 15,223 –
– 198,932 – Other derivatives
390,277 –
–
–
4,078 394,355 2) Credit derivatives:
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
621,978
33,382
8,368
25,014
588,596
239,863
348,733
–
–
–
Total B
573,986 25,075 15,223 –
4,078 618,362 621,978
Total (A+B)
573,986 25,075 15,223 –
4,078 618,362 621,978
220
Interest
rates
–
Currency
Equities
Loans
Other
and gold
–
–
–
–
SECTION 5
Financial liabilities at fair value – Line item 50
5.1 Financial liabilities at fair value: breakdown by type
Type of security/Amounts 31/12/200831/12/2007
VN FV
FV* VN FV
Q
NQ Q
NQ 1.
2.
3.
Due to other banks
1.1 Structured
1.2 Other
Due to customers
2.1 Structured
2.2 Other
Debt securities
3.1 Structured
3.2 Other
Total
FV
FV*
VN
Q
NQ
=
=
=
=
=
FV*
–
–
–
–
–
–
2,826,859 687,024 2,139,835 –
– –
–
–
x
–
–
–
x
–
–
– –
–
–
x
–
–
–
x
–
– 2,938,130 2,228,791 – 688,465 x 905,875 – 2,249,665 x 1,322,916 –
–
–
–
–
–
–
–
–
–
–
–
– 2,185,336 – 867,917 – 1,317,419 x
x
2,826,859 – 2,938,130 – 2,185,336 –
– 2,228,791 x
x
x
x
Fair value
Fair value calculated excluding the differences in value due to changes in the issuer’s credit rating since the issue date
Nominal or notional value
Listed
Unlisted
This line item includes own bonds correlated with derivative contracts that hedge interest rate
risk, valued by applying the fair value option, as allowed by IAS 39.
5.2 Detail of line item 50 “Financial liabilities at fair value”: subordinated liabilities
sin code
Issue date Maturity
Rate Interest rate
Nominal
value
Book
value
IT0004424351 15/12/2008
15/12/2015
T.F.
5,00%
115,497 119,849
Total
115,497 119,849
The above bond contains a subordination clause whereby, on liquidation of the Bank, it would
be redeemed only after all other creditors, not subordinated to the same extent, have been
satisfied.
This bond is included in the calculation of the Bank’s regulatory capital, on the basis established
in Circular 155 dated 18 December 1991 - XIIth update “Instructions for reporting regulatory
capital and prudent parameters”.
221
5.3 Financial liabilities at fair value: changes during the year
Due to
other banks
Due to
customers
Debt securities
in issue
Total
A. Opening balance
–
–
2,185,336 2,185,336
B. Increases
B.1Issues
B.2Sales
B.3Positive changes in fair value
B.4Other changes
–
–
–
–
–
–
–
–
–
–
1,015,301 849,497 23,663 136,489 5,652 1,015,301
849,497
23,663
136,489
5,652
C. Decreases
C.1Purchases
C.2Redemptions
C.3Negative changes in fair value
C.4Other changes
–
–
–
–
–
–
–
–
–
–
262,507 40,843 216,212 1,379 4,073 262,507
40,843
216,212
1,379
4,073
D. Closing balance
–
–
2,938,130 2,938,130
The “Positive and negative changes in fair value” (lines B.3 and C.3) relating to “Debt securities
in issue” are reported in line item 110 “Net change in financial assets and liabilities at fair value”
of the income statement. These changes are almost entirely offset by the results of valuing the
associated derivative contracts, also reported in the same line item of the income statement.
“Other changes” reported in line B4. for “Debt securities in issue” include Euro 1,684 in
trading losses which are recognized in line item 110 “Net change in financial assets and liabilities
at fair value” of the income statement, Euro 1,168 in differentials between opening and closing
coupons and Euro 2,800 in differentials between opening and closing issue discounts.
“Other changes” reported in line C.4 for “Debt securities in issue” all refer to trading profits
recognized in line item 110 “Net change in financial assets and liabilities at fair value” of the
income statement.
222
SECTION 6
Hedging derivatives – Line item 60
6.1 Hedging derivatives: analysis by type of contract and underlying asset
Type of derivatives/underlying assets
Interest
rates
Currencies
and gold
Equity
Loans
Other
securities
A) Quoted derivatives
1. Financial derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
Total A
–
–
–
–
Total
–
–
–
–
–
–
–
–
–
–
–
B. Unquoted derivatives
1. Financial derivatives
16,677 –
–
–
–
a) With exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital
16,677 –
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
16,677 –
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
16,677
–
–
–
16,677
–
16,677
–
–
–
Total B
16,677 –
–
–
–
16,677
Total (A+B) at 31/12/2008
16,677 –
–
–
–
16,677
Total (A+B) at 31/12/2007
–
–
–
–
–
–
This line item reports derivatives with a negative fair value, taken out to hedge interest rate risk
relating to a fixed-rate loan book.
223
6.2 Hedging derivatives: analysis by hedged portfolio and type of hedge
Interest rate
risk
1. Financial assets
available for sale
2. Loans and receivables
3. Financial assets
held to maturity
4. Portfolio
5. Foreign investments
Total assets
– 16,677 Fair Value
Cash flow
Specific
Exchange
rate risk
Credit
risk
Price
risk
Multiple
Generic
risk
Cash flow
Specific
Generic
– – – – – x
– – x
x
– – x
x
x
x
x
– x
x
– x
x
x
x
x
– x
x
x
– x
– x
– x
–
x
16,677 – – – – – – –
1. Financial liabilities
2. Portfolio
– x
– x
– x
x
x
– x
x
– – x
x
–
Total liabilities
– – – – – – – –
1. Awaited transactions
x
x
x
x
x
x SECTION 7
Remeasurement of financial liabilities backed by macro hedges – Line item 70
Nothing has been classified in this section.
224
SECTION 8
Tax liabilities – Line item 80
Analysis of “Current tax liabilities”
31/12/2008
31/12/2007
1. Direct tax liabilities
2. Indirect tax liabilities
3. Other tax liabilities 1,383 708 42,350 8,378
507
43,736
Total 44,441 52,621
Deferred tax liabilities are discussed in asset section 13. The same section also contains
information about the Bank’s tax position. In compliance with IAS 12, payments on account for
individual taxes have been offset against the related tax payable, with positive balances reported
as “current tax assets” and negative balances as “current tax liabilities”.
SECTION 9
Liabilities associated with non-current assets held for sale – Line item 90
Nothing has been classified in this section.
SECTION 10
Other liabilities – Line item 100
10.1 Other liabilities: analysis
1. Miscellaneous security transactions
2. Employee salaries and contributions 3. Suppliers
4. Transactions in transit
5. Adjustments for non-liquid balances
relating to the portfolio
6. Liability for risks on guarantees and commitments
7. Accrued expenses and deferred income
not allocated to specific accounts
8. Other miscellaneous items
Total
31/12/2008
31/12/2007
10,395 31,810 24,064 163,391 17,567
37,494
29,050
79,966
192,705 4,581 132,111
3,659
2,005 97,978 2,073
106,749
526,929 408,669
Transactions in transit refer to positions taken in the last few days of the year, almost all of which
settled in the first few days of the new year.
225
SECTION 11
Provision for severance indemnities – Line item 110
11.1 Severance indemnities: changes during the year
A. Opening balance
31/12/2008
31/12/2007
51,814 55,568
B. Increases
4,091 (245)
4,041 50 (3,461)
3,216
C. Decreases
4,145 3,509
4,142 3
3,243
266
D. Closing balance
51,760 51,814
Total
51,760 51,814
B.1Provisions
B.2Other increases
C.1Payments made
C.2Other decreases
According to IFRIC, the provision for severance indemnities is a “post-employment benefit”
qualifying as a “defined-benefit plan”, the value of which according to IAS 19 must be
determined on an actuarial basis. As a consequence, the year-end valuation of this amount was
carried out by an independent actuary using the projected unit credit method with reference
to earned benefits. This method involves the projection of future payments with reference to
historical and statistical analyses and probabilities, adopting suitable demographic techniques.
This makes it possible to calculate the severance indemnities accruing at a specific date on an
actuarial basis, distributing the cost over the entire remaining service of the current workforce,
and no longer presenting them as a cost payable as if the business were to cease trading on the
balance sheet date.
The 2007 Finance Act (Law 296 of 27 December 2006) brought forward to 1 January 2007
the effective date of new pension fund legislation (Decree 252/2005). As a result of the new
legislation, provisions for severance indemnities from that date are being paid into external
pension funds or, at the employee’s specific request, into the specific fund set up under the same
law and managed by INPS (Italy’s social security agency).
Given the above, the provision for severance indemnities is therefore “static”, representing the
amount accruing for employees up until 1 January 2007.
The valuation performed at 31 December 2008 has revealed a difference of Euro 4,413 between
severance indemnities calculated on an actuarial basis and those calculated under prevailing law
and collective payroll agreements.
226
SECTION 12
Provision for risks and charges – line item 120
12.1 Provisions for risks and charges: analysis
Items/Amounts
1.
2.
31/12/2008
Pensions and similar commitments
Other provisions 2.1 legal disputes 2.2 personnel expenses 2.3 other
Total
31/12/2007
–
59,532 38,670 6,500 14,362 –
68,697
35,425
4,900
28,372
59,532 68,697
12.2 Provisions for risks and charges: changes during the year
Pensions
Other provisions
Total
A. Opening balance
–
68,697 68,697
B. Increases
–
23,175 23,175
–
–
–
–
21,832 –
–
1,343 21,832
–
–
1,343
C. Decreases
–
32,340 32,340
–
–
–
30,471 –
1,869 30,471
–
1,869
–
59,532 59,532
B.1Provisions
B.2Changes due to the passage of time B.3Changes due to variations in the discount rate
B.4Other changes
C.1Utilizations during the year C.2Changes due to variations in the discount rate
C.3Other changes D. Closing balance
Line B.1 “Provisions” comprises:
• Euro 6,500 in provisions for future personnel expenses relating to the employee incentive
scheme, the matching entry to which is reported in “Payroll” (line item 150a) in the income
statement;
• Euro 15,332 in provisions relating to legal disputes and sundry charges, the matching entry
to which is reported in “Net provisions for risks and charges” (line item 160 of the income
statement).
“Other increases” reported in line B.4 reflect Euro 1,343 for the portion of 2007 net income
allocated to the provision for charitable donations, aid and works in the public interest, while
the related utilizations are included in “Other decreases” in line C.3.
227
12.4 Provisions for risks and charges – other provisions
The information required by paras. 85 and 86 of IAS 37 is provided below for each category of
contingent liability.
The provision for legal disputes relates to contingencies associated with claims against the Bank
and from the liquidators of bankrupt companies.
The provision for employment costs refers to the employee incentive scheme .
The other provisions for risks and charges relate to complaints from customers, fiscal disputes
and other sundry charges.
Recent assessment indicates that the above contingencies are likely to be settled within the next
12/18 months. Consequently, the charges associated with the above liabilities have not been
discounted since the effect would not be significant.
SECTION 13
Redeemable shares – Line item 140
Nothing has been classified in this section.
228
SECTION 14
Group equity – Line items 130, 150, 160, 170, 180, 190 and 200
14.1 Group equity: analysis
Items/Amounts
31/12/2008
31/12/2007
1. Capital stock
2. Additional paid–in capital
3. Reserves
4 . (Treasury shares)
5. Valuation reserves
6. Equity instruments
7. Net income for the year pertaining to the Group
261,460 1,960,355 517,131 (96,981)
38,048 13,104 151,035 261,656
1,963,297
478,159
–
(43,225)
13,630
110,090
Total
2,844,152 2,783,607
The “reserves” included in line 3 comprise the pre-existing profit reserves (legal reserve,
statutory reserve, extraordinary reserve, reserve for the purchase of treasury shares etc.), as well
as the positive and negative reserves associated with the transition to IAS/IFRS not classified
in the other equity accounts. They also include the reserve for general banking risks recorded
pursuant to the former Decree 87/92 which, in accordance with IAS, has been reclassified as
part of equity.
The “valuation reserves” reported in line 5 include the reserves arising on the valuation of
property, land and works of art at fair value rather than cost, on the first-time adoption of IAS/
IFRS, together with the valuation reserves relating to AFS financial assets and the monetary
revaluation reserves.
“Equity instruments” reported in line 6 relate to the equity component embedded in the “BPVi
13.a emissione 2007- 2015” convertible bond which, in accordance with IAS 32, has been
separated and classified in equity, net of tax.
14.2 “Capital stock” and “Treasury shares”: analysis
31/12/2008
31/12/2007
– Treasury shares
– Nominal value
69,722,736 euro 3,75 69,775,066
euro 3,75
229
14.3 Capital stock – Number of shares: changes during the year
Items/Types
Ordinary
Other
A. Treasury shares at the beginning of the year
– fully paid
– not fully paid
A.1Treasury shares (–)
69,775,066 69,775,066 –
–
–
–
–
–
A.2Outstanding shares: opening balance
69,775,066 –
B. Increases
B.1New issues
– payment:
– business combinations
– conversion of bonds
– exercise of warrants
– other
– bonus:
– to employees
– to directors
– other
B.2Sale of treasury shares
B.3Other changes
3,601,004 5,620 –
–
–
–
–
5,620 5,620 –
–
3,595,384 –
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Cancellation
C.2Purchase of treasury shares
C.3Disposal of companies
C.4Other changes
5,269,680 57,950 5,211,730 –
–
–
–
–
–
–
68,106,390 1,616,346 69,722,736 69,722,736 –
–
–
–
–
–
D. Outstanding shares: closing balance
D.1Treasury shares (+)
D.2Treasury shares at the end of the year
– fully paid
– not fully paid
14.4 Capital stock: other information
As a result of bonus issues in previous years, capital stock includes the following revaluation
reserves in suspense for tax purposes:
•
•
•
•
•
•
230
Reserve under Law 74 dated 11.02.1952 for Euro 24;
Reserve under Law 72 dated 19.03.1983 for Euro 13,005;
Reserve under Law 576 dated 02.12.1975 for Euro 553;
Reserve under Law 218 dated 30.07.1990 for Euro 30,582;
Reserve under Law 408 dated 29.12.1990 for Euro 12,834;
Reserve under Law 413 dated 30.12.1991 for Euro 28,054.
14.5 Reserves from earnings: other information
The line item “Reserves” is detailed as follows:
Item/Amounts
31/12/2008
31/12/2007
1. Legal reserve
110,977 2. Extraordinary reserve
161,707 3. Reserve for general banking risks
90,895 4. First Time Adoption reserves
(61,355)
5. Reserve for the purchase of treasury shares (unrestricted) 25,019 6. Reserve for the purchase of treasure shares (restricted)
96,981 7. Other reserves
92,907 104,978
150,207
90,895
(61,355)
102,000
–
91,434
Total
517,131 478,159
31/12/2008
31/12/2007
13,104 13,630
14.6 Equity instruments: analysis and changes during the years
Item/Amounts
Equity instruments
Equity instruments relate to the equity component embedded in the “BPVi 13.a emissione
2007- 2015” convertible bond issued which, in accordance with IAS 32, has been separated and
classified in equity, net of tax.
14.7 Valuation reserves: analysis
Item/Amounts
31/12/2008
31/12/2007
1. Financial assets available for sale
2. Property, plant and equipment
3. Intangible assets
4. Hedges of foreign investments
5. Cash-flow hedges
6. Exchange differences
7. Non-current assets held for sale
8. Special revaluation laws
35,948 –
–
–
–
–
–
2,100 (45,325)
–
–
–
–
–
–
2,100
Total
38,048 (43,225)
231
“Valuation reserves” relating to “Special revaluation laws” are analyzed as follows:
Items/Amounts
31/12/2008
31/12/2007
1. Law 413 of 30.12.91
344 2. Revaluation of property, plant and equipment at deemed cost 1,756 344
1,756
Total
2,100
2,100 14.8 Valuation reserves: changes during the year
Financial
Property, Intangible
Hedges Cash-flow Exchange Non-current
assets
plant and
assets
of hedges differences
assets
available equipment
foreign
held
for sale investments
for sale
Special
revaluation
laws
A. Opening balance
(45,325)
–
–
–
–
–
–
2,100
B. Increases
B.1 Increases in fair value
B.2 Other changes
103,953 32,336 71,617 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
22,680 –
–
–
–
–
–
–
C.1 Decreases in fair value
C.2 Other changes
11,844 10,836 –
–
–
–
–
–
–
–
–
–
–
–
–
–
D. Closing balance
35,948 –
–
–
–
–
–
2,100
14.9 Valuation reserves - AFS financial assets: analysis
31/12/200831/12/2007
Positive reserve Negative reserve Positive reserve Negative reserve
1. Debt securities
2. Equities
3. Mutual funds
4. Loans
3,432 39,295 933 –
(1,001)
(2,386)
(4,325)
–
3,178 15,460 689 –
(1,338)
(61,884)
(1,430)
–
Total
43,660 (7,712)
19,327 (64,652)
This table reports the positive and negative reserves, net of tax, arising on the fair value
measurement of financial assets available for sale.
The negative reserve for debt securities includes Euro 1,333 in residual value of the valuation
reserve calculated on the basis of the fair value at the reclassification date (1 July 2008) of
securities reclassified from “Financial assets available for sale”, under the amendment to IAS
39 “Financial instruments: recognition and measurement” contained in the “Reclassification of
Financial Assets” published by the IASB on 13 October 2008 and endorsed by the European
Commission on 15 October 2008 with Regulation CE 1004/2008, as discussed more fully in the
specific section of the explanatory notes.
232
14.10 Valuation reserves - AFS financial assets: changes during the year
Debt securities
Equities
Mutual funds
Loans
1. Opening balance
1,840 (46,424)
(741)
–
2. Positive changes
2.1 Increases in fair value
2.2 Release to the income statement
of negative reserve:
- from impairment
- from disposal
2.3 Other changes
5,855 3,069 94,945 28,453 3,153 814 –
–
258 –
258 2,528 676 307 369 65,816 612 612 –
1,727 –
–
–
–
3. Negative changes
3.1 Negative changes in fair value
3.2 Release to the income statement
of positive reserves: from disposals
3.3 Other changes
5,264 3,292 11,612 3,209 5,804 5,343 –
–
697 1,275 3,008 5,395 –
461 –
–
4. Closing balance
2,431 36,909 (3,392)
–
Lines 2.3 and 3.4 report the positive and negative tax changes respectively in respect of
movements in the year in the valuation reserve for AFS financial assets.
Line 2.3 in relation to equities also includes the release of the valuation reserve relating to the
interest in Cattolica Assicurazioni reported in the financial statements at 31 December 2007
(Euro 63,813), after reclassifying this interest to “Equity investments” from “Financial assets
available for sale”.
Lastly, line 2.3 in relation to debt securities includes Euro 201 in amortization of reserves
relating to “Financial assets available for sale” reclassified to “Loans”; this amortization is being
calculated using the effective interest method over the residual life of the investment and is
recorded in line item 10 “Interest income and similar revenues” of the income statement as a
deduction from the interest income on the same securities, in compliance with para. 54 (a) of
IAS 39.
233
Other information
As required by art. 2427, para. 7-bis of the Italian Civil Code, the following table analyzes the
equity accounts according to their permitted uses and distribution:
Description
Amount
Permitted Unrestricted
uses
portion Uses in past
three years
to cover
for other
losses
reasons
Capital stock
261,460 Treasury shares
(96,981)
Capital reserves
- additional paid-in capital 1,960,355 a,b,c 1,960,355 –
- reserve for treasury shares
(restricted portion)
50,000 Equity instruments
13,104 –
Valuation reserves
- art. 6.1 b) Decree 38/2005
(Financial assets
available for sale)
35,948 –
- art. 7.6 Decree 38/2005
1,756 a,b 1,756 - reserve Law 72/83
- reserve Law 408/90
- reserve Law 413/91
344 a,b,c 344 –
Profit reserves
- legal reserve
110,977 b
52,292 –
a,b,c 58,685 - reserve for treasury shares
(restricted portion)
46,981 - reserve for treasury shares
(unrestricted portion)
25,019 a,b,c 25,019 –
- reserve art. 2349 Civil Code 3,691 a
3,691 (14,007)
- art. 7.3 Decree 38/2005 (14,007)
(47,348)
- art. 7.7 Decree 38/2005 (47,348)
- reserve Law 124/93
489 a,b,c 489 –
- reserve Law 153/99
27,037 a,b,c 27,037 –
- reserve Law 218/90
1,586 a,b,c 1,586 - other reserves
312,706 a,b,c 312,706 –
1
151,035 a,b,c 138,532 Net income for 2008 ( )
c
9,790 d
2,713 TOTAL
2,844,152 2,533,640 –
Undistributable portion
Remaining distributable portion
204
2,916
–
5,066
12,834
28,054
–
–
2,854
–
–
–
51,928
60,452 2,473,188 Key: “a”: for capital increases; “b”: for covering losses; “c”: for distribution to stockholders; “d”: for other purposes.
(1)
As regards net income for 2008, the permitted use and unrestricted portion takes account of the allocation of earnings
proposed to the Stockholders’ Meeting.
234
The above table classifies the reserves according to the permitted uses specified in the Italian
Civil Code and in special laws governing such reserves.
The permitted use and unrestricted portion do not take account of any restrictions imposed by
tax law.
Attention is drawn to the fact that the Supervisory Instructions for Banks lay down minimum
capital requirements which place limits on the actual possibility of distributing reserves.
Lastly, it is noted that art. 109.4.b) of the Income Tax Consolidation Act provides for suspension
of tax with reference to “off-balance sheet” deductions made using the income tax return’s form
EC. This suspension of tax amounts to Euro 2,168 and is carried out “en masse”, meaning that it
does not place any restrictions on the reserves reported in the balance sheet.
OTHER INFORMATION
1. Guarantees given and commitments
Operations
31/12/2008
31/12/2007
1) Financial guarantees
a) Banks
b) Customer
2) Commercial guarantees
a) Banks
b) Customer
3) Irrevocable commitments to make loans
a) Banks
i) certain to be called on
ii) not certain to be called on
b) Customer
i) certain to be called on
ii) not certain to be called on
4) Commitments underlying credit derivatives:
protection sold
5) Assets lodged to guarantee the commitments
of third parties
6) Other commitments
1,051,847 4
1,051,843 811,506 53,173 758,333 1,447,496 172,469 159,374 13,095 1,275,027 410 1,274,617 995,040
21,328
973,712
666,040
36,562
629,478
1,650,140
244,440
233,395
11,045
1,405,700
54,798
1,350,902
–
–
–
1,757,591 –
1,358,284
Total
5,068,440 4,669,504
“Other commitments” include the put options on debt securities and equities issued by the
Bank, as well as undrawn revocable credit lines.
235
2. Assets pledged to guarantee own liabilities and commitments
Portfolio
1. 2. 3. 4. 5. 6. 7. Financial assets held for trading
Financial assets at fair value
Financial assets available for sale
Financial assets held to maturity
Loans and advances to banks
Loans and advances to customer
Property, plant and equipment
31/12/2008
7,179 –
59,848 –
596,895 826,669 –
31/12/2007
113,186
–
214,393
–
30,541
–
–
The increase in assets pledged in guarantee mostly refers to asset backed securities relating
to own transactions repurchased/subscribed in the year, used for refinancing at the Central
European Bank and/or lodged with the Bank of Italy to guarantee the Group’s daily settlements.
4. Administration and trading on behalf of third parties
The Bank is authorized to trade in securities in accordance with article 1.5 letters a), b), c) and e)
of Decree 58 dated 24 February 1998.
Type of service
31/12/2008
1. Trading in financial instruments on behalf
of third parties
3,528,432 a) Purchases
1,335,970 1. Settled
1,323,415 2. Unsettled
12,555 b) Sales
2,192,462 1. Settled
2,178,370 2. Unsettled
14,092 2. Private portfolios under management
–
a) Individual
–
b) Collective
–
3. Custody and administration of securities
18,923,220 a) Third-party securities on deposit:
associated with activities as a custodian bank
(excluding portfolio management)
1,162,525 1. securities issued by consolidated companies
–
2. other securities
1,162,525 b) Third-party securities in custody
(excluding portfolio management): other
15,383,527 1. securities issued by consolidated companies 3,920,302 2. other securities 11,463,225 c) Third-party securities on deposits with third parties 15,975,063 d) Own securities on deposit with third parties
2,377,168 4. Other transactions
–
31/12/2007
6,744,085
3,020,579
3,016,081
4,498
3,723,506
3,717,054
6,452
–
–
–
16,701,710
1,244,069
–
1,244,069
14,471,810
2,928,641
11,543,169
15,195,066
985,831
–
The Bank’s does not perform asset management activities as they are carried out by the
subsidiary BPVi Fondi Sgr.
236
Part C
iNCOME STATEMENT
SECTION 1
Interest – Line items 10 and 20
1.1 Interest income and similar revenues: analysis
Items/technical forms
Performing financial assets
Debt securities
Loans
Non- Other assets
31/12/2008
performing
assets
31/12/2007
1. Financial assets held for trading
6,372 –
–
–
6,372 2. Financial assets available for sale
7,083 –
–
–
7,083 3. Financial assets held to maturity
–
–
–
–
–
4. Loans and advances to banks
17,153 106,974 –
–
124,127 5. Loans and advances to customers
1,787 887,073 587 –
889,447 6. Financial assets at fair value
2,189 –
–
–
2,189 7. Hedging derivatives
–
–
–
57 57 8. Financial assets sold but not derecognized
–
81,104 –
–
81,104 9. Other assets
–
–
–
159 159 15,701
13,180
–
96,607
679,187
2,102
–
70,824
119
Total
877,720
34,584 1,075,151 587 216 1,110,538 1.2 Interest income and similar revenues: differentials relating to hedging transactions
Items/Amounts
31/12/2008
31/12/2007
A. Positive differentials relating to:
A.1 Specified hedges of asset fair value
57 A.2 Specified hedges of liability fair value
–
A.3 Macro hedges of interest rate risk
–
A.4 Specific hedges of asset cash flows
–
A.5 Specific hedges of liability cash flows
–
A.6 Macro hedges of cash flows
–
–
–
–
–
–
–
Total positive differentials (A)
57 –
B. Negative differentials relating to:
B.1 Specified hedges of asset fair value
B.2 Specified hedges of liability fair value
B.3 Macro hedges of interest rate risk
B.4 Specific hedges of asset cash flows
B.5 Specific hedges of liability cash flows
B.6 Macro hedges of cash flows
–
–
–
–
–
–
–
–
–
–
–
–
Total negative differentials (B)
–
–
57 –
C. Balance (A-B)
237
1.3 Interest income and similar revenues: other information
1.3.1 Interest income on foreign currency financial assets
31/12/2008
a) on foreign currency assets
12,662 31/12/2007
16,813
1.4 Interest expense and similar charges: analysis
Items/technical form
Payables Securities
Other 31/12/2008 31/12/2007
liabilities
1. Depostis from banks
(156,246)
–
– (156,246) (103,483)
2. Due to customer
(147,054)
–
– (147,054) (109,085)
3. Debt securities in issue
– (228,115)
– (228,115) (178,599)
4. Financial liabilities held for trading
–
– (24,077) (24,077) (9,538)
5. Financial liabilities at fair value
– (99,519)
– (99,519) (65,449)
6. Financial liabilities associated with
assets sold but not derecognized
(49,895)
–
– (49,895) (56,294)
7. Other liabilities
–
–
–
–
–
8. Hedging derivatives
–
–
–
–
–
Total
(353,195) (327,634) (24,077) (704,906) (522,448)
1.6 Interest expense and similar charges: other information
1.6.1 Interest expense on foreign currency liabilities
a) on foreign currency liabilities
238
31/12/2008
31/12/2007
(14,047)
(18,179)
SECTION 2
Commissions – Line items 40 and 50
2.1 Fee and commission income: analysis
Type of service/Amounts
a) Guarantees given
b) Credit serivatives
c) Management, intermediation and advisory services:
1. trading in financial instruments
2. foreign currency trading
3. portfolio management
3.1 individual
3.2 collective
4. custody and administration of securities
5. custodian bank
6. placement of securities
7. acceptance of orders
8. advisory services
9. distribution of third party services
9.1 portfolio management
9.1.1 individual
9.1.2 collective
9.2 insurance products
9.3 other products
d) Collection and payment services
e) Services for securitizations
f) Services for factoring transactions
g) Tax collection services
h) Other services
31/12/2008
31/12/2007
10,251 –
90,129 1,043 8,261 –
–
–
2,318 1,315 25,408 4,978 –
46,806 4,048 3,623 425 18,143 24,615 12,598 3,371 –
–
78,545 8,973
–
95,796
1,331
8,182
–
–
–
1,697
1,576
34,317
6,404
–
42,289
9,343
8,931
412
14,335
18,611
12,408
3,454
–
–
72,804
194,894 193,435
31/12/2008
31/12/2007
1. Fees and commissions on loans 2. Current account expenses and other recoveries
3. Commissions and expenses on bank transfers
4. Commissions on debit/credit cards
5. Collection commissions
6. Other services
14,799 44,196 8,420 8,248 2,267 615 13,173
41,506
7,866
7,591
2,032
636
Total
78,545 72,804
Total
Details of “Other services”
239
2.2 Fee and commission income: product and service distribution channels
Channels/Amounts
a) At own branches:
1. portfolio management
2. placement of securities
3. third-party products and services
b) Door-to-door:
1. portfolio management
2. placement of securities
3. third-party products and services
c) Other distribution channels:
1. portfolio management
2. placement of securities
3. third-party products and services
31/12/2008
70,667 –
25,309 45,358 1,547 –
99 1,448 –
–
–
–
31/12/2007
75,341
–
34,174
41,167
1,265
–
143
1,122
–
–
–
–
2.3 Fee and commission expense: analysis
Type of service/Amounts
31/12/2008
31/12/2007
a) Guarantees received
b) Credit derivatives
c) Management and dealing services:
1. trading in financial instruments
2. trading in foreign currency
3. portfolio management:
3.1 own portfolio
3.2 third-party portfolio
4. custody and administration of securities
5. placement of financial instruments
6. doo-to-door distribution of financial instruments,
products and services
d) Collection and payment services
e) Other services
(14)
–
(3,491)
(1,362)
(341)
–
–
–
–
(1,474)
(10)
–
(4,055)
(1,723)
(300)
–
–
–
–
(1,607)
(314)
(3,530)
(10,290)
(425)
(4,000)
(10,381)
Total (17,325)
(18,446)
31/12/2008
31/12/2007
(4,531)
(5,338)
(421)
(5,027)
(4,738)
(616)
(10,290)
(10,381)
Details of “Other services”
1. Commissions claimed by banks
2. Commissions on debit/credit cards
3. Other services
Total
240
SETION 3
Dividend and similar income – Line item 70
3.1 Dividend and similar income: analysis
Items/Income
31/12/2008
31/12/2007
DividendsIncome
Dividends
Income
from
from
mutual funds
mutual funds
A. Financial assets held for trading
B. Financial assets available for sale
C. Financial assets at fair value
D. Equity investments
578 12,199 –
27,792 10,541 4,230 –
x
22,344 2,943 –
38,941 4,071
–
–
x
Total
40,569 14,771 64,228 4,071
Income from mutual funds classified as “Financial assets held for trading” includes Euro 9,225
in income distributed by the BPVi Giada Equity closed-end fund and Euro 1,316 for the related
tax credit, while income from mutual funds classified as “Financial assets available for sale” includes Euro 3,814 in income distributed by the Nem Imprese closed-end fund and related tax
credit.
241
SeCTion 4
Net trading income – Line item 80
4.1 Net trading income: analysis
Transactions/Income items
GainsTrading
LossesTrading Net
profit
losses
result
(a)
(b)
(c)
(d)[(a+b)-(c+d)]
1. Financial assets held for
trading
267 2,759 (2,053) (13,290) (12,317)
1.1 Debt securities
245 2,387 (1,409) (3,516) (2,293)
1.2 Equities
22 347 (644) (5,167) (5,442)
1.3 Mutual funds
–
25 – (4,607) (4,582)
1.4 Loans
–
–
–
–
–
1.5 Other
–
–
–
–
–
2. Financial liabilities
held for trading
2.1 Debt securities
2.2 Payables
3. Other financial assets and liabilities:
exchange differences
4. Derivatives
4.1 Financial derivatives:
- on debt securities and
interest rates
- on equities and
equity indices
- on currency and gold
- other
4.2 Credit derivatives
Total
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
x
x
x
x
14,924
594,739 768,955 (605,588) (752,313) (1,122)
594,739 768,955 (605,588) (752,313) (1,122)
565,197 718,523 (576,045) (704,049)
29,542 x
–
–
3,626
50,432 (29,543) (48,264)
2,167
x
x
x (6,915)
–
–
–
–
–
–
–
–
595,006 771,714 (607,641) (765,603)
1,485
Trading profits (losses) and valuation gains (losses) relating to financial derivatives are presented
on an open account basis for each individual financial instrument.
242
SeCTion 5
Net hedging gains (losses) – Line item 90
5.1 Net hedging gains (losses): analysis
Transactions/Income items
31/12/2008
31/12/2007
A. Income on:
A.1 Fair value hedging derivatives
–
A.2 Hedged financial assets (fair value)
16,951 A.3 Hedged financial liabilities (fair value)
–
A.4 Cash flow hedging derivatives
–
A.5 Foreign currency assets and liabilities
–
–
–
–
–
–
Total hedging income(A)
16,951 –
B. Expense on:
B.1 Fair value hedging derivatives
(16,678)
B.2 Hedged financial assets (fair value)
–
B.3 Hedged financial liabilities (fair value)
–
B.4 Cash flow hedging derivatives
–
B.5 Foreign currency assets and liabilities
–
–
–
–
–
–
Total hedging expense (B)
(16,678)
–
273 –
C. Net profit/loss on hedging transactions (A-B)
The Bank has taken out interest rate swaps as from the month of July to hedge interest rate risk
on a portfolio of fixed-rate loans granted in the past three years.
The tests carried out at year end in compliance with IAS 39 have confirmed the effectiveness of
the hedge. The net gain (loss) reported above reflects the partial ineffectiveness of hedges, which
nonetheless remains with the range permitted by IAS 39.
243
SECTION 6
Disposal/repurchase gains (losses) – Line item 100
6.1 Disposal/repurchase gains (losses): analysis
Items/Income items
31/12/2008
31/12/2007
Profits Losses Net
Profits Losses result
Financial assets
1. Loans and advances to banks
–
–
–
–
–
2. Loans and advances to customer
4
(41)
(37)
–
(17)
3. Financial assets
available for sale
4,446 (484)
3,962 5,230 (1,175)
3.1 Debt securities
–
(461)
(461)
–
(1,082)
3.2 Equities
4,446 (23)
4,423 5,230 (93)
3.3 Mutual funds
–
–
–
–
–
3.4 Loans
–
–
–
–
–
4. Financial assets held
to maturity
–
–
–
–
–
Total assets
4,450 –
Financial liabilities
1. Deposits from banks
–
–
–
–
–
2. Due to customers
12,322 –
12,322 –
–
3. Debt securities in issue
1,425 –
1,425 1,087 (3)
–
–
1,084
Total liabilities
1,084
13,747 5,230 4,055
(1,082)
5,137
–
–
4,038
–
3,925 –
(17)
(1,192)
13,747 (525)
Net
result
1,087 (3)
The profits and losses from “Financial assets available for sale” include the “release” to income
of the positive and negative valuation reserves, recorded separately under equity at 31 December
2007, as a result of selling assets during the year.
The profits relating to “Equities” classified as “Financial assets available for sale” mostly relate
to the disposal in the year of the shares held in JP Residential.
The profits relating to “Due to customers” refer to the repurchase of part of the senior and
mezzanine notes issued in relation to the “Berica 5 Residential MBS” and “Berica 6 Residential
MBS” securitizations, both of which “reinstated” in the financial statements.
244
SeCTion 7
Net change in financial assets and liabilities at fair value – Line item 110
7.1 Net change in financial assets and liabilities at fair value: analysis
Transactions/Income items
Gains
(a)
Gains on
Losses
disposals
(b)
(c)
Losses on Net profit
disposals
(loss)
(d)[(a+b)-(c+d)]
1. Financial assets –
1,014 (7,527)
– (6,513)
1.1 Debt securities
–
1,014 (7,527)
– (6,513)
1.2 Equities
–
–
–
–
–
1.3 Mutual funds
–
–
–
–
–
1.4 Loans
–
–
–
–
–
2. Financial liabilities
2.1 Debt securities
2.2 Deposits from banks
2.3 Due to customers
3. Foreign currency financial assets
and liabilities: exchange differences
1,379 1,379 –
–
x
4,073 (136,489) (1,684) (132,721)
4,073 (136,489) (1,684) (132,721)
–
–
–
–
–
–
–
–
x
x
x
–
4. Derivatives
4.1 Financial derivatives
130,138 11,970 (4,780) (1,817) 135,511
- on debt securities and
interests rates
130,138 11,970 (4,780) (1,817) 135,511
- on equities and
equity indices
–
–
–
–
–
- on currency and gold
x
x
x
x
–
- other
–
–
–
–
–
4.2 Credit derivatives
–
–
–
–
–
Total derivatives
130,138 11,970 (4,780) (1,817) 135,511
Total
131,517 17,057 (148,796) (3,501) (3,723)
Trading profits (losses) and valuation gains (losses) relating to financial derivatives are presented
on an open account basis for each individual financial instrument.
245
SECTION 8
Net impairment adjustments – Line item 130
8.1 Net impairment adjustments to loans and advances: analysis
Transactions/Income items
Adjustments
Adjustments
31/12/2008 31/12/2007
Specific
Portafolio
Specific
Portafolio
Write-offs
OtherA
BA
B
C. Total
(5,442) (137,805) (10,737)
–
(297)
–
–
–
–
–
(297)
720
A. Loans and advances to banks
4,026 48,646 –
– (101,015) (103,510)
B. Loans and advances to customers (5,442) (137,508) (10,737)
4,026 48,646 –
– (101,312) (102,790)
A = interests
B = other
8.2 Net impairment adjustments to financial assets available for sale: analysis
Transactions/Income items
Adjustments
Writebacks
31/12/2008
Specific
Specific
Write-offs
OtherA
B
31/12/2007
A. Debt securities
–
(1,097)
–
–
(1,097)
B. Equities
–
(3,837)
–
–
(3,837)
C. Mutual funds
–
(4,241)
–
–
(4,241)
D. Loans and advances to banks
–
–
–
–
–
E. Loans and advances to customers
–
(15,300)
–
–
(15,300)
–
(9,117)
–
–
–
F. Total
(9,117)
–
(24,475)
–
–
(24,475)
A = interests
B = other
The specific adjustments included in the “Other” column of line B. “Equity instruments” almost
entirely relate to the write-down during the year of the interest held in HOPA SpA.
Specific adjustments in the “Other” column of “Loans to customers” (line E) refer to the partial
write-down of a loan granted in connection with the sale of the entire interest in Linea S.p.A.
to Compass S.p.A. (Mediobanca Group), whose repayment depends on the performance of an
underlying loan book.
246
8.4 Net impairment adjustments to other financial transactions: analysis
Transactions/Income items
Adjustments
Adjustments
31/12/2008 31/12/2007
Specific
Portafolio
Specific
Portafolio
Write-offs
OtherA
BA
B
A. Guarantees given
–
–
(911)
–
–
–
–
(911)
B. Credit derivatives
–
–
–
–
–
–
–
–
–
(11)
–
–
–
–
(11)
C. Commitments to disburse funds –
D. Other transactions
–
–
–
–
–
–
–
–
(298)
–
–
–
E. Total
(298)
–
–
(922)
–
–
–
–
(922)
A = interest
B = other
SECTION 9
Administrative costs – Line item 150
9.1 Payroll costs: analysis
Type of expense/Amounts
31/12/2008
31/12/2007
1) Employees
a) wages and salaries
b) social security contribution
c) severance indemnities
d) pension costs
e) provision for severance indemnities
f) provision for pensions and similar benefits: - defined contibution
- defines benefit
g) payments to external supplementary
pension funds:
- defined contibution
- defines benefit
h) costs deriving from equity-settled payment
arrangements
i) other personnel benefits
(246,220)
(179,711)
(44,925)
(215)
(418)
(4,041)
–
–
–
(202,998)
(152,216)
(39,004)
(392)
(356)
3,461
–
–
–
(15,865)
(15,865)
–
(12,643)
(12,643)
–
(341)
(704)
(1,048)
(800)
2) Other personnel
(982)
(727)
3) Retired personnel
(2,579)
(2,980)
4) Directors and statutory auditors
(4,556)
(3,192)
(254,337)
(209,897)
Total
247
“Payroll” includes the costs of employees of other companies who have been seconded to the
Bank, net of any recharged costs for the Bank’s employees seconded to other companies. These
costs also include provisions for future expenses relating to the employee productivity bonuses,
in compliance with IAS which require costs to be classified by “nature” of the expense.
Line 1.i) “other personnel benefits” reports costs associated with redundancy incentives under
Law 449/97.
In 2007 line 1.e) “Provision for severance indemnities” included not only the actual provision
for the year but also the extraordinary effect of curtailment.
In compliance with recent clarifications by the Supervisory Authorities, payments of severance
indemnity directly into INPS are reported in line 1.g) “payments to external supplementary
pension funds: defined contribution”. In addition, the fees paid to the statutory auditors have
been reclassified to “Payroll” in line 4) “Directors and Statutory Auditors”. The corresponding
amounts for 2007 have also been reclassified.
9.2 Average number of employees, by level
31/12/2008
31/12/2007
1. Employees
a) Managers
b) Middle managers
- of which: 3rd and 4th level
c) Other employees
2. Other personnel
3,447 73 1,443 785 1,931 13 3,070
63
1,281
693
1,726
12
Total
3,460 3,082
The average number of employees is calculated as the average of those at the start and end of the
year.
In compliance with current rules, “Employees” include those of other companies that have been
seconded to the Bank and exclude those of the Bank that have been seconded to other companies; “other employees” include staff working under contracts other than permanent employment ones, such as temporary or project contracts.
The increase in the average number of employees is mainly due to the acquisition of 61 branches
from the UBI Banca Group, involving the addition of 219 extra staff from 1 January 2008.
248
9.5 Other administrative costs: analysis
31/12/2008
31/12/2007
1. Indirect taxes
2. Non-professional products and services:
2.1. postage, telephone charges
2.2. security and valuables transportation
2.3. electricity, heating and water
2.4. transport
2.5. hire of programs and microfiches
2.6. data processing
2.7. stationery and printing
2.8. cleaning of premises
3. Professional services:
3.1. fees paid to professionals
3.2. legals, survey and search fees
4. Rentals:
4.1. rent of buildings
4.2. machine lease installments
5. Maintenance of furniture and installations
6. Insurance premiums
7. Other expenses:
7.1. surveys, searches and subscriptions
7.2. meal vouchers
7.3. membership fees
7.4. advertising and entertainment
7.5. intercompany service costs
7.6. other miscellaneous expenses
(40,545)
(56,784)
(10,135)
(3,623)
(3,941)
(1,449)
(777)
(32,804)
(2,097)
(1,958)
(13,317)
(5,315)
(8,002)
(27,012)
(26,194)
(818)
(5,840)
(1,979)
(33,890)
(4,858)
(3,584)
(1,216)
(10,614)
(5,793)
(7,825)
(37,325)
(53,254)
(8,762)
(3,226)
(3,378)
(1,146)
(564)
(32,468)
(2,078)
(1,632)
(12,100)
(5,303)
(6,797)
(22,988)
(22,302)
(686)
(4,361)
(2,060)
(23,008)
(4,746)
(3,063)
(1,006)
(7,767)
(7,370)
(6,426)
(179,367)
(162,466)
Total 249
SECTION 10
Net provisions for risks and charges – Line item 160
10.1 Net provisions for risks and charges: analysis
31/12/2008
31/12/2007
a) Provisions for legal disputes and other charges
b) Provision for other risks and charges
(1,881)
(13,451)
(8,979)
(17,126)
Total (15,332)
(26,105)
The provisions for legal disputes cover claims from the liquidators of bankrupt customers and
other claims against the Bank.
The provisions for other risks and charges mainly relate to potential costs associated with the
effects on customer loans of the current adverse climate on financial markets and the likely negative impact on the Bank in terms of recovering its loans.
SeCTion 11
Net adjustments to property, plant and equipment – Line item 170
11.1 Net adjustments to property, plant and equipment: analysis
Assets/Income items
DepreciationImpairment
Writebacks
(a)
adjustments
(b)
(c)
250
Net
resul
(a+b-c)
A. Property, plant and equipment
A.1 Owned
(7,456)
–
–
– for business purposes
(7,456)
–
–
– for investment purposes
–
–
–
A.2 Held under finance lease
–
–
–
– for business purposes
–
–
–
– for investment purposes
–
–
–
(7,456)
(7,456)
–
–
–
–
Total
(7,456)
(7,456)
–
–
SeCTion 12
Net adjustments to intangible assets – Line item 180
12.1 Net adjustments to intangible assets: analysis
Assets/Income items
DepreciationImpairment
Writebacks
adjustments
A. Intangible assets
A.1 Owned
(4,430)
–
–
- internally
generated
–
–
–
- other
(4,430)
–
–
A.2 Held under finance lease
–
–
–
Total
(4,430)
–
–
Net
result
(4,430)
–
(4,430)
–
(4,430)
SECTION 13
Other operating charges – Line item 190
13.1 Other operating charges: analysis
31/12/2008
31/12/2007
1. Amortization of leasehold improvements
2. Other charges
(2,879)
(13,263)
(1,906)
(2,695)
Total (16,142)
(4,601)
The amount in line 1. relates to the amortization of leasehold improvements that cannot be separated from the related assets and which, accordingly, are not reported separately under property,
plant and equipment. These costs are amortized over the period they are expected to benefit or
the residual duration of the lease, whichever is shorter.
“Other charges” in line 2. include the costs incurred by the Bank for early closure of certain financial instruments subscribed by customers, and for the renegotiation of securitized mortgages.
251
13.2 Other operating income: analysis
31/12/2008
31/12/2007
1. Expenses recharged to third parties on current
and savings accounts
2. Property rental income
3. Recharge of stamp duty and other indirect taxes
4. Recharge of intercompany service costs
5. Other income
901 227 25,958 2,903 12,984 1.054
186
24,050
2,575
19,075
Total 42,973 46,940
Other income includes Euro 1,716 for the additional return received during the year on junior
notes held in relation to the Bank’s own securitizations.
SECTION 14
Profit (loss) from equity investments – Line item 210
14.1 Profit (loss) from equity investments: analysis
Income item/Amounts
A. Income
1. Revaluations
2. Profit from disposals
3. Writebacks
4. Other positive changes
B. Charges
1. Writedowns
2. Impairments writedowns
3. Loss from disposals
4. Other negative changes
Net result
31/12/2008
31/12/2007
111,072 –
111,072 –
–
(14,002)
–
(14,002)
–
–
43,023
–
43,023
–
–
(395)
–
–
(395)
–
97,070 42,628
“Profit from disposals” relate to the sale of interests held in certain equity investments, as discussed in asset section 10 of these notes. In detail, they include Euro 111,037 for the gain on the
sale of the entire interest in Linea Spa, classified at the end of 2007 in “Non-current assets held
for sale”. They also include Euro 35 for the gain realized on the sale of 3% of Servizi Bancari
S.c.p.A. to the subsidiaries Banca Nuova (1%), Cassa di Risparmio di Prato (1%) and FarBanca
(1%).
“Impairment writedowns” comprise Euro 10,000 for the impairment of the investment in the subsidiary BPV Finance and Euro 4,002 for writing down the investment in the subsidiary Nuova
Merchant after its capital was reduced to zero because of losses.
252
SeCTion 15
Net gains (losses) arising on fair value adjustments to property, plant and equipment and intangible assets - Line item 220
Nothing has been classified in this section because the Bank does not hold any property, plant
and equipment and intangible assets at fair value.
SeCTion 16
Adjustments to goodwill – Line item 230
The tests of the residual goodwill reported in the Bank’s balance sheet at 31 December 2008 in
relation to bank branches acquired have not revealed the existence of any impairment losses requiring recognition in the income statement.
SECTION 17
Gains (losses) on disposal of investments – Line item 240
17.1 Gains (losses) on disposal of investments: analysis
Income item/Amounts
A.
B.
Buildings
– Profit from disposals
– Loss from disposals
Other assets
– Profit from disposals
– Loss from disposals
Net result
31/12/2008
31/12/2007
–
–
–
(178)
50 (228)
–
–
–
9
18
(9)
(178)
9
The profits and losses reported above relate to the sale and/or retirement of certain property,
plant and equipment. as reported in Asset Section 11 of these notes, and to the writedown of
certain leasehold improvements after terminating the related leases early.
253
SeCTion 18
Income taxes on current operations – Line item 260
18.1 Income taxes on current operations: analysis
Income item/Amounts
31/12/2008
31/12/2007
1. Current income taxes (–)
2. Change in year income taxes (+/–)
3.Reduction in current taxes (+)
4. Change in deferred tax assets (+/–)
5. Change in deferred tax liabilities (+/–)
6. Income taxes for the year
(30,941)
3,200 –
12,201 (23,762)
(39,302)
(50,188)
1,158
–
(4,129)
14,140
(39,019)
Current income taxes include withholding taxes on income from capitalization policies and taxes
paid abroad, for a total of Euro 99.
The change in prior period income taxes refers to surplus tax provisions booked in previous
years.
254
18.2 Reconciliation between theoretical tax charge and actual tax charge reported in the financial
statements
IRES
Ires with application at nominal rate
52,343 27.50
Disallowable portion of interest expense
Disallowable writedown and losses on equities
Disallowable costs
Other add-backs
5,155 4,956 888 126 2.71
2.60
0.47
0.07
Total tax effect of add-backs
11,125 5.84
Gains and revaluations of exempt equity investments
Dividends
Change in prior period income taxes
Other deductions
29,004 10,448 1,500 1,068 15.24
5.49
0.79
0.56
Total tax effect of deductions
42,020 22.08
Ires recognized in the income statement
21,448 11.27
IRAP
Irap with application at nominal rate
7,423 3.90
Payroll
Net adjustments to loans
Higher rates approved by the regions
Deferred taxes relating to prior years
Disallowable costs
Disallowable provisions
Other add-backs
7,045 4,548 3,925 1,087 1,543 634 22 3.70
2.39
2.06
0.57
0.81
0.33
0.01
Total tax effect of add-backs
18,804 9.88
Gains on equity investments
Deferred tax assets relating to prior years
Change in prior period income taxes
Dividends
3,786 2,096 1,700 791 1.99
1.10
0.89
0.42
Total tax effect of deductions
8,373 4.40
Ires recognized in the income statement
17,854 9.38
%
%
255
SECTION 19
Profit (loss) from disposal groups, net of tax - Line item 280
Nothing has been classified in this section.
SECTION 20
Other information
1. Amounts collected on behalf of third parties: debit and credit adjustments
31/12/2008
31/12/2007
a)
b)
3,157,320 10,881 3,125,151 21,288 -
3,350,025 6,922 3,323,537 19,566 2,760,086
9,692
2,737,417
12,977
2,892,197
5,379
2,872,728
14,090
Debit adjustments
1. Current accounts
2. Central portfolio
3. Cash
4. Other accounts
Credit adjustments
1. Current accounts
2. Transferors of notes and documents
3. Other accounts
The difference between the “debit” and “credit” adjustments during the year is classified in line item
100 “Other liabilities”.
256
SECTION 21
Earnings per share
Basis earnings per share and diluted earnings per share are reported below, as required by para.
70.b) of IAS 33.
Basic earnings per share is determined by dividing the results attributable to the holders of the
Bank’s ordinary equity instruments (the numerator) by the weighted average number of ordinary
shares outstanding during the year (the denominator).
Diluted earnings per share is determined by adjusting both the results attributable to the holders
of the Bank’s ordinary equity instruments and the weighted average number of shares outstanding to take account of any dilutive effects associated with the convertible bond issued during
the prior year.
Earnings per share (basic)
Earnings per share (diluted)
31/12/2008
31/12/2007
2.179
2.165
1.630
1.633
21.1 Average number of ordinary shares on dilution of share capital
Weighted average number of ordinary shares
Dilution adjustment
Weighted average number of ordinary shares
(fully dilutes)
31/12/2008
31/12/2007
69,305,047
3,996,305 67,545,273
1,691,987
73,301,352 69,237,260
In order to determine the basic earnings per share, the weighted average number of ordinary
shares outstanding is calculated with reference to the number of ordinary shares outstanding
at the start of the year, as adjusted by the number of ordinary shares cancelled or issued during
the year multiplied by the number of days such shares were in circulation in proportion to the
total number of days in the year. Treasury shares are not included in the total number of shares
outstanding.
In order to determine the diluted earnings per share, the weighted average number of ordinary
shares outstanding is increased by the weighted average number of additional ordinary shares
that would have been outstanding had all potential ordinary shares with a dilutive effect been
converted. The potential ordinary shares with a dilutive effect, calculated on the basis of the
conversion ratio established by the regulations of the convertible bond issued in the year, were
treated as if they had been converted into ordinary shares on the bond issue date (31 July 2007).
21.2 Other information
Since there are no preference shares, the results attributable to the holders of ordinary equity
instruments coincide with net income for the year.
257
Part D
SEGMENT INFORMATION
Under the Bank of Italy’s Circular no. 262 of 22 December 2005, the completion of this section
is optional for unlisted banks; accordingly it has not been completed, also in view of the fact that
these disclosures have been provided in the 2008 consolidated financial statements of the Banca
Popolare di Vicenza Group.
258
Part E
INFORMATION ON RISKS AND RELATED HEDGING POLICY
SECTION 1
Credit risk
QUALITATIVE INFORMATION
1. General aspects
Credit risk is the risk of losses due to non-performance by the counterparty (specifically the obligation to repay loans) or, more broadly, the failure of customers or their guarantors to meet their
obligations.
Credit risk also usually includes “Country risk”, being the risk that public and private borrowers
in a country might be affected by the political, economic and financial situation there. In such
cases, the failure to meet their obligations may depend on external factors beyond their control
(political and economic risks, currency controls etc.) that relate to the country in which they are
resident.
Lending by the Bank has always aimed to support both the borrowing needs of households and
the development and consolidation of businesses, especially small and medium-sized firms, which typify the local economies where the Bank operates.
In keeping with prior years, the lending policy adopted in 2008 sought to respond to the needs
of individuals and firms, while paying particular attention to the difficult economic situation,
credit risk and an adequate level of guarantees.
With reference to private customers, the development of activities focused on the longer-term
segment with the granting and/or renegotiation of home mortgages and personal loans either
directly via the Bank or via other companies.
Development activities in relation to small businesses have mainly focused on short-term lending, where the risk is spread widely, using technical forms that are supported by underwriting
syndicates wherever possible. Medium-term lending has been expanded in relation to medium
and large businesses, with a special focus on those with secured guarantees. In all cases, special
care has been taken in the selection of economic sectors from which borrowers come, in order
to give preference to lower risk activities. Sector analysis has become increasingly important in
the credit management process and involves the examination of internal data and external data
provided by specialist Italian companies, in order to maximize their significance in view of the
characteristics of the Bank and areas in which it operates.
The Bank is not active in the field of credit derivatives.
2. Credit risk management policies
2.1 Organizational aspects
The change in the regulatory context and in the supervisory instructions regarding risk management, along with the size of the Parent Bank and its banking subsidiaries, have created the circumstances for revising the approach and methods used for managing loans and non-performing
positions.
During the year the Board of Directors therefore initiated a project to reorganize its head office functions devoted to non-performing loans. With the goal of standardizing loan management and controlling it better (from the loan proposal to management of disputed positions),
the Loans Division has been created under the responsibility of a manager, appointed by board
259
resolution and who reports directly to the General Manager. The following three departments
report to the Loans Division:
– Ordinary Loans Department, which maintains effective control over the quality of credit disbursed, assures the review and evaluation stage of loan applications, ensuring compliance
with internal and external rules, and defines Credit Policies for the network both at the granting/renewal stage and credit management stage.
– Loan Administration and Finalization Department, which oversees and/or supports the management, finalization and checking of guarantees received and of lending operations, ensuring
compliance with internal and external rules; this department is also responsible for checking
and implementing data for the purposes of reporting risks.
–Anomalous Loans Department, which monitors anomalous positions, manages disputed positions and the recovery process1, protects and safeguards the Bank’s loans, taking the most
appropriate, beneficial actions in the Bank’s interests.
The unification of disputed, watchlist and anomalous loans in a single division is fundamentally
important because it gives rise to important synergies in the management of problem loans.
For the purpose of spreading credit risk management policies throughout the network, the review and evaluation of loan applications under the responsibility of the network’s approving
bodies has been decentralized into organizational units (Area Loans Units) which report to the
Ordinary Loans Department but are based in the various Area offices. The heads of such units,
assuming their independence of judgement and absence of interests/involvement in commercial
objective, have also been granted specific powers to grant and manage credit.
With regard to the Basel II project, rating models have been implemented and put into operation for retail counterparties (individuals and small firms) and for small corporate counterparties
(from Euro 2.5 to 50 million in turnover) and mid corporate counterparties (from Euro 50 to
200 million in turnover).
The rating model for corporate counterparties with turnover in excess of Euro 200 million is at
an advanced stage of implementation.
2.2 Management, measurement and monitoring systems
The lending process is organized as follows:
– The granting of loans involves: investigation, assessment, decision, formalization of the loan
and any guarantees;
– The management of loans involves: way utilized, monitoring, review of facility, management
of anomalies;
– Management of non-performing loans and recovery of loans.
The first and most important step in the measurement and management of risk is taken when
loans are granted.
1
260
Previously carried out by the Legal, General Affairs and Disputes Department.
The Bank’s regulations for the management of lending, contained in its Credit Manual, require
a prudent approach to the assessment of risk. The documentation needed to make an adequate
assessment of a borrower’s credit and the proposed structure of loan, with particular attention to
the medium/long-term feasibility of projects financed, must be obtained by bank officials at the
preliminary stage of the loan process. Credit-worthiness is also assessed on the basis of all the
relationships that the borrower, and its related economic group, has with the BPVi Group. On
the other hand, pricing and/or income from the relationship cannot be a factor when evaluating
credit-worthiness and agreeing a loan.
Account managers monitor and administer loans day by day and are responsible for their granting.
The investigation process depends on the type of customer concerned. For individual and small
businesses, the granting or otherwise of the facility requested is dealt with at branch or Area level
for relatively small amounts. This follows a simplified process using an internal scoring system,
which is an IT tool that checks credit-worthiness at the time new lines of credit are granted,
using both internal and external sources of information. For better control over the process of
granting credit to individual customers, stricter limits have been introduced on decision-making
powers, identified on the basis of the risk profile attributed to the counterparty by the internal
scoring system.
The granting of loans to companies/entities follows a more complex process, which is the responsibility of account managers, up to their authorization limits, and the central departments
for larger amounts. Proposed lending to such customers must be supported by a technical opinion from the Ordinary Loans Department, presented by its Organizational Units.
The credit limit attributable to economic groups or individual counterparties that are not banks
or do not belong to a banking group is indicatively Euro 60 million.
However, risk is split so that the credit granted to economic groups or individual counterparties,
as stated above (for facilities in excess of Euro 60 million), is kept within a maximum limit of
12% of the total loans granted.
The risk-management system (SGR) plays an important role in the monitoring and management
of credit risk, allowing account managers to check on changes in the credit status of customers
and quickly identify any deterioration in the standing of borrowers.
As required by the Supervisory Instructions (Part IV, Chapter 11, Section II), suitable systems
for the identification, measurement and control of risks have been adopted in order to manage
lending in a proper and prudent manner.
Controls form an integral part of the daily activities of the Bank. There are four types:
– Functional controls: these are performed at organizational level (e.g. hierarchical controls) or
are built into procedures or carried out as part of back-office work;
– Risk-management controls: these contribute to defining the ways in which risk is measured,
check compliance with the limits established for the various functions and monitor the consistency of operations. These controls are performed by functions without operational responsibilities;
– Internal revision: the purpose of this activity is to reassess the credit rating of individual borrowers, at predetermined intervals.
– Inspections: these are carried out by the audit function both on-site and on a remote basis,
in order to verify the quality of loans and the support for decisions taken by the functions
responsible for granting and administering loans.
261
Partly as a result of the reorganization at head office, the Loans Division, assisted by the other
competent divisions/departments, has taken a number of steps to revise and improve internal
credit management processes.
Some of the more projects started in 2009, which will be completed in the first quarter of 2008,
include:
– the introduction of specific Credit Policies for governing the way in which the Bank means
to assume credit risk with customers, by fostering balanced growth in loans to counterparties
with higher “credit ratings” and regulating/limiting the grant of credit to riskier customers;
– the revision of authorization levels, differentiating them on the basis of counterparty risk;
– the revision of the loan performance monitoring system with the goal of obtaining early warning of any deterioration.
During the year the process of automatically renewing credit facilities was refined by requiring
the position’s manager to authorize such renewals.
In compliance with the Bank of Italy’s instructions relating to Basel 2 and “groups of connected
customers”, the Bank introduced a number of changes relating to the management of economic
groups for increasing the level of objectivity and process repetition regarding their composition.
2.3. Credit risk mitigation techniques
The credit risk associated with individual counterparties or groups is mitigated by obtaining
security (pledges, mortgages and special privileges) and/or personal guarantees (sureties, endorsements, credit mandates and letters of patronage).
The degree of mitigation attributed to each guarantee is governed by specific regulations that
take account of the varying nature of the guarantees obtained.
Unsecured guarantees are obtained only after assessing the suitability of the guarantor’s assets
and rating.
2.4 Impaired financial assets
The main tool used to identify “anomalous” loans is the SGR procedure (Sistemi Gestione Rischi
or Risk Management System) which provides a “performance score”. In the first half of 2009 this
procedure will interface with the new Early Warning monitoring system, developed to make the
identification of signs of deterioration more efficient and precise.
Anomalous loans not classified as non-performing are monitored not only by the commercial
network but also by specific organizational structures, whose mission is to “prevent default”. These
structures consist of staff both in the head office and in the Area offices into which the Bank’s sales
network is organized.
Account managers are required to adopt an operational approach that is geared to eliminating
anomalies and limiting risks. In particular, as regards “watchlist” loans, this approach is designed
to prevent the emergence of disputed positions, through gradual friendly recovery or, at least, mitigation of any negative effects in the event of default.
The classification of loans as “non-performing” is based on the criteria laid down in the supervisory regulations. Accordingly, this category comprises loans to parties that are insolvent or in simi262
lar circumstances, even if not confirmed by a judge, the recovery of which is the subject of court
action or other suitable measures.
The “Non-performing loans, recovery and disputed loans” unit is responsible for the management
of non-performing loans and the recovery of loans and reports to the Anomalous Loans Department forming part of the Loans Division.
Recovery activities are carried out on a pro-active basis, with a view to optimizing the legal procedures and maximizing the outcome in economic and financial terms. In particular, when evaluating
the steps to take, internal lawyers prefer to take out-of-court action with recourse to settlements
that accelerate recoveries and contain the level of costs incurred. Where this route is not applicable, and especially with regard to larger amounts and when greater recoveries can be expected,
external lawyers are instructed to take legal action since this represents both a method of putting
legitimate pressure on the debtor and a way to resolve disputes.
Small loans that are uncollectible or difficult to collect are generally grouped together and sold
without recourse, given that legal action would be uneconomic in cost/benefit terms.
For financial reporting purposes, non-performing loans are analyzed on a case-by-case basis to
determine the provisions required to cover expected losses. The extent of the loss expected from
each relationship is determined with reference to the solvency of the debtor, the nature and value
of the guarantees obtained and the progress made by recovery procedures. Estimates are made on
a prudent basis and adopting discounting criteria, as required by accounting standards. This complex evaluation process is assisted by the subdivision of the loan portfolio into similar categories
and year of origin, taking account of the realizable value of the personal and/or corporate assets of
the debtor and the guarantors.
Lastly, the proper performance of the task of administering and evaluating non-performing loans is
assured by both periodic internal audit checks and by external verification activities, carried out by
the Board of Statutory Auditors and the independent auditors.
Since the start of 2009 the administrative management of non-performing loans has been supported by computerized procedures, allowing a gradual move away from much of the previous paperwork and ultimately being able to provide an immediate overview of the same.
263
QUANTITATIVE INFORMATION
A. CREDIT QUALITY
A.1 IMPAIRED AND PERFORMING EXPOSURES: SIZE, ADJUSTMENTS, TRENDS,
ECONOMIC AND TERRITORIAL DISTRIBUTION
A.1.1 Distribution of financial assets by portfolio and credit quality (book values)
Portfolio/Quality
Non-performing
WatchlistRestructured
Past due
Country
risk
Other
assets
Total
1. Financial assets held
for trading
6
3,687 –
1,344 – 699,668 704,705
2. Financial assets available
for sale
–
–
–
–
– 344,924 344,924
3. Financial assets held
to maturity
–
–
–
–
–
–
–
4. Loans and advances to banks
–
911 –
–
– 3,153,001 3,153,912
5. Loans and advances to customers
221,413 250,438 17,646 71,311 – 15,456,814 16,017,622
6. Financial assets
at fair value
–
–
–
–
–
17,077 17,077
7. Financial assets begin
sold
–
–
–
–
–
–
–
8. Hedging derivatives
–
–
–
–
–
–
–
Total at 31/12/2008
221,419 255,036 17,646 72,655 – 19,671,484 20,238,240
Total at 31/12/2007
220,498 187,867 31,663 62,043 8,112 18,598,141 19,108,324
264
A.1.2 Distribution of financial assets by portfolio and credit quality (gross and net values)
Impaired assets
Gross
Specific Portfolio
exposure adjustments adjustments
Total at 31/12/2008
863,375 (296,619)
Total at 31/12/2007
734,454 (203,844) (28,539) 502,071 17,866,214 (78,336)18,606,253 19,108,324
Net exposure
Other assets
Gross Portfolio
exposure adjustments
Total
Net
(Net
exposure exposure)
Portfolio/Quality
1. Financial assets held
for trading
5,652 (615)
–
5,037 x
x 699,668 704,705
2. Financial assets available
for sale
–
–
–
– 344,924 – 344,924 344,924
3. Financial assets held
to maturity
–
–
–
–
–
–
–
–
4. Loans and advances to banks
1,208 (297)
–
911 3,153,001 – 3,153,001 3,153,912
5. Loans and advances to customers 856,515 (295,707)
– 560,808 15,525,972 (69,158) 15,456,814 16,017,622
6. Financial assets
at fair value
–
–
–
–
x
x 17,077 17,077
7. Financial assets begin
sold
–
–
–
–
–
–
–
–
8. Hedging derivatives
–
–
–
–
–
–
–
–
– 566,756 19,023,897 (69,158)19,671,484 20,238,240
A.1.3 Cash and off-balance sheet exposures to banks: gross and net values
Type of exposure/Amounts
Gross
exposure
Portfolio
adjustments
Net
exposure
A. CASH EXPOSURE
a) Non-performing loans
–
–
–
b) Watchlist loans
1,208 (297)
–
c) Restructured exposures
–
–
–
d) Past due exposures
–
–
–
e) Country risk
–
x
–
f) Other assets
3,266,000 x
–
–
911
–
–
–
3,266,000
TOTAL A
–
3,266,911
B. OFF-BALANCE SHEET EXPOSURES
a) Impaired assets
–
–
–
b) Other
776,623 x
–
–
776,623
TOTAL B
776,623
3,267,208 776,623 Specific
adjustments
(297)
–
–
265
A.1.4 Cash exposures to banks: changes in gross impaired loans and loans subject to “country risk”
Objects/Categories
Non-performing WatchlistRestructured Past due
A. Opening gross exposure
-of which: sold but not derecognized
Country
risk
–
–
–
–
–
–
–
–
5,353
–
B. Increases
–
B.1Transfers from performing loans
B.2 Transfer from other categories
of impaired exposure
–
B.3 Other increases
C. Decreases
–
C.1 Transfer to performing loans
–
C.2 Write-offs
–
C.3 Collections
–
C.4Proceed from disposals
–
C.5 Transfers to other categories
of impaired exposure
–
C.6 Other decreases
–
1,208 1,208 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,353
–
–
–
–
–
–
–
–
–
–
–
5,353
D. Closing gross exposure
-of which: sold but not derecognized
1,208 –
–
–
–
–
–
–
Objects/Categories
Non-performing WatchlistRestructured Past due
Country
risk
–
–
A.1.5 Cash exposures to banks: changes in total writedowns
266
A. Opening total exposure
-of which: sold but not derecognized
–
–
–
–
–
–
–
–
–
–
B. Increases
B.1adjustments
B.2transfer from other categories
of impaired exposure
B.3 other increases
C. Decreases
C.1 writebacks from valuations
C.2 writebacks of collections
C.3 write-offs
C.4 transfers to other categories
of impaired exposure
C.5 other decreases
–
–
297 297 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
D. Total closing adjustments
-of which: sold but not derecognized
–
–
297 –
–
–
–
–
–
–
A.1.6 Cash and off-balance sheet exposures to customers: gross and net values
Type of exposure/Amounts
Gross
Specific
exposure adjustments
Portfolio
adjustments
Net
exposure
A. CASH EXPOSURE
a) Non-performing loans
441,205 (219,792)
–
b) Watchlist loans
323,112 (72,674)
–
c) Restructured exposures
17,646 –
–
d) Past due exposures
74,552 (3,241)
–
e) Country risk
–
x
–
f) Other assets
15,808,087 x (69,158)
221,413
250,438
17,646
71,311
–
15,738,929
TOTAL A
(69,158)
16,299,737
B. OFF-BALANCE SHEET EXPOSURES
a) Impaired assets
32,340 (615)
–
b) Other
4,931,684 x
–
31,725
4,931,684
TOTAL B
4,963,409
16,664,602 (295,707)
4,964,024 (615)
–
A.1.7 Cash exposures to customers: changes in gross impaired loans and loans subject to “country risk”
Objects/Categories
Non-performing WatchlistRestructured Past due
Country
risk
A. Opening gross exposure
383,106 251,330 -of which: sold but not derecognized 20,702 33,874 32,639 –
63,004 –
2,759
–
B. Increases
B.1Transfers from performing loans
B.2 Transfer from other categories
of impaired exposure
B.3 Other increases
C. Decreases
C.1 Transfer to performing loans
C.2 Write-offs
C.3 Collections
C.4Proceed from disposals
C.5 Transfers to other categories
of impaired exposure
C.6 Other decreases
247,042 427,201 12,576 367,992 25,014 –
74,988 74,781 –
–
203,085 44,725 31,381 14,484 188,943 355,419 – 68,370 54,464 5,032 133,632 83,946 845 3,398 17,510 7,504 40,007 –
–
–
–
–
207 63,440 26,584 161 1,213 –
–
–
2,759
–
–
–
–
– 194,099 2
574 35,739 4,268 35,482 –
–
2,759
D. Closing gross exposure
441,205 323,112 -of which: sold but not derecognized 48,387 45,307 17,646 –
74,552 –
–
–
267
A.1.8 Cash exposures to customers: changes in total writedowns
Objects/Categories
Non-performing WatchlistRestructured Past due
268
Country
risk
A. Opening opening adjustments
162,621 -of which: sold but not derecognized
6,763 65,163 2,207 976 –
3,056 –
–
–
B. Increases
B.1Adjustments
B.2 Transfer from other categories
of impaired exposure
B.3 Other increases
C. Decreases
C.1 Write-backs on valuation
C.2 Write-backs due to collections
C.3 Write-offs
C.4 Transfers to other categories
of impaired exposure
C.5 Other decreases
146,299 91,392 51,602 50,626 –
–
1,184 960 –
–
20,392 34,515 89,128 31,151 3,513 54,464 976 –
44,091 17,494 543 5,032 –
–
976 –
–
–
224 –
999 –
–
161 –
–
–
–
–
–
–
–
19,778 1,244 976 –
838 –
–
–
D. Total closing adjustments
219,792 -of which: sold but not derecognized 19,777 72,674 7,549 –
–
3,241 –
–
–
A.2 CLASSIFICATION OF EXPOSURES BASED ON EXTERNAL AND INTERNAL RATINGS
A.2.1 Distribution of cash and “off-balance sheet” exposures by external rating class
This table is not provided given the modest value of exposures with an “external rating”.
A.2.2 Distribution of cash and “off-balance sheet” exposures by internal rating class
The new rating systems for granting and renewing credit have not yet been applied to all the customers. Accordingly, this table has not been provided.
269
A.3 DISTRIBUTION OF GUARANTEED EXPOSURES BY TYPE OF GUARANTEE
A.3.1 Guaranteed cash exposures to banks and customers
Amount of
Secured guarantees
exposure
(1)
Buildings
Securities
Other
assets
1. Guaranteed exposure to banks:
25,856 –
–
–
1.1 fully guaranteed
25,856 –
–
–
1.2 partially guaranteed
–
–
–
–
2. Guaranteed exposure to customer: 2.1 fully guaranteed
2.2 partially guaranteed
8,633,736 5,590,616 7,808,221 5,543,125 825,515 47,491 346,428 278,770 67,658 132,196 74,803 57,393 A.3.2 Guaranteed “off-balance sheet” exposures to banks and customers
Amount of
Secured guarantees
exposure
(1)
Buildings
Securities
Other
assets
1. Guaranteed exposure to banks:
8,827 –
–
–
1.1 fully guaranteed
8,827 –
–
–
1.2 partially guaranteed
–
–
–
–
2. Guaranteed exposure to customer: 2.1 fully guaranteed
2.2 partially guaranteed
270
568,572 319,218 249,354 8,838 7,277 1,561 22,463 11,893 10,570 33,954 25,927 8,027 Credit derivatives
Governments Other public
Banks
entities
Unsecured guarantees (2)
Guarantees
Other Governments Other public
Banks
parties
entities
Total
(1)+(2)
Other
parties
–
–
–
–
–
–
–
25,856 –
–
–
–
–
–
–
25,856 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Credit derivatives
Governments Other public
Banks
entities
–
–
–
–
–
–
8,210 3,072 5,138 91,398 2,046,184 8,215,032
39,424 1,869,027 7,808,221
51,974 177,157 406,811
Unsecured guarantees (2)
Guarantees
Other Governments Other public
Banks
parties
entities
Total
(1)+(2)
Other
parties
–
–
–
–
8,825 –
2
–
–
–
–
–
8,825 –
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
25,856
25,856
–
2,678 1,074 1,604 358,939 273,047 85,892 8,827
8,827
–
426,872
319,218
107,654
271
A.3.3 Guaranteed impaired cash exposures to banks and customers
Amount of
Amount
exposure guaranteed
1. Guarantee exposures to banks:
–
–
1.1 150% or more
–
–
1.2 between 100% and 150%
–
–
1.3 between 50% and 100%
–
–
1.4 up to 50%
–
–
2. 384,296 136,576 91,645 130,478 25,597 Guarantee exposures to customers:
2.1 150% or more
2.2 between 100% and 150%
2.3 between 50% and 100%
2.4 up to 50%
368,930 136,576 91,645 128,500 12,209 Guarantees (fair value)
Total
Unsecured guarantees
Credit derivatives
Governments
Other
Banks Financial Insurance
Non-
Other
and central
public companies companies
financial
parties
banks
entities institutions
1. Guarantee exposures
to banks:
1.1 150% or more
1.2 between 100% and 150%
1.3 between 50% and 100%
1.4 up to 50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Guarantee exposures
to customers:
2.1 150% or more
2.2 between 100% and 150%
2.3 between 50% and 100%
2.4 up to 50%
–
–
–
–
–
928 752 –
–
176 1,670 835 204 59 572 839 419 74 –
346 1,410 1,090 –
–
320 19,499 15,335 1,809 1,630 725 272
–
–
–
–
–
Excess
fair value,
guarantee
–
–
–
–
–
–
–
–
–
–
76,144 368,930 – 136,576 5,112 91,645 67,482 128,500 3,550 12,209 –
–
–
–
–
Guarantees (fair value)
Secured guarantees
Buildings
Securities
Other
assets Governments
and central
banks
Unsecured guarantees
Credit derivatives
Other
Banks
Financial
Insurance
public
companies
companies
entities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
257,349 116,775 83,715 53,808 3,051 951 363 78 328 182 10,140 1,007 653 5,193 3,287 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Non-
financial
institutions
Other
issues
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
273
A.3.4 Guaranteed impaired “off-balance sheet” exposures to banks and customers
Amount of
Amount
exposure guaranteed
1. Guarantee exposures to banks: –
–
1.1 150% or more
–
–
1.2 between 100% and 150%
–
–
1.3 between 50% and 100%
–
–
1.4 up to 50%
–
–
2. 9,390 92 337 7,298 1,663 Guarantee exposures to customers:
2.1 150% or more
2.2 between 100% and 150%
2.3 tra il 50% e il 100%
2.4 up to 50%
5,933 92 337 4,674 830 Guarantees (fair value)
Total
Unsecured guarantees
Credit derivatives
Governments
Other
Banks Financial Insurance
Non-
Other
and central
public companies companies
financial
parties
banks
entities institutions
Excess
fair value,
guarantee
1. Guarantee exposures
to banks: 1.1 150% or more
1.2 between 100% and 150%
1.3 between 50% and 100%
1.4 up to 50%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Guarantee exposures
to customers:
2.1 150% or more
2.2 between 100% and 150%
2.3 between 50% and 100%
2.4 up to 50%
–
–
–
–
–
–
–
–
–
–
80 –
80 –
–
–
–
–
–
–
–
–
–
–
–
194 5
81 21 87 3,864 18 –
3,115 731 5,933 92 337 4,674 830 –
–
–
–
–
274
Guarantees (fair value)
Secured guarantees
Buildings
Securities
Other
assets Governments
and central
banks
Unsecured guarantees
Credit derivatives
Other
Banks
Financial
Insurance
public
companies
companies
entities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
123 44 13 54 12 1,672 25 163 1,484 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Non-
financial
institutions
Other
issues
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
275
B. DISTRIBUTION AND CONCENTRATION OF CREDIT
B.1 Distribution by sector of cash and “off-balance sheet” exposures to customers
Governments and central banks
Exposures/Counterparties
Gross
exposure
Specific
adjustments
Portfolio
adjustments
Net
exposure
A. Cash exposure
A.1 Non-performing loans
–
–
–
–
A.2 Watchlist loans
–
–
–
–
A.3 Restructured exposures
–
–
–
–
A.4 Past due exposures
–
–
–
–
A.5 Other exposures
39,157 –
–
39,157 Total
39,157 –
–
39,157 B. “Off-balance sheet” exposures
A.1 Non-performing loans
–
–
–
–
A.2 Watchlist loans
–
–
–
–
A.3 Other impaired assets
–
–
–
–
A.4 Other exposures
55,423 –
–
55,423 Total
55,423 –
–
55,423 Total at 31/12/2008
94,580 –
–
94,580 Total at 31/12/2007
120,883 –
–
120,883 Insurance companies
Exposures/Counterparties
Gross
exposure
Specific
adjustments
Portfolio
adjustments
Net
exposure
A. Cash exposure
A.1 Non-performing loans
–
–
–
–
A.2 Watchlist loans
–
–
–
–
A.3 Restructured exposures
–
–
–
–
A.4 Past due exposures
–
–
–
–
A.5 Other exposures
23,185 –
–
23,185 Total
23,185 –
–
23,185 B. “Off-balance sheet” exposures
A.1 Non-performing loans
–
–
–
–
A.2 Watchlist loans
–
–
–
–
A.3 Other impaired assets
–
–
–
–
A.4 Other exposures
20,627 –
–
20,627 276
Total
20,627 –
–
20,627 Total at 31/12/2008
43,812 –
–
43,812 Total at 31/12/2007
263,652 –
(5)
263,647 Other public entities
Gross
exposure
Portfolio
adjustments
Net
exposure
–
–
–
–
963 (794)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
12,177 –
–
12,177 1,182,136 –
(2,740)
169
–
–
2
1,179,396
12,177 Specific
adjustments
Financial companies
–
Portfolio
adjustments
–
Net
exposure
12,177 Gross
exposure
1,183,101 Specific
adjustments
(794)
(2,740)
1,179,567
–
–
–
–
2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26,110 –
–
26,110 739,369 –
–
2
–
–
739,369
26,110 –
–
26,110 739,371 –
–
739,371
38,287 –
–
38,287 1,922,472 (794)
(2,740)
1,918,938
18,590 –
(9)
18,581 2,513,054 (912)
(6,385)
2,505,757
Non-financial institutions
Gross
exposure
Specific
adjustments
Portfolio
adjustments
Net
exposure
257,706 (136,066)
–
121,640 182,536 (82,932)
–
214,268 (43,099)
–
171,169 108,844 (29,575)
–
17,646 –
–
17,646 –
–
–
39,762 (1,838)
–
37,924 34,788 (1,403)
–
9,953,240 –
(52,265) 9,900,975 4,598,192 –
(14,153)
99,604
79,269
–
33,385
4,584,039
10,482,622 (181,003)
Portfolio
adjustments
Other parties
Net
exposure
Specific
adjustments
(14,153)
4,796,297
13 (7)
–
6
21 –
–
4,270 (583)
–
3,687 4,326 –
–
1,369 (25)
–
1,344 22,339 –
–
2,535,038 –
– 2,535,038 1,555,117 –
–
21
4,326
22,339
1,555,117
2,540,690 (615)
(52,265) 10,249,354 Gross
exposure
–
2,540,075 4,924,360 (113,910)
1,581,803 –
–
1,581,803
13,023,312 (181,618)
(52,265) 12,789,429 6,506,163 (113,910)
(14,153)
6,378,100
11,403,055 (146,538)
(74,183) 11,182,334 6,099,523 (26,293)
6,016,836
(56,394)
277
B.2 Distribution of loans to resident non-financial businesses
This table is not being presented, having been suspended under the Bank of Italy’s “Instructions
regarding financial statements of banks and financial institutions”.
B.3 Geographical distribution of cash and “off-balance sheet” exposures to customers (book value)
Exposures/Counterparties
ITALY
Gross
exposure
Net
exposure
OTHER EU COUNTRIESA
Gross
Net
exposure
exposure
A. Cash exposure
A.1Non-performing loans
435,044 221,379 5,682 12 A.2 Watchlist loans
322,716 250,167 396 271 A.3Restructured exposures
17,646 17,646 –
–
A.4Past due exposures
74,374 71,145 178 166 A.5Other exposures
15,445,791 15,376,965 356,253 355,938 Total
16,295,571 15,937,302 362,509 356,387 B. “Off-balance sheet” exposures
B.1Non-performing loans
36 29 –
–
B.2Watchlist loans
8,596 8,013 –
–
B.3 Other impaired assets
23,708 23,683 –
–
B.4Other exposures
4,262,624 4,262,624 668,313 668,313 Total
278
4,294,964 4,294,349 668,313 668,313 Total at 31/12/2008
20,590,535 20,231,651 1,030,822 1,024,700 Total at 31/12/2007
19,197,214 18,893,618 1,176,301 1,169,624 AMERICAASIAREST OF THE WORLD
Gross
Net
Gross
Net
Gross
Net
exposure
exposure
exposure
exposure
exposure
exposure
449 –
30 22 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,674 3,670 1,647 1,636 722 4,123 3,670 1,677 1,658 –
–
–
–
720
722 720
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
603 603 –
–
144 –
–
–
144
603 603 –
–
144 144
4,726 4,273 1,677 1,658 866 864
42,232 41,808 1,624 1,604 1,386 1,384
279
B.4 Geographical distribution of cash and “off-balance sheet” exposures to banks
Exposures/Counterparties
ITALY
Gross
exposure
Net
exposure
OTHER EU COUNTRIESA
Gross
Net
exposure
exposure
A. Cash exposure
A.1Non-performing loans
–
–
–
–
A.2Watchlist loans
–
–
1,208 911 A.3Restructured exposures
–
–
–
–
A.4Past due exposures
–
–
–
–
A.5Other exposures
2,966,866 2,966,866 214,655 214,655 Total
2,966,866 2,966,866 215,863 215,566 B. “Off-balance sheet” exposures
B.1 Non-performing loans
–
–
–
–
B.2 Watchlist loans
–
–
–
–
B.3 Other impaired assets
–
–
–
–
B.4 Other exposures
567,054 567,054 142,282 142,282 Total
567,054 567,054 142,282 142,282 Total at 31/12/2008
3,533,920 3,533,920 358,145 357,848 Total at 31/12/2007
2,930,813 2,930,813 577,969 577,969 B.5 Significant risks
a) amount
b) number
31/12/2008
627,042 2
31/12/2007
623,564
1
On the basis of instructions issued by the Bank of Italy, positions are considered significant if the
overall exposure of a single customer is equal to or greater than 10% of the Bank’s regulatory
capital. The total weighted amount is indicated.
280
AMERICAASIAREST OF THE WORLD
Gross
Net
Gross
Net
Gross
Net
exposure
exposure
exposure
exposure
exposure
exposure
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,227 31,227 50,938 50,938 2,314 31,227 31,227 50,938 50,938 –
–
–
–
2,314
2,314 2,314
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33,458 33,458 29,286 29,286 4,543 –
–
–
4,543
33,458 33,458 29,286 29,286 4,543 4,543
64,685 64,685 80,224 80,224 6,857 6,857
59,659 59,659 19,222 19,222 82,127 82,127
281
C. SECURITIZATIONS AND DISPOSAL OF ASSETS
C.1 SECURITIZATIONS
Qualitative information
Objectives, strategies and processes underlying securitizations
In terms of the objectives and goals pursued, Banca Popolare di Vicenza has arranged seven
securitizations of performing mortgage loans. The last four were multi-originator securitizations
involving the other banks in the Group: Banca Nuova S.p.A. and CariPrato - Cassa di Risparmio
di Prato S.p.A.
All these securitizations form a strategic part of the Group’s expectations of further expansion in
the mortgage sector and the general process of expanding bank lending, which requires adequate
liquidity to be raised in advance to meet future loan applications.
More specifically, the securitizations carried out address the following objectives:
– to free up resources on the asset-side of the balance sheet, whilst improving the treasury
position;
− to reduce maturity mismatching between deposits and long-term lending;
− to reduce the ratio of long-term lending to total lending.
The securitizations arranged between 2000 and 2008 are as follows:
− Berica MBS Srl;
− Berica 2 MBS Srl;
− Berica 3 MBS Srl;
− Berica Residential MBS 1 Srl;
− Berica 5 Residential MBS Srl;
− Berica 6 Residential MBS Srl;
− Berica 7 Residential MBS Srl.
With regard to the first four securitizations, set up before 1 January 2004, the securitized assets
were not reinstated on the first-time adoption of IAS-IFRS, as allowed by para. 27 of IFRS 1.
The other securitizations known as Berica 5 Residential Mbs, Berica 6 Residential Mbs and
Berica 7 Residential Mbs, arranged subsequent to 1 January 2004, do not meet the derecognition
requirements of IAS 39 since the Bank has subscribed all the junior asset-backed securities
issued by the vehicle company. Accordingly, the residual securitized assets have been reinstated
at the balance sheet date to the extent of the Bank’s share of the loans sold, while the related
junior notes have been eliminated. The securitized assets reported in the balance sheet have
been valued using the same principles as for the Bank’s own assets.
For all of its securitization transactions, Banca Popolare di Vicenza has signed specific servicing
contracts with the respective vehicle companies, to co-ordinate and supervise management,
administration and collection of the securitized mortgages, as well as recovery in the case of
breach of contract by the debtors.
These contracts require the payment of an annual servicing fee as well as recompense for each
position recovered. The function of servicer is carried out by specific structures within the
company, whose work has been duly organized and is checked by the Bank’s internal auditors,
who verify the propriety and conformity of its conduct with respect to the terms of the servicing
contract.
282
Lastly, Banca Popolare di Vicenza also acts as the administrative servicer for the above
securitizations, receiving a contractually-agreed fee from the vehicle company for providing this
service.
Internal systems for the measurement and control of risk
The residual risk for the Bank in relation to the total insolvency of borrowers represents, for
the own securitizations not reinstated, the value of the junior securities (highest degree of
subordination) held.
The Bank periodically monitors changes in the key lending and financial variables relating to
each securitization.
With a view to controlling risk, special attention is focused on the performance of the trigger
ratios, which indicate default and delinquency experience, with respect to the excess spread that
remunerates the junior securities held by the Bank. The Board of Directors receives a summary
and detailed statement about the securitizations at least every six months.
At the same time as issuing the ABS, a number of back-to-back swaps were arranged in the form
of Interest Rate Swaps (IRS), in order to shield the vehicle company (SPV) from interest rate
risk.
These instruments are measured at fair value, as discussed below, and are included in the
periodic Asset & Liability Management (ALM) analysis which is performed at least every
quarter.
“Berica 7 Residential MBS Srl” securitization
This operation, started on 1 October 2008, is the Bank’s seventh securitization and fourth multioriginator kind. The operation has involved transferring a portfolio of residential mortgages from
Banca Popolare di Vicenza and its subsidiaries Banca Nuova and Cariprato to a special purpose
entity called “Berica 7 Residential MBS”.
In the wake of the US subprime loans crisis, market conditions in 2008 got dramatically worse,
with access to the primary market effectively impossible. This situation caused a massive recourse
to asset securitization, particularly of the RMBS (residential mortgage backed securities) kind
with the goal of having securities that could be lodged with the European Central Bank for
refinancing.).
The Berica 7 Residential MBS securitization, carried out for this purpose for an amount of over
Euro 1 billion at group level, has therefore made it possible to finance assets, used as collateral
against short-term loans, at relatively competitive rates in a situation of liquidity stress like at
present. Funding repurchase agreements carried out with the ECB by the Group’s individual banks
who subscribed the securities in proportion to the loan books sold, have therefore made it possible
to diversify the sources of financing relative to the interbank market, also in light of the Central
Bank’s numerous injections of liquidity.
283
The characteristics of the securitization are set out below:
In thosusands of Euro
- Vehicle company
- Bank interest in vehicle company
- Date of sale of loans
-Type of loans sold
- Quality of loans sold
- Guarantees on loans sold
- Geographical area of loans sold
- Economic status of debtors sold
- Number of loans sold
of which: Banca Popolare di Vicenza
- Price of loans sold:
of which: Banca Popolare di Vicenza
- Value of loans sold (principal amount)
of which: Banca Popolare di Vicenza
- Interest accrued on loans sold
of which: Banca Popolare di Vicenza
Berica 7 Residential MBS Srl
none
01.10.2008
Mortgage loans
Performing loans
First mortgage
Italy
Individuals
8.960
6.067
euro 969.709 euro 682.860
euro 968.407
euro 682.373
euro 1.302
euro 486
In detail, this securitization commenced on 1 October 2008 with the without-recourse sale
of performing loans to a specially-formed special purpose vehicle; these loans represented a
total of 6,262 positions relating to Banca Popolare di Vicenza with residual principal of Euro
707,816,912. The sale price was equal to the nominal value of the receivables sold plus the
interest accruing. No profits/losses have emerged since the date of sale.
On 24 December 2008, after certain customers opted for the ABI/MEF renegotiation proposal
under the “Tremonti Decree”, some positions “left” the securitization with retrospective effect.
As a result, the total portfolio of securitized loan has gone down to Euro 968,407,463, of which
Banca Popolare di Vicenza’s share is Euro 682,373,494 relating to 6,067 positions.
On 17 November 2008, the vehicle company issued Euro 930 million in Senior Class A notes,
with a Standard & Poor’s investment grade AAA, as well as Euro 75 million in Junior Class B
notes, which were not rated . All these securities were subscribed by the originator banks in
proportion to the size of the loan portfolio sold. With regard to these securities, the share held
by Banca Popolare di Vicenza is almost Euro 52 million.
The yield on these securities is indexed to 3/M Euribor plus a spread of 50 basis points for the
senior issue and 100 basis points for the junior issue.
The geographical distribution of the securitized assets is as follows:
Securitized assets
284
North-
West
65,403 Italy
North-
Centre
South and
East
Islands
610,955 2,891 2,257 Other EU
countries
271 OtherAmericaTotal
non-EU
countries
28 568 682,373
Results from positions relating to securitizations
The risk relating to the first four own securitizations, not reinstated pursuant to para. 27 of IFRS
1, is represented by the junior securities held and the related back-to-back swaps arranged by
the Bank. The fair value of these financial instruments is measured with reference to analysis
performed using a financial-mathematical model, developed together with an external firm of
consultants, that evaluates the performance of the assets underlying the securities concerned.
These evaluations were based on the results of the individual underlying transactions at the
reference date, using specific assumptions about the principal variables that affect performance
(rate of early loan repayments, rate of recognition of non-performing loans, percentage of
expected losses, etc.).
The multi-originator securitization known as “Berica 5 Residential MBS Srl” did not meet
the derecognition requirements established by IAS 39 and, accordingly, the securitized assets
and the related liabilities have been reinstated in the financial statements. The valuation of the
junior securities relating to this securitization was limited to the part held by the Bank and not
eliminated on consolidation (i.e. the loans securitized by Cariprato and Banca Nuova). The
reinstated loans representing the residual value of the loans sold by the Bank are classified as
“assets sold but not derecognized” within asset line item 70 “Loans and advances to customers”,
and the related liabilities are classified as “liabilities relating to assets sold but not derecognized”
within liability line item 20 “Due to customers”, while the corresponding junior securities
have been eliminated. The “interest income and similar revenues” and “interest expense and
similar charges” arising during the year in relation to the above assets and liabilities have been
recognized, and an overall assessment of the reinstated securitized loans has also been performed
with any writedowns reported in “net impairment adjustments to: loans and advances”.
Even the last two mullti-originator securitizations arranged by the Bank, known as “Berica 6
Residential MBS Srl” and “Berica 7 Residential MBS Srl”, have been “reinstated” in the financial
statements, with the residual amount of the loans sold by the Bank classified in “Assets sold but
not derecognized” in line item 70 “Loans and advances to customers” and the related liabilities
classified in “Liabilities for assets sold but not derecognized” in line item 20 “Due to customers”,
while the corresponding portion of junior, mezzanine and senior ABS subscribed in connection
with these securitizations has been eliminated.
The “interest income and similar revenues” and “interest expense and similar charges” arising
during the year in relation to the above securitizations have also been recognized, and an overall
assessment of the reinstated securitized loans has also been performed with any writedowns
reported in “net impairment adjustments to: loans and advances”.
285
The principal results from positions relating to securitizations are summarized in the following
table:
Securitizations
Interest
Positive Writebacks
Other
income
(negative) (writedowns) income (expense) differential
of loans (expenses)
1. Berica MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
2. Berica 2 MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
3. Berica 3 MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
4. Berica Residential MBS 1 Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
5. Berica 5 Residential MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
6. Berica 6 Residential MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
7. Berica 7 Residential MBS Srl
- ABS
- Assets & liabilities reinstated in balance
- Back to back swap
- Securization servicing
- Other income (expenses)
1,516 1,516 –
–
–
–
320 320 –
–
–
–
354 354 –
–
–
–
405 405 –
–
–
–
9,490 1,152 8,338 –
–
–
13,115 –
13,115 –
–
–
9,756 –
9,756 –
–
–
(730)
–
–
–
–
–
(730)
–
–
–
–
–
(775)
–
–
–
–
–
(775)
–
–
–
–
–
(1,161)
–
–
–
–
–
(1,161)
–
–
–
–
–
(1,773)
–
–
–
–
–
(1,773)
–
–
–
–
–
(1,506) (5,972)
–
–
–
(5,972)
(1,506)
–
–
–
–
–
2,264 (11,950)
–
–
– (11,950)
2,264 –
–
–
–
–
985 (1,707)
–
–
–
(1,707)
985 –
–
–
–
–
Total
34,956 (2,696)
(19,629)
Gains
(losses)
from
disposals
GainsTotal
(losses) on
valuation
157 –
–
–
157 –
369 179 –
–
246 (56)
1,717 1,538 –
–
290 (111)
4
–
–
–
404 (400)
(99)
–
–
–
575 (674)
(116)
–
–
–
1,406 (1,522)
293 –
–
–
293 –
172 172 –
–
–
–
632 632 –
–
–
–
209 209 –
–
–
–
(291)
(291)
–
–
–
–
5,094 5,094 –
–
–
–
7,228 7,228 –
–
–
–
–
–
–
–
–
–
(802)
(1,599)
–
797 –
–
(2,296)
(1,676)
–
(620)
–
–
(4,208)
(4,252)
–
44 –
–
2,894 –
–
2,894 –
–
658 –
–
658 –
–
–
–
–
–
–
–
–
–
–
–
–
–
313
89
–
67
157
–
(1,750)
(545)
–
(1,395)
246
(56)
(3,089)
(2,151)
–
(1,117)
290
(111)
1,239
114
–
1,121
404
(400)
7,665
6,246
2,366
(848)
575
(674)
10,541
7,228
1,165
2,264
1,406
(1,522)
9,327
–
8,049
985
293
–
2,325 13,044 (3,754)
14,919
This table does not include the changes in fair value of junior securities arising from the 4th and
5th securitizations classified as “financial assets available for sale”, which are reported in the
specific equity reserve. This reserve reported a positive balance of Euro 1,974 at 31 December
2008.
286
Rating agencies
The following rating agencies were engaged to perform due diligence work on the above transactions and assign ratings to the related ABS:
– Berica MBS Srl securitization: Standard & Poor’s, Fitch Ratings and Moody’s;
– Berica 2 MBS Srl securitization: Standard & Poor’s and Fitch Ratings;
– Berica 3 MBS Srl securitization: Standard & Poor’s and Fitch Ratings;
– Berica Residential MBS 1 Srl securitization: Standard & Poor’s and Fitch Ratings;
– Berica 5 Residential MBS Srl securitization: Standard & Poor’s and Fitch Ratings;
– Berica 6 Residential MBS Srl securitization: Standard & Poor’s, Fitch Ratings and Moody’s
Investors Service Inc.;
– Berica 7 Residential MBS Srl securitization: Standard & Poor’s.
287
QUANTITATIVE DISCLOSURES
C.1.1 Exposures deriving from securitizations analyzed by quality of the underlying assets
Quality of underlying assets/Exposures
Senior
Gross
Net
exposure exposure
Cash exposures
Mezzanine
Junior
Gross
Net
Gross
Net
exposure exposure exposure exposure
A. Own securitized underlying assets: 602,301 602,301 16,218 16,218 131,620 96,678 a) Impaired loans
–
–
–
–
–
–
b) Other 602,301 602,301 16,218 16,218 131,620 96,678 B. Third-party securitized underlying assets: 252,097 252,097 a) Impaired loans
–
–
b) Other 252,097 252,097 6,879 –
6,879 6,879 –
6,879 35,427 –
35,427 35,427 –
35,427 C.1.2 Exposures deriving from the principal “own” securitizations analyzed by type of asset securitized and type of exposure
Type of assets securitized/Exposure
Senior
Book Writedowns
value /writebacks
Cash exposures
Mezzanine
Junior
Book Writedowns
Book Writedowns
value /writebacks value /writebacks A. Fully derecognized
A.1Berica MBS S.r.l.
- mortgage loans
–
–
–
–
2,942 (16,465)
A.2Berica 2 MBS S.r.l.
- mortgage loans
–
–
–
–
5,692 (9,695)
A.3Berica 3 MBS S.r.l.
- mortgage loans
–
–
–
–
8,443 (8,782)
A.4Berica Residential MBS 1 S.r.l.
- mortgage loans
–
–
–
– 16,003 –
B. Partially derecognized
C. Not derecognized
C.1Berica Residential MBS 5 S.r.l.
- mortgage loans 41,863 –
2,758 – 24,408 –
C.2Berica 6 Residential MBS S.r.l.
- mortgage loans 102,928 –
558 –
2,293 –
C.3Berica 7 Residential MBS S.r.l.
- mortgage loans 457,510 12,902 36,897 288
Senior
Gross
Net
exposure exposure
Guarantees given
Mezzanine
Junior
Senior
Gross
Net
Gross
Net
Gross
Net
exposure exposure exposure exposure exposure exposure
–
–
–
–
–
–
9,094 9,094 –
–
–
–
–
–
–
–
–
–
–
–
–
–
9,094 9,094 –
–
–
–
–
–
Senior
Book Writedowns
value /writebacks –
–
–
–
–
–
–
–
–
–
–
–
2,325 –
2,325 2,325 –
2,325 Guarantees given
Mezzanine
Junior
Senior
Book Writedowns
Book Writedowns
Book Writedowns
value /writebacks value /writebacks value /writebacks Credit lines
Mezzanine
Gross
Net
exposure exposure
Junior
Gross
Net
exposure exposure
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Credit lines
Mezzanine
Book Writedowns
value /writebacks Junior
Book Writedowns
value /writebacks
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,119 –
–
–
–
–
–
–
–
–
–
2,200 –
–
–
–
–
–
–
–
–
–
1,948 –
–
–
–
–
–
–
–
–
–
2,827 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
289
C.1.3 Exposures deriving from the principal “third-party” securitizations analyzed by type of asset
securitized and type of exposure
Cash exposures
Mezzanine
Junior
Book Writedowns
Book Writedowns
value /writebacks value /writebacks Type of assets securitized/Exposure
Senior
Book Writedowns
value /writebacks
A.1Berica Residential MBS 1 S.r.l.
–
- mortgage loans –
–
–
–
8,036 –
A.2Berica Residential MBS 5 S.r.l.
- mortgage loans 18,853 –
1,242 – 10,992 –
A.3Berica Residential MBS 6 S.r.l.
- mortgage loans 41,304 224 920 A.4Berica Residential MBS 7 S.r.l.
- mortgage loans 191,940 –
5,413 – 15,479 –
C.1.4 Exposures to securitizations analyzed by portfolio and by type
Exposure/Portfolio
Financial
assets
held for
trading
Financial
assets at
fair value
Financial
assets
available
for sale
Financial
Loans 31/12/2008
assets
held to
maturity
31/12/2007
1. Cash exposures
– senior
– mezzanine
– junior
–
–
–
–
17,077 –
–
17,077 50,313 –
–
50,313 –
–
–
–
260,093 252,097 6,879 1,117 327,483 252,097 6,879 68,507 68,740
1,691
–
67,049
2. “Off-balance sheet” exposures
– senior
– mezzanine
– junior
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Apart from the cash exposures presented in these tables, there are also Euro 7,319 in undrawn
credit lines available to special purpose entities set up for the Bank’s own securitizations and not
reinstated in the balance sheet.
290
Senior
Book Writedowns
value /writebacks Guarantees given
Mezzanine
Junior
Senior
BookRettifiche/
Book Writedowns
Book Writedowns
value /writebacks value /writebacks value /writebacks Credit lines
Mezzanine
Book Writedowns
value /writebacks Junior
Book Writedowns
value /writebacks
–
–
–
–
–
–
1,052 –
–
–
–
–
–
–
–
–
–
1,273 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C.1.5 Total amount of securitized assets underlying the junior securities or other forms of credit
instrument
Assets/AmountsTraditional securitizations
Synthetic securitizations
A. Own underlying assets:
1,965,862 –
A.1Fully derecognized
579,002 1. Non-performing loans
20,694 x
2. Watchlist loans
20,525 x
3. Restructured exposures
–
x
4. Past due exposures
–
x
5. Other assets
537,783 x
A.2Partially derecognized
–
1. Non-performing loans
–
x
2. Watchlist loans
–
x
3. Restructured exposures
–
x
4. Past due exposures
–
x
5. Other assets
–
x
A.3Not derecognized
1,386,860 –
1. Non-performing loans
21,225 –
2. Watchlist loans
34,445 –
3. Restructured exposures
–
–
4. Past due exposures
–
–
5. Other assets
1,331,190 –
B. Third–party underlying assets:
B.1Non-performing loans
B.2Watchlist loans
B.3Restructured exposures
B.4Past due exposures
B.5Other assets
398,061 4,021 6,564 –
–
387,476 –
–
–
–
–
–
291
C.1.6 Holdings in vehicle companies
NameRegistered offices
– Berica MBS S.r.l.
Milano – Berica 2 MBS S.r.l.
Vicenza – Berica 3 MBS S.r.l.
Vicenza – Berica Residential MBS 1 S.r.l.
Vicenza – Berica 5 Residential MBS S.r.l.
Vicenza – Berica 6 Residential MBS S.r.l.
Vicenza – Berica 7 Residential MBS S.r.l.
Vicenza Interest %
5.0
5.0
5.0
5.0
5.0
5.0
5.0
The holdings in the above vehicle companies are held indirectly through the subsidiary BPV Finance Plc (Dublin).
C.1.7 Servicer activities - collection of securitized loans and redemption of securities issued by the vehicle company
Vehicle company
Securitized assets
Loans collected Percentage of securities redeemed
31/12/2008 during the year
31/12/2008
ImpairedPerforming ImpairedPerforming
Senior
Mezzanine
Junior
assets
assets
assets
assets
ImpairedPerforming ImpairedPerforming ImpairedPerforming
assets
assets
assets
assets
assets
assets
– Berica MBS S.r.l.
– Berica 2 MBS S.r.l.
– Berica 3 MBS S.r.l.
– Berica Residential MBS 1 S.r.l.
– Berica 5 Residential MBS S.r.l.
– Berica 6 Residential MBS S.r.l.
– Berica 7 Residential MBS S.r.l.
292
46,206 18,437
95,721 25,821
138,216 36,436
194,084 40,121
286,680 48,689
728,984 111,894
661,410 19,791
100.00% 73.16% 4.75%
100.00% 40.75% 17.78%
66.15%
– 20.27%
48.47%
– 29.94%
36.36%
–
–
100.00% 16.14%
–
– – –
C.2 DISPOSALS
C.2.1. Financial assets sold but not derecognized
Type of asset securitized/
Financial assets
Financial assets
Financial assets
exposure
held for trading
at fair value
available for sale
A
B
CA
B
CA
B
C
A.
1.
2.
3.
4.
5.
Cash assets
Debt securities
Equities
Mutual funds
Loans
Impaired assets
7,179 7,179 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34,226
34,226
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
x
x
x
x
x
x
Total at 31/12/2008
7,179 –
–
–
–
–
34,226
–
–
Total at 31/12/2007
80,552 –
–
–
–
–
–
–
B. Derivatives
Type of asset securitized/
Financial assets
Loans and Loans and exposure held to maturity
advances to banks
advances to customer
A
B
CA
B
CA
B
C
Total Total
31/12/2008 31/12/2007
A. Cash assets
1. Debt securities
2. Equities
3. Mutual funds
4. Loans
5. Impaired assets
B. Derivatives
–
–
x
x
–
–
x
–
–
x
x
–
–
x
–
–
x
x
–
–
x
294,647 294,647 x
x
–
–
x
–
–
x
x
–
–
x
–
–
x
x
–
–
x
1,677,074 –
x
x
1,610,706 66,368 x
–
–
x
x
–
–
x
– 2,013,126 1,301,935
–
336,052 111,093
x
–
–
x
–
–
– 1,610,706 1,145,236
–
66,368 45,606
x
–
–
Total at 31/12/2008
–
–
–
294,647 –
–
1,677,074 –
–
Total at 31/12/2007
–
–
–
30,541 –
–
1,190,842 –
–
2,013,126 –
– 1,301,935
293
C.2.2 Financial liabilities relating to financial assets sold but not derecognized
Liabilities/Assets portfolio
1. Due to customer
a) for assets
recognized in full
b) for assets
recognized in part
2. Deposits from banks
a) for assets
recognized in full
b) for assets
recognized in part
Financial
Financial
assets
assets at
held
fair value
for trading
Financial
assets
available
for sale
Financial Loans and
Loans and
assets advances
advances
helt to to banks
to customer
maturity
Total
5,472 –
28,545 – 229,929 780,067 1,044,013
5,472 –
28,545 – 229,929 780,067 1,044,013
–
1,682
–
–
–
5,036 –
–
–
62,174 –
–
–
68,892
1,682 –
5,036 –
62,174 –
68,892
–
–
–
–
–
–
–
Total at 31/12/2008
7,154 –
33,581 Total at 31/12/2007
80,926 –
–
294
– 292,103 –
780,067 1,112,905
30,267 1,163,635 1,274,828
D. MODELS USED FOR MEASURING CREDIT RISK
The new internal ratings models for the retail segment (private individuals and small businesses),
small corporate segment (with turnover of Euro 2.5 to 50 million) and mid corporate segment
(with turnover of Euro 50 to 200 million) went live in the Banca Popolare di Vicenza’s
commercial network at the end of April 2008 and in Banca Nuova e CariPrato at the start of
June. For the time being, the segment of companies (or groups) with turnover in excess of Euro
200 million has been left out, since its model, mainly based on the logic of experience, is still
being perfected by the Parent Bank.
The models currently in use have been tested by analysts in the Parent Bank, and by those in
Banca Nuova and CariPrato with reference to the corporate segment. These tests have provided
very reassuring results in terms of the coincidence of the experts’ opinions with the output of
these models.
It will be recalled that the SGR monitoring system (Sistema di Gestione dei Rischi or risk
management system) has been in use at the Bank since October 2004. Its principal use is to
provide early warnings to alert account managers of the existence of problems with certain
customers and to make them take corrective action against the higher risk situations, in
accordance with precisely defined procedures.
The SGR system has undergone a major revision, with the aim of making this monitoring tool
still more effective in quickly identifying anomalies, and has involved the definition of a new
model and calculation algorithm for performance scoring, as well as interfacing the system with
the new internal ratings models.
The new anomalies reporting system has been completed from a software point of view and,
once tested, it will enter operation in the first half of 2009.
295
SECTION 2
Market risk
2.1 INTEREST RATE RISK - TRADING BOOK FOR SUPERVISORY PURPOSES
QUALITATIVE INFORMATION
A. General aspects
Interest rate risk represents the risk of incurring losses due to adverse trends in the rates of
return on debt securities. Three types of interest-rate risk can be identified:
– level: risk associated with an absolute change in the forward structure of risk-free interest
rates (parallel shifts in the yield curve);
– curve and fundamental: the first identifies the risk deriving from a relative change in the
structure of interest rates; the second derives from the imperfect correlation of the elements
of a position, particularly with reference to hedging strategies;
– credit spread. Risk deriving from changes in the prices of bonds and credit derivatives
associated with unexpected changes in the issuer’s credit rating.
The investment policy adopted by the Group focuses on the optimization of operating results
and on reducing their volatility.
The crisis of the financial system turned into a dramatic crisis of liquidity and credit over the
course of 2008. The effects of the liquidity crisis gradually retreated in the last few weeks of
2008, with a reduction in spreads between the discount rate and Eonia rate on the one hand,
and Euribor rates on the other; the credit crisis spread to financial and government securities
and to credit default swaps on the sovereign debt of less virtuous countries, even after major
public intervention wherever necessary.
At the same time, the price of raw materials and energy experienced a dramatic reversal in
trend, giving rise to a deflationary scenario. The European Central Bank was therefore forced
to intervene on as many as three occasions, progressively cutting discount rates by 1.75% in less
than six months. The short-term rate curve has incorporated new expectations about monetary
policy, while the long-term rate curve has got gradually steeper.
The portfolio of own bonds was significantly reduced in the first six months of the year while the
interest rate derivatives portfolio, for some time prudently focused on basic risks relating to the
various Euribor tenors (3, 6 and 12 months), offset the losses arising on residual bond positions
with gains on directional and basic positions.
296
B. Management and measurement of interest rate risk
The control of all financial risks is centralized for all Group banks (including BPV Finance
Plc) within the Risk Management unit of the Parent Bank’s Planning and Risk Management
Department.
Operating and stop loss limits are also used to guide the activity of individual desks, which
is monitored and controlled by the Financial Control office in the Finance Division of Banca
Popolare di Vicenza.
VaR limits underwent their annual revision and were approved by the Board of Directors on
29 January 2008 in its resolution on “Finance limits on VaR for BPVi and proposals for group
companies”.
The Board delegated the General Manager at the same meeting to define, at the recommendation
of the Finance and ALMS Committee, the other operating and stop loss limits on a consistent
basis with the VaR limits assigned.
The new structure of operating limits for the Global Markets Department has three levels:
a) Operating limits (sensitivity, delta, vega, credit concentration and risk);
b)Stop loss limits;
c) Value at Risk (VaR) limits.
The structure of operating and position limits, applying in the first half of 2008, involved using
the following indicators:
1. Exchange rate risk: delta in monetary terms (cash equivalent position for spot, forward and
rate derivative portfolios), vega (change in market value on a change in volatility);
2. Equity risk: delta equivalent (market value of shares and cash equivalent position for equity
derivatives);
3. Interest rate risk: sensitivity (change in profit or loss on a parallel shift in the reference curve
by one-hundredth of a point), vega (change in market value on a change in volatility);
4. Maximum invested amount: book value of cash securities/funds (gross of the derivatives’
delta) to ensure that assets and liabilities are balanced within the assigned budget limits;
5. Limits on the acceptance of credit risk: overall limits are established for the exposure to each
rating class, especially those below investment grade;
6. Limits on the concentration in individual issuers / issues, with tighter restrictions as the rating
class of the issuer diminishes.
The structure of operating limits, applying from 1 July as per the instruction of 30 June 2008, is
based on:
1. Sensitivity (interest rate risk): change in profit or loss that would occur in the event of a
parallel shift in the reference curve by one basis point;
2. Vega (interest rate risk): change in profit or loss that would occur in the event of a 1% change
in volatility (or in the volatility curves) for the financial instrument;
3. Vega (exchange rate risk): change in profit or loss that would occur in the event of a 1%
change in the volatility of the exchange rate;
4. Delta in cash terms (exchange rate risk): cash equivalent position for spot, forward and
exchange rate derivative portfolios;
5. Delta equivalent (equity risk): market value of shares and cash equivalent position for equity
and stock index derivatives;
6. Maximum invested amount (position): book value of cash securities/funds (gross of the
derivatives’ delta) to ensure that assets and liabilities are balanced within the assigned budget
limits;
297
7. Concentration: maximum limit, in percentage or absolute terms, on an asset that can be held
in the portfolio (by instrument or issuer);
8. Credit Risk Sensitivity (credit risk): change in profit or loss that would occur in the event of a
shift in the reference curve by one-hundredth of a point.
Stop loss limits are monitored on a monthly basis against profit & loss results inclusive of
cumulative financing since the start of the month, and on an annual basis in a report to
management for appropriate decision if cumulative losses exceed twice the monthly stop loss
limits.
Responsibility for the daily first level checks on operating limits, position limits and stop loss
limits is entrusted to the Financial Control office within the Finance Division.
Value at Risk (VaR) represents an estimate of the maximum potential loss on a portfolio due to
adverse market conditions.
VaR limits are calculated assuming a 99% confidence level and a holding period of 1 day2, using
for the estimated Value at Risk, calculated on a daily basis, a historical simulation based on
around 250 scenarios.
Since mid February 2008, the revision of the portfolio tree of the Bank’s Finance Division has
made it necessary to amend VaR reporting to make it consistent with other management reports
produced by the Bank. The results presented therefore refer to the new structure in the period
18 February - 31 December3, while the full-year results have been recalculated for consistency
of method. This change represents a substantial revision in the limit which was previously
defined by the investment’s predominant risk factor (interest rate - equity - exchange rate), but
now refers to overall operations by Global Markets, while still presenting an analysis of VaR for
individual strategies identified in the new portfolio tree4.
The Risk Management Office is responsible for reporting VaR. This analysis is performed on a
daily basis, partly to check that the VaR remains within the parameters established and defined
by the Board of Directors.
For the purposes of having a standard representation of the underlying risk factors and a
consistent method of calculation, the Bank has migrated to a single risk calculation system using
the VaR program by Murex. This decision has the benefit not only of using the same system
of position keeping as for managing and measuring risks but also of producing important
operational synergies. In addition, operational risks have also been reduced as a result of no
longer having to replicate in a third system the positions and deals contained in the Bank’s
official system.
The holding period was previously 10 days.
VaR was monitored in the previous period against the limits set under the previous resolution.
4
Global Markets: has defined its sphere of operation as the following areas:
Global Strategies – currently not active
Interest Rate Strategies – investments in the interest rates area regarding both securities and derivatives and with institutional counterparties and bank customers
Equity Strategies – share investments both in cash and derivatives
Credit Strategies – currently not active, involves activities concentrated on asset credit ratings
Forex & Commodities – forex operations in cash and derivatives, the commodities sector is currently not active
Opportunistic – management of securities and funds relating to previous investments
Secondary Market – trading activity on the secondary market both in branded and third-party paper
2
3
298
The adoption of the new system has involved the addition of adequate backtesting and stress
testing functionalities, allowing VaR reports to present different scenarios in adverse market
conditions and allowing risk measurements to be validated by daily comparison between the
estimated loss and the theoretical profit & loss.
The calculation of VaR extends to all the trading book reported for supervisory purposes.
As regards backtesting the model’s results, the Clean Backtesting approach has been used, which
compares the VaR calculated at time t for estimating the expected loss in time t+1 with the P&L
change computed using market parameters between time t and time t+1 for the same portfolio.
The stress test, instead, measures potential vulnerability upon the occurrence of exceptional,
improbable events that are nonetheless possible. The analysis – which refers to the period
18 February to 31 December 2008 - was carried out on a daily basis and the scenarios used
represent 8 levels of extreme, symmetrical variations regarding stock markets, parallel shifts in
rate curves, trends in exchange rates, volatility and credit spreads.
The following assumptions have been made regarding correlation between risk factors:
1. rises in the stock market are accompanied by downward movements in government securities,
meaning that shares and risk-free rates rise at the same time;
2. declines in the stock market are followed by a collapse in the corporate bond market (high
correlation between equities and credit spread), meaning credit spreads rise when stock
markets fall.
The VaR models are used solely for management control purposes and are not used for the
calculation of capital adequacy. The trends in VaR for the Bank’s trading book are described in
point 2 below.
299
QUANTITATIVE DISCLOSURES
1. Trading book for supervisory purposes: distribution by residual maturity (repricing date) of recorded financial assets and liabilities and financial derivatives
Currency: Euro
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
3,676 11,501 11,794 3,804 –
–
1.1 Debt securities
–
3,676 11,501 11,794 3,804 –
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
3,676 11,501 11,794 3,804 –
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
– (7,236)
– (7,236)
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
– 2,873,822 794,036 (3,215,328)(600,377) 21,396 84,493 – (60,110) 27,631 16,234 (29,516)
23 –
– (39,714)
2,205 (6,329)
(699)
–
–
– 15,157 18,399 36,181 –
–
–
– (54,871) (16,194) (42,510)
(699)
–
–
– (20,396) 25,426 22,563 (28,817)
23 –
– 146,305 113,205 89,354 152 29 –
– (166,701) (87,779) (66,791) (28,969)
(6)
–
– 2,933,932 766,405 (3,231,562)(570,861) 21,373 84,493 – 869,970 (918,171) (220,422) 266,797 1,422 404 – 4,970,464 1,819,838 2,430,911 7,576,082 55,240 4,628 –(4,100,494)(2,738,009)(2,651,333)(7,309,285) (53,818) (4,224)
– 2,063,962 1,684,576 ( 3,011,140)(837,658) 19,951 84,089 –11,028,769 3,756,999 1,531,380 4,588,045 1,348,584 293,367 –(8,964,807)(2,072,423)(4,542,520)(5,425,703)(1,328,633)(209,278)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
300
Currency: USD
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
–
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
– (389,196) (266,348) (180,784) 814,209 –
339 7,963 (13,705)
695 – 72,312 (5,304) (5,395)
695 – 80,857 5,867 38,905 695 – (8,545) (11,171) (44,300)
–
– (71,973) 13,267 (8,310)
–
– 98,053 48,906 64,814 –
– (170,026) (35,639) (73,124)
–
– (389,535) (274,311) (167,079) 813,514 –
7,139 3,353 – (10,492)
–
7,139 3,353 –
7,647 –
–
–
– (18,139)
– (396,674) (277,664) (167,079) 824,006 – 766,599 7,480 6,516 1,293,238 –(1,163,273) (285,144) (173,595) (469.232)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
301
Currency: GBP
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
–
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
– (2,792)
288 – (3,538)
–
– (5,342)
–
–
167 –
– (5,509)
–
–
1,804 –
– 13,248 –
– (11,444)
–
–
746 288 –
–
–
–
–
–
–
–
–
–
746 288 –
4,411 2,083 – (3,665) (1,795)
193 129 129 129 –
–
–
–
64 –
–
–
64 84 (20)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
302
–
–
–
Currency: CHF
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
–
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
57,274 57,141 –
–
–
57,141 57,141 –
133 –
–
–
133 134 (1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(506)
–
(506)
– (6,396)
–
8,291 – (14,687)
–
5,890 –
5,890 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
303
Currency: JPY
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
–
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13,251)
(14,468)
77 77 –
(14,545)
396 (14,941)
1,217 –
–
–
1,217 64,223 (63,006)
1,339 1,092 3,678 10,601 (6,923)
(2,586)
1,952 (4,538)
247 –
–
–
247 7,858 (7,611)
(1,086)
(1,086)
17,729 17,729 –
(18,815)
–
(18,815)
–
–
–
–
–
1,070 (1,070)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
304
Currency: Other currencies
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
–
–
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Other assets
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
2.1 Debt securities
2.2 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
2,988 188 – (7,733)
188 – (21,221)
–
–
6,095 –
– (27,316)
–
– 13,488 188 – 32,307 15,627 – (18,819) (15,439)
– 10,721 –
–
–
–
–
–
–
–
–
–
– 10,721 –
– 14,483 –
– (3,762)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
305
2. Trading portfolio for supervisory purposes: internal models and other methodologies for the
analysis of sensitivity
Trends in VaR and the results of stress tests and backtesting for the trading book in 2008 are
discussed below for Banca Popolare di Vicenza.
VaR of the entire book
During the period examined, the Bank’s 1-day 99% Value at Risk (VaR) averaged Euro 931
thousand, with a maximum of Euro 2 million and minimum of Euro 455 thousand.
In terms of limit absorption, this averaged 19.27% with a maximum of 31.89% and a minimum
of 10.11%.
At 31 December 2008, 1-day 99% VaR of the entire book was Euro 541 thousand, representing
a limit absorption of 12.02%.
Stress Test Scenario
As for the Stress Test Scenario applied to the entire book, the following table reports the
minimum, maximum, average and period-end figures (in thousands of euro) of the various
scenarios.
Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7 Scenario 8
MAX MIN
MEDIA
31/12/08 55,146 33,401 18,184 7,354
5,253 10,289 16,514 23,914
– 56,090 – 34,374 – 15,431 – 6,181 – 5,713 – 10,028 – 13,567 – 17,259
9,864 5,577 3,224 1,389 – 79 509 1,656 3,138
40,386 23,319 12,072 4,762 -3,122 – 6,355 – 9,589 – 12,925
306
Backtesting
The following chart presents the results of backtesting during 2008.
There were three cases of negative P&L in excess of VaR, one due to movements in rate curves
and sudden widespread increases in credit spreads (particularly hitting securities in the financial
sector) and two of a technical nature due to a structural change in the underlying pricing model.
The limited change in the risk indicator, particularly in the last part of the year, reflects a
persistently prudent approach to investment strategy in an extremely volatile market context with
ever higher credit spreads, and the reclassification of securities from their original accounting
designation as permitted by the recent Amendments to IAS 395, with their consequent departure
from the scope of VaR monitoring and entry into the scope of interest rate risk monitored by the
ALM system.
This refers to the Amendments to IAS 39 “Financial instruments: recognition and measurement” and to IFRS 7 “Financial instruments: disclosures” contained in the document “Reclassification of Financial Assets”, endorsed by the
European Commission on 15 October 2008.
1
307
2.2 INTEREST RATE RISK - BANKING BOOK
QUALITATIVE INFORMATION
A. General aspects, management and measurement of interest rate risk
The banking book comprises all the positions other than those included in the trading book
for supervisory purposes. The interest rate risk incurred by the Bank in relation to the banking
books mainly derives from the activity of transforming maturities. It particularly arises from the
mismatch of interest-bearing assets and liabilities in terms of amount, due date and interest rates.
The process of measuring and controlling interest rate risk on the banking book, with the aim of
effectively managing the medium/long-term economic and financial equilibrium of the Bank and
the Group, is governed by a specific policy which defines:
− the principles and methods of managing risk with reference to the roles and responsibilities of
corporate bodies and functions;
− the methods of measuring risk, of defining operating limits, of structuring the risk
management process;
− the principles and methods used for conducting stress tests;
− the Management Reporting System.
Responsibility for managing interest rate risk lies with the Board of Directors, which uses the
Finance and ALMs Committee and relevant company functions for the strategic and operational
management of the same both at the level of the Group and of individual legal entities. In
particular, the governance of interest rate risk involves the following bodies:
− the Board of Directors approves the strategic guidelines and operating limits proposed by the
Finance and ALMs Committee, and is periodically informed (at least once a quarter) about
changes in exposure to interest rate risk and its operational management;
− the Finance and ALMs Committee proposes strategic guidelines in its consultative capacity to
the Board of Directors, and sends the Finance Division operating instructions for managing
interest rate risk;
− the Planning and Risk Management Department is responsible for reporting and monitoring
operating limits, and prepares the topics of discussion in meetings of the Finance and ALMs
Committee;
− the Finance Division has direct responsibility for the operational management of interest rate
risk.
The Asset & Liability Management methods adopted by the Bank largely respond to the need to
monitor exposure of all interest-earning assets and interest-bearing liabilities to interest rate risk
when market conditions change. A report is produced once a month for the purpose of analyzing
interest rate exposure of both net interest income and the economic value of the banking book.
Rate risk is monitored using the following models:
− repricing gap analysis: estimates repricing mismatches and expected change in net interest
income following a sudden, parallel shock to rate curves (±100 bp);
− refixing gap analysis: estimates refixing mismatches (split by benchmark, such as to ensure
monitoring of lags and basis risks) for floating-rate positions;
− maturity gap analysis fixed rate: estimates mismatches between fixed-rate balance sheet
308
positions in the banking book, and the corrective effects of any hedging strategies;
− duration gap analysis and sensitivity analysis: estimates market value, duration, sensitivity,
bucket sensitivity of the economic value of the banking book following a sudden, parallel
shock to rate curves of ±100 bp and ±200 bp;
− decalage and cashflow analysis: reports the structural liquidity position, expressed as the time
distribution of balance sheet aggregates by type of rate on the basis of due dates.
The analyses performed are static and therefore exclude assumptions about future changes in
the structure of assets and liabilities, in terms of volumes and product mix. Sight positions with
customers are managed using a specific internal model, which makes it possible to take account
of the stickiness of the rate applied to such transactions when market rates change, as well as of
the duration of such positions. The inclusion of this “behavioural” model in static ALM analyses
completes the collection of methods used to estimate the interest rate risk of the banking book,
thereby overcoming the assumption of full and immediate repricing of such positions when
market rates change and of the assumptions of the Bank of Italy’s simplified model.
Strategic and operating decisions regarding the banking book by the Finance and ALMs
Committee aim to minimize the volatility in net interest income expected in the gapping period
(12 months) or rather to minimize the volatility in total economic value when interest rates
change.
B. Fair value hedges
The Bank has arranged specific hedges for fixed-rate or structured bonds, which are reported
using the fair value option (FVO). The strategy underlying the hedge is to reduce the duration
of the liability or obtain certainty for the cost of structured issues. During the first half of 2008
instruments and processes were defined for hedging accounting for specific clusters of similar
fixed-rate loans (Fair value hedge - micro group hedge). Hedges taken out in the second half
of 2008 referred to loans with a maturity of more than 10 years, which do not enjoy the natural
hedge created by the core, inelastic component of sight deposits from customers.
C. Cash flow hedges
The Bank does not undertake cash flow hedges.
309
QUANTITATIVE DISCLOSURES
1. Banking book: distribution by residual duration (repricing date) of financial assets and liabilities
Currency: EURO
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
13,604,497 2,317,624 188,824 57,190 196,161 154,274 370,725 1.1 Debt securities
17 766,651 75,093 10 103,188 36,253 37,057 – with early redemption option
–
–
–
–
–
–
–
– other
17 766,651 75,093 10 103,188 36,253 37,057 1.2 Loans to banks
625,871 1,334,888 18,990 44,114 8,167 1,905 –
1.3 Loans to customers
12,978,609 216,085 94,741 13,066 84,806 116,116 333,668 – current accounts
3,255,972 –
–
–
–
–
–
– other loans
9,722,637 216,085 94,741 13,066 84,806 116,116 333,668 – with early redemption option8,840,404 203,811 15,820 12,975 82,390 116,116 333,668 – other
882,233 12,274 78,921 91 2,416 –
–
368,653
–
–
–
175,850
192,803
–
192,803
–
192,803
2. Cash liabilities
(7,907,476)(5,436,669)(1,030,848)(670,246)(1,990,108)(368,074) (15,973)
2.1 Due to customers
(5,898,785) (723,863)
(556) (1,229) (3,359)
–
–
– current accounts
(5,672,085)
–
–
–
–
–
–
– other payables
(226,700) (723,863)
(556) (1,229) (3,359)
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
(226,700) (723,863)
(556) (1,229) (3,359)
–
–
2.2 Deposits from banks
(150,491)(2,664,726) (421,881) (35,126)
–
–
–
– current accounts
(40,703)
–
–
–
–
–
–
– other payables
(109,788)(2,664,726) (421,881) (35,126)
–
–
–
2.3 Debt securities
(1,858,200)(2,048,080) (608,411) (633,891)(1,986,749) (368,074) (15,973)
– with early redemption option
–
–
–
–
–
–
–
– other
(1,858,200)(2,048,080) (608,411) (633,891)(1,986,749) (368,074) (15,973)
2.4 Other liabilities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
310
– (252,218) (109,102) (912,747) 1,432,611 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (252,218) (109,102) (912,747) 1,432,611 –
(1)
– 32,250 1
–
–
– 32,250 1
–
(1)
–
–
–
– (252,217) (109,102) (944,997) 1,432,610 – 929,324 149,285 535,200 1,718,204 –(1,181,541) (258,387)(1,480,197) (285,594)
108,247 (266,791)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
108,247 (266,791)
(32,250)
–
–
4,301 (32,250) (4,301)
140,497 (266,791)
233,101 25,000 (92,604) (291,791)
Currency: USD
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
117,682 159,064 2,618 25,909 –
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Loans to banks
39,337 23,491 1,456 20,884 –
–
–
1.3 Loans to customers
78,345 135,573 1,162 5,025 –
–
–
– current accounts
195 –
–
–
–
–
–
– other loans
78,150 135,573 1,162 5,025 –
–
–
– with early redemption option 78,150 135,573 1,113 5,025 –
–
–
– other
–
–
49 –
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
(97,325) (199,717) (10,308) (11,201)
2.1 Due to customers
(59,669) (19,430)
(461) (1,570)
– current accounts
(59,444)
–
–
–
– other payables
(225) (19,430)
(461) (1,570)
– with early redemption option
–
–
–
–
– other
(225) (19,430)
(461) (1,570)
2.2 Deposits from banks
(37,656) (176,629) (9,847) (9,631)
– current accounts
(13,203)
–
–
–
– other payables
(24,453) (176,629) (9,847) (9,631)
2.3 Debt securities
– (3,658)
–
–
– with early redemption option
–
–
–
–
– other
– (3,658)
–
–
2.4 Other liabilities
–
–
–
–
– with early redemption option
–
–
–
–
– other
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(22,721)
–
–
–
–
–
–
–
(22,721)
–
–
–
(22,721)
–
(22,721)
9
–
–
–
–
–
–
–
9
–
–
–
9
9
–
(4,948)
–
–
–
–
–
–
–
(4,948)
–
–
–
(4,948)
–
(4,948)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,593 3,593 –
–
–
3,593 3,593 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
311
Currency: GBP
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
6,211 1,457 –
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Loans to banks
2,786 –
–
–
–
–
–
1.3 Loans to customers
3,425 1,457 –
–
–
–
–
– current accounts
5
–
–
–
–
–
–
– other loans
3,420 1,457 –
–
–
–
–
– with early redemption option 1,595 1,068 –
–
–
–
–
– other
1,825 389 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
(4,528)
2.1 Due to customers
(4,521)
– current accounts
(4,521)
– other payables
–
– with early redemption option
–
– other
–
2.2 Deposits from banks
(7)
– current accounts
(7)
– other payables
–
2.3 Debt securities
–
– with early redemption option
–
– other
–
2.4 Other liabilities
–
– with early redemption option
–
– other
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
312
(525)
–
–
–
–
–
(525)
–
(525)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(195)
(195)
–
(195)
–
(195)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,050 – (1,050)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Currency: CHF
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
31,684 12,126 –
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Loans to banks
11,995 12,126 –
–
–
–
–
1.3 Loans to customers
19,689 –
–
–
–
–
–
– current accounts
–
–
–
–
–
–
–
– other loans
19,689 –
–
–
–
–
–
– with early redemption option 19,689 –
–
–
–
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
(1,044) (22,057)
2.1 Due to customers
(1,044)
(83)
– current accounts
(1,044)
–
– other payables
–
(83)
– with early redemption option
–
–
– other
–
(83)
2.2 Deposits from banks
– (21,974)
– current accounts
–
–
– other payables
– (21,974)
2.3 Debt securities
–
–
– with early redemption option
–
–
– other
–
–
2.4 Other liabilities
–
–
– with early redemption option
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
313
Currency: JPY
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
15,640 4,687 875 –
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Loans to banks
2,458 4,528 875 –
–
–
–
1.3 Loans to customers
13,182 159 –
–
–
–
–
– current accounts
–
–
–
–
–
–
–
– other loans
13,182 159 –
–
–
–
–
– with early redemption option 13,182 159 –
–
–
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
(2,051)
2.1 Due to customers
(498)
– current accounts
(498)
– other payables
–
– with early redemption option –
– other
–
2.2 Deposits from banks
(1,553)
– current accounts
(1,553)
– other payables
–
2.3 Debt securities
–
– with early redemption option
–
– other
–
2.4 Other liabilities
–
– with early redemption option
–
– other
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
314
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(6,543)
(2,072)
–
(2,072)
–
(2,072)
(4,471)
–
(4,471)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Currency: Other currencies
Type/Residual duration
Sight
Up to
3 months
3 to 6
months
6 to 12
months
1 to 5
years
5 to 10
years
Over Unspecified
10 years
duration
1. Cash assets
11,250 –
–
–
–
–
–
1.1 Debt securities
–
–
–
–
–
–
–
– with early redemption option
–
–
–
–
–
–
–
– other
–
–
–
–
–
–
–
1.2 Loans to banks
6,732 –
–
–
–
–
–
1.3 Loans to customers
4,518 –
–
–
–
–
–
– current accounts
–
–
–
–
–
–
–
– other loans
4,518 –
–
–
–
–
–
– with early redemption option 4,518 –
–
–
–
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2. Cash liabilities
(5,473) (2,754)
2.1 Due to customers
(4,528)
(920)
– current accounts
(4,528)
–
– other payables
– (920)
– with early redemption option
–
–
– other
– (920)
2.2 Deposits from banks
(945) (1,834)
– current accounts
(945)
–
– other payables
– (1,834)
2.3 Debt securities
–
–
– with early redemption option
–
–
– other
–
–
2.4 Other liabilities
–
–
– with early redemption option
–
–
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Financial derivatives
3.1 With underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
3.2 Without underlying security
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 2,506 – (2,506)
(8) (24,246)
(8)
–
–
–
(8)
–
–
–
(8)
–
–
–
–
–
–
–
– (24,246)
–
–
– (24,246)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,076 24,076 –
–
–
24,076 24,076 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
315
2. Banking book: internal models and other methods of sensitivity analysis
As mentioned earlier, the Bank uses a static ALM model to measure the sensitivity of the banking
book’s financial and economic equilibrium to changes in interest rates.
Stress testing represents the collection of qualitative and quantitative techniques used by the
Bank to assess its vulnerability to adverse market conditions. The Bank periodically carries out
stress tests to measure and control the interest rate risk of the banking book. Stress tests look
at target variables with a view to the «outlook for current profits» and the «outlook for market
values». Stress tests are conducted for the following purposes:
− to highlight the risk generated by any mismatches between interest-earning assets and interestbearing liabilities, and so clearly define what actions are needed to mitigate and keep interest
rate risk within the established limits;
− to produce measures of sensitivity to monitor the operating limits on interest rate risk.
The scenarios adopted for measuring the exposure of net interest income to risk assume that rate
curves shift by ±100 basis points. The scenarios used to measure the exposure of the banking
book’s economic value to risk assume that rate curves shift by ±100 basis points and ±200 basis
points. In each of these scenarios, all the risk factors experience the same shock.
As stated before, the estimates are made under the assumption that the structure of the balance
sheet remains unchanged in terms of volumes and product mix. The stickiness and persistency
of sight positions with customers are managed using a specific internal model.
The principal indicators of the banking book’s interest rate risk at 31 December 2008 are set out
below.
Positive shock
▲ Net interest income + 100 bps
euro
% Net interest income
2,948,983
0.75%
▲ Economic value + 100 bps
euro
% Regulatory Capital
-36,602,656
-1.38%
▲ Economic value + 200 bps
euro
% Regulatory Capital
-67,362,176
-2.53%
euro
% Net interest income
-2,890,167
-0.73%
▲ Economic value - 100 bps
euro
% Regulatory Capital
43,671,696
1.64%
▲ Economic value - 200 bps
euro
% Regulatory Capital
95,923,733
3.61%
Negative shock
▲ Net interest income - 100 bps
316
The need to assess the Bank’s vulnerability to exceptional but plausible events has involved
developing more complex, detailed scenarios than the shift ones. The twist scenarios respond to
this requirement: the construction of such scenarios (involving curve steepening, flattening and
inversion) requires the shocks to be initially applied to specific points of the curves, and that
the resulting shock differential be transferred to other points. The use of these scenarios helps
estimate sensitivity indicators for many risk factors, represented by individual points of the rate
curves.
317
2.3 PRICE RISK - TRADING BOOK FOR SUPERVISORY PURPOSES
QUALITATIVE INFORMATION
A. General aspects
Price risk represents the risk associated with changes in the value of equity portfolios due to
fluctuations in market prices. This risk is analyzed between:
– Generic risk: change in the price of an equity instrument following fluctuations in the market
concerned;
– Specific risk: change in the market price of a specific equity instrument due to revised market
expectations about the financial strength or prospects of the issuer.
Financial year 2008 proved extremely difficult, if not dramatic for equity and credit markets,
whose steep correction commencing in the initial quarters of the year got considerably worse
over the summer with the financial crisis being exacerbated by the collapse of Lehman Brothers,
the US investment bank. Some of the principal reasons for the steep downturn by international
stock markets include: continued deterioration of conditions on the real estate market; the rise
in commodity and oil prices in the first half of the year, followed by an unprecedented collapse
in the second half; the worsening of the international macroeconomic environment, with a
significant deterioration in all the principal indicators of consumption, productivity, confidence
and employment.
Investment strategy relating to the equities trading book was based on extreme prudence
and caution, which in practical terms translated into rigid operating limits on total exposure,
concentration and stop-loss, with the aim of ensuring operational tranquillity and effective
control of risk in such a volatile market. A “fundamental relative value” approach was adopted
rather than one based on trend, building a portfolio of pan-European large-cap shares (with the
focus on value shares) selected after detailed intersector and intrasector analysis, and using liquid
and diversified stock index futures for hedging (Futures on Eurostoxx50 and Dax). Preference
was given to defensive sectors, with a particular focus on Food, Pharma, Consumer Staples,
Utility and Energy, while strategically avoiding the Financial sector and considering more cyclical
sectors (Auto, Industrial and Basic Resources) only in the event of significant losses and only
with a view to short-term investment.
The exposure to equity markets was reduced even further following the collapse of Lehman
Brothers, with it effectively being impossible to manage the portfolio profitably in such a fragile,
emotional market, in which the level of intra-day volatility combined with the international
authorities’ ban on short-selling in certain sectors made it impracticable to operate an “equity
market neutral” strategy and very difficult to hedge positions effectively with derivatives.
B. Management and measurement of price risk
The processes for the management and measurement of price risk have been described in section
2.1 “Interest-rate risk – Trading book for supervisory purposes”, to which reference is made.
318
QUANTITATIVE DISCLOSURES
1. Trading book for supervisory purposes: cash exposures in equities and mutual funds
Assets/ Amounts
Listed
Book value
A. Equities
A.1Shares
A.2Innovative equity instruments
A.3Other equities
2,338 2,338 –
–
–
–
–
–
B. Mutual funds
B.1Italian
– open-end harmonized
– open-end, not harmonized
– closed-end
– reserved
– hedge funds
B.2Other EU nations
– open-end harmonized
– open-end, not harmonized
– closed-end, not harmonized
B.3Non-EU nations
– open-end
– closed-end
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,338 –
Total
Unlisted
2. Trading book for supervisory purposes: distribution of the exposures in equities and stock indices
by principal country and market of listing
Assets/ Amounts
Italy
France
Listed
Germany
Unlisted
Switzerland Other countries
A. Equities
– long positions
1,252 551 355 111 69 –
– short positions
–
–
–
–
–
–
B. Unsettled transaction in equities
– long positions
33 –
–
–
–
–
– short positions
(12)
–
–
–
–
–
C. Other derivatives on equities
– long positions
–
–
–
–
–
–
– short positions
–
–
–
–
(441)
–
D. Derivatives on equity indices
– long positions
–
–
–
–
–
280,296
– short positions
–
–
–
–
– (280,296)
3. Trading book for supervisory purposes: internal models and other methods of sensitivity analysis
The processes for the management and measurement of price risk in relation to listed equities and
mutual funds have been described in section 2.1 “Interest-rate risk – Trading book for supervisory
purposes”, to which reference is made.
319
2.4 PRICE RISK - BANKING BOOK
QUALITATIVE INFORMATION
A. General aspects, management and measurement of price risk
The banking book comprises minority holdings in equities classified as available for sale (AFS)
and mutual funds. Investments in associates and subsidiaries are also included.
B. Hedging of price risk
The Bank does not arrange hedges of this kind.
320
QUANTITATIVE INFORMATION
1. Banking book: cash exposures in listed equities and mutual funds
Assets/Amounts
Book value
Listed
Unlisted
A. Equities
A.1 Shares
A.2 Innovative equity instruments
A.3 Other equities
318,260 318,260 –
–
1,208,604
1,206,029
–
2,575
B. Mutual funds
B.1 Italian
– open-end harmonized
– open-end, not harmonized
– closed-end
– reserved
– hedge funds
B.2 Other EU nations
– open-end harmonized
– open-end, not harmonized
– closed-end, not harmonized
B.3 Non-EU nations
– open-end
– closed-end
–
–
–
–
–
–
–
–
–
–
–
–
–
–
88,185
83,680
10,717
–
4,129
38,990
29,844
4,505
4,505
–
–
–
–
–
318,260 1,296,789
Total
2. Banking book: internal models and other methods of sensitivity analysis
The processes for the management and measurement of price risk in relation to listed equities
and mutual funds have been described in section 2.1 “Interest-rate risk – Trading book for
supervisory purposes”, to which reference is made. Unlisted equities are currently not subject to
specific sensitivity analysis.
321
2.5 EXCHANGE RATE RISK
QUALITATIVE INFORMATION
A. General aspects, management and measurement of operational risk
Exchange rate risk represents the risk associated with changes in the value of positions
denominated in foreign currencies deriving from unexpected variations in the cross rates.
Exchange rate risk is principally generated by the support provided for commercial activity in
foreign currencies and by trading in foreign securities.
Automatic network systems interfaced with a single position-keeping system enable the Global
Markets Department to monitor constantly, in real time, the currency flows that are processed
instantaneously on the interbank forex market. In addition, a specific unit within the Global
Markets Department is responsible for managing on own account positions and products
relating to the exchange derivatives needed to meet the various investment and hedging
requirements of Group customers.
An advanced management system (Murex, the subject of work in the year to improve input of
volatility parameters) and an external pricing system (Super-Derivatives) assure the efficient
management of spot, forward and option flows within a specific framework of limits set by the
competent organizational bodies.
B. Hedging of exchange rate risk
Currency investment and hedging of exchange rate risk involve transactions that minimize
currency exposure (purchase and sale of currency on the interbank market) as well as
management of the derivatives book by delta hedging and managing the risk curves within
precise limits.
322
QUANTITATIVE INFORMATION
1. Breakdown by currency of assets, liabilities and derivatives
Line items
US Sterling
Dollars
Currency
Japanese Canadian
Swiss
Yen
Dollars
Francs
A. Financial assets
305,273 7,668 21,202 707 43,810 A.1Debt securities
–
–
–
–
–
A.2Equities
–
–
–
–
–
A.3Loans to banks
85,168 2,786 7,861 681 24,121 A.4Loans to customer
220,105 4,882 13,341 26 19,689 A.5Other financial assets
–
–
–
–
–
B. Other assets
C. Financial liabilities
C.1 Deposits from banks
C.2 Due to customer
C.3 Debt securities
D. Other financial liabilities
E. Financial derivatives
– Options
– long positions
– short positions
– Other derivatives
– long positions
– short positions
Total assets
Total liabilities
Net balance (+/–)
Other
currencies
14,208
–
3,665
6,051
4,492
–
–
–
–
–
–
–
(318,551)
(233,763)
(81,130)
(3,658)
(5,248)
(532)
(4,716)
–
(8,594)
(6,024)
(2,570)
–
(2,305)
(581)
(1,724)
–
(23,101)
(21,974)
(1,127)
–
(30,176)
(2,198)
(3,732)
(24,246)
–
–
–
–
–
–
(2,311) (12,998)
(5,213)
21,484 296 28,407 (5,509)
(6,923)
2,902 (34,482)
20,876 75,499 (17,974) (109,981)
4,476 (21,221)
–
(21,221)
25,697 26,845 (1,148)
56,768 (6,396)
8,291 (14,687)
63,164 63,165 (1)
22,776
–
6,095
(6,095)
22,776
62,154
(39,378)
(46,186)
62,308 144,463 (82,155)
(108,494)
2,289,208 (2,397,702)
2,738,944 28,840 125,108 27,552 115,266 82,457
(2,798,408)
(28,731)
(125,498)
(24,674)
(37,789)
(75,649)
(59,464)
109 (390)
2,878 77,477 6,808
2. Internal models and other methods of sensitivity analysis
The exchange rate risk generated by the trading book and the banking book is monitored
using the VaR model described in detail in section 2.1 “Interest-rate risk - Trading book for
supervisory purposes”, to which reference is made. With regard to the estimation of exchangerate risk, reference is made to the tables included in the quantitative information for that section.
323
2.6 FINANCIAL DERIVATIVES
A. FINANCIAL DERIVATIVES
A.1 Trading book: period-end and average notional amounts
Type of transaction/Underlyings
Debt securities
and interest rates
Listed
Unlisted
Equities
and equities indices
Listed
Unlisted
Exchange
rates and gold
Listed
Unlisted
1. Forward rate agreements
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swap
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
–
–
–
–
–
–
–
1,346,887 –
–
–
–
–
–
–
–
–
–
–
–
–
73,847 55,452 18,395 –
–
607,782 19,581,611 –
–
2,957,929 –
–
–
25,941,472 13,064,419 12,877,053 20,684,395 8,644,345 12,040,050 2,402,170 1,201,000 1,200,000 1,000 1,201,170 1,200,000 1,170 1,754 311 1,443 –
–
–
–
–
–
–
–
–
441 –
–
–
–
–
–
–
–
–
–
–
–
–
45 33 12 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
560,592 280,296 211,172 69,124 280,296 211,172 69,124 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
1,420,734 72,177,113 486 560,592 – 1,420,341
Averages
948,950 41,410,259 486 635,436 – 1,752,531
324
–
–
–
604,926
–
–
–
–
–
–
–
–
–
–
595,033
322,529
290,159
32,370
272,504
272,504
–
220,382
106,505
110,486
3,391
–
Type of transaction/Underlyings
Other instruments
Listed
Unlisted
31/12/2008
Listed
Unlisted
31/12/2007
Listed
Unlisted
1. Forward rate agreement
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swaps
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
607,782 –
– 19,581,611 –
–
–
–
–
604,926 –
– 2,957,929 –
–
–
–
–
–
– 1,347,328 –
–
– 25,941,472 –
– 13,064,419 –
– 12,877,053 –
– 20,684,395 –
– 8,644,345 –
– 12,040,050 –
– 3,557,795 –
– 1,803,825 –
– 1,701,331 –
–
102,494 –
– 1,753,970 –
– 1,683,676 –
–
70,294 –
73,892 222,136 –
55,485 106,816 –
18,407 111,929 –
–
3,391 –
–
–
–
–
–
–
–
–
–
477,165 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
–
– 1,421,220 74,158,046 477,165 109,229,094
Averages
–
–
238,583 126,412,393
949,436 43,798,225 –
28,047,847
–
339,246
3,416,799
–
–
–
38,510,299
19,098,346
19,411,953
33,911,199
14,415,779
19,495,420
4,684,551
2,340,666
2,046,404
294,262
2,343,885
2,071,548
272,337
319,153
108,198
176,972
33,983
–
325
A.2 Banking book: notional amounts at period end and average
A.2.1 For hedging
Type of transaction/Underlyings
Debt securities
and interest rates
Listed
Unlisted
Equities
and equity indices
Listed
Unlisted
Exchange
rates and gold
Listed
Unlisted
1. Forward rate agreements
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swap
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
281,791 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
–
281,791 –
–
–
–
Averages
–
281,791 –
–
–
–
326
Type of transaction/Underlyings
1. Forward rate agreements
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swap
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
Other instruments
Listed
Unlisted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31/12/2008
Listed
Unlisted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
281,791
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31/12/2007
Listed
Unlisted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
281,791 Averages
281,791 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
327
A.2.2 Other derivatives
Type of transaction/Underlyings
Debt securities
and interest rates
Listed
Unlisted
Equities
and equity indices
Listed
Unlisted
Exchange
rates and gold
Listed
Unlisted
1. Forward rate agreements
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swaps
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
–
–
– 2,168,390 –
–
–
–
–
996,624 –
–
–
–
–
–
–
42,250 –
32,250 –
10,000 –
97,000 –
97,000 –
–
–
600 –
600 –
600 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
59,563 59,563 –
59,563 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
27,669
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
– 3,304,864 –
59,563 –
27,669
Averages
– 3,048,967 –
59,563 –
27,749
328
Type of transaction/Underlyings
Other instruments
Listed
Unlisted
31/12/2008
Listed
Unlisted
31/12/2007
Listed
Unlisted
1. Forward rate agreements
2. Interest rate swaps
3. Domestic currency swaps
4. Currency interest rate swaps
5. Basic swaps
6. Swap of stock indices
7. Swap of real indices
8. Futures
9. Cap options
– purchased
– issued
10. Floor options
– purchased
– issued
11. Other options
– Purchased
– Plain vanilla
– Exotic
– Issued
– Plain vanilla
– Exotic
12. Forward contracts
– Purchases
– Sales
– Currency against currency
13. Other derivative contracts
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 2,168,390 –
–
–
27,669 –
996,624 –
–
–
–
–
–
–
42,250 –
32,250 –
10,000 –
97,000 –
97,000 –
–
–
60,163 –
60,163 –
600 –
59,563 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,548,307
–
–
–
27,828
– 1,104,613
–
–
–
–
–
–
–
42,250
–
32,250
–
10,000
–
97,000
–
97,000
–
–
–
60,463
–
60,463
–
–
–
60,463
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
–
–
– 3,392,096 – 2,880,461
Averages
–
–
– 3,136,279 – 3,660,082
329
A.3 Financial derivatives: purchase and sale of underlyings
Type of transaction/Underlyings
Debt securities
and interest rates
Listed
Unlisted
Equities
and equity indices
Listed
Unlisted
Exchange
rates and gold
Listed
Unlisted
A. Trading book:
1,420,734 69,219,184 486 560,592 – 1,448,010
1. With exchange of capital
73,847 1,754 45 –
– 1,448,010
– purchases
55,452 311 33 –
–
693,775
– sales 18,395 1,443 12 –
–
538,820
– currency against currency
–
–
–
–
–
215,415
2. Without exchange of capital
1,346,887 69,217,430 441 560,592 –
–
– purchases
593,787 32,107,980 –
280,296 –
–
– sales 753,100 37,109,450 441 280,296 –
–
– currency against currency
–
–
–
–
–
–
B. Banking book:
B.1Hedging
–
281,791 –
–
–
–
1. With exchange of capital
–
–
–
–
–
–
– purchases
–
–
–
–
–
–
– sales –
–
–
–
–
–
– currency against currency
–
–
–
–
–
–
2. Without exchange of capital
–
281,791 –
–
–
–
– purchases
–
–
–
–
–
–
– sales –
281,791 –
–
–
–
– currency against currency
–
–
–
–
–
–
B.2Other derivatives
– 2,308,240 –
59,563 –
27,669
1. With exchange of capital
–
–
–
–
–
27,669
– purchases
–
–
–
–
–
27,669
– sales –
–
–
–
–
–
– currency against currency
–
–
–
–
–
–
2. Without exchange of capital
– 2,308,240 –
59,563 –
–
– purchases
– 2,275,990 –
59,563 –
–
– sales –
32,250 –
–
–
–
– currency against currency
–
–
–
–
–
–
330
Type of transaction/Underlyings
Other instruments
Listed
Unlisted
31/12/2008
Listed
Unlisted
31/12/2007
Listed
Unlisted
A. Trading book:
–
– 1,421,220 71,227,786 477,165 105,812,295
1. With exchange of capital
–
–
73,892 1,449,764 – 2,164,301
– purchases
–
–
55,485 694,086 –
926,310
– sales –
–
18,407 540,263 –
935,965
– currency against currency
–
–
–
215,415 –
302,026
2. Without exchange of capital
–
– 1,347,328 69,778,022 477,165 103,647,994
– purchases
–
–
593,787 32,388,276 293,050 47,475,148
– sales –
–
753,541 37,389,746 184,115 56,172,846
– currency against currency
–
–
–
–
–
–
B. Banking book:
B.1Hedging
–
–
–
281,791 –
–
1. With exchange of capital
–
–
–
–
–
–
– purchases
–
–
–
–
–
–
– sales –
–
–
–
–
–
– currency against currency
–
–
–
–
–
–
2. Without exchange of capital
–
–
–
281,791 –
–
– purchases
–
–
–
–
–
–
– sales –
–
–
281,791 –
–
– currency against currency
–
–
–
–
–
–
B.2 Other derivatives
–
–
– 2,395,472 – 1,775,848
1. With exchange of capital
–
–
–
27,669 –
27,828
– purchases
–
–
–
27,669 –
27,828
– sales –
–
–
–
–
–
– currency against currency
–
–
–
–
–
–
2. Without exchange of capital
–
–
– 2,367,803 – 1,748,020
– purchases
–
–
– 2,335,553 – 1,715,770
– sales –
–
–
32,250 –
32,250
– currency against currency
–
–
–
–
–
–
331
A.4 Over-the-counter financial derivatives: positive fair value - counterparty risk
Counterparty/Underlyings
Debt securities and interest rates
Gross not
Gross
Future
offset
offset
exposure
Equities and equity indices
Gross not
Gross
Future
offset
offset
exposure
A. Trading book for supervisory purposes
A.1Governments and central banks
–
–
–
–
–
–
A.2Public entities
–
–
–
–
–
–
A.3Banks
34,401 34,401 113,131 –
– 20,948 A.4Financial companies
10,011 10,011 3,975 –
–
643 A.5Insurance companies
–
–
–
–
–
–
A.6Non-financial institutions
79,223 79,223 18,476 –
–
–
A.7Other issuers
103 103 15 –
–
–
Total at 31/12/2008
123,738 123,738 135,597 –
–
21,591 Total at 31/12/2007
471,783 471,783 173,700 48,139 48,139 32,438 B. Banking book
B.1Governments and central banks
–
–
–
–
–
–
B.2Public entities
–
–
–
–
–
–
B.3Banks
18,875 18,875 12,388 –
–
4,765 B.4Financial companies
–
–
238 –
–
–
B.5Insurance companies
–
–
–
–
–
–
B.6Non-financial institutions
–
–
–
–
–
–
B.7Other issuers
–
–
–
–
–
–
Total at 31/12/2008
18,875 18,875 12,626 –
–
4,765 Total at 31/12/2007
23,522 23,522 6,142 –
–
–
332
Exchange rates and gold
Gross not
Gross
Future
offset
offset
exposure
Other instruments
Different underlying
Gross not
Gross
Future
Offset
Future
offset
offset
exposure
exposure
–
–
–
–
–
–
–
–
–
–
–
–
–
–
14,902 14,902 7,670 –
–
–
76,810 168 168 1,293 –
–
–
3,039 –
–
–
–
–
–
–
13,137 13,137 2,490 –
–
–
–
1,859 1,859 478 –
–
–
–
–
–
52,145
949
–
–
–
30,066 30,066 11,931 –
–
–
79,849 53,094
22,109 22,109 9,399 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
86,212 –
–
–
–
–
–
8,158 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,420
238
–
–
–
–
–
–
–
–
–
94,370 16,658
–
–
–
–
–
–
–
–
333
A.5 Over-the-counter financial derivatives: negative fair value - financial risk
Counterparty/Underlyings
Debt securities and interest rates
Gross not
Gross
Future
offset
offset
exposure
Equities and equity indices
Gross not
Gross
Future
offset
offset
exposure
A. Trading book for supervisory purposes
A.1Governments and central banks
–
–
–
–
–
–
A.2Public entities
–
–
–
–
–
–
A.3Banks
55,212 55,212 51,196 –
–
–
A.4Financial companies
268 268 5,690 –
–
26 A.5Insurance companies
–
–
–
15,222 15,222 –
A.6Non-financial institutions
1,262 1,262 525 –
–
–
A.7Other issuers
1,417 1,417 –
–
–
–
Total at 31/12/2008
58,159 58,159 57,411 15,222 15,222 26 Total at 31/12/2007
496,415 –
51,149 48,185 –
6
B. Banking book
B.1Governments and central banks
–
–
–
–
–
–
B.2Public entities
–
–
–
–
–
–
B.3Banks
2,358 2,358 4,983 –
–
–
B.4Financial companies
1,089 1,089
–
–
–
–
B.5Insurance companies
–
–
–
–
–
–
B.6Non-financial institutions
–
–
–
–
–
–
B.7Other issuers
–
–
–
–
–
–
Total at 31/12/2008
3,447 3,447
4,983 –
–
–
Total at 31/12/2007
133,546 –
3,408 –
–
–
334
Exchange rates and gold
Gross not
Gross
Future
offset
offset
exposure
Other instruments
Different underlying
Gross not
Gross
Future
Offset
Future
offset
offset
exposure
exposure
–
–
13,005 1,197 –
5,011 1,792 –
–
13,005 1,197 –
5,011 1,792 –
–
2,840 837 –
565 227 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
145,007 25,972 –
–
–
–
–
121,088
7,625
–
–
–
21,005 21,005 4,469 –
–
–
170,979 128,713
33,428 –
3,027 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41,447 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3,930
–
–
–
–
–
–
–
–
–
–
41,447 3,930
–
–
–
–
–
–
–
–
335
A.6 Residual life of over-the-counter financial derivatives: notional value
Underlyings/residual life
12 months
Within years
1 to 5 5 years
A. Trading book for
supervisory purposes
28,050,140 43,752,747 A.1Financial derivatives on debt
and interest rates
26,544,931 43,276,582 A.2Financial derivatives on equities
and equity indices
86,327 474,706 A.3Financial derivatives on exchange
rates and gold
1,418,882 1,459 A.4Financial derivatives on
other instruments
–
–
B. Banking book
1,198,710 1,893,034 B.1 Financial derivatives on debt
securities and interest rates
1,198,710 1,805,802 B.2 Financial derivatives on equities
and equity indices
–
59,563 B.3Financial derivatives on exchange
rates and gold
–
27,669 B.4Financial derivatives on
other instruments –
–
Over 31/12/2008
3,776,330 75,579,217
3,776,330 –
–
–
–
–
–
582,143 –
3,673,887
582,143 –
–
–
–
–
–
–
Total at 31/12/2008
29,248,850 45,645,781 4,358,473 79,253,104
Total at 31/12/2007
44,170,604 64,365,914 4,050,202 112,586,720
B. CREDIT DERIVATIVES
The Bank does not have any credit derivatives. Consequently, no information is being provided
in this regard.
336
SECTION 3
Liquidity risk
QUALITATIVE INFORMATION
A. General aspects, management and measurement of liquidity risk
Liquidity risk is the risk of being unable to meet payment obligations caused by inability to obtain funding
(funding liquidity risk) and/or the presence of restrictions on the ability to sell assets (market liquidity risk).
This risk can also take the form of a loss relative to fair value deriving from a forced sale, or more generally,
of a loss in terms of reputation or business opportunities.
Liquidity funding risk is incurred in banking activities when institutional counterparties withdraw their usual
funding, or request a significantly higher return than in normal circumstances.
The policy for managing liquidity risk, approved in October 2008, specifies the following fundamental
principles for governing this risk:
– liquidity is managed centrally by the Parent Bank, Banca Popolare di Vicenza;
– responsibility for guidelines on managing liquidity and the associated risk rests with the Parent Bank’s
Board of Directors;
– the Liquidity Funding Plan (for ordinary liquidity management) and the Contingency Funding Plan (for
contingency management) are developed and managed by the Parent Bank on behalf of the entire BPVi
Group.
The Parent Bank’s Board of Directors uses the Finance and ALMs Committee and relevant company
functions for the operational and strategic management of this risk. In particular:
– the Finance and ALMs Committee proposes strategic guidelines in its consultative capacity to the Parent
Bank’s Board of Directors;
– the Managing Director, or in his absence the Parent Bank’s General Manager, manages situations of
stress and crisis, within the scope of their respective powers and having consulted the Finance and ALMs
Committee. If the actions identified for overcoming situations of stress and crisis fall outside the scope of
their powers, the proposed actions must be submitted to the competent bodies;
– the Finance Division has operational management duties.
Short-term liquidity management (within a 12-month horizon) uses an Operating Maturity Ladder, which
identifies mismatches between expected cash inflows and outflows for each time period (liquidity gaps on
precise dates). The cumulative mismatches (cumulative liquidity gaps) are used for calculating the net cash
requirement/surplus for the different time horizons considered. Medium/long-term liquidity management
uses a Structural Maturity Ladder, which identifies the balance between assets and liabilities by matching
them not only in terms of cash flows but also in terms of balance sheet ratios. The objective is to ensure
that the profile of structural liquidity is sufficiently balanced, with restrictions on the possibility of financing
medium/long-term assets with liabilities of a different duration.
The Global Markets Department is responsible for operational management of liquidity risk by seeking
to maintain an optimum balance between average maturities of short-term lending and funding, and by
diversifying positions by counterparty and due date negotiated both over the counter and on the Interbank
Deposits Market. In addition to usual banking treasury activities (daily monitoring of the Group’s liquidity
and optimization of its short-term management), any medium and long-term imbalances are managed using
appropriate policies established by the Finance and ALMS Committee.
337
The Bank managed to face the extremely tense situation on money markets in 2008 despite
growing commitments to disburse funds, the smaller number of banking counterparties in the
loan book and the general reduction in credit by the system as whole. These circumstances made
it even more necessary to adopt a cautious, diversified funding policy, that sought to gradually
lengthen the average maturity of interbank funding, and to avoid large exposures to overnight
positions. Market liquidity risk was also limited by additional sell offs of the less readily
marketable investments in the trading book.
Since November 2008 it has been possible to use securitization of residential mortgages with
the principal purpose of obtaining refinancing from the ECB and of increasing the quantity
of instruments that can be lodged against intra-day operations. Such securitization has made
it possible to finance assets at relatively competitive rates in situations of liquidity stress.
The conduct of funding repurchase agreements with the ECB and with direct customers has
helped diversify the sources of funds relative to the interbank market, also in view of the recent
injections of liquidity by the ECB through repo transactions at a fixed rate (equal to the official
reference rate) and with no limits on quantity.
The project for reorganizing the treasury function continued throughout the year, including with
the assistance of outside consultants for optimizing procedural and organizational aspects.
338
QUANTITATIVE DISCLOSURES
1. Breakdown of the residual contractual duration of financial assets and liabilities
Currency: Euro
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
10,926 15,361 –
1
–
A.2 Listed debt securities
7
–
–
–
–
10,115 10,058 11,617 –
–
A.3 Other debt securities
10 –
–
–
106 161 86,245 742,132 131,530 –
A.4 Mutual funds
88,185 –
–
–
–
–
–
–
–
–
A.5 Loans
3,102,952 510,660 329,143 1,532,223 1,578,317 518,995 680,883 3,654,759 3,667,785 658,497
– Banks 616,487 419,410 93,107 346,009 481,258 8,837 46,354 12,951 9,521 175,850
– Customers
2,486,465 91,250 236,036 1,186,214 1,097,059 510,158 634,529 3,641,808 3,658,264 482,647
Cash liabilities
B.1 Deposits
(8,004,408) (194,294) (407,815) (613,063) (534,820) (206,624) (43,737)
(928) (24,334)
– Banks
(1,423,789) (193,803) (407,437) (610,246) (531,466) (200,000) (35,126)
–
–
– Customers
(6,580,619)
(491)
(378)
(2,817)
(3,354)
(6,624)
(8,611)
(928) (24,334)
B.2 Debt securities
(5,554) (12,482) (15,419) (106,824) (211,815) (369,996) (133,706) (4,970,423)(1,693,159)
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
– (37,087)
(8,901) (14,540)
(114)
29,066 18,990 (29,392)
23 – long positions
–
46,947 11,170 64,190 120,077 151,028 136,287 276 29 – short positions
– (84,034) (20,071) (78,730) (120,191) (121,962) (117,297)
(29,668)
(6)
C.2 Deposits and loans
to be received
–
(9,438)
–
2,384 5,514 1,585 –
–
–
– long positions
–
50,000 –
2,384 5,514 1,585 –
–
–
– short positions
– (59,438)
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
–
–
–
–
–
–
–
–
– long positions
–
83,825 –
–
–
–
–
–
–
– short positions
– (83,825)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
339
Currency: USD
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
–
–
–
–
A.2 Listed debt securities
–
–
–
–
–
–
–
–
–
A.3 Other debt securities
–
–
–
–
–
–
–
–
–
A.4 Mutual funds
–
–
–
–
–
–
–
–
–
A.5 Loans
46,663 3,841 31,903 42,031 146,242 9,291 26,012 830 1,275 – Banks 39,337 –
22,617 874 –
1,456 20,884 –
–
– Customers
7,326 3,841 9,286 41,157 146,242 7,835 5,128 830 1,275 –
–
–
–
2,651
–
2,651
Cash liabilities
B.1 Deposits
(94,802) (20,602)
(8,378) (10,395) (44,179)
(9,885)
(1,570)
–
–
– Banks (35,550) (18,009)
(7,193)
(2,517) (35,990)
(9,424)
–
–
–
– Customers
(59,252)
(2,593)
(1,185)
(7,878)
(8,189)
(461)
(1,570)
–
–
B.2 Debt securities
–
–
–
–
–
–
–
(3,658)
–
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
–
865 8,332 (2,551) (18,202)
5,718 (16,954)
4,266 –
– long positions
–
25,545 16,594 80,953 108,899 62,253 110,235 4,288 –
– short positions
– (24,680)
(8,262) (83,504) (127,101) (56,535) (127,189)
(22)
–
C.2 Deposits and loans
to be received
–
–
–
–
–
–
–
–
–
– long positions
–
8,623 –
–
–
–
–
–
–
– short positions
–
(8,623)
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
(5,217)
(626)
–
260 9
4,948 –
–
– long positions
–
–
11,022 –
260 9
4,948 –
–
– short positions
–
(5,217) (11,648)
–
–
–
–
–
–
340
–
–
–
–
–
–
–
–
–
Currency: GBP
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
–
–
–
–
A.2 Listed debt securities
–
–
–
–
–
–
–
–
–
A.3 Other debt securities
–
–
–
–
–
–
–
–
–
A.4 Mutual funds
–
–
–
–
–
–
–
–
–
A.5 Loans
2,791 21 433 549 1,975 73 –
–
–
– Banks 2,786 –
–
–
–
–
–
–
–
– Customers
5
21 433 549 1,975 73 –
–
–
–
–
–
–
1,825
–
1,825
Cash liabilities
B.1 Deposits
(4,528)
(525)
–
–
–
–
(195)
–
–
– Banks (7)
(525)
–
–
–
–
–
–
–
– Customers
(4,521)
–
–
–
–
–
(195)
–
–
B.2 Debt securities
–
–
–
–
–
–
–
–
–
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
–
(128)
157 (6,929)
4,110 288 193 –
–
– long positions
–
2
209 1,785 15,830 2,083 213 –
–
– short positions
–
(130)
(52)
(8,714) (11,720)
(1,795)
(20)
–
–
C.2 Deposits and loans
to be received
–
–
–
–
–
–
–
–
–
– long positions
–
1,050 –
–
–
–
–
–
–
– short positions
–
(1,050)
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
341
Currency: CHF
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
–
–
–
–
A.2 Listed debt securities
–
–
–
–
–
–
–
–
–
A.3 Other debt securities
–
–
–
–
–
–
–
–
–
A.4 Mutual funds
–
–
–
–
–
–
–
–
–
A.5 Loans
12,374 7,101 8,997 2,544 12,169 418 –
–
98 – Banks 11,995 6,737 5,389 –
–
–
–
–
–
– Customers
379 364 3,608 2,544 12,169 418 –
–
98 –
–
–
–
109
–
109
Cash liabilities
B.1 Deposits
(1,044)
–
– (60,639) (40,487)
–
–
–
–
– Banks –
–
– (60,639) (40,404)
–
–
–
–
– Customers
(1,044)
–
–
–
(83)
–
–
–
–
B.2 Debt securities
–
–
–
–
–
–
–
–
–
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
–
133 –
40,303 16,838 –
(505)
–
–
– long positions
–
134 –
40,303 16,838 –
14,182 –
–
– short positions
–
(1)
–
–
–
– (14,687)
–
–
C.2 Deposits and loans
to be received
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
342
–
–
–
–
–
–
–
–
–
Currency: JPY
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
–
–
–
–
A.2 Listed debt securities
–
–
–
–
–
–
–
–
–
A.3 Other debt securities
–
–
–
–
–
–
–
–
–
A.4 Mutual funds
–
–
–
–
–
–
–
–
–
A.5 Loans
4,120 2,625 1,586 4,246 6,103 2,012 –
–
34 – Banks 2,458 2,379 –
–
2,149 875 –
–
–
– Customers
1,662 246 1,586 4,246 3,954 1,137 –
–
34 –
–
–
–
476
–
476
Cash liabilities
B.1 Deposits
(2,051)
–
(1,976)
–
(4,567)
–
–
–
–
– Banks (1,553)
–
–
–
(4,471)
–
–
–
–
– Customers
(498)
–
(1,976)
–
(96)
–
–
–
–
B.2 Debt securities
–
–
–
–
–
–
–
–
–
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
–
1,298 93 (14,545)
(97)
1,339 (1,087)
–
–
– long positions
–
3,282 1,014 872 7,998 20,411 18,799 –
–
– short positions
–
(1,984)
(921) (15,417)
(8,095) (19,072) (19,886)
–
–
C.2 Deposits and loans
to be received
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
343
Currency: other currencies
Items/Time bands
Sight
1 to 7
days
7 to 15
15 days
days to 1 month
1 to 3
months
3 to 6
months
6 to 12
months
1 to 5
years
Over Unspecified
5 years duration
Cash assets
A.1 Government securities
–
–
–
–
–
–
–
–
–
A.2 Listed debt securities
–
–
–
–
–
–
–
–
–
A.3 Other debt securities
–
–
–
–
–
–
–
–
–
A.4 Mutual funds
–
–
–
–
–
–
–
–
–
A.5 Loans
6,756 2
59 –
3,597 –
–
379 –
– Banks 6,731 2
–
–
–
–
–
–
–
– Customers
25 –
59 –
3,597 –
–
379 –
–
–
–
–
457
–
457
Cash liabilities
B.1 Deposits
(5,473)
(1,834)
–
(177)
(742)
–
(8)
–
–
– Banks (945)
(1,834)
–
–
–
–
–
–
–
– Customers
(4,528)
–
–
(177)
(742)
–
(8)
–
–
B.2 Debt securities
–
–
–
–
–
–
–
– (24,246)
B.3 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Off-balance sheet” transactions
C.1 Financial derivatives with
exchange of capital
–
(625)
–
3,368 247 186 –
– 24,076 – long positions
–
767 3,302 45,789 3,028 15,626 –
– 24,076 – short positions
–
(1,392)
(3,302) (42,421)
(2,781) (15,440)
–
–
–
C.2 Deposits and loans
to be received
–
–
–
–
–
–
–
–
–
– long positions
–
2,506 –
–
–
–
–
–
–
– short positions
–
(2,506)
–
–
–
–
–
–
–
C.3 Irrevocable commitments
to make loans
–
–
–
–
–
–
–
–
–
– long positions
–
–
–
–
–
–
–
–
–
– short positions
–
–
–
–
–
–
–
–
–
344
–
–
–
–
–
–
–
–
–
2. Sector breakdown of financial liabilities
Exposure/Counterparties
Governments and
central banks
Other public
entities
Financial
companies
Insurance Non-financial
companies
institutions
23,511 –
–
–
116,421 10,187 –
36,757 424,966 –
36,173 22,061 150,672 2,184,466 4,603,599
167,556 146,230 2,047,808
15,222 3,561 3,210
367,053 133,797 1,182,735
Total at 31/12/2008
23,511 163,365 483,200 700,503 2,468,054 7,837,352
Total at 31/12/2007
26,462 174,992 327,478 640,700 2,040,145 5,455,683
1.
2.
3.
4.
Due to customers
Debt securities in issue
Financial liabilities held for trading
Financial liabilities at fair value
Other parties
3. Geographical distribution of financial liabilities
Exposure/Counterparties
ITALY OTHER AMERICAASIAREST
EU OF THE
COUNTRIES WORLD
1.
2.
3.
4.
5.
Due to customers
Deposits from banks
Debt securities in issue
Financial liabilities held for trading
Financial liabilities at fair value
7,281,088 206,940 3,217,997 352,314 2,223,586 2,385,566 46,190 490,612 2,009,806 928,324 11,369 41 –
81,560 –
553 493 –
–
–
3,685
50,083
–
–
–
Total at 31/12/2008
14,778,667 4,363,756 92,970 1,046 53,768
Total at 31/12/2007
11,014,998 5,634,150 101,686 2,526 106,849
345
Section 4
Operational risk
QUALITATIVE DISCLOSURES
A. General aspects, management and measurement of operational risk
Operational risk is defined as the risk of losses deriving from inadequate or dysfunctional procedures,
human resources or internal systems, or external events. This includes legal risk, but not strategic risk
or the risk to reputation.
During 2008 the Internal Audit Department carried out remote and on-site checks in relation to
the distribution network in order to verify compliance with company standards (basically: correct
application of regulations and correct performance of line controls).
The audit of processes rather than the central owners of the same also examined regulatory,
procedural and organizational structure in order to assess the adequacy of controls over operational
risks in terms of compliance with corporate strategy, achieving maximum efficiency and effectiveness
in all processes, protecting the value of assets and protection against losses, the reliability and
completeness of accounting and management information, and the compliance of transactions with
the law, supervisory requirements and internal instructions.
The results attest the existence and adequacy of the system of controls protecting against such risks,
and as far as distribution processes are concerned are based on the compliance observed during audit
activities within the Network.
With regard to the monitoring of operational risks, the Bank was a founding member in 2002 of
DIPO, the interbank consortium promoted by ABI that maintains an Italian database of operational
losses. As a consequence, the Group gathers regular information about its operational losses.
Lastly in this area, the Group commenced an “ORM” (Operational Risk Management) project
during the first half of 2006 as part of alignment with the Basel II requirements.
The new Basel 2 accord establishes capital adequacy requirements for banks with regard to credit
risk, market risk and, for the first time, operational risk. With regard to this last risk, there are three
possible approaches of increasing complexity:
− BIA – Basic Standard Approach: this involves the application of a fixed coefficient of 15% to the
average of net interest and other banking income over the last three years.
−TSA – Traditional Standardized Approach: this involves the application of fixed coefficients to
net interest and other banking income for the last three years deriving from the various lines of
business envisaged in the New Capital Accord. This approach also and more especially envisages
the creation of an integrated framework for the recording, management and measurement of
operational risks, imposing on banks a tight series of organizational requirements.
−AMA – Advanced Measurement Approach: this applies the organizational model for the
recording, management and measurement of operational risks adopted by the standardized
approach, but on an even more stringent basis which allows banks to adopt internal models for
calculating the related capital adequacy requirements.
The Operational Risk Management project, organized into four modules is intended to define
an framework for the measurement and management of Operational Risks that is consistent with
346
the requirements of Basel 2, while also working towards alignment with the requirements of the
standardized approach.
Various stages in this project have already been completed: “Classification Models and Risk
Mapping”, “Policies for and Governance of Operational Risk Management” and “Self Risk
Assessment”. This last stage entailed the direct involvement of managers from the Departments
subject to Operational Risks and the Area offices, who took part in a top-down analysis of risks by
completing a detailed questionnaire designed to obtain quali-quantitative information needed for
managing the risk. The fourth and final stage of the project, whose organizational implications were
reviewed in the first half of 2007, was intended to define and develop a structured process for Loss
Data Collection in place of the current process used to provide information to the DIPO consortium.
This work was completed at the end of October 2007 with the publication of the “Operational Risks
Manual – Loss Data Collection”.
The same work was carried out in the first half of 2008 at a local level for Banca Nuova and Cassa di
Risparmio di Prato, in order to manage operational risks throughout the banking Group.
This work was completed in June 2008 when these two subsidiaries adopted the “Operational Risks
Manual – Loss Data Collection”.
The introduction of Self Risk Assessment at these subsidiaries is still in progress.
QUANTITATIVE INFORMATION
The Bank continued to gather data on operational losses for reporting to DIPO, which was
more complete thanks to the more structured approach used after adopting the manual, which
was also adopted by the two subsidiaries Banca Nuova and Cassa di Risparmio di Prato in June
2008. The information gathered was not only more accurate, but also contained details of events
not previously considered, such as those associated with “employment practices and workplace
safety”.
This reporting revealed 73 new events in 2008, resulting in losses or provisions for losses totaling
Euro 4.809 million. Of these new events, 41% (30 events) were caused by “employment
practices and workplace safety” (58% in value terms), 21% by “customers, products and
business practice” (27% in value terms), 19% by errors in “execution, delivery and process
management” (9% in value terms), 18% by “external fraud” (6% in value terms) and 1% (1
event) by “damage to physical assets” (0.2% in value terms).
Events are analyzed by line of business as well as by type. These lines of business are the same as
those envisaged in the New Capital Accord (Basel 2). In particular:
− “retail banking” includes the losses deriving from customers served operationally by the
Private Banking or Retail businesses;
− “retail intermediation” includes the operational losses incurred on retail customer instructions
relating to securities that were handled incorrectly;
− “trading and sale” includes the operational losses incurred on corporate customer instructions
relating to securities that were handled incorrectly;
− “commercial banking” includes the operational losses attributable to the corporate segment.
In 2008, 67% of loss events related to the retail business (71% in value terms), 17% to retail
intermediation (11% in value terms), 15% to trading and sale (15% in value terms), and 1% to
commercial banking (3% in value terms).
347
Part F
CAPITAL
SeCTion 1
Capital
A. QUALITATIVE INFORMATION
Definition of capital
The definition of capital used by the Bank corresponds to the sum of the following equity
accounts: 130 “Valuation reserves”, 140 “Redeemable shares”, 150 “Equity instruments”, 160
“Reserves”, 170 “Additional paid-in capital”, 180 “Capital”, 190 “Treasury stock” and 200 “Net
income (loss) for the year”.
Quantitative information is provided in Part B, Liabilities Section 14 – “Equity” of these
explanatory notes.
Nature of the capital adequacy requirement
Since the Bank carries out lending activities, it is subject to the requirements of art. 29 et seq.
of Decree 385 dated 1 September 1993 “Consolidated law on banking and lending” or “TUB”.
Accordingly, the Group must comply with the capital adequacy requirements detailed in the above
legislation.
Management of capital
Information about the way in which the Bank pursues its capital management objectives is
provided in section 2.2 below.
B. QUANTITATIVE INFORMATION
Quantitative information is provided in Part B, Liabilities Section 14 – “Equity” of these
explanatory notes.
348
SeCTion 2
Regulatory capital and capital adequacy ratios
2.1 Regulatory capital
A . Qualitative information
1. Tier 1 capital
Tier 1 capital comprises capital stock, additional paid-in capital and other equity reserves (inclusive of the
related allocation of 2008 net income to reserves) calculated on the basis of current legislation, less any
treasury shares and intangible assets.
“Prudential filters” make corrections to equity in order to safeguard the quality of regulatory capital and
reduce the potential volatility deriving from the application of IFRS. These filters include adding to Tier
1 capital the cumulative net losses on subordinated liabilities computed in Tier 2 capital, classified in the
balance sheet as “Financial liabilities at fair value”.
Tier 1 capital as of 31 December 2008 does not include any innovative or other capital instruments.
2. Tier 2 capital
Tier 2 capital essentially comprises the special revaluation reserves recorded for property, plant and
equipment, the positive valuation reserves relating to debt securities, equities and mutual fund units
classified as “Financial assets available for sale” and the subordinated liabilities issued, to the extent allowed
by the regulations.
The “prudential filters” include the deduction of 50% of the positive valuation reserve relating to debt
securities, equities and mutual fund units classified as “Financial assets available for sale”.
349
The principal contractual characteristics of the subordinated loans included in Tier 2 capital are presented
below, together with the portion included in this capital:
Issue
Maturity
Rate
Interest
Nominal
Portion
Isin
data rate
value
included in
Tier 2 capital
IT0003444574
02/05/2003
02/05/2009T.F.
IT0003631659
23/03/2004
23/03/2011T.F.
IT0003631642
02/04/2004
02/04/2009T.F.
IT0003662498
21/05/2004
21/05/2010T.F.
IT0003699649
16/08/2004
16/08/2010T.F.
IT0003748511
30/11/2004
30/11/2011T.F.
XS0210870415
03/02/2005
03/02/2015T.V.
30/07/2007
30/07/2015T.F.
IT0004189343 (1)
XS0336683254
20/12/2007
20/12/2017T.V.
IT0004424351
15/12/2008
15/12/2015T.F.
2.25%
4.05%
3.64%
3.95%
4.10%
3.49%
Euribor3m + 0.45
2.15%
Euribor3m + 2.35
5.00%
8,298 9,777 24,731 23,359 13,941 48,932 200,000 241,451 200,000 115,497 8,298
6,000
5,000
10,000
6,000
30,000
199,829
241,451
200,000
115,497
Total
885,986 822,075
All the above subordinated bonds, except for the issue with Isin code IT0004424351, have an early
redemption clause that allows the Bank to redeem them early, not less than 18 months after the final date
of placement, following prior authorization from the Bank of Italy and giving at least one month’s notice.
Furthermore, all the above bonds contain a subordination clause whereby, on liquidation of the Bank, they
would be redeemed only after all other creditors, not subordinated to the same extent, have been satisfied.
Tier 2 capital does not include any hybrid debt capital instruments at 31 December 2007.
“Deductions” from regulatory capital, consisting of the equity investments in banking, financial and
insurance companies held by the Bank, are deducted in accordance with the rules set out in Circular 263
of 27 December 2006 (3rd revision dated 15 January 2009) and in Circular 155 of 18 December 1991
(12th revision dated 5 February 2008). In particular, 50% of the above equity investments are deducted
from Tier 1 capital and 50% from Tier 2 capital, except for the equity investments in insurance companies
purchased before 20 July 2006, the full amount of which is deducted from both Tier 1 and 2 capital.
Bond with right of conversion into Banca Popolare di Vicenza ordinary shares: the bonds can be converted into
capital stock in a ratio of 2 shares of par value Euro 3.75 each for every bond of nominal value Euro 124 each. The
conversion ratio will be changed in the event of a bonus increase in capital via the issue of shares. The right to convert
can be exercised from 1 October 2010 to 31 December 2010. The shares delivered to the bondholders who decide to
convert will have dividend and voting rights from 1 January 2011. Bondholders are entitled to convert early in the
event of extraordinary operations involving capital, except for mergers with other companies in the Banca Popolare di
Vicenza Group or with companies controlled by the issuer.
(1)
350
3. Tier 3 capital
The Bank’s regulatory capital at 31 December2008 does not include any elements of Tier 3 capital.
B. QUANTITATIVE INFORMATION
A.
B.
C.
D.
Tier 1 before the application
of prudential filters
Prudential filters of Tier 1 capital
B.1 Positive IFRS prudential filters (+)
B.2 Negative IFRS prudential filters (–)
Tier 1 capital after the application
of prudential filters
Deductions from Tier 1 capital
E. Total Tier 1 capital
F. Tier 2 capital before the application
of prudential filters
G. Prudential filters of Tier 2 capital
G.1 Positive IFRS prudential filters (+)
G.2 Negative IFRS prudential filters (–)
H. Tier 2 capital after the application
of prudential filters
I. Deductions from Tier 2 capital
L. Total Tier 2 capital
M. Deductions from Tier 1 and Tier 2 capital
N. Regulatory capital
O.Tier 3 capital
P. Regulatory capital including Tier 3 capital
31/12/2008
31/12/2007
2,072,687 2,972 2,972 –
2,029,369
(51,620)
–
(51,620)
2,075,659 13,831 1,977,749
13,863
2,061,828 1,963,886
851,219 (13,522)
–
(13,522)
741,944
–
–
–
837,697 13,831 741,944
13,863
823,866 728,081
26,773 26,773
2,858,921 2,665,194
–
–
2,858,921 2,665,194
351
2.2 Capital adequacy
A. Qualitative information
The capital management policies adopted by the Banca Popolare di Vicenza Group are intended to ensure
that Tier 1 capital is consistent with the overall level of risk accepted and the plans for the expansion of the
Group, as well as to optimize the composition of capital by recourse to various financial instruments that
minimize the related cost.
352
B. Quantitative information
Categories/Amounts
Unweighted amounts
31/12/2008
31/12/2007
Weighted amounts/requirements
31/12/2008
31/12/2007
A. RISKS ASSETS
A.1Credit and counterparty risk 38,182,147 34,479,148 15,590,472 15,792,953
1. Standard methodology 38,161,980 34,479,148 15,338,381 15,792,953
2. Metodology based on internal ratings
–
–
–
–
2.1 Basic
–
–
–
–
2.2 Advanced
–
–
–
–
3. Securitizations
20,167 –
252,091 –
B. CAPITAL ADEQUACY REQUIREMENTS
B.1Credit and counterparty risk
x
x
935,428 1,105,507
B.2Market risk
x
x
11,680 237,242
1. Standard methodology
x
x
11,680 237,242
2. Internal models
x
x
–
–
3. Concentration risk
x
x
–
–
B.3Operational risks
x
x
68,534 –
1. Basic method
x
x
68,534 –
2. Standard method
x
x
–
–
3. Advanced method
x
x
–
–
B.4Other prudential requirements
x
x
15,734 75,874
B.5Total prudential requirements
x
x 1,031,376 1,418,623
C. RISK ASSETS AND CAPITAL RATIOS
C.1Risk-weighted assets
C.2Tier 1 capital/Risk-weighted assets
(Tier 1 capital ratio)
C.3Regulatory capital including TIER 3/Risk-weighted asset
(Total capital ratio)
x
x
x x 17,124,047 20,266,039
x
x
12.04%
9.69%
x
x
16.70%
13.15%
“Other prudential requirements” at 31 December 2008 refer to the specific capital requirement ordered by
the Supervisory Authorities on 9 October 2007, involving a doubling of weightings relative to those currently
used for counterparty risk relating to the “Trading portfolio for supervisory purposes”. This requirement was
included in “Market risks” at 31 December 2007.
“Other prudential requirements” at 31 December 2007 referred to the requirement relating to the Group’s
securitizations, not included in “Risk assets” in compliance with the previously applicable supervisory
regulations. This requirement has been included in “Credit and counterparty risks” in line B.1 at 31
December 2008, while the related risk assets are reported in line A.1.1.
The Group has used the “standard approach” (simplified CRM) to calculate risk-weighted assets and the
related capital requirement for credit risks, adopting unsolicited external ratings provided by Moody’s, S&P
and Fitch for the supervisory portfolios “Exposures with or guaranteed by central administrations and central
banks” and “Positions relating to securitizations” and unsolicited ratings provided by Lince for the portfolio
“Exposures to companies and other parties”.
In the case of overall market risks on debt securities and interest rates, derivatives and other off-balance sheet
transactions involving debt securities and interest rates have been represented using financial or sensitivity
models in place of the “double entry” method previously used.
353
Part G
BUSINESS COMBINATIONS
SeCTion 1
Transactions during the year
1.1 Business combinations
This section has not been completed because the Banca Popolare di Vicenza did not carry out
any business combinations during the year.
1.2 Other information on business combinations
1.2.1 Changes in year in goodwill
With reference to the acquisition of the 61 bank branches from the UBI Banca Group on 31 December 2007, for which goodwill of Euro 469,215 was provisionally recognized, there have been
the following changes during the year:
• an increase of Euro 16,747 for incidental expenses (legal and notary fees, indirect taxes);
• a reduction of Euro 18,654 after determining the final price of the branches, in accordance
with the terms of the sale agreement;
• a reduction of Euro 24,100 after reclassifying to “Other intangible assets” the “intangibles”
identified as part of the purchase price allocation process in compliance with IFRS 3 which
states that the cost of a business combination (such as the acquisition of the 61 UBI branches)
must be accounted for using the purchase method and that the price paid be allocated to the
assets acquired and liabilities assumed as measured at their respective fair values. These “intangibles” express the value of the relationships acquired and are amortized over the period
they are expected to benefit.
Goodwill relating to the acquisition of the 61 UBI Group branches therefore amounts to Euro
443,207 at 31 December 2008, at which date no evidence of impairment has been observed that
would require recognition in the income statement under IAS 36.
354
SECTION 2
Transactions after the end of the year
2.1 Business combinations
Acquisition of Corporate Business Unit (CBU) from Banca Popolare Commercio e Industria
(BPCI)
On 1 March 2009, the Bank acquired the Corporate Business Unit (CBU) from Banca Popolare
Commercio e Industria in Brescia. The acquisition of the Corporate Business Unit, by the Parent
Bank BPVi, comprising corporate customers in the provinces of Brescia and Bergamo, forms part
of the previous acquisition on 31 December 2007 of 18 bank branches (out of the total 61 branches
acquired from the UBI Group) located in these provinces, and so has taken place without the Bank
paying any additional consideration.
The balance sheet of this business at 31 July 2008 was as follows (in thousands of euro):
Position at 31 July 2008
Assets acquired:
– Cash and cash equivalents €
–
– Loans and advances to customer € 247,742 –
– Property, plant and equipment €
– Other assets
€
36 Liabilities acquired:
– Due to customers
€ 18,485
– Debt securities in issue
€
98
– Provisions for severance indemn €
26
– Other liabilities
€
912
Total assets
€ 247,778 Total liabilities
€ 19,521
Balance
€ 228,257
At this date the acquired business reported Euro 267.7 million in banking balances, of which
Euro 18.5 million in direct deposits, Euro 1.5 million in indirect deposits and Euro 247.7 million
in loans.
The balance sheet at 1 March 2009 (effective date of the acquisition) is in the process of being
prepared.
355
Part H
RELATED-PARTY TRANSACTIONS
1. Information on the remuneration of directors and managers
The following table reports the remuneration paid to key management personnel in 2008.
a)
b)
c)
d)
e)
Key management
personnel
Short-term benefits Post-employment benefits
Other long-term benefits
Indemnities due on termination of employment Share-based payments Total
8.024
212
–
–
–
8.236
Key management personnel comprise members of General Management, as defined in the
Bank’s articles of association, as well as its serving directors and statutory auditors.
The remuneration categories included in the above table comprise:
a)Short-term benefits: these include: i) for General Management: wages, salaries and related
social security contributions, payment in lieu of vacation and sick leave, incentives and
benefits in kinds, such as medical assistance, housing, company cars and goods and services
provided free or at reduced cost; ii) for Directors and Statutory Auditors: attendance fees,
remuneration for the performance of their duties, and, solely in relation to the directors, their
share of 2007 net income;
b)Post-employment benefits: these include the Bank’s contributions to pension funds (pension
and retirement plans, life assurance and health care subsequent to termination) and the
provision for severance indemnities recorded on the basis required by law and in-house
agreements;
c)Other long-term benefits: there are no other long-term benefits worthy of mention (such as
leave of absence or sabbaticals related to length of service, bonuses linked to anniversaries,
other benefits linked with length of service, disability benefits and, if due more than twelve
months after the balance sheet date, profit share, incentives and deferred remuneration);
d)Indemnities due on termination of employment: these include the amounts paid for early
termination prior to pensionable age, incentives for voluntary redundancy and incentives for
early retirement;
e)Share-based payments: these include the cost of shares granted on achieving a certain length
of service or specific objectives.
2. Information on related-party transactions
“Related-party transactions” are defined as all transactions with parties defined as such in IAS
24.
More specifically, with reference to the organization and governance of the Bank, the following
parties are deemed to be “related parties”:
- subsidiary companies: companies belonging to the Banca Popolare di Vicenza Group over
which the Parent Bank Banca Popolare di Vicenza exercises direct or indirect control;
- companies under joint control: companies over which the Group exercises joint control,
whether directly or indirectly;
- associated companies: companies over which the Group exercises significant influence,
356
whether directly or indirectly;
- key management personnel, being members of General Management and the Directors and
Statutory Auditors of the Bank and other group companies;
- “close family” of key management personnel;
- companies controlled by, jointly controlled by or associated with key management personnel or
their close family;
- parties that manage pension plans for the Bank’s employees and any other parties related to the
Bank.
“Close family” are deemed to be: (a) companion and children of the related party; (b) children
of the companion; (c) dependents of the related party or their companion.
The following tables summarize the balances and transactions with related parties during the
year and their impact on cash flow, according to their classification at 31 December 2008.
Balance sheet
Related parties
Loans and Loans and
Other advances to advances to
assets1
banks
customers
– Subsidiary companies
– Associated companies
– Companies under joint control
– Key management personnel
– Other related parties 3
1,030,895 –
–
–
–
667,276 4,045 –
8,247 216,020 8,292 299,436 –
–
2,362 817,438 –
–
–
–
44,977 109,401 –
11,069 36,589 1,702 96,946 –
2,558 6,936 653,985
16,405
–
2,830
17,641
Total related parties
1,030,895 895,588 310,090 817,438 202,036 108,142 690,861
Total reported in balance sheet 3,153,912 16,017,622 1,066,706 3,620,928 7,503,635 8,165,644 5,068,440
% incidence 32.69%
5.59%
29.07%
Deposits from
banks
22.58%
Due
Other Guarantees
to
liabilities2
and
customers commitments
2.69%
1.32%
13.63%
Asset line items 20, 30 and 40 from the balance sheet.
Liability line items 30, 40 and 50 from the balance sheet.
3
Include the close family of key management personnel, companies controlled by, jointly controlled by or associated
with key management personnel or their close family, and parties that manage pension plans for the Bank’s employees
and any other parties related to the Bank.
1
2
357
Income statement
Related parties
Interest
income – Subsidiary companies
– Associated companies
– Companies under joint control
– Key management personnel
– Other related parties2
57,403 (27,252)
320 (6,859)
12,702 –
464 (581)
10,484 (1,135)
4,049 9,319 5,302 270 805 24,854 (14,565)
2,937 (30,365)
–
–
– (9,708)
– (315)
Total related parties
81,373 (35,827)
19,745 27,791 (54,953)
1,110,538 (704,906) 177,569 55,340 (406,872)
Total reported in balance sheet
% incidence
7.33%
Interest Net fee and Dividend Other costs/
expense commissionother revenues1
5.08% 11.12% 50.22% 13;51%
Line items 150 and 190 from the income statement. They include the remuneration paid to key management personnel.
2
Include the close family of key management personnel, companies controlled by, jointly controlled by or associated
with key management personnel or their close family, and parties that manage pension plans for the Bank’s employees
and any other parties related to the Bank.
1
Cash flows
Cash flows
31/12/2008
Loans and advances to banks
Loans and advances to customers
Other assets 1
(118,886)
124,132
(246,431)
Total cash flows with related parties
(241,185)
Total liquidity absorbed by financial assets
Incidence % (1,445,578)
16.68%
1 Asset line items 20, 30 and 40 from the balance sheet.
1
Cash flows
31/12/2008
Deposits from banks
Due to customers
Other liabilities 2
247,795
136,662
(474,510)
Total cash flows with related parties
(90,053)
Total liquidity absorbed by financial assets
Incidence % Liability line items 30, 40 and 50 from the balance sheet.
2
358
1,258,709
-7.15%
Cash flows
31/12/2008
Interest income and similar revenues
Interest expense and similar charges
Commissioni nette
Oter income/other costs1
81,373
(35,827)
19,745
(54,953)
Total cash flows with related parties
10,338
Total cash flow from operations
Incidence % 165,274
6.26%
Line items 150 and 190 from the income statement.
1
Cash flows
31/12/2008
Dividend
27,791
Total cash flows with related parties
27,791
Total liquidity generated by investing activities
222,364
Incidence % 12.50%
Transactions with Group companies – which represent most of the related-party transactions
– are of a commercial and financial nature.
Such commercial and financial transactions with Group companies reflect a multifunctional
organizational and strategic model, involving on the one hand centralization under the
Parent Bank of the key activities of governance and control and assistance in legal, economic,
organizational and personnel management matters and on the other, outsourcing of back office
and support services to some of the Group’s support companies. In particular, intragroup
transactions are based on rules that define contractual formats and principles for determining
and recharging costs for the services provided. The contractual formats involve master
agreements and specific service level agreements (SLAs, which define the level of service and
applicable economic terms and conditions). The consideration agreed for services under such
agreements is determined with reference to specific quantitative criteria and conditions judged
to be in line with market ones, or if no suitable external parameters are available, on the basis
of the cost incurred. However, there is no guarantee that if such transactions had been entered
between or with third parties, such parties would have negotiated the related contracts, or
carried out the same transactions, under the same conditions or in the same way.
359
The following tables detail year-end asset and liability balances with companies in the Banca Popolare di Vicenza Group, as well as the related income and expenses during the year.
Asset and liability balances with subsidiaries
Name
Loans and Loans and
Other advances
advances
assets1
to banks to customers
Banca Nuova SpA
Farbanca SpA
BPV Finance International PLC
B.P.Vi Fondi SGR SpA
Cassa di Risparmio di Prato SpA
Immobiliare Stampa SpA
NEM SGR SpA
Nordest Merchant SpA
PrestiNuova SpA
Servizi Bancari SpA
Verona Gestioni SGR SpA
Nem 2 SGR SpA
Nuova Merchant SpA
Monforte 19 Srl
255,300 202,687 –
–
572,908 –
–
–
–
–
–
–
–
–
–
–
235,080 –
–
9,183 –
–
311,590 –
–
–
–
111,423 221 241 –
1,045 642 5,394 –
361 242 146 –
–
–
–
713,497 2,801 –
–
101,140 –
–
–
–
–
–
–
–
–
–
–
23,209 4,124 –
3,296 2,165 2,477 110 2,629 –
1,789 141 5,037 509 23 –
37 631 188 –
22 –
258 –
20 –
14 1,110
–
647,347
–
–
570
–
250
–
100
–
–
–
4,608
1,030,895 667,276 8,292 817,438 44,977 1,702 653,985
Total
1
2
Deposits from
banks
Due
Other Guarantees
to
liabilities2
and
customers commitments
Asset line items 20, 30 and 40 from the balance sheet.
Liability line items 30, 40 and 50 from the balance sheet.
The assets and liabilities presented above mostly refer to financial relationships forming part of
normal banking activities, associated with the need to ensure rational, effective management of
liquidity at a group level.
In particular, the amounts due to and from banks relate to loans granted and received, as well
as the balance on correspondent accounts with Group banks (primarily Cariprato and Banca
Nuova). Loans to customers mostly refer to loans granted to the subsidiaries BPV Finance
(International) Plc and PrestiNuova S.p.A., while the amounts due to customers mainly refer to
liability balances on correspondent accounts with the Group’s financial and support companies.
360
Income and expenses with subsidiaries
Name
Interest
Interest Net fee and Dividend Other costs/
income expense commission
other
income revenues1
Banca Nuova SpA
Farbanca SpA
BPV Finance International PLC
B.P.Vi Fondi SGR SpA
Cassa di Risparmio di Prato SpA
Immobiliare Stampa SpA
NEM SGR SpA
Nordest Merchant SpA
PrestiNuova SpA
Servizi Bancari SpA
Verona Gestioni SGR SpA
Nem 2 SGR SpA
Nuova Merchant SpA
Monforte 19 Srl
550 (18,204)
6,429 (335)
9,104 (2)
– (234)
25,930 (7,798)
57 (103)
– (115)
–
(94)
13,685 (19)
– (174)
–
–
– (103)
72 –
1,576 (71)
111 3
–
3,689 154 3
1
3
–
4
–
1
3
77 9,393 788
537 399
–
–
875 34
7,742 411
3,057 (11,957)
–
15
–
195
160 455
2,040 (4,975)
1,050 –
–
53
–
16
–
1
Total
57,403 (27,252)
4,049 24,854 (14,565)
1
Do not include profits and losses on trading in securities, currency and other instruments between Group companies,
settled under market rates.
Interest income and expense represents the remuneration, at market rates, on loans granted
and received or on bonds subscribed and issued. Net fee and commission income comprises
the remuneration earned by the Bank’s commercial network for placing the products of Group
companies, net of the costs incurred for services provided by the various Group companies
to the Bank. Dividends refer to the Bank’s interests in the various Group companies. Other
revenues/other costs refer to the recharge of Bank personnel seconded to Group companies or
to other services provided/received.
3. Disclosures by listed issuers and issuers whose financial instruments are held by the general public
pursuant to art. 116 of the TUF – Requirements pursuant to art. 114.5 of Decree 58/98
CONSOB Communication 6064293 dated 28 July 2006 regarding “Disclosures by listed issuers
and issuers whose financial instruments are held by the general public pursuant to art. 116 of the
TUF – Requirements pursuant to art. 114.5 of Decree 58/98”, requires all listed companies and
issuers of securities held by the public to provide detailed information in their explanatory notes
and report on operations regarding: related-party transactions, significant and non-recurring
events and operations, and positions and transactions deriving from atypical and/or unusual
transactions.
In order to comply with the above CONSOB Communication, on 23 January 2007 the Board of
Directors of the Bank approved the “Regulations for reporting information about: transactions
with related parties, significant and non-recurring transactions and atypical and/or unusual
transactions”.
These Regulations bring together all the rules applied by Banca Popolare di Vicenza S.C.p.A.
and its subsidiaries to identify transactions with related parties, significant and non-recurring
transactions and atypical and/or unusual transactions, defining quantitative/qualitative criteria
361
for the identification of such transactions for the purposes of reporting them in the financial
statements pursuant to the CONSOB communication referred to above.
In order to define the operational rules applying within the Bank that ensure implementation of
the instructions contained in the above Regulations, a Manual has been prepared to clarify how
to identify related parties, significant and non-recurring transactions and atypical and/or unusual
transactions, and to establish the responsibilities for and controls over such activities.
The definitions and qualitative/quantitative criteria set out in the Regulations for the
identification of the above transactions are presented below.
Related-party transactions
The definition of “related parties” is included in the earlier point entitled 2 “Information on
related-party transactions”.
Significant and non-recurring transactions
“Significant and non-recurring” transactions are defined as all transactions that are not repeated
frequently in the ordinary course of the Bank’s activities and whose balance sheet and/or
economic value exceeds a certain threshold of significance. In particular:
- Significant transactions:
transactions whose balance sheet and/or economic value exceeds at least one of the following
parameters:
• 1% of equity, as reported in the latest financial statements approved by the Stockholders’
Meeting;
• 4% of net income for the year, as reported in the latest financial statements approved by
the Stockholders’ Meeting.
Significant transactions undertaken by the Bank are defined on the basis of the lower of the
thresholds of significance resulting from the separate and consolidated financial statements.
For the purposes of the above calculation, each transaction must be considered separately; if
transactions are strictly and objectively related as part of the same strategic or operational plan,
the calculation must refer to all the related transactions taken together.
If no consideration is agreed for a transaction, its “normal value” must be determined
beforehand to reflect the price at which the transaction would have taken place between
independent parties on arms’-length terms.
Standard funding, lending and investment activities conducted on normal market terms are not
reported as significant transactions.
- Non-recurring transactions:
transactions that are not repeated frequently in the ordinary course of the Bank’s activities.
The frequency of transactions must also be assessed with reference to prior years as well as to
the current year.
Atypical and/or unusual transactions
These are defined as all significant transactions, as defined above, which due to the nature of the
counterparties, the purpose of the transaction, the method of determining the transfer price or
the timing of the event (close to the accounting reference date) may give rise to doubts about the
correctness/completeness of the information reported in the financial statements, possible conflicts
of interest, the safeguarding of assets or the protection of minority stockholders.
Atypical and/or unusual transactions are a subset of significant transactions and are identifiable
from the atypical nature of the counterparty or purpose of the transactions and/or from the
362
unusual way in which the transfer price is determined or from the timing of the event.
As an example, the following may be atypical and/or unusual transactions:
• considering the nature of the counterparty: significant transactions arranged with related parties;
• with reference to the purpose of the transaction: significant transactions involving the transfer
of resources, services or obligations that are not conducted in the ordinary course of the Bank’s
activities;
• with reference to the way that transfer price is determined: significant transactions whose transfer
price is not determined on an arms’-length basis and, in any case, those for which no consideration
is agreed;
• with reference to the timing of the event: significant transactions arranged close to the accounting
reference date or other relevant dates for the purposes of providing information to the
stockholders and/or the market.
With reference to the transactions referred to above, the following quantitative disclosures provided in accordance with the requirements of CONSOB Communication 6064293 dated 28 July
2006 were determined on the basis described above.
3.1 Related-party transactions
The related quantitative disclosures have been provided earlier in point 2 “Information on
related-party transactions”.
3.2 Significant non-recurring events and transactions
The entire interest (47.9625% of capital stock) held in Linea SpA was sold on 27 June 2008 for
Euro 193 million, net of related costs, under the agreement reached in December 2007 with
Compass SpA (Mediobanca Group).
This significant non-recurring transaction falls within the ordinary course of business and does
not represent an atypical and/or unusual transaction.
The effect of this transaction on the Bank’s balance sheet, cash flows and income statement in
2008 is summarized in the following tables.
Summary of significant and non-recurring events and transactions affecting the balance sheet
Transaction (in thousands of euro)Amount
Sale of interest
in Linea S.p.A.
1
(81,929)
Line item1
DescriptionAmount
140 Assets
–
%
incidence
-100.0%
This refers to the total amount reported in the corresponding line item of the balance sheet.
363
Summary of significant and non-recurring events and transactions affecting the cash flow
statement:
Transaction (in thousands of euro)Amount
Sale of interest
in Linea S.p.A.
1
192,966
Line item1
DescriptionAmount
B.1.
222,364
%
incidence
86.8%
This refers to the total cash flow generated (absorbed) reported in the corresponding line of the cash flow statement.
Summary of significant and non-recurring events and transactions affecting the income statement:
Transaction (in thousands of euro)Amount
Sale of interest
in Linea S.p.A.
– gross of tax effect
– tax effect
– net of tax effect
1
Line item1
DescriptionAmount
111,037 250 income stat.
(1,530) 260 income stat.
109,507 290 income stat.
190,337
(39,302)
151,035
%
incidence
58.3%
3.9%
72.5%
This refers to the total amount reported in the corresponding line item of the income statement.
3.3 Positions or transactions deriving from atypical and/or unusual transactions
After the relationship between the Banca Popolare di Vicenza Group and Cattolica Assicurazioni
became one of “significant influence” under the definition contained in IAS 28 “Investments in
associates”, as described in more detail in “Part B – Information on the balance sheet”, Section
4 “Financial assets available for sale” of the explanatory notes, during the year the Parent Bank
reclassified 6,097,915 shares (representing an interest of 11.83%) in Cattolica Assicurazioni
from “Financial assets available for sale” to “Equity investments”. Since the subsidiary BPV
Finance also held 458,000 shares (an interest of 0.89%) in Cattolica Assicurazioni (also classified
in “Financial assets available for sale”), for the purposes of managing and accounting for this
investment on an uniform basis in both the consolidated and separate financial statements,on
22 December 2008 the Parent Bank acquired the above shares from BPV Finance on the
wholesale market at a price of Euro 46.99 per share, corresponding to the carrying amount in
the subsidiary’s books of Euro 21.5 million.
364
Part I
EQUITY-SETTLED PAYMENT ARRANGEMENTS
There are no outstanding equity-settled payment arrangements.
365
ATTESTATION OF FINANCIAL REPORTING MANAGER
AT 31 DECEMBER 2008
ATTESTATION OF THE FINANCIAL STATEMENTS
PURSUANT TO ART. 81-TER OF CONSOB REGULATION 11971 DATED 14 MAY 1999
AS AMENDED AND UPDATED
1.The undersigned
– Divo Gronchi, as Managing Director, and
– Franco Tonato, as Financial Reporting Manager
of Banca Popolare di Vicenza S.c.p.A. attest, also taking account of the provisions of
paragraphs 3 and 4, art. 154-bis of Decree 58 dated 24 February 1998:
• the adequacy in relation to the enterprise’s characteristics and
• the effective application of the administrative and accounting processes for preparing the
financial statements, during 2008.
2. No significant matters have emerged in this regard. Banca Popolare di Vicenza has been
obliged - under art. 154-bis of Decree 58/98 - to create the position of “Financial Reporting
Officer” because, as part of its European Medium Term Notes programme, it has issued
bonds listed on the Luxembourg stock exchange, having chosen Italy as its member state of
origin by resolution of the Board of Directors on 6 May 2008. In view of the aforementioned
legal requirements, the Board of Directors of Banca Popolare di Vicenza:
• amended the Bank’s articles of association (art. 39) on 3 June 2008 to establish the position
of “Financial Reporting Manager”, as well as the required experience that such person
must have and the methods of their appointment;
• appointed Franco Tonato, the Deputy General Manager in charge of the Financial
Reporting and Equity Investments Department, as Financial Reporting Manager on 17
June 2008, after verifying his integrity and experience and having obtained the consent of
the Board of Statutory Auditors;
• delegated its functions on 28 August 2008 regarding the attestation under art. 154-bis of
Decree 58/98 to Divo Gronchi, the Managing Director;
• approved on 23 September 2008 the BPVi Group’s Governance and Control Model for
accounting and administrative processes (Organizational and methodological model of the
Financial Reporting Manager).
366
3. They also attest that:
3.1 the financial statements:
a. have been prepared in accordance with applicable international accounting standards
recognized by the European Union under Regulation (EC) 1606/2002 of the European
Parliament and Council dated 19 July 2002;
b. correspond to the underlying accounting records and books of account;
c. have been prepared in accordance with the International Financial Reporting Standards
adopted by the European Union and with the measures implementing art. 9 of Decree
38/2005 and are able to provide a true and fair view of the issuer’s balance sheet, results of
operations and financial position;
3.2 the report on operations contains a reliable analysis of performance and the results of
operations, as well as of the issuer’s situation, together with a description of the principal
risks and uncertainties to which it is exposed.
Vicenza, 7th April 2008
Managing Director
Financial Reporting Manager
Divo Gronchi
Franco Tonato
367
INDEPENDENT AUDITORS’ REPORT
ON THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2008
370
CONSOLIDATED FINANCIAL STATEMENTS
AT 31 DECEMBER 2008
GRUPPO BANCA POPOLARE DI VICENZA
CONSOLIDATED BALANCE SHEET
(in thousands of Euro)
Assets
31.12.2008
31.12.2007
Equity and liabilities
31.12.2008
31.12.2007
10. Cash and balances with central banks
174,934 186,946
10. Deposits from banks
3,076,718 3,278,694
20. Financial assets held for trading
794,041 885,773
20. Due to customers
12,161,877 11,479,359
30. Financial assets at fair value
17,077 25,792
30. Debt securities in issue
5,971,162 5,583,746
40. Financial assets available for sale
435,913 1,215,589
40. Financial liabilities held for trading
644,778 662,154
50. Financial assets held to maturity
25,737 46,129
50. Financial liabilities at fair value
3,273,188 2,545,976
60. Loans and advances to banks
2,305,618 1,988,830
60. Hedging derivatives
31,201 –
70. Loans and advances to customers
22,704,640 20,891,458
116,866
90. Fair value adjustments of assets in hedged portfolios (+/-)
31,662 –
100. Equity investments
319,600 52,385
80. Tax liabilities:
133,411 a) current
75,052 81,778 b) deferred
58,359 35,088 120. Property, plant and equipment
547,919 437,609
100. Other liabilities
645,065 559,929
130. Intangible assets
971,900 of which: - goodwill
943,762 976,996 984,936
110. Provision for severance indemnities
82,876 82,329
108,675
140. Tax assets
185,289 a) current
63,725 37,506 b) deferred 121,564 103,107 140,613
120. Provisions for risks and charges
91,780 a) pensions and similar commitments
8,643 9,191 b) other provisions
83,137 99,484 150. Non-current assets held for sale
–
101,320
160. Other assets
419,000 297,239
Total assets
375
28,933,330 140. Valuation reserves
27,254,619
160. Equity instruments
90,362 13,104 66,081
13,630
170. Reserves
392,812 324,487
180. Additional paid-in capital
1,960,355 1,963,297
190. Capital stock
261,460 261,656
200. Treasury shares (-)
(96,981)
-
210. Minority interests (+/-)
91,423 94,009
220. Net income (loss) for the year (+/-)
108,739 113,731
Total Equity and Liabilities
28,933,330 27,254,619
376
GRUPPO BANCA POPOLARE DI VICENZA
CONSOLIDATED INCOME STATEMENT
(in thousands of Euro)
Captions
31.12.2008
31.12.2007
10. Interest income and similar revenues
1,533,552 1,256,160
20. Interest expense and similar charges
(880,602)
(666,324)
30. Net interest income
652,950 589,836
40. Fee and commission income
300,321 304,508
50. Fee and commission expense
(28,467)
(39,092)
60. Net fee and commission income
271,854 265,416
70. Dividend and similar income
29,114 38,824
80. Net trading income
(13,226)
(16,329)
90. Fair value adjustments in hedge accounting
461 -
Gains (losses) on disposal or repurchase of:
13,548 a) loans and advances
(50)
(1)
b) financial assets available for sale
(931)
4,538 d) financial liabilities
14,529 1,727 6,264
100.
110. Net change in financial assets and liabilities (2,324)
(6,845)
120. Net interest and other banking income
952,377 877,166
Net impairment adjustments to:
(186,319)
a) loans and advances
(152,115)
(135,843)
b) financial assets available for sale
(33,237)
(10,022)
d) other financial transaction
(967)
(426)
(146,291)
130.
140. Net income from financial activities
766,058 730,875
150. Net premium income
- 241,177
160. Other insurance income (charges)
- (236,330)
170. Net income from financial and insurance activities
766,058 735,722
180. Administrative costs:
(672,697)
a) payroll
(411,516)
(349,420)
b) other administrative costs
(261,181)
(237,007)
(586,427)
190. Net provisions for risks and charges
(22,464)
(41,092)
200. Net adjustments to property, plant and equipment
(20,427)
(17,401)
210. Net adjustments to intangible assets
(5,729)
(3,752)
220. Other operating charges/income
42,453 60,074
230. Operating costs
(678,864)
(588,598)
240. Profit (loss) from equity investments
86,445 46,911
250. Net gains (losses) arising on fair value adjustments to
property, plant and equipment and intangible assets
95 172
260. Adjustments to goodwill
(1,386)
(660)
270. Gains (losses) on disposal of investments
(201)
645
280. Profit (loss) from current operations before tax
172,147 194,192
290. Income taxes on current operations
(61,092)
(76,652)
300. Profit (loss) from current operations after tax
111,055 117,540
320. Net income (loss) for the year
111,055 117,540
330. Minority interests
(2,316)
(3,809)
340. Net income (loss) for the year pertaining to the parent bank
108,739 113,731
377
CHANGES IN CONSOLIDATED EQUITY Balance at Balance at
Changes Balance at Balance at
Allocation of prior year results
31/12/2007 31/12/2007 to opening 01/01/2008 01/01/2008
Group Reserves - Dividends
Group
Minority
balances
Group
Minority
reserves
Minority and other
interests
interests
interests allocations
Capital stock:
a) ordinary shares
b) other shares
Additional paid-in capital
Reserves:
a) from earnings
b) other
Valuation reserves:
a) available for sale assets
b) cash flow hedges
c) other – property, plant and equipment – special revaluation laws
Equity instruments
Treasury shares
Net income (loss) for the year
Equity
261,656 46,323 261,656 46,323 –
–
1,963,297 6,371 324,487 26,762 238,305 26,678 86,182 84 66,081 10,744 (72,633)
155 –
–
138,714 10,589 –
–
138,714 10,589 – 261,656 46,323 – 261,656 46,323 –
–
–
– 1,963,297 6,371 –
– 324,487 26,762 41,141 – 238,305 26,678 41,141 – 86,182 84 –
–
–
–
–
–
–
66,081 10,744 (72,633) 155 –
–
138,714 10,589 –
–
138,714 10,589 –
–
–
–
–
–
–
–
959 (1,891)
959 (1,891)
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
13,630 –
– 13,630 –
–
–
–
–
–
–
–
–
–
–
113,731 3,809 2,742,882 94,009 –
– 113,731 3,809 (41,141)
– 2,742,882 94,009 The “Issue of new shares” is stated net of the cancellations recorded during the year.
378
–
–
–
–
(959) (75,440)
– (77,331)
Changes in the year
Equity at
Changes Changes Equity transactions
Net income Net income
31/12/2008
in reserves - in reserves -
Issue
Issue of Purchase Purchase of Extraordinary Change in Derivatives
Stock (loss)
(loss)
Group
Minority
Group
Minority
of new new shares of treasury treasury shares distribution equity on treasury
Options for 2008 - for 2008 -
interests
interests
shares
Minority
shares
Minority of dividends instruments
shares
Group Minority
Group
interests
Group
interests
interests
– 7,528 – 7,528 –
–
(196)
–
(196)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 261,460 53,851
– 261,460 53,851
–
– –
–
(4) (2,942)
27,184 2,997 –
–
(25,169)
(3)
–
–
52,353 3,000 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,960,355 6,367
– 392,812 28,827
– 254,277 25,743
– 138,535 3,084
24,281 (10,682)
76,634 (129)
–
–
(52,353) (10,553)
–
–
(52,353) (10,553)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 90,362 – 4,001
–
– – 86,361 –
– – 86,361 62
26
–
36
–
36
–
–
–
–
–
–
–
(526)
–
–
–
– 13,104 –
–
–
–
– (96,981)
–
–
–
–
–
–
– (96,981)
–
–
–
–
–
–
–
–
–
–
– 108,739 2,316 108,739 2,316
– (96,981)
–
– (526)
–
– 108,739 2,316 2,729,851 91,423
51,465 (161) (3,138)
379
CHANGES IN CONSOLIDATED EQUITY Balance at Balance at
Changes Balance at Balance at
Allocation of prior year results
31/12/2006 31/12/2006 to opening 01/01/2007 01/01/2007
Group Reserves - Dividends
Group
Minority
balances
Group
Minority
reserves
Minority and other
interests
interests
interests allocations
Capital stock:
a) ordinary shares
b) other shares
Additional paid-in capital
Reserves:
a) from earnings
b) other
Valuation reserves:
a) available for sale assets
b) cash flow hedges
c) other – property, plant and equipment
– special revaluation laws
Equity instruments
Treasury shares
Net income (loss) for the year
Equity 230,868 22,272 230,868 22,272 –
–
1,557,856 3,487 236,116 22,809 179,934 22,725 56,182 84 153,719 10,618 15,030 4
–
–
138,689 10,614 –
–
138,689 10,614 – 230,868 22,272 – 230,868 22,272 –
–
–
–
–
–
–
–
–
–
–
–
– 1,557,856 3,487 –
– 236,116 22,809 79,076 – 179,934 22,725 49,076 – 56,182 84 30,000 –
774 774 –
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
153,719 10,618 15,030 4
–
–
138,689 10,614 –
–
138,689 10,614 12,054 –
– 12,054 –
–
–
–
–
–
–
–
–
–
–
144,502 3,641 2,335,115 62,827 –
– 144,502 3,641 (79,076)
– 2,335,115 62,827 The “Issue of new shares” is stated net of the cancellations recorded during the year.
380
–
(774) (68,292)
– (68,292)
Changes in the year
Equity at
Changes Changes Equity transactions
Net income Net income
31/12/2007
in reserves - in reserves -
Issue
Issue of Purchase Purchase of Extraordinary Change in Derivatives
Stock (loss)
(loss)
Group
Minority
Group
Minority
of new new shares of treasury treasury shares distribution equity on treasury
Options for 2007 - for 2007 -
interests
interests
shares
Minority
shares
Minority of dividends instruments
shares
Group Minority
Group
interests
Group
interests
interests
– 24,051 30,788 – 24,051 30,788 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 261,656 46,323
– 261,656 46,323
–
– –
– 2,884 405,441 (2,759) 3,179 –
(2,759) 3,179 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 12,054 – 12,054 –
–
–
–
–
–
–
–
–
–
–
–
–
–
– 1,963,297 6,371
– 324,487 26,762
– 238,305 26,678
– 86,182 84
(87,638)
(87,663)
–
25 –
25 126 151 –
(25)
–
(25)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
66,081 10,744
(72,633) 155
– –
138,714 10,589
– –
138,714 10,589
–
–
–
–
–
–
– 1,576 –
–
–
– 13,630 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 113,731 3,809 113,731 3,809
(90,397) 30,240 436,229 –
–
–
– 13,630 –
– 113,731 3,809 2,742,882 94,009
– 381
CONSOLIDATED CASH FLOW STATEMENT
Direct method
(in thousands of Euro)
A. OPERATING ACTIVITIES
31/12/2008
31/12/2007
277,060 427,289
1,521,492 (870,218)
29,114 271,854 (411,516)
–
–
(272,937)
42,217 (32,945)
1,256,160
(666,324)
38,824
265,416
(326,452)
241,177
(126,959)
(237,975)
60,074
(76,652)
2. Liquidity generated/absorbed by financial assets
(2,142,686)
(3,547,110)
88,024 2,214 126,590 (2,086,660)
582,846 (750,634)
(105,066)
646,034
320,538
184,251
(4,347,797)
(302,413)
(5,626)
(42,097)
3. Liquidity generate/absorbed by financial liabilities
1,941,783 3,254,230
214,326 (416,302)
1,160,518 387,416 17,376 573,815 4,634 89,225
1,089,218
606,765
649,910
(39,170)
868,259
(9,977)
76,157 134,409
1. Operations
– Interest income collected (+)
– Interest expense paid (-)
– Dividend and similar income
– Net fee and commission income (+/-)
– Payroll costs (-)
– Net premium income (+)
– Other insurance income (charges) (+/-)
– Other costs (-)
– Other revenues (+)
– Taxation (-)
– Financial assets held for trading
– Financial assets at fair value
– Financial assets available for sale
– Loans and advances to customers
– Loans and advances to banks: demand
– Loans and advances to banks: other receivables
– Other assets
– Deposits from banks: demand
– Deposits from banks: other payables
– Due to customers
– Debt securities in issue
– Financial liabilities held for trading
– Financial liabilities at fair value
– Other liabilities
Net liquidity generated/absorbed by operating activities
382
B. INVESTING ACTIVITIES
1. Liquidity generated by
215.996 79.393
194.562 –
72.998
863
21.093 341 479
5.053
2. Liquidity absorbed by
(130.930)
(550.297)
(522)
–
(128.499)
(1.909)
(6.029)
(481.353)
(32.279)
(30.636)
85.066 (470.904)
(1)
– Disposal of property, plant and equipment – Dividends collected on equity investments
– Disposal/redemption of financial assets
held to maturity
– Disposal of property, plant and equipment
– Purchase of equity investments
– Purchase of businesses
– Purchase of property, plant and equipment
– Purchase of intangible assets
Net liquidity generated/absorbed
by investing activities
C. FUNDING ACTIVITIES
– Issue/purchase of treasury shares
– Issue/purchase of equity instruments
– Distribution of dividends and other purposes
(100.119)
(526)
(72.590)
436.229
–
(68.292)
(173.235)
367.937
NET LIQUIDITY GENERATED/ABSORBED
IN THE YEAR
(12.012)
31.442
Net liquidity generated/absorbed
by funding activities
RECONCILIATION
Captions
31/12/2008
31/12/2007
Cash and cash equivalents at the beginning of the year
186.946 155.504
Net liquidity generated/absorbed in the year
(12.012)
31.442
Cash and cash equivalents at the end of the year
174.934 186.946
The consolidated statement of cash flows presented above was prepared using the “direct”
method envisaged by IAS 7 and reports the “cash flows” from the Group’s operating, investing
and financing activities.
This line item comprises liquidity generated by the disposal of the entire interest in Linea S.p.A.recognized in line
item “non-current assets held for sale” at 31 December 2007.
1
383
EXPLANATORY NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Part A - Accounting policies
Part B - Information on the consolidated balance sheet
Part C - Information on the consolidated income statement
Part D – Segment information
Part E - Information on risks and related hedging policy
Section 1 - Risks of the Banking Group: 1.1 Credit risk
Section 1 - Risks of the Banking Group: 1.2 Market risk
Section 1 - Risks of the Banking Group: 1.3 Liquidity risk
Section 1 - Risks of the Banking Group: 1.4 Operational risks
Part F – Information on consolidated equity
Part G – Business combinations
Part H - Related-party transactions
Part I – Equity-settled payment arrangements
385
Part A
Accounting policies
A. 1 – GENERAL INFORMATION
The consolidated financial statements of the Banca Popolare di Vicenza Group at 31
December 2008 have been prepared in accordance with the International Accounting
Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB) and endorsed by the European Commission
under the procedure in art. 6 of Regulation (EC) 1606/2002 and in force at the balance
sheet date, including the related interpretations of the International Financial Reporting
Interpretations Committee (IFRIC).
Section 2 - Basis of preparation
The consolidated financial statements consist of the balance sheet, the income statement,
the statement of changes in equity, the statement of cash flows and these explanatory notes,
accompanied by the report of the Board of Directors.
Consistent with art. 9 of Decree 38/2005, the consolidated financial statements have been
prepared with reference to the formats and rules specified in Bank of Italy Circular 262 dated
22 December 2005. Additional information, considered necessary to give a true and fair view
of the financial statements, has also been provided even if not specifically required by the
regulations.
The amounts contained in the balance sheet, the income statement, the statement of changes
in equity, the statement of cash flows and these explanatory notes are, except where indicated
otherwise, stated in thousands of euro. The roundings have been made in accordance with the
related regulations.
The consolidated financial statements are prepared on a going concern basis and with
reference to the general criteria listed below:
– true and fair view;
– matching principle;
– consistency of comparison;
– no-offset, except where specifically allowed;
– substance over form;
– prudence.
Going concern
The joint co-ordination committee for IAS/IFRS application between the Bank of Italy,
Consob and Isvap (Italy’s insurance industry regulator) issued its document no. 2 on 6
February 2009 entitled “Disclosures in financial reports on going concern, financial risks,
impairment testing and estimation uncertainty”. This document requires management to carry
out a particularly detailed review in relation to the presumption of going concern.
Paragraphs 23-24 of IAS 1 establish that: “When preparing financial statements, management
shall make an assessment of an entity’s ability to continue as a going concern. Financial
statements shall be prepared on a going concern basis unless management either intends to
liquidate the entity or to cease trading, or has no realistic alternative but to do so. When
management is aware, in making its assessment, of material uncertainties related to events
386
or conditions that may cast significant doubt upon the entity’s ability to continue as a going
concern, those uncertainties shall be disclosed. When financial statements are not prepared on
a going concern basis, that fact shall be disclosed, together with the basis on which the financial
statements are prepared and the reason why the entity is not regarded as a going concern”.
The current conditions of financial markets and of the real economy and the negative short/
medium-term forecasts mean that the presumption of going concern must now be assessed
particularly thoroughly.
Having examined the risks and uncertainties associated with the current macroeconomic
context, the Group can reasonably expect to carry on its operations in the foreseeable future
and so its financial statements for 2008 have been prepared on a going concern basis.
Uncertainties associated with liquidity, credit and earnings risks are viewed as not significant
and in any case not such as to cast doubt upon the Group’s ability to continue as a going
concern, also in view of the constant growth in the Group’s earnings in recent years, the good
quality of its loan book and its ease of access to financial resources. For more details, please
refer to the paragraph on “Outlook for operations” in the directors’ report.
Section 3 - Scope of consolidation and methodology
The carrying value of investments consolidated on a line-by-line basis, including their assets
and liabilities, off-balance sheet transactions, as well as income and expenses, is eliminated
against the related interest in their equity at the time they were acquired or consolidated for
the first time; any differences are allocated, as far as possible, to the assets and liabilities of the
consolidated companies concerned and residual amounts are reported as “Goodwill”.
Investments in joint ventures and associates are measured using the equity method, adjusting
their carrying values to reflect the Group’s interest in the equity reported in their financial
statements at the time they were acquired or consolidated for the first time. Where not
attributable to specific asset and liability line items, the differences emerging upon first-time
consolidation of such investments are allocated to “Goodwill” in the case of subsidiaries, but
included in the carrying amount of the investment in the case of associates and joint ventures.
Subsequent changes are allocated to equity investments, with the matching entry to “Profit
(loss) from equity investments” in the income statement.
Equity investments classified as “non-current assets and disposal groups” in compliance with
IFRS 5, are carried at the lower of their book or fair value net of selling costs.
Dividends distributed within the Group are reversed back to reserves since the related income
was recognized by the individual companies in prior years.
Receivables, payables, income and expenses arising from transactions between Group
companies are eliminated, except where insignificant.
The balance sheets and income statements used for line-by-line consolidation purposes are
those approved by the Boards of Directors of the individual companies as of 31 December
2008; the financial statements prepared under IAS/IFRS were used directly while, for
companies that prepared their financial statements under Italian GAAP, balance sheets and
income statements were prepared in accordance with the accounting policies adopted by the
Parent Bank.
387
Investments in companies carried at equity are stated with reference to the equity reported in
their 2007 financial statements, if their financial statements for the current year have not yet
been approved by their respective Boards of Directors.
Following changes in the scope of consolidation during the prior year – discussed in the
relevant section of the report on operations – the figures reported in certain sections, line
items and tables of the explanatory notes may not be immediately comparable with those
reported in the prior year.
Lastly, the income statements of companies joining or leaving the scope of consolidation in
the year or those whose method of consolidation changes in the year are consolidated from
the date of acquisition or up until the date of disposal or from/until the date of change
respectively.
388
1. Equity investments in subsidiary companies and joint ventures
Name
Registered
Nature of
office
holding (1)
Investment details
Holder
% interest
held
A. COMPANIES
A.1 COMPANIES CONSOLIDATED LINE-BY-LINE
1. BANCA POPOLARE DI VICENZA S.c.p.A.
Capital stock Euro 261,460,260
in shares of par value Euro 3,75
VICENZA
Parent Bank
2. CASSA DI RISPARMIO DI PRATO S.p.A.
Capital stock Euro 153,300,000
in shares of par value Euro 76,65
PRATO
1
B. Pop. Vicenza
3. BANCA NUOVA S.p.A.
Capital stock Euro 42,690,210,80
in shares of par value Euro 4,3
PALERMO
1
B. Pop. Vicenza
4. FARBANCA S.p.A.
Capital stock Euro 28,242,100
in shares of par value Euro 10
BOLOGNA
1
B. Pop. Vicenza
5. IMFurnitureARE STAMPA S.p.A.
Capital stock Euro 125,000,000
in shares of par value Euro 500
VICENZA
1
B. Pop. Vicenza
6. MONFORTE 19 S.r.l.
Capital stock Euro 10,000
in shares of par value Euro 1
VICENZA
1
B. Pop. Vicenza
7. BPV FINANCE INTERNATIONAL PLC
Capital stock Euro 103,291
in shares of par value Euro 1
DUBLINO
1
B. Pop. Vicenza
8. NORDEST MERCHANT S.p.A.
Capital stock Euro 2,000,000
in shares of par value Euro 1
VICENZA
1
B. Pop. Vicenza
9. NEM SGR S.p.A.
Capital stock Euro 1,200,000
in shares of par value Euro 1
VICENZA
1 Nordest Merchant 10. NEM DUE SGR S.p.A.
Capital stock Euro 1,200,000
in shares of par value Euro 1
VICENZA
1 Nordest Merchant 11. B.P.VI FONDI SGR S.p.A.
Capital stock Euro 10,000,000
in shares of par value Euro 5
VICENZA
4
B. Pop. Vicenza
12 SERVIZI BANCARI S.p.A.
Capital stock Euro 100,000
in shares of par value Euro 50
VICENZA
1
B. Pop. Vicenza
B.Nuova
Cariprato
Farbanca
13. PRESTINUOVA S.p.A.
Capital stock Euro 25,263,160
in shares of par value Euro 10
PALERMO
1
B. Nuova
B. Pop. Vicenza
14. NUOVA MERCHANT S.p.A.
Capital stock Euro 120,000
in shares of par value Euro 1
ROMA
1
B. Pop. Vicenza
79.00
99.59
47.52
100.00
100.00
99.99
80.00
100.00
100.00
50.00
97.00
1.00
1.00
1.00
88.67
6.33
100.00
Key:
(1) Nature of holding:
1 = majority of voting rights at ordinary stockholders’ meeting
2 = dominant influence at ordinary stockholders’ meeting
3 = agreements with other stockholders
4 = other forms of control
5 = coordinated control under art. 26.1 of Decree 87/92
6 = coordinated control under art. 26.2 of Decree 87/92
7 = joint control
389
Section 4 – Subsequent events
There have been no significant events since the date of the consolidated financial statements
(31 December 2008) and the date of their approval by the Board of Directors (24 March
2009), except as indicated below.
On 28 January 2009 the Lazio regional Tax Tribunal accepted the appeal by Banca Popolare di
Vicenza and Banca Nuova and cancelled the action taken by the Italian Antitrust Authority in
August 2008 against these two BPVi Group banks, relating to alleged unfair business practice
involving the transferability of mortgages at zero charge (as allowed by art 8 of Decree 7 dated
31 January 2007, as amended by Law 40 dated 2 April 2007 and Law 244 dated 24 December
2007).
With 60 days having passed since filing the resolution of transformation without any
opposition from creditors, Servizi Bancari was transformed from a joint-stock company into
a co-operative with effect from February 2009; this transformation had been approved in an
extraordinary shareholders’ meeting in December 2008 with the aim of optimizing the benefits
of rationalizing back office processes for the banking group as a whole.
Two contracts were signed on 27 February 2009 with the UBI Banca Group for the acquisition
of the Corporate Business Unit (CBU) of Banca Popolare Commercio e Industria and its
Palermo Branch located in Via Notarbartolo. The acquisition of the Corporate Business Unit,
by the Parent Bank BPVi, comprising corporate customers in the provinces of Brescia and
Bergamo, forms part of the previous acquisition on 31 December 2007 of 18 bank branches
(out of the total 61 branches acquired from the UBI Group) located in these provinces, and so
has taken place without the Group paying any additional consideration. The Palermo Branch
has been acquired by the subsidiary Banca Nuova at a provisional price of Euro 2 million,
which will be adjusted if the amount of deposits reported in the final balance sheet is lower
than that reported at 31 July 2008 (the date being used for the opening balance sheet). These
acquisitions were completed on 1 March 2009. More details about these acquisitions can be
found in “Part G - Business combinations” of these Explanatory Notes.
On 10 March 2009 an extraordinary shareholders’ meeting of Nuova Merchant voted to
transform its legal status from that of a joint-stock company (S.p.A.) into that of a private
limited company (S.r.l.) with a consequent change in its name to “NUOVA MERCHANT
S.r.l.”. Its capital stock, still held by the sole stockholder Banca Popolare di Vicenza, has been
reduced to the legal minimum of Euro 10,000 required for “S.r.l.” companies. The change
of legal status is a preliminary to the subsequent merger of Nuova Merchant into Nordest
Merchant, the BPVi Group’s other merchant banking company, as part of the plans to
rationalize corporate structure set out in the new Business Plan for 2008-2011. The merger
will come into effect by mid 2009.
Lastly, on 5 March 2009 the Governing Council of the ECB decided to cut the Eurozone
base rate by half a point, taking it to an all-time low of 1.50%. On the same day the Bank of
England also cut its base rate by another half a point, taking it to 0.50%, the lowest ever level
since the Bank of England’s foundation in 1694.
390
Section 5 – Other matters
The figures contained in the balance sheet, income statement, statement of changes in
consolidated equity, cash flow statement and the tables in Part B and Part C of these
explanatory notes are all presented on a comparative basis with those at 31 December 2007.
Line items in the balance sheet and income statement and in the tables in the explanatory
notes are not presented if their balance is zero in both years.
As from the date of these consolidated financial statements, the emoluments of the Board of
Statutory Auditors and related reimbursement of expenses are being classified in “Payroll
costs” (previously they were reported in “Other administrative costs”); this reclassification
is to comply with the Bank of Italy’s instructions regarding financial statements of banks
and financial institutions. These amounts have consequently been reclassified in the income
statement and related notes for 2007.
The consolidated financial statements have been audited by KPMG S.p.A., an independent
firm of auditors. The consolidated financial statements are also accompanied by the attestation
of the Financial Reporting Manager, as required by art. 154-bis, para. 5, of Decree 58/98
(Italy’s Consolidated Financial Markets Act – TUF) as amended by Decree 195/2007.
Estimation uncertainty and risks
As indicated in the explanatory notes, estimation processes have been completed in support
of the carrying amount of the more significant items requiring valuation in the consolidated
financial statements at 31 December 2008, as required by prevailing accounting standards and
relevant regulation. These processes are largely based on estimating the future recoverability
of amounts reported in the financial statements in accordance with rules dictated by current
regulation and have been performed on a going concern basis, ie. valuations are not based on
the assumption of a forced sale.
The outcome of this work supports the carrying amount of these items at 31 December 2008.
It should be stated, however, that this valuation process was particularly complex in view of
the current macroeconomic and market context, featuring abnormal volatility in all financial
measures used for valuation purposes, and the consequent difficulty in making even shortterm forecasts for these financial parameters which have a significant impact on estimates.
The parameters and information used for verifying the values mentioned above have been
heavily affected by the particularly uncertain macroeconomic and market environment
which could, like in recent months, experience currently unforeseeable rapid changes, with
a consequent impact on the amounts reported in the consolidated financial statements at 31
December 2008.
391
A.2 – PART RELATING TO THE PRINCIPAL FINANCIAL STATEMENT
LINE ITEMS
This section describes the accounting policies adopted for the preparation of the consolidated
financial statements as of 31 December 2008. These policies were applied on a basis
consistent with those adopted for the preparation of the 2007 financial statements, which
were also prepared under IAS/IFRS, except for the changes to IAS 39 “Financial instruments:
recognition and measurement” and to IFRS 7 “Financial instruments: disclosures” contained
in the document “Reclassification of Financial Assets”, published by the IASB on 13 October
2008 and endorsed by the European Commission on 15 October 2008 with Regulation EC
1004/2008.
ASSETS
1. Financial assets held for trading
Classification
This line item comprises the financial instruments held for trading in the short term;
specifically:
• debt securities, whether listed or unlisted, held for trading;
• listed equity instruments held for trading;
• unlisted equity instruments held for trading, but only if their fair value can be determined
on a reliable basis;
• asset-backed debt securities (ABS), senior or mezzanine, issued by special-purpose vehicles
(SPV) as part of securitizations by the Parent Bank or by third parties;
• structured securities;
• units in mutual funds and sicavs held for trading;
• derivative contracts with a positive fair value at the reporting date, except for contracts that
are designated as effective hedging instruments; if the fair value of a derivative contract
subsequently becomes negative it is recorded as a financial liability held for trading.
Derivative contracts include embedded derivatives which are attached to a primary financial
instrument, known as the “host contract”, and forward transactions in currencies, securities,
goods and precious metals. An embedded derivative is recognized separately from the host
contract when all of the following conditions are satisfied:
• its economic characteristics and risks are not closely related to those of the “host” contract;
• the separated embedded instrument meets the definition of a derivative;
• the hybrid instrument is not measured at fair value through the income statement.
Financial instruments are designated as financial assets held for trading upon initial
recognition. They cannot be subsequently reclassified, except as provided by paragraphs 50 to
54 of IAS 39, as amended by Regulation (EC) 1001/2008 of the European Commission issued
on 15 October 2008.
Recognition
The initial recognition of financial assets held for trading takes place: on the settlement
392
date for debt securities, equity instruments and units in mutual funds and sicavs; on the
subscription date for derivative contracts.
Financial assets held for trading are initially recognized at their fair value and the transaction
costs and/or income directly attributable to them are not recognized. The fair value of
instruments acquired on market terms is represented by their purchase cost.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, financial assets held for trading are stated at fair value
through the income statement. IAS 39 defines fair value as “the amount for which an asset
could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms’length transaction”. Fair value is determined as follows:
• the “quoted market price” of financial instruments traded in an “active market”;
• the prices struck in over-the-counter markets or, otherwise, using generally accepted
internal pricing models, if the financial instruments are not traded in an “active market”.
If the fair value of financial assets cannot be determined reliably on the above basis, they are
stated at cost and recorded as “financial assets available for sale“.
Gains and losses realized on sale or redemption and unrealized gains and losses deriving from
changes in the fair value of financial assets/liabilities held for trading are classified in the “net
trading profit (loss)” caption of the income statement, together with the effect of measuring
foreign currency monetary assets and liabilities.
Derecognition
Financial assets held for trading are derecognized when the contractual rights over the related
cash flows expire or when the financial asset is transferred together with substantially all the
contractual risks and benefits associated with its ownership.
2. Financial assets at fair value
Classification
This line item comprises the assets or groups of assets designated at fair value through the
income statement, under the fair-value option (FVO) envisaged by IAS 39. In particular,
the FVO is used when it eliminates or significantly reduces accounting imbalances deriving
from the inconsistent recognition of financial instruments that are correlated (natural hedges)
or covered by derivative contracts which, due to difficulties and complexities, cannot be
recognised as hedges. The FVO is also used in the presence of an embedded derivative that
meets the conditions described in paragraph 11 of IAS 39. This avoids separating it from the
host instrument by stating the entire financial instrument at fair value.
Financial instruments are designated as financial assets at fair value upon initial recognition.
They cannot be subsequently reclassified, except as provided by paragraphs 50 to 54 of IAS
39, as amended by Regulation (EC) 1001/2008 of the European Commission issued on 15
October 2008.
393
Recognition, measurement, derecognition and recording of components affecting the income
statement
The principles applying to the recognition, measurement and derecognition of financial assets
at fair value are the same as those relating to “financial assets held for trading”.
Gains and losses realized on sale or redemption and unrealized gains and losses deriving from
changes in the fair value of financial assets/liabilities at fair value are classified as “net trading
profit (loss)” in the income statement.
3. Financial assets available for sale
Classification
This line item comprises the non-derivative financial assets that are not classified in the other
categories envisaged by IAS 39. Accordingly, this is a residual category that includes for
example:
• unlisted equities, unless originally attributed to the portfolio of financial assets held for
trading;
• securities that guarantee transactions arranged with third parties, if not classified elsewhere;
• units in mutual funds and sicavs, unless originally attributed to the portfolio of financial
assets held for trading;
• junior asset-backed debt securities issued by SPVs as part of own or third-party
securitizations;
• equity investments that do not represent interests in subsidiaries, associates or joint
ventures;
• other debt and equity instruments that cannot be classified into the above categories.
Financial instruments are designated as financial assets available for sale upon initial
recognition. They cannot be subsequently reclassified, except as provided by paragraphs 50 to
54 of IAS 39, as amended by Regulation (EC) 1001/2008 of the European Commission issued
on 15 October 2008.
Recognition
The initial recognition of available-for-sale (AFS) financial assets takes place on the settlement
date. The financial assets classified in this category are recorded at fair value upon initial
recognition, as uplifted by any directly-attributable acquisition costs.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, AFS financial assets are stated at fair value; the profits and
losses deriving from any changes in fair value are recorded in a specific equity reserve until the
financial assets concerned are derecognized or a permanent impairment of value is recognized.
If an AFS financial asset suffers an impairment loss, the accumulated unrealized losses
deferred to equity are released to “net impairment adjustments to financial assets available for
sale” in the income statement. Write-backs of AFS financial instruments are credited to the
income statement if they are debt securities or to equity if they are equity instruments.
394
Fair value is determined on the basis described in relation to financial assets held for trading.
If the fair value of financial assets cannot be determined on a reliable basis, they are stated at
cost.
The interest income on these financial assets is determined using the effective interest method.
Any exchange gains or losses on AFS financial assets are recorded in the income statement if
they relate to monetary items (e.g. debt securities) and as part of equity if they relate to nonmonetary items (e.g. equity instruments).
Derecognition
AFS financial assets are derecognized when the contractual rights over the related cash flows
expire or when the financial asset is transferred together with substantially all the contractual
risks and benefits associated with its ownership.
4. Financial assets held to maturity
Classification
This category comprises debt instruments quoted in “active markets”, with fixed maturities
and fixed or determinable payments, which the Group intends and is able to hold until
maturity. These include debt securities with maturities/residual lives of not less than 24
months which comply with the quantitative limits established at Group level, as authorized by
the Board of Directors of the Parent Bank.
Financial instruments are designated as financial assets held to maturity upon initial
recognition. They cannot be subsequently reclassified, except as provided by paragraphs 50 to
54 of IAS 39, as amended by Regulation (EC) 1001/2008 of the European Commission issued
on 15 October 2008.
Recognition
Financial assets held to maturity are initially recognized on the settlement date, on the basis of
their fair value, as uplifted by any directly-attributable acquisition costs.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, financial assets held to maturity are measured at amortized
cost, using the effective interest method. Profits and losses relating to these assets held to
maturity are recorded in the income statement at the time of derecognition.
An impairment test is carried out at the reporting date to check for objective evidence
of any loss in value. Any losses identified are charged to the income statement under “net
impairment adjustments to financial assets held to maturity”. If the reasons for such losses
cease to apply due to events subsequent to the write-down, the original amounts are reinstated
by crediting the related write-backs to the income statement. Write-backs do not exceed the
395
amortized cost that the instrument would have had in the absence of earlier write-downs.
The interest income on these financial assets is determined using the effective interest method.
Derecognition
Financial assets held to maturity are derecognized when the contractual rights over the related
cash flows expire or when the financial asset is transferred together with substantially all the
contractual risks and benefits associated with its ownership.
5. Loans and advances to banks
Classification
This line item comprises financial assets not quoted in an active market due from banks
(current accounts, guarantee deposits, debt securities, etc.) that have been classified in the
loan portfolio.
The balance includes amounts due from Central Banks, other than unrestricted deposits (e.g.
the compulsory reserve).
Details of the recognition, measurement, derecognition and recording of these loans can be
found in the subsequent note on “loans and advances to customers”.
6. Loans and advances to customers
Classification
Loans to customers include short and long-term finance granted directly to customers or
purchased from third parties, which is repayable on fixed or determinable dates and is not
quoted in an active market.
This category also includes debt securities not quoted in an active market acquired on initial
placement, where the lending element prevails over the investment element, and the purchase
essentially represents the granting of a loan.
Financial instruments are designated as loans and advances to customers upon initial
recognition. They cannot be reclassified subsequently.
Recognition
The initial recognition of a loan takes place on the grant date or, in the case of debt securities,
on the settlement date, with reference to the fair value of the financial instrument. This is the
amount paid out, or the subscription price, including the directly-related and determinable
costs and commissions applying from the start of the transaction.
Costs with the above characteristics are excluded if they are reimbursable by the borrower or
represent normal internal administrative costs.
396
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, loans to customers are measured at amortized cost. This
is their initially-recorded value as decreased/increased by repayments of principal, writedowns/write-backs and the amortization – determined using the effective interest method – of
the difference between the amount paid out and that repayable on maturity, which typically
represents costs/income directly attributable to the individual loans.
The effective interest rate is the rate that discounts the flow of estimated future payments
over the expected duration of the loan so as to obtain exactly the net book value at the time
of initial recognition, which includes directly-related transaction costs and all fees paid or
received between the contracting parties. This financial method of accounting distributes the
economic effect of costs/income over the expected residual life of each loan.
Estimates of the flows and the contractual duration of the loan take account of all contractual
clauses that could influence the amounts and due dates (such as early repayments and the
various options that can be exercised), but without considering any expected losses on the loan.
The amortized cost method is not applied to short-term loans, since the discounting effect
would be negligible, and these are therefore stated at historical cost. The same measurement
criterion is applied to loans without a fixed repayment date or which are repayable upon
demand.
In addition, an analysis is performed to identify any problem loans for which there is objective
evidence of possible impairment. This category includes loans classified as “non-performing”,
“watchlist”, “restructured” or “past due or overdrawn for more than 180 days”, as defined by
the supervisory regulations.
The adjustment to the value of each loan represents the difference between its amortized
cost (or historical cost for short-term and demand loans) at the time of measurement and
the discounted value of the related future cash flows, determined using the original effective
interest rate.
Key elements in determining the present value of future cash flows comprise the estimated
realizable value of loans, also taking account of any available guarantees, the expected timing
of recoveries and the forecast loan-recovery costs. Cash flows relating to loans due to be
recovered in the short term are not discounted.
In particular, the approach taken for determining case-by-case the recoverable value of nonperforming loans depends on their amount:
• up to Euro 25,000, the positions are analyzed case-by-case but are not discounted, since
they are frequently not taken to court, but sold after the usual attempts to obtain recovery
on an amicable basis - these loans generally remain in this category for not more than 12/18
months, representing the short term;
• from Euro 25,000 to Euro 150,000, the positions are analyzed on a case-by-case basis to
estimate the amount recoverable, which is discounted over the average recovery period, as
determined with reference to historical-statistical information;
• amounts exceeding Euro 150,000 are analyzed on a case-by-case basis to estimate the
amount recoverable, which is discounted over the likely recovery period, as determined by
the competent corporate functions.
Watchlist loans exceeding Euro 150,000 are analyzed on a case-by-case basis to estimate
397
the amount recoverable, which is discounted over the likely average recovery period, as
determined on the basis of historical-statistical information.
Watchlist loans falling below the above threshold are assessed on an overall basis according to
their amount:
• up to Euro 25,000, the assessment is carried out using probability of default (PD) and loss
given default (LGD) parameters estimated for the specific class; these positions are not
discounted, since they will be settled and/or sold within 12-18 months of being classified as
non-performing;
• from Euro 25,000 to Euro 150,000, the assessment is carried out using the PD and LGD
parameters estimated for the specific class, with the related future nominal cash flows
discounted over the estimated average recovery period, as determined with reference to
historical-statistical information.
Restructured loans are valued by discounting the “implied” loss arising from restructuring the
position. If restructured loans are predicted to produce a loss over and above the “implied”
loss above, they are immediately put on the watchlist and valued in accordance with the rules
applying to this category.
Loans past due and/or overdrawn for more than 180 days are written down on an overall
basis. This test is performed by grouping loans into categories that reflect a similar degree
of lending risk. The related loss percentages are then estimated with reference to historical
information, in order to measure the inherent loss for each category of loan. Estimated future
cash flows are determined using PD and LGD parameters by technical form and the resulting
flows are discounted on the basis of average recovery times, determined with reference to
historical-statistical information.
Loans for which no objective evidence of loss has been individually identified, i.e. performing
loans, including those to residents in countries at risk, are tested for impairment on an overall
basis. This test is performed by grouping loans into categories that reflect a similar degree
of lending risk. The related loss percentages are then estimated with reference to historical
information, in order to measure the inherent loss for each category of loan. Estimated future
cash flows are determined using PD and LGD parameters by technical form and the resulting
flows are discounted on the basis of average recovery times, determined with reference to
historical-statistical information.
No write-downs are recorded in relation to loans represented by repurchase agreements, since
they are not subject to lending risk, or to loans to Group companies, non-profit organizations
and local and public administrations.
Provisions made for an impaired loan are only reversed if the credit quality has improved to the
extent that timely recovery of the principal and interest, with respect to the original terms for the
loan contract, is reasonably certain, or if the amount actually recovered exceeds the recoverable
amount estimated previously. Write-backs include the positive effect of discounting adjustments
made due to the progressive reduction in the estimated time required to recover the related loans.
Adjustments, net of previous provisions and the partial or total recovery of amounts previously
written down, are recorded in income statement line item 130 a) “net impairment adjustments
to loans and advances”.
Derecognition
Loans are derecognized as assets when they are deemed to be unrecoverable or are transferred
together with substantially all the related risks and benefits.
398
7. Hedging derivatives
Classification
This line item reports the derivative contracts designated as effective hedging instruments
which have a positive fair value at the reporting date.
If the fair value of a derivative contract subsequently becomes negative it is recorded as a
liability in the corresponding line item.
Derivative contracts are intended to neutralize possible losses on certain elements or groups
of elements due to a given risk (e.g. a rise in interest rates), via the generation of profits if the
events associated with that risk should actually occur.
Derivatives not held for hedging purposes are classified as “financial assets held for trading”.
At the time that a hedging derivative is arranged, the Group classifies it as one of the following
types of hedge:
• fair value hedge of a given asset or liability: the objective is to hedge the exposure to
changes in fair value of an item caused by given risks;
• cash flow hedge attributable to a particular asset or liability: the objective is to hedge the
exposure to changes in the future cash flows associated with an item caused by given risks;
• hedge of the effects of an investment denominated in foreign currency: the objective is to hedge
the risks associated with investing in a foreign operation denominated in foreign currency.
Hedges can refer to individual financial instruments and/or groups of financial assets/liabilities.
The derivative instrument is classified as a hedge if it has been formally designated as
such, there is a documented relationship between the hedged instrument and the hedging
instrument, and it is effective - prospectively and retrospectively - both at the start of the
hedge and throughout its life.
A hedge is considered effective if the hedging instrument is able to generate a cash flow or a
change in fair value that is consistent with that of the hedged instrument. More precisely, the
hedge is effective when changes in the fair value (or cash flows) of the hedging instrument
neutralize the changes in the hedged instrument, deriving from the risk being hedged, within
an interval of 80%-125%.
The effectiveness of the hedge is assessed at the start of the hedge and throughout its life and,
in particular, on each reporting date, using:
• prospective tests that justify the adoption of hedge accounting by showing the expected
effectiveness of the hedge in future periods;
• retrospective tests that show the effectiveness of the hedge during the reference period.
If the tests do not confirm the effectiveness of the hedge, the hedge accounting described
above is terminated and the related derivative contract is reclassified among the “financial
assets held for trading”.
In addition, transactions are no longer classified as hedges if:
• the hedge created by the derivative ceases;
• the derivative expires, is sold, terminated or exercised;
• the hedged item is sold, expires or is redeemed;
• the hedge no longer meets the criteria to qualify for hedge accounting.
399
Recognition
The initial recognition of hedging derivatives takes place when their fair value is determined.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, hedging derivatives are stated at fair value on the basis
described below:
• in the case of fair value hedges, changes in the value of the hedged instrument and the
hedging instrument are reflected in the income statement, in order to offset effectively
changes in the fair value of the hedged item against the opposite changes in the fair value of
the hedging instrument. Any difference, representing the ineffective portion of the hedge,
therefore represents the net economic effect of the hedge;
• in the case of cash flow hedges, changes in the fair value of the derivative are recorded in equity,
to the extent that the hedge is effective, and are only released to the income statement when
the related cash flows are actually generated by the hedged item. If the hedge is not effective,
changes in the fair value of the hedging contract are recorded in the income statement;
• hedges of investments denominated in foreign currency are recorded in the same way as
cash flow hedges.
Hedging instruments only consist of derivative contracts, excluding therefore any internal
deals or other types of financial instrument.
Derecognition
Hedging derivatives are derecognized on disposal, if this substantially involves the transfer
of all the risks and benefits associated with them. If the hedge becomes ineffective, the hedge
accounting described above ceases and the derivative contract is reclassified to “financial
assets held for trading”.
8. Equity investments
Classification
This line item comprises investments in associated companies and joint ventures.
Recognition
Equity investments are valued using the equity method.
Measurement criteria
Changes in the Group’s interest in a company’s equity between one accounting period and
another are reported as “profit/loss from equity investments” with a matching entry to “equity
investments” in the balance sheet.
400
Derecognition
Equity investments are derecognized on expiry of the contractual rights over the related
financial flows, or when the investment is sold with the transfer of essentially all the related
risks and benefits of ownership.
Recognition of components affecting the income statement
Consistent with IAS 18, dividends are recorded when the stockholders’ right to receive them
is established, which is subsequent to the related resolution adopted by the stockholders of
the declaring company.
9. Property, plant and equipment
Classification
This line item comprises the fixed assets held for use in the generation of income, for rent or
for administrative purposes, such as land, business property, investment property, installations,
furniture, furnishings and all types of equipment.
Business property is that held for the provision of services or for administrative purposes,
while investment property is that owned to earn rental income and/or with a view to capital
appreciation.
Property, plant and equipment also include leasehold improvements, if they can be separated
from the related assets. If these items are expected to generate future benefits, but are
not functionally and operationally independent, they are classified as “other assets” and
depreciated over the expected useful life of the improvements or the residual lease period,
whichever is shorter.
Amounts paid in advance to acquire and restructure assets not yet used for productive
purposes are capitalized, but not depreciated.
Recognition
Property, plant and equipment are initially recorded at cost, including all directly attributable
costs of bringing them to working condition. Expenditure that improves an asset or increases
the future economic benefits expected from the asset is allocated to the asset concerned and
depreciated over its remaining useful life.
Measurement and recognition of components affecting the income statement
Subsequent to initial recognition, property, plant and equipment are stated at cost, net of
accumulated depreciation and any impairment write-downs, consistent with the “cost model”
described in para. 30 of IAS 16.
Property, plant and equipment are systematically depreciated over their useful lives on a
straight-line basis, except for:
• land, whether acquired separately or included in the value of buildings, which is not depreciated
since it has an unlimited useful life. With regard to free-standing properties, the value of the
land is separated from the value of the related buildings by internal and/or independent expert
401
appraisals, unless this information is directly available from the purchase contract;
• works of art, which are not depreciated since they normally have an indefinite useful life
and their value is likely to increase over time;
• investment properties, which are stated at fair value in accordance with IAS 40.
The investment properties covered by IAS 40 are stated at the market value determined by
independent appraisals and changes in their fair value are recorded in “net gains (losses)
arising on fair value adjustments to property, plant and equipment and intangible assets” in
the income statement.
The depreciation charge for assets acquired during the year is determined on a daily basis
from the time they enter into service. The depreciation charge for assets sold and/or retired
during the year is determined on a daily basis up to the date of disposal and/or retirement.
At each reporting date, if there is evidence that the value of an asset may be impaired, its
carrying value is compared with its recoverable value, being either its fair value net of any
selling costs or its value in use, represented by the present value of the future cash flows to
be generated by the asset, whichever is greater. Any adjustments are recorded in the “net
adjustments to the value of property, plant and equipment” caption of the income statement.
If the reasons for recognizing an impairment loss cease to apply, the consequent write-back
cannot cause the value of the asset to exceed its net book value (after depreciation) had no
impairment losses been recognized in prior years.
Derecognition
Property, plant and equipment are derecognized upon disposal or when they are retired from
use on a permanent basis and no economic benefits are expected from their disposal.
10. Intangible assets
Classification
This line item reports non-monetary assets without physical form that have the following
characteristics:
• identifiability;
• control over the assets concerned;
• existence of future economic benefits.
If any one of these characteristics is missing, the related purchase or internally-generated cost
is expensed in the year incurred.
Intangible assets include, in particular, applications software used for a number of years and
other identifiable intangible assets over which the Group has legal or contractual rights.
This line item also includes goodwill, representing the positive difference between the
purchase cost and the fair value of assets and liabilities acquired as a result of business
combinations. In particular, an intangible asset is recorded as goodwill when the positive
difference between the fair value of the net assets acquired and their purchase cost (including
related charges) represents the ability of the investment to generate future earnings. If this
difference is negative (badwill) or if the goodwill is not justified by the acquired company’s
ability to generate future earnings, the difference is recorded directly in the income statement.
402
Recognition
Intangible assets are initially recorded at cost, including any directly-related charges.
Measurement criteria
Subsequent to initial recognition, intangible assets are stated at cost, net of accumulated
amortization and any impairment losses, in accordance with the “cost model” described in
para. 74 of IAS 38.
Intangible assets are amortized systematically each year on a straight-line basis over
their estimated useful lives. The amortization charge for assets acquired during the year is
determined on a daily basis from the time they enter into service. The amortization charge
for those sold and/or retired during the year is determined on a daily basis up to the date of
disposal and/or retirement.
Assets with an indefinite useful life, such as goodwill, are not amortized but their carrying
value is tested periodically for impairment, as required by IAS 36. Any reductions in value,
representing the difference between the carrying amount of the asset and its recoverable value,
are charged as “net adjustments to intangible assets” or, if relating to goodwill, as “adjustments
to goodwill” in the income statement.
Derecognition
Intangible assets are eliminated from the balance sheet if no future economic benefits are
expected or on disposal.
11. Deferred tax assets and liabilities
Current and deferred income taxes are calculated in accordance with current fiscal legislation.
They are recorded in the income statement, except for those relating to amounts credited or
debited directly to equity.
Income taxes reported in the income statement represent a prudent estimate of the current tax
charge and the related changes in deferred tax assets and liabilities. In particular, deferred tax
assets and liabilities are determined with reference to temporary differences between the book
value of assets and liabilities and their tax bases. Deferred tax assets are recognized if they are
likely to be recoverable, determined with reference to the Group’s ongoing ability to generate
taxable income.
Deferred tax assets and liabilities are recorded in the balance sheet as, respectively, “Tax
assets” and “Tax liabilities”, on an open account basis without offset.
Changes in deferred tax assets and liabilities are recorded in the income statement, except
for those relating to gains or losses on AFS financial assets and to changes in the fair value of
derivative instruments that hedge future cash flows or investments denominated in foreign
currencies, which are recorded directly in equity net of taxation.
In accordance with para. 52b of IAS 12, no provision for deferred taxation has been recorded
in relation to the reserves and revaluation surpluses that are in suspense for tax purposes,
403
since their distribution is not envisaged; in this regard, the Group has not carried out, and
has no short or medium-term plans to carry out, any activities which could give rise to the
payment of deferred taxes.
In the case of current taxes, payments on account for individual taxes are offset against the
related tax payable, with positive balances reported as “current tax assets” and negative
balances as “current tax liabilities”.
12. Non-current assets held for sale
Classification
This line item comprises all the non-current assets and groups of assets held for sale pursuant
to IFRS 5, as well as those assets and groups of assets whose book value will principally be
recovered through sale rather than via continuous use.
Measurement criteria
These assets are measured at the lower of their carrying value or their fair value, net of selling
costs, except for the following assets which continue to be valued in accordance with the
related accounting policies:
• deferred tax assets;
• assets deriving from employee benefits;
• financial instruments;
• investment property.
Recognition of components affecting the income statement
Income (interest income, dividends etc.) and expenses (interest expense, depreciation etc.)
relating to “groups of assets” and related liabilities held for sale are classified, net of the
related current and deferred taxation, as “net profit (loss) from discontinued operations” in
the income statement. Income and expenses relating to “individual, non-current assets” held
for sale continue to be recorded in the line items concerned.
404
LIABILITIES AND EQUITY
1. Deposits from banks, due to customers and debt securities in issue
Classification
Deposits from banks, due to customers and debt securities in issue include the various forms
of interbank and customer funding, together with the funds gathered by issuing various types
of bond and certificates of deposit, net of any amounts repurchased by the Group. This line
item also includes securities which are due at the balance sheet date but have not yet been
redeemed.
Recognition
These financial liabilities are initially recorded on receipt of the amounts collected or on the
issue of the debt securities.
They are initially measured at the fair value of the liabilities, usually corresponding to the
amount collected or the issue price, plus any additional costs/proceeds directly attributable
to the individual funding transaction or issue and not reimbursed by the creditor. Internal
administrative costs are excluded. Any derivatives embedded in the above financial liabilities
are separated and valued in accordance with IAS 32 and 39.
Measurement criteria
Following initial recognition, the above financial liabilities are stated at amortized cost using
the effective interest method, except that short-term liabilities continue to be stated at nominal
value since the effect of discounting is negligible.
Derecognition
Financial liabilities are derecognized when they expire or are settled. Derecognition also
applies when issued securities are repurchased, even if this acquisition is only temporary. Any
differences between the book value of the derecognized liability and the amount paid are
recorded as “gains (losses) on disposal or repurchase of financial liabilities” in the income
statement. If, subsequent to repurchase, the Group places its own securities back in the
market, this transaction is treated as a new issue and the liabilities are recorded at the new
placement price.
2. Financial liabilities held for trading
Classification
This line item reports the negative fair value of derivatives not designated as effective hedging
instruments, liabilities arising from technical mismatches generated by trading in securities.
Derivative contracts include embedded derivatives which are attached to a primary financial
405
instrument, known as the “host contract”, and forward transactions in currencies, securities,
goods and precious metals. An embedded derivative is recognized separately from the host
contract when all of the following conditions are satisfied:
• its economic characteristics and risks are not closely related to those of the “host” contract;
• the separated embedded instrument meets the definition of a derivative;
• the hybrid instrument is not measured at fair value through the income statement;
If the fair value of a derivative contract subsequently becomes positive it is recorded as a
financial asset held for trading.
Financial instruments are designated as financial liabilities held for trading upon initial
recognition. They cannot be reclassified subsequently.
Measurement criteria
All trading liabilities are stated at fair value, determined on the basis described in the
paragraph on “financial assets held for trading”.
3. Financial liabilities at fair value
Classification
This line item comprises those financial liabilities or groups of financial liabilities stated at fair
value through the income statement, following exercise of the fair value option envisaged by
IAS 39.
Financial instruments are designated as financial liabilities held for trading upon initial
recognition. They cannot be reclassified subsequently.
At the reporting date, this line item comprises own bonds hedged by derivative contracts, as
well as bonds with an embedded derivative contract that has not been separated out.
Recognition, measurement, derecognition and recording of components affecting the income
statement
The recognition, measurement, derecognition and recording of the effects on the income
statement of the above financial liabilities are described in the earlier paragraph on “financial
assets at fair value”.
4. Hedging derivatives
This line item reports the financial derivatives designated as effective hedging instruments
which have a negative fair value at the balance sheet date. The recognition, measurement,
derecognition and recording of the related effects on the income statement are described in
the paragraph on the corresponding asset line item.
If the fair value of a derivative contract subsequently becomes positive it is recorded as an
asset in the corresponding line item.
406
5. Liabilities associated with non-current assets held for sale
Reference is made to the paragraph on “non-current assets and groups of assets held for sale”.
6. Provision for severance indemnities
According to IFRIC, the provision for severance indemnities is a “post-employment benefit”
qualifying as a “defined-benefit plan”, the value of which according to IAS 19 must be
determined on an actuarial basis. As a consequence, the year-end actuarial valuation of this
line item is carried out with reference to earned benefits using the projected unit credit
method. This method involves the projection of future payments with reference to historical
and statistical analyses and probabilities, adopting suitable demographic techniques. This
makes it possible to calculate the severance indemnities accruing at a specific date on an
actuarial basis, distributing the cost over the entire remaining service of the current workforce,
and no longer presenting them as a cost payable as if the business were to cease trading on the
balance sheet date.
The provision for severance indemnities has been valued by an independent actuary using the
method outlined above.
7. Provisions for risks and charges
In accordance with IAS 37, the provisions for risks and charges reflect known obligations
(legal or constructive) deriving from past events, the settlement of which is likely to involve
the use of economic resources whose timing and extent are uncertain, on condition that a
reliable estimate can be made of the amount needed to settle them. If settlement of the liability
is likely to be deferred and the effect of discounting would be significant, the provisions are
discounted using current market rates.
Increases in provisions for risks and charges are recorded in the appropriate line items of
the income statements, depending on the “nature” of the expense. In particular, provisions
for future personnel expenses in connection with bonuses and other incentive schemes are
classified in “Payroll” costs, provisions for tax risks and charges are classified in “Income
taxes” and provisions for potential losses not directly attributable to specific line items in the
income statement are reported in “Net provisions for risks and charges”.
8. Equity instruments
This line item reports the carrying value of bonds convertible into treasury shares, determined
in accordance with IAS 32, since these represent equity instruments other than capital stock
and reserves.
407
OTHER INFORMATION
1. Treasury shares
Treasury shares acquired by the Group are deducted from equity. No profit or loss deriving
from the purchase, sale, issue or cancellation of treasury shares is booked to the income
statement. Differences between the purchase and selling prices for these transactions are
booked to equity.
Any costs incurred for the purchase of treasury shares are deducted from equity, on condition
that they are marginal costs directly attributable to these transactions that would not otherwise
have been incurred.
2. Transactions in foreign currency
Foreign currency transactions are initially recognized in euro, by translating the foreign
currency amount using the exchange rate prevailing on the date of the transaction.
Foreign currency assets and liabilities are subsequently translated to euro using period-end
exchange rates. With regard to repurchase agreements and derivative contracts denominated
in foreign currencies, reference is made to the paragraphs on financial assets and liabilities
held for trading.
Exchange differences deriving from the settlement of monetary items or from the translation
of monetary items using rates other than the initial translation rate, or the closing rate at
the end of prior periods, are recorded as “net trading income” in the income statement for
the period, to the extent that they relate to foreign currency assets and liabilities other than
those carried at fair value or those whose fair value and cash flows are hedged, or hedging
derivatives.
3. Repurchase agreements
Repurchase agreements are treated as loans against securities and the amounts received and
paid are recorded as payables and loans. In particular, spot sales with forward repurchases are
recorded as a payable for the spot amount collected, while spot purchases with forward resales
are recorded as a receivable for the spot amount paid.
The cost of borrowing and income from lending, comprising interest coupons on securities
and the differential between the spot and forward prices for such securities, are recorded
as interest in the income statement. These transactions do not determine movements in the
securities portfolio.
408
4. Criteria for determining fair value
The following criteria are used to determine the fair value of securities:
• Securities listed on active markets:
The fair value of financial instruments listed on active markets is represented by the
following prices:
– equity instruments and debt securities listed on the Italian Stock Exchange: the official
price on the last trading day of the reference period;
– equity instruments and debt securities listed on foreign stock exchanges: the official price
(or other equivalent price) on the last day of the reference period;
– units in mutual funds and sicavs: the official price (or other equivalent price) of the units
on the last day of the reference period.
• Securities not listed on active markets:
The fair value of financial instruments not listed on active markets is represented by the
following prices:
– shares in cooperative banks: the latest price set by the Board of Directors/Stockholders’
Meeting of the issuing bank;
– units in mutual funds and sicavs: the latest value of the units communicated by the
management company;
– capital accumulation insurance policies: the redemption value determined with reference
to the issue regulations;
– other debt securities and equities, in the following order:
• the reference price for recent transactions;
• the prices indicated by reliable information sources, where available, such as ICMA,
BLOOMBERG, REUTERS;
• the price obtained by applying valuation techniques that are generally accepted by
market participants, such as:
• for debt securities, their cash flows discounted using the reference rates applying
at year end for equivalent residual maturities, taking account of any “counterparty
risk” and/or “liquidity risk”;
• for equities of significant value, the amount established by independent appraisals,
where available, or otherwise the value of the related interest held in the equity
reported in the company’s latest approved financial statements;
• the price supplied by the issuer, as suitably adjusted to take account of any
“counterparty risk” and/or “liquidity risk”;
• their purchase price, as adjusted for any impairment, if fair value cannot be measured
reliably in the manner indicated above.
The following criteria are used to determine the fair value of derivative contracts:
• derivative contracts traded on regulated markets: their fair value is deemed to be their
market price on the last trading day of the period;
• over-the-counter derivative contracts: their fair value is deemed to be their market value at
the reference date, determined in the following manner depending on the type of contract:
– contracts on interest rates: market value is taken to be the so-called “replacement
cost”, determined by discounting back to the expected settlement dates, the differences
between flows at contract rates and flows at market rates, calculated on an objective
basis, current at period-end for equivalent residual maturities;
– option contracts on securities and other assets: market value, represented by the
409
theoretical premium at the reference date, is determined by using the Black & Scholes
formula, or other equivalent methods;
– forward currency transactions: market value is determined using the forward exchange
rate current at the above date, for maturities corresponding to those of the transactions
concerned;
– forward transactions in securities, commodities or precious metals: market value
is represented by the “forward” price current at the above date, for maturities
corresponding to those of the underlying asset.
The fair value of over-the-counter contracts is determined by adjusting their market value, if
positive, by the credit risk associated with the counterparty.
410
Part B
INFORMATION ON THE CONSOLIDATED BALANCE SHEET
ASSETS
SECTION 1
Cash and balances with central banks – Line item 10
1.1 Cash and balances with central banks: analysis
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
a) Cash
174,934 –
b) Unrestricted deposits with central banks
–
–
– 174,934 186,946
–
–
–
Total
–
– 174,934 186,946
174,934 411
SECTION 2
Financial assets held for trading – Line item 20
2.1 Financial assets held for trading: breakdown by type
Items/Amounts
Banking group
Insurance companies
ListedUnlisted
ListedUnlisted
Other companies
ListedUnlisted
31/12/2008
ListedUnlisted
31/12/2007
ListedUnlisted
A. Cash assets
1. Debt securities
22,495 25,553 1.1 Structured securities
– 8,651 1.2 Other debt securities 22,495 16,902 2. Equities
4,508 –
3. Mutual funds
1,378 –
4. Loans
–
–
4.1 “Repurchase
agreements” –
–
4.2 Other
–
–
5. Impaired assets
–
–
6. Assets sold but
not derecognized
10,204 5,491 Total A
38,585 31,044 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22,495 25,553 98,694 58,409
– 8,651 4,726 16,989
22,495 16,902 93,968 41,420
4,508 – 17,631 –
1,378 – 9,812 46,317
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 10,204 5,491 76,924 3,628
–
–
–
– 38,585 31,044 203,061 108,354
–
–
–
–
–
–
–
–
–
–
–
–
B. Derivatives
1. Financial derivatives
1.1 for trading
1.2 connected with the
fair value option
1.3 other
2. Credit derivatives
2.1 for trading
2.2 connected with the
fair value option
2.3 other
Total B
Total (A+B)
– 724,412 – 564,985 –
–
–
–
–
–
–
–
– 724,412 – 564,985 – 574,358
– 531,060
– 159,427 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 159,427 –
–
–
–
–
–
– 43,298
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 724,412 –
–
–
–
– 724,412 38,585 755,456 –
–
–
– 38,585 755,456 203,061 682,712
–
–
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding
“repurchase agreements” with customers and banks.
The decrease in this overall balance is mostly due to the Group’s wish to reduce its exposure
to financial instruments held for short-term trading in view of the highly volatile state of
financial markets and associated negative performance.
412
–
–
– 574,358
This line item also reflects Euro 63,136 in reclassifications during the year of certain financial
instruments to “Financial assets available for sale” as a result of the amendments to IAS 39
“Financial instruments: recognition and measurement” contained in the “Reclassification of
Financial Assets” published by the IASB on 13 October 2008 and endorsed by the European
Commission on 15 October 2008 with Regulation EC 1004/2008, which has been fully
discussed in the relevant section of this report.
2.2 Financial assets held for trading: analysis by debtor/issuer
Items/Amounts
A.
1.
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
CASH ASSETS
Debt securities
48,048 –
– 48,048 157,103
a) Governments and central banks
18 –
–
18 10,176
b) Other public entities
–
–
–
–
–
c) Banks
28,111 –
– 28,111 75,486
d) Other issuers
19,919 –
– 19,919 71,441
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non-financial companies
– other
4,508 684 3,824 393 –
3,431 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,508 684 3,824 393 –
3,431 –
17,631
13,100
4,531
797
187
3,547
–
3. Mutual funds
1,378 –
–
1,378 56,129
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
15,695 –
–
5,491 10,204 –
–
–
–
–
–
–
–
–
–
15,695 –
–
5,491 10,204 80,552
–
–
80,552
–
69,629 –
–
69,629 311,415
Total A B. DERIVATIVES
a) Banks
583,875 –
– 583,875 410,712
b) Customers
140,537 –
– 140,537 163,646
Total B
724,412 –
– 724,412 574,358
Total (A+B)
794,041 –
– 794,041 885,773
413
During the year the Parent Bank used bilateral offsetting arrangements relating to operations
in over-the-counter derivatives with principal market counterparties, giving the option to
offset creditor positions against debtor positions in the event of counterparty default.
For the purposes of mitigating credit risk further, specific Credit Support Annex contracts
have been entered with the Group’s most frequent counterparties with the aim of regulating
the provision of cash collateral financial guarantees.
2.3 Financial assets held for trading: derivatives
2.3.1 attributable to the banking group
Type of derivatives/Underlying assets
Interest rates
31/12/2008
31/12/2007
A) Listed derivatives
1. Financial derivatives
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
– Options purchased
–
–
–
–
–
–
– Other derivatives
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
– Options purchased
–
–
–
–
–
–
– Other derivatives
–
–
–
–
–
–
2. Credit derivatives
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total A
–
Equities –
Loans
–
Other
–
–
–
B. Unlisted derivatives
1. Financial derivatives
667,206 34,274 15,222 –
7,710 a) With exchange of capital
– 34,274 –
–
–
– Options purchased
– 15,357 –
–
–
– Other derivatives
– 18,917 –
–
–
b) Without exchange of capital 667,206 – 15,222 –
7,710 – Options purchased
135,516 – 15,222 –
–
– Other derivatives
531,690 –
–
–
7,710 2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
724,412 34,274 15,357 18,917 690,138 150,738 539,400 –
–
–
574,358
22,961
12,723
10,238
551,397
225,764
325,633
–
–
–
Total B
667,206 34,274 15,222 –
7,710 724,412 574,358
Total (A+B)
667,206 34,274 15,222 –
7,710 724,412 574,358
414
–
Currency and gold
2.4 Financial assets held for trading other than those sold and not recognized and impaired assets:
changes during the year
2.4.1 attributable to the banking group
Debt Equities securities
Mutual funds
A. Opening balance
157,103 17,631 56,129 – 230,863
B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Other changes
2,351,963 84,931 2,348,614 84,419 259 22 3,090 490 7,025 7,000 –
25 – 2,443,919
– 2,440,033
–
281
– 3,605
C. Decreases
C1.Disposals
C2.Redemptions
C3. Negative changes in fair value
C4.Other changes
2,461,018 98,054 2,304,069 81,507 130,959 –
10,414 1,657 15,576 14,890 61,776 5,267 4,435 866 51,208 – 2,620,848
– 2,390,843
– 135,394
– 12,937
– 81,674
D. Closing balance
48,048 4,508 1,378 Loans
–
Total
53,934
“Other changes” in lines B3. and C4. report trading profits and losses respectively, recognized
in the income statement in line item 80 “Net trading income”.
“Other decreases” in debt securities also include Euro 2,050 in differentials between opening
and closing coupons and between opening and closing issue discounts.
Lastly, as detailed in the specific section of the report on operations, line C4. also includes
the transfer during the year of debt securities (Euro 9,998), of equities (Euro 7,206) and of
mutual funds (Euro 45,932) to “Financial assets available for sale” under the amendments
to IAS 39 “Financial instruments: recognition and measurement” contained in the document
“Reclassification of Financial Assets”.
415
SECTION 3
Financial assets at fair value – Line item 30
3.1 Financial assets at fair value: breakdown by type
Items/Amounts
1.
2. 3.
4.
5.
6.
Banking Group
Insurance companies
ListedUnlisted
ListedUnlisted
Debt securities
– 17,077 1.1 Structured securities
–
–
1.2 Other debt securities
– 17,077 Equities
–
–
Mutual funds
–
–
Loans
–
–
4.1 Structured securities
–
–
4.2 Other
–
–
Impaired assets
–
–
Assets sold but not derecognized– –
Other companies
ListedUnlisted
31/12/2008
ListedUnlisted
31/12/2007
ListedUnlisted
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 17,077 –
–
– 17,077 –
–
–
–
–
–
–
–
–
–
–
–
–
–
– 25,792
–
–
– 25,792
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total – 17,077 –
–
–
–
– 17,077 – 25,792
Cost – 51,364 –
–
–
–
– 51,364 – 53,579
This line item comprises the junior securities deriving from the first three securitizations
carried out by the Group in prior years, which are measured at fair value using a financialmathematical model, developed together with an independent specialist firm of consultants,
that measures the performance of the assets underlying these securities. These valuations were
based on the results of the individual underlying transactions at the reference date, using
specific assumptions about the principal variables that affect performance (rate of early loan
repayments, rate of recognition of non-performing loans, percentage of expected losses, etc.).
The application of the fair value option to these securities reduces the mismatch with the
related back-to-back swaps arranged as part of the securitizations which are highly correlated
with the junior securities.
416
3.2 Financial assets at fair value: analysis by debtor/issuer
Items/Amounts
Banking Insurance Other 31/12/2008 31/12/2007
Group companies companies
1.
17,077 –
–
–
17,077 –
–
–
–
–
–
–
–
–
–
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non-financial companies
– other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Mutual funds
–
–
–
–
–
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,077 –
–
17,077 25,792
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
Total 17,077 25,792
–
–
–
–
–
–
17,077 25,792
417
3.3 Assets at fair value, other than those sold but not derecognized and impaired assets: changes
during the year
3.3.1 attributable to the banking group
Debt Equities securities
A. Opening balance
25,792 B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Other changes
C. Decreases
C1.Disposals
C2.Redemptions
C3.Negative changes in fair value
C4.Other changes
D. Closing balance
Mutual funds
Loans
Total
–
–
–
25,792
1,027 –
–
1,027 –
–
–
–
–
–
–
–
–
–
–
–
1,027
–
–
1,027
9,742 –
2,215 7,527 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9,742
–
2,215
7,527
–
17,077 –
–
–
17,077
The “Other changes” reported in line B3. include the profits (Euro 1,014) deriving from the
early redemption of certain tranches of the above junior securities, which are recorded in line
item 110 “Net change in financial assets and liabilities at fair value” of the income statement.
They also include the differential (Euro 13) between opening and closing accruals.
The “Negative changes in fair value” in line C3. relating to the valuation of these junior
securities have their matching entry in line item 110 “Net change in financial assets and
liabilities at fair value” of the income statement. They have been partially offset by the
collection during the year of related interest income and additional returns, totaling Euro
3,906, recorded respectively in line items 10 “Interest income and similar revenues” and 220
“Other operating charges/income” of the income statement respectively.
418
SECTION 4
Financial assets available for sale – Line item 40
4.1 Financial assets available for sale: breakdown by type
Items/Amounts
Banking Group
Insurance companies
Other companies
31/12/2008
31/12/2007
Listed
Non Listed
Non Listed
Non Listed
Non Listed
Non
Listed
Listed
Listed
Listed
Listed
1.
2. 3.
4.
5.
6.
Debt securities
1.1 Structured securities
1.2 Other debt securities
Equities
2.1 Carried at fair value
2.2 Carried at Cost
Mutual funds
Loans
Impaired assets
Assets sold but
not derecognized
Total 84,357 46,054 –
252 84,357 45,802 26,254 132,337 26,254 122,332 – 10,005 5,531 102,493 – 9,700 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
84,357 46,054 738,273 90,845
–
252 –
252
84,357 45,802 738,273 90,593
26,254 132,337 233,268 113,126
26,254 122,332 233,268 101,236
– 10,005 – 11,890
5,531 102,493 4,235 35,842
– 9,700 –
–
–
–
–
–
29,187 –
–
–
–
– 29,187 145,329 290,584 –
–
–
– 145,329 290,584 975,776 239,813
–
–
–
“Unlisted equities carried at cost” refer to certain individually immaterial equity interests,
whose fair value cannot be reliably or verifiably determined and so are reported at cost, as
adjusted for any impairment. These equities also include the interest held by the subsidiary
Cariprato in the Bank of Italy (Euro 6,865).
“Loans” relate to a loan granted under the sale of the entire interest in Linea Spa to Compass
Spa (Mediobanca Group) which, in accordance with IAS 39, has been recognized as “Financial
assets available for sale” because its repayment does not depend on the counterparty’s
creditworthiness but instead on the performance of one of its loan books.
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding
“repurchase agreements” with customers and banks.
The interest in Cattolica Assicurazione Scpa was reclassified from “Financial assets available
for sale” to “Equity investments” during the year. In fact, on 31 October 2008, this company
acquired 348,000 shares in Banca Popolare di Vicenza, corresponding to 0.50% of its capital
stock, for a figure of Euro 20.9 million, making it one of the Group’s largest stockholders.
This has sealed the existing strategic and business alliance between the two Groups, further
strengthening their major partnership in the sector of insurance, banking and financial
services. The cross-representation on the Boards of Directors of the two companies further
confirms the great importance and merit of this partnership. These circumstances have
underlined the existence of a “significant influence” between the Banca Popolare di Vicenza
Group and Cattolica Assicurazioni, as defined by IAS 28 “Investments in associates”, also
confirmed in the specific opinion prepared by an independent expert, with the consequent
need to reclassify the 6,551,915 shares (a 12.72% interest) held by the BPVI Group in
Cattolica Assicurazioni from “Financial assets available for sale” to “Equity investments in
associated companies”. The investment has been reclassified at its carrying value, thereby
completely cancelling the valuation reserve previously recognized.
This line item, as detailed below, also reflects reclassification during the year of certain
financial instruments to “Financial assets available for sale” as a result of the amendments
419
to IAS 39 “Financial instruments: recognition and measurement” contained in the
“Reclassification of Financial Assets” published by the IASB on 13 October 2008 and
endorsed by the European Commission on 15 October 2008 with Regulation EC 1004/2008,
which has been fully discussed in the relevant section of this report.
4.2 Financial assets available for sale: analysis by debtor/issuer
Items/Amounts
1.
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
130,411 63,920 211 21,016 45,264 –
–
–
–
–
– 130,411 829,118
– 63,920 76,882
–
211 350
– 21,016 238,647
– 45,264 513,239
2. Equities
a) Banks
b) Other issuers:
– insurance companies
– financial companies
– non-financial companies
– other
158,591 68,150 90,441 –
54,394 34,076 1,971 –
–
–
–
–
–
–
– 158,591 346,394
– 68,150 46,532
– 90,441 299,862
–
– 226,762
– 54,394 35,099
– 34,076 34,586
– 1,971 3,415
3. Mutual funds 108,024 –
– 108,024 40,077
4.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
9,700 –
–
–
9,700 –
–
–
–
–
–
–
–
–
–
9,700 –
–
–
9,700 –
–
–
–
–
5.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
29,187 8,812 –
20,375 –
–
–
–
–
–
–
–
–
–
–
29,187 8,812 –
20,375 –
–
–
–
–
–
435,913 –
– 435,913 1,215,589
Total 420
Banking Insurance Other 31/12/2008 31/12/2007
Group companies companies
4.5 Financial assets available for sale (other than those sold but not derecognized and impaired
assets): changes during the year
4.5.1 attributable to the banking group
Debt Equities securities
A. Opening balance
829,118 346,394
Mutual funds
Loans
Total
40,077
– 1,215,589
63,348 91,125 24,329 44,363 29,321 825 –
–
x
–
–
–
7,206 45,933 2,492 4
25,000 215,707
25,000 114,411
– 35,223
–
–
–
–
–
–
– 63,137
– 2,936
C. Decreases
C1.Disposals
C2.Redemptions
C3.Negative changes in fair value
C4.Impairment writedowns
– booked to income statement
– booked to equity
C5.Transfers to other asset portfolios
C6.Other changes
734,941 251,151 23,178 144,844 14,561 6,466 157,236 549 –
23,930 4,258 7,462 1,480 4,888 9,250 1,480 4,888 9,250 –
–
–
402,548 226,761 –
4,903 134 –
15,300 1,024,570
– 165,871
– 157,785
– 35,650
15,300 30,918
15,300 30,918
–
–
– 629,309
– 5,037
D. Closing balance
130,411 158,591 108,024 9,700 406,726
B. Increases
B1.Purchases
B2.Positive changes in fair value
B3.Writebacks
– booked to income statement
– booked to equity
B4.Transfers from other assets portfolios
B5.Other changes
36,234 20,719 5,077 –
–
–
9,998 440 Line B4. “Transfers from other asset portfolios” reports reclassifications of financial
instruments from “Financial assets held for trading” in application of the amendments to IAS
39 discussed earlier.
Similarly, line C5. “Transfers to other asset portfolios” reports reclassifications of financial
instruments to “Loans and advances to banks” (Euro 149,267) and to “Loans and advances
to customers” (Euro 253,282) in application of the amendments to IAS 39; The “Equities”
column of line C5. reports the reclassification of Cattolica Assicurazioni from “Financial assets
available for sale” to “Equity investments”, as discussed earlier.
“Impairment writedowns” reported in line C4. refer to impairment losses recognized under
IAS 39 against some of the financial instruments held by the Group.
“Other changes” in lines B5. and C6. report the profits and losses respectively arising on
reimbursement/disposal of financial assets held for sale, recognized in the income statement
in line item 100 “Gains (losses) on disposal/repurchase” along with the reversal to income of
the related “Valuation reserves from equity. “Other decreases” in debt securities also include
Euro 567 in differentials between opening and closing coupons and between opening and
closing issue discounts.
421
SECTION 5
Financial assets held to maturity – Line item 50
5.1 Financial assets held to maturity: breakdown by type
Type of transaction/
Members of the group
1.
2. 3.
4.
Banking Group
Insurance companies
Book
Fair
Book
Fair
value
value
value
value
Debt securities
20,597 18,612 1.1 Structured securities
–
–
1.2 Other debt securities 20,597 18,612 Loans
–
–
Impaired assets
–
–
Assets sold but not derecognized 5,140 4,786 Total 25,737 23,398 Other companies
Book
Fair
value
value
31/12/2008
Book
Fair
value
value
31/12/2007
Book
Fair
value
value
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 20,597 18,612 46,129 44,577
–
–
–
–
–
– 20,597 18,612 46,129 44,577
–
–
–
–
–
–
–
–
–
–
– 5,140 4,786 –
–
–
–
–
– 25,737 23,398 46,129 44,577
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding “repurchase agreements” with banks.
5.2 Financial assets held to maturity: analysis by debtor/issuer
Type of transaction/Amounts
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1.
Debt securities
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
20,597 -
-
5,122 15,475 -
-
-
-
-
-
-
-
-
-
2.
Loans
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3.
Impaired assets
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4.
Assets sold but not derecognized
a) Governments and central banks
b) Other public entities
c) Banks
d) Other issuers
5,140 -
-
-
5,140 -
-
-
-
-
-
-
-
-
-
5,140 -
-
-
5,140 -
25,737 -
-
25,737 46,129
Total 422
20,597 46,129
-
-
5,122 8,931
15,475 37,198
5.4 Financial assets held to maturity (other than those sold but not derecognized and impaired assets): changes during the year
A. Opening balance
Debt securities
Loans
Total
46,129 –
46,129
700 –
–
–
700 –
–
–
–
–
700
–
–
–
700
C. Decreases
C1.Disposals
C2.Redemptions
C3.Adjustments
C4.Transfers to other asset portfolios
C5.Other changes
26,232 –
21,092 –
–
5,140 –
–
–
–
–
–
26,232
–
21,092
–
–
5,140
D. Closing balance
20,597 –
20,597
B. Increases
B1.Purchases
B2.Writebacks
B3.Transfers from other assets portfolios
B4.Other changes
“Other increases” in debt securities refer to the differential between opening and closing
coupons and between opening and closing issue discounts.
“Other decreases” refer to debt securities temporarily sold under funding “repurchase
agreements” with banks and classified under “Assets sold but not derecognized”.
423
SECTION 6
Loans and advances to banks – Line item 60
6.1 Loans and advances to banks: breakdown by type
6.1.1 attributable to the banking group
Type of transaction/Amounts
31/12/2008
31/12/2007
A.
1.
2.
3.
4.
B.
1.
2.
3.
4.
5.
6.
177,555 1,705 175,850 –
–
2,128,063 719,651 241,212 376,240 304,098 –
72,142 514,046 –
514,046 911 276,003 87,264
–
87,264
–
–
1,901,566
623,892
198,626
1,054,845
1,039,140
–
15,705
24,203
–
24,203
–
–
Total (book value)
2,305,618 1,988,830
Total (fair value)
2,279,673 1,989,867
Deposits with central banks
Time deposits
Compulsory reserve
Repurchase agreements
Other
Due from other banks
Current accounts and sight deposits
Time deposits
Other loans
3.1 Repurchase agreements
3.2 Finance leases
3.3 Other
Debt securities
4.1 Debt securities
4.2 Other debt securities
Impaired assets
Assets sold but not derecognized
“Assets sold but not derecognized” relate to debt securities temporarily sold under funding
“repurchase agreements” with customers and banks.
The increase in “Debt securities” reported in lines 4. and 6. includes Euro 149,267 for
transferring certain financial assets from “Financial assets available for sale” in application
of the amendments to IAS 39 and Euro 618,368 for the purchase of bonds issued by
Mediobanca, subscribed as part of the sale, agreed in the year, of the entire interest in Linea
S.p.A. to Compass S.p.A. (a Mediobanca Group company) in substitution of loans granted to
the former investee company.
In view of the predominantly short-term nature of loans to banks, except for debt securities,
their fair value is conventionally taken to be their carrying amount.
The fair value of debt securities classified in this line item is calculated in the same way as for
similar financial instruments classified in other balance sheet line items, as described in Part A
of these explanatory notes.
Impaired assets refer to a single loan to a Russian bank, classified on the watchlist after having
difficulty in recovering it. A writedown of Euro 297 has been recorded against this exposure.
424
SECTION 7
Loans and advances to customers – Line item 70
7.1 Loans and advances to customers: breakdown by type
7.1.1 attributable to the banking group
Type of transaction/Amounts
31/12/2008
31/12/2007
1. Current accounts
2. Repurchase agreements
3. Mortgages
4. Credit cards, personal loans and
assignments of one-fifth of salary
5. Finance leases
6. Factoring
7. Other transactions
8. Debt securities
8.1 Structured securities
8.2 Other Debt securities
9. Impaired assets
10. Assets sold but not derecognized
4,189,077 32,321 10,124,813 3,837,264
7,857
9,755,017
475,044 –
–
4,414,320 282,815 –
282,815 761,733 2,424,517 431,185
–
–
4,459,329
38,284
–
38,284
659,872
1,702,650
Total (Book value)
22,704,640 20,891,458
Total (Fair value)
22,686,625 21,662,903
Assets sold but not derecognized mainly relate to the mortgages sold as part of the
securitizations known as “Berica 5 Residential MBS”, “Berica 6 Residential MBS” and
“Berica 7 Residential MBS” which, since they do not satisfy the IAS 39 requirements for
derecognition, have been “reinstated” in the financial statements.
The securitization known as “Berica 7 Residential MBS”, the Group’s 7th such operation
and the 4th multioriginator kind, commenced on 1 October 2008 with the without-recourse
sale of performing mortgages of Euro 1,012.8 million by Banca Popolare di Vicenza and its
subsidiaries Banca Nuova and Cassa di Risparmio di Prato, to a special purpose entity. This
operation was completed in November with the issue of Euro 1,005 million in asset backed
securities (of which Euro 930 million in Senior notes and Euro 75 million in Junior notes), all
of which subscribed by the originator banks. The Senior notes have been used for refinancing
with the European Central Bank.
The increase in “Debt securities” reported in line 8. refers to the transfer of certain financial
instruments from “Financial assets available for sale” (Euro 253,282), in application of the
amendments to IAS 39 “Financial instruments: recognition and measurement”.
The fair value of loans and advances to customers corresponds to the sum of the future cash
flows from the outstanding loans, including interest, discounted with reference to a riskfree rate curve. The expected nominal cash flows are adjusted for expected losses using the
probability of default (PD) and loss-given-default (LGD) parameters attributed to each class
of risk. The fair value calculation is made for each individual long-term loan, while the fair
value of “on demand” relationships is conventionally taken to be their carrying value. The fair
425
value of debt securities classified in this line item is calculated in the same way as for similar
financial instruments classified in other balance sheet line items, as described in Part A of
these explanatory notes.
7.2 Loans and advances to customers: analysis by debtor/issuer
7.2.1 attributable to the banking group
Type of transaction/Amounts
31/12/2008
31/12/2007
1. Debt securities:
a) Governments
b) Other public entities
c) Other issuers
– non-financial companies
– financial companies
– insurance companies
– other
282,815 –
–
282,815 7,962 274,853 –
–
38,284
–
–
38,284
10,976
27,308
–
–
2. Loans to:
a) Governments
b) Other public entities
c) Other issuers
– non-financial companies
– financial companies
– insurance companies
– other
19,235,575 28 39,460 19,196,087 13,581,824 700,583 23,672 4,890,008 18,490,652
52
34,319
18,456,281
11,927,220
1,309,518
2,463
5,217,080
3. Impaired assets
a) Governments
b) Other public entities
c) Other issuers
– non-financial companies
– financial companies
– insurance companies
– other
761,733 –
1
761,732 520,363 545 654 240,170 659,872
–
–
659,872
485,711
1,863
5
172,293
2,424,517 –
–
2,424,517 43,826 38,392 –
2,342,299 1,702,650
–
–
1,702,650
–
–
–
1,702,650
22,704,640 20,891,458
4. Assets sold but not derecognized
a) Governments
b) Other public entities
c) Other issuers
– non-financial companies
– financial companies
– insurance companies
– other
Total
Exposures to “non-financial companies” and “financial companies” relating to “Assets
sold but not derecognized” mostly refer to debt securities temporarily sold under funding
“repurchase agreements” with banks and customers.
426
SECTION 8
Hedging derivatives – Line item 80
Nothing has been classified in this section because the Group does not hold any derivatives falling into this category.
SECTION 9
Remeasurement of financial assets backed by macro hedges – Line item 90
9.1 Remeasurement of hedged assets: analysis by hedged portfolio
Banking
group Insurance companies
Other
companies
Total
1.
1.1
1.2
Positive fair value
in specific portfolios:
a) loans and receivables b) assets available for sale
Aggregate
31,662 31,662 31,662 –
–
–
–
–
–
–
–
–
–
–
–
31,662
31,662
31,662
–
–
2.
2.1
2.2
Negative fair value
in specific portfolios:
a) loans and receivables b) assets available for sale
Aggregate
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,662 –
–
31,662
Total In the second half of 2008, the Parent Bank Banca Popolare di Vicenza and its subsidiary
Banca Nuova put in place a number of hedges against interest rate risk on fixed-rate loans
granted in the last three years.
The table reports changes in the fair value of loans whose interest rate risk has been hedged
using interest rate swaps, with the Group having selected Macro Fair Value Hedging as the
accounting method for representing these hedges.
Changes in the fair value of hedged assets are recognized in line item 90 “Net hedging gains
(losses)” in the income statement, together with the results of measuring the associated
hedging derivatives.
9.2 Banking group assets backed by macro hedges of interest rate risk: breakdown
Hedged assets
31/12/2008
31/12/2007
1. Loans and receivables
2. Assets available for sale
3. Portfolio
458,896 –
–
–
–
–
Total
458,896 –
427
SECTION 10
Equity investments – Line item 100
10.1 Equity investments in companies under joint control (carried at equity) and those over
which significant influence is exercised: disclosures
Name
Location
Type of
Type of investment
relationship
Holder
Held %
B. ASSOCIATED COMPANIES
(SUBJECT TO SIGNIFICANT INFLUENCE) 1. SEC SERVIZI S.C.p.A.
Capital stock Euro 25,000,000
in shares of par value Euro 1
PADOVA
2
2. 21 INVESTIMENTI PARTNERS S.p.A.
Capital stock Euro 4,250,000
in shares of par value Euro 1
TREVISO
2
3. MAGAZZINI GENERALI MERCI E DERRATE S.p.A.
Capital stock Euro 1,241,317
in shares of par value Euro 5.17
VICENZA
2
4. INCIPIT Scarl
Capital stock Euro 12,500
in shares of par value Euro 1
NAPOLI
2
5. INTERPORTO DELLA TOSCANA CENTRALE S.p.A.
Capital stock Euro 12,075,000
in shares of par value Euro 0.21
PRATO
2
6. SOCIETà CATTOLICA
DI ASSICURAZIONI Scarl
Capital stock Euro 154,536,612
in shares of par value Euro 3
VERONA
2
7. VICENZA LIFE LTD
Capital stock Euro 634,850
in shares of par value Euro 1
DUBLINO
2
8. BERICA VITA S.p.A.
Capital stock Euro 31,000,000
in shares of par value Euro 10
VICENZA
2
9. ABC ASSICURA S.p.A.
Capital stock Euro 8,925,000
in shares of par value Euro 0.51
VERONA
2
10. FARMANUOVA S.p.A.
Capital stock Euro 3,796,740
in shares of par value Euro 10
PALERMO
2
11. CATTOLICA-BPVI MEDIAZIONE
CREDITIZIA S.p.A.
Capitale sociale 300,000
in shares of par value Euro 1
VICENZA
2
B. Pop. Vicenza
B.Nuova
Cariprato
Farbanca
47.04
1.66
1.02
0.10
B. Pop. Vicenza
20.00
B. Pop. Vicenza
25.00
B.Nuova
20.00
Cariprato
20.00
B. Pop. Vicenza
12.72
B. Pop. Vicenza
50.00
B. Pop. Vicenza
Banca Nuova
49.00
1.00
B. Pop. Vicenza
50.00
B.Nuova
30.00
B. Pop. Vicenza
50.00
Key: (2) = significant influence
The percentage interest in equity also reflects the voting rights at stockholders’ meetings.
428
10.2 Equity investments in companies under joint control and those over which significant
influence is exercised: accounting information
Name
Total assets
Total Net income Equity1
revenues
(loss)
A. COMPANIES VALUED AT EQUITY
A.1Associated companies (subject to significant influence)
1. SEC SERVIZI S.C.p.A.
Capital stock Euro 25,000,000
in shares of par value Euro 1 65,741 106,736 – 27,091
2. 21 INVESTIMENTI PARTNERS S.p.A. 2
Capital stock Euro 4,250,000
in shares of par value Euro 1 22,966
1,584
801
9,576
3. MAGAZZINI GENERALI
MERCI E DERRATE S.p.A. 3
Capital stock Euro 1,241,317
in shares of par value Euro 5.17
5,424
2,079
31 1,515
4. INCIPIT Scarl 3
Capital stock Euro 12,500
in shares of par value Euro 1
47
– (11)
37
5. INTERPORTO DELLA TOSCANA
CENTRALE S.p.A. 3
Capital stock Euro 12,075,000
in shares of par value Euro 0.21 53,246
3,068
(303) 13,468
6. SOCIETà CATTOLICA
DI ASSICURAZIONI S.c.a.r.l.
Capital stock Euro 154,536,612
in shares of par value Euro 316,152,963 3,316,721 28,645 1,151,197
7. VICENZA LIFE LTD
Capital stock Euro 634,850
in shares of par value Euro 1 992,094 196,783
3,122 18,409
8. BERICA VITA S.p.A.
Capital stock Euro 31,000,000
in shares of par value Euro 10 645,039 127,525 (22,110) 12,104
9. ABC ASSICURA S.p.A.
Capital stock Euro 8,925,000
in shares of par value Euro 0.51 37,713 14,508 (1,162)
7,741
10. FARMANUOVA S.p.A.
Capital stock Euro 3,796,740
in shares of par value Euro 10 23,490
3,045
177 3,668
11. CATTOLICA–BPVI
MEDIAZIONE CREDITIZIA S.p.A.
Capitale sociale 300,000
in shares of par value Euro 1
956
83
(263)
814
A. Total Companies Valued at Equity
Consolidated
book value
Fair
value
13,496 n.a.
3,456 n.a.
379 n.a.
3
n.a.
2,198 n.a.
272,642 162,530
11,314 n.a.
10,213 n.a.
4,392 n.a.
1,100 n.a.
407 n.a.
319,600
The amounts include the net income (loss) for the year;
The amounts refer to the latest approved consolidated financial statements of the company concerned at 31 December 2007;
3
The amounts refer to the latest approved financial statements of the company concerned at 31 December 2007.
1
2
429
Assessments of the value of equity investments have not revealed the existence of any
impairment losses requiring recognition in the income statement under IAS 36.
With particular reference to the equity investment in Cattolica Assicurazioni, given its highly
volatile share price from the date of acquisition to the balance sheet date due to general
stockmarket trends, and given the non-speculative nature of this investment, it has been
decided to value it using a model based on fundamentals, namely the Dividend Discount
Model, as adjusted to take account of the benefits that the partnership with this company
(lasting 5 years and automatically renewable for another 5) will bring to the Group in terms
of insurance sales in the loss sector and synergies in asset management. The results of the
valuation, performed by an outside specialist company, have revealed that the value of the
equity investment in Cattolica Assicurazioni is in line with its carrying amount.
The balance sheets and income statements used for consolidation under the equity method
are those approved by the Boards of Directors of the individual companies as of 31 December
2008. These statements have been adjusted, where necessary, to align them with proper and
consistent accounting policies adopted by the Group.
The investments in Interporto della Toscana Centrale S.p.A.1 and Magazzini Generali
e Derrate S.p.A. have been reported using the equity method with reference to their 2007
financial statements, while the holdings in 21 Investimenti Partners S.p.A. and Società
Cattolica Assicurazione have been carried at equity with reference to their consolidated results
at 31 December 2007 and 31 December 2008 respectively.
10.3 Equity investments: changes during the year
Banking Insurance Other 31/12/2008 31/12/2007
Group companies companies
A. Opening balance
52,385 –
–
B. Increases
B.1 Purchases
B.2 Writebacks
B.3 Revaluations
B.4 Other changes
C. Decreases
C.1 Disposals
C.2 Adjustments
C.3 Other changes
303,547 522 –
–
303,025 36,332 310 –
36,022 –
–
–
–
–
–
–
–
–
– 303,547 108,726
–
522 6,029
–
–
–
–
–
–
– 303,025 102,697
– 36,332 119,615
–
310 72,998
–
–
–
– 36,022 46,617
D. Closing balance
319,600 –
– 319,600 E. Total revaluations
264 –
–
264 264
F. Total adjustments
–
–
–
–
–
1
430
52,385 63,274
52,385
Although the interest in the company’s equity exceeds the carrying amount of the investment, the company has
reported losses in recent years and, for the sake of prudence, its carrying amount has not been adjusted.
“Purchases” reported in line B.1 refer to:
• Euro 400 in payments on capital account to Cattolica-BPVi mediazione creditizia Spa;
• Euro 122 to subscribe the increase in capital by Farmanuova Spa.
“Other changes” reported in line B.4 include the reclassification of Euro 296,245 relating
to the interest in Cattolica Assicurazioni, as discussed in Section 4 above. They also include
Euro 5,794 in goodwill arising on application of the equity method relating to the Vicenza
Life, ABC Assicura and 21 Investimenti, previously recorded under goodwill. Lastly, “Other
changes” reported in lines B.4 and C.3 include the effects of equity accounting for companies
over which significant influence is exercised.
“Sales” reported in line C.1 refer to the disposal of the entire interest in “Otto a più
investimenti SGR”, which gave rise to a capital gain of Euro 81, recognized in line item 240
“Profit (loss) from equity investments” in the income statement and classified in line B.4
“Other changes” of the above table.
SECTION 11
Technical reserves borne by reinsurers – Line item 110
Nothing has been classified in this section.
431
SECTION 12
Property, plant and equipment – Line item 120
12.1 Property, plant and equipment: analysis of assets carried at cost
Assets/Amounts
A.
Assets used in business
1.1 Owned
412,299 –
– 412,299 389,052
a) Land
74,877 –
– 74,877 71,304
b) Buildings
240,526 –
– 240,526 223,819
c) Furniture
54,873 –
– 54,873 54,030
d) IT equipment
8,756 –
– 8,756 8,683
e) Other
33,267 –
– 33,267 31,216
1.2 Purchased under finance leases
694 –
–
694 694
a) Land
309 –
–
309 –
b) Buildings
385 –
–
385 694
c) Furniture
–
–
–
–
–
d) IT equipment
–
–
–
–
–
e) Other
–
–
–
–
–
Total A
B.
412,993 –
– 412,993 389,746
Investment property
2.1 Owned
–
–
–
–
a) Land
–
–
–
–
b) Buildings
–
–
–
–
2.2 Purchased under finance leases
–
–
–
–
a) Land
–
–
–
–
b) Buildings
–
–
–
–
Total B
Total A+B
432
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
–
–
–
–
–
–
–
–
–
–
–
412,993 –
– 412,993 389,746
12.2 Property, plant and equipment: analysis of assets carried at fair value or revalued
Assets/Amounts
A.
Assets used in business
1.1 Owned
–
–
–
a) Land
–
–
–
b) Buildings
–
–
–
c) Furniture
–
–
–
d) IT equipment
–
–
–
e) Other
–
–
–
1.2 Purchased under finance leases
–
–
–
a) Land
–
–
–
b) Buildings
–
–
–
c) Furniture
–
–
–
d) IT equipment
–
–
–
e) Other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Investment property
2.1 Owned
134,926 –
– 134,926 a) Land
26,931 –
– 26,931 b) Buildings
107,995 –
– 107,995 2.2 Purchased under finance leases
–
–
–
–
a) Land
–
–
–
–
b) Buildings
–
–
–
–
47,863
9,703
38,160
–
–
–
Total A
B.
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
–
–
–
Total B 134,926 –
– 134,926 47,863
Total A+B
134,926 –
– 134,926 47,863
The increase in this balance mostly refers to the purchase of a property in Milan (Piazza
Durante no. 11) by the subsidiary Monforte 19, after accepting the court proposal dated 1
August 2008 under the judicial winding up of Magiste Real Estate SpA in C.P. whereby Banca
Popolare di Vicenza would purchase or have one of its subsidiaries or associates purchase
the property mortgaged against the loan that the Bank had made to the company now being
wound up.
433
12.3 Property, plant and equipment used for business purposes: changes during the year
12.3.1 attributable to the banking group
Land
Buildings
Furniture
IT
equipment
Other
Total
71,304 283,772 98,759 48,883 86,792 589,510
–
59,259 44,729 40,200 55,576 199,764
71,304 224,513 54,030 8,683 31,216 389,746
3,882 3,573 –
–
–
–
–
–
–
309 24,161 21,859 2,302 –
–
–
–
–
–
–
5,273 5,262 –
–
–
–
–
–
–
11 3,513 3,510 –
–
–
–
–
–
–
3
8,747 7,403 –
–
–
–
–
–
–
1,344 45,576
41,607
2,302
–
–
–
–
–
–
1,667
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,763 –
7,454 –
–
–
–
–
–
–
–
–
–
309 4,430 108 3,129 –
–
–
–
–
–
–
–
–
–
1,193 3,440 48 3,358 –
–
–
–
–
–
–
–
–
–
34 6,696 185 6,482 4
–
4
–
–
–
–
–
–
–
25 22,329
341
20,423
4
–
4
–
–
–
–
–
–
–
1,561
75,186 240,911 54,873 8,756 33,267 412,993
–
66,713 47,858 43,558 62,058 220,187
75,186 307,624 102,731 52,314 95,325 633,180
A. Opening gross amount
A.1Total net reductions in value
A.2Opening net amount
B. Increases:
B.1Purchases
B.2Capitalized improvement expenditure B.3Writebacks
B.4Fair value increases booked to:
a) equity
b) income statement
B.5Positive exchange rate adjustments
B.6Transfers from investment property B.7Other changes
C. Decreases
C.1Sales
C.2Depreciation
C.3Impairment charges booked to:
a) equity
b) income statement
C.4Fair value decreases booked to:
a) equity
b) income statement
C.5Negative exchange rate adjustments C.6Transfers to:
a) investment property
b) assets held for sale
C.7Other changes
D. Closing net amount
D.1Total net reductions in value
D.2Closing gross amount
434
12.4 Investment property: changes during the year
Banking Group
Land Buildings
A. Opening balance
Insurance companies
Land Buildings
Other companies
Land Buildings
31/12/2008
Land Buildings
9,703 38,160 –
–
–
–
9,703 38,160
B. Increases
17,268 B.1Purchases
17,072 B.2Capitalized improvement expenditure – B.3Fair value increases
196 B.4Writebacks
–
B.5Positive exchange rate adjustments –
B.6Transfers from property, plant and
equipment used for business purposes – B.7Other changes
–
C. Decreases
40 C.1Sales
–
C.2Depreciation
–
C.3Fair value decreases
40 C.4Impairment charges –
C.5Impairment charges –
C.6Transfers to:
–
a) property used for business porposes – b) assets held for sale
–
C.7Other changes
–
69,954 69,820 76 58 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
17,268 17,072 –
196 –
–
69,954
69,820
76
58
–
–
–
–
119 –
–
119 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
40 –
–
40 –
–
–
–
–
–
–
–
119
–
–
119
–
–
–
–
–
–
D. Closing balance
26,931 107,995 –
–
–
–
26,931 107,995
E. Fair value
26,931 107,995 –
–
–
–
26,931 107,995
The positive and negative changes in fair value of investment properties, arising from their
adjustment to market value determined in specific appraisals by an outside company, have
been recognized in line item 250 “Net gains (losses) arising on fair value adjustments to
property, plant and equipment and intangible assets” in the income statement.
435
SECTION 13
Intangible assets – Line item 130
13.1 Intangible assets: analysis by type
Assets/Amounts
Banking Group
Insurance companies
Finite Indefinite
Finite Indefinite
life
life
life
life
A.1Goodwill
– 943,762 A.1.1 attributable to the group x 943,762 A.1.2 attributable
to minority interests
x
–
A.2Other intangible assets 28,138 –
A.2.1 Carried at cost:
28,138 –
a) Intangible assets
generated internally
–
–
b) Other assets
28,138 –
A.2.2 Carried at fair value:
–
–
a) Intangible assets
generated internally
–
–
b) Other assets
–
–
Total
28,138 943,762 Other companies
Finite Indefinite
life
life
31/12/2008
Finite Indefinite
life
life
31/12/2007
Finite Indefinite
life
life
– 943,762 – 943,762 – 976,996
– 976,996
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 28,138 – 28,138 –
–
– 7,940 – 7,940 –
–
–
–
–
–
– –
–
–
– 28,138 – 7,940 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– –
–
–
–
–
–
–
–
– 28,138 943,762 7,940 976,996
Line A.1 “Goodwill” includes:
• Euro 443,207 in goodwill paid by the Parent Bank to acquire 61 branches from the UBI
Group on 31 December 2007;
• Euro 208,580 arising on consolidation of the subsidiary Cariprato SpA;
• Euro 120,198 representing the residual goodwill paid to the former Group banks that sold
their businesses to the Parent Bank in 2000;
• Euro 55,661 arising on consolidation of the subsidiary Banca Nuova SpA;
• Euro 52,889 representing the residual goodwill paid for the purchase of 46 branches from
banks in the Intesa Group during 2001;
• Euro 36,000 representing the residual goodwill paid to Banca AntonVeneta for the purchase
of 30 branches in eastern Sicily at the end of 2004;
• Euro 16,707 arising on the consolidation of the subsidiary BPVi Fondi SGR resulting from
the absorption of Verona Gestioni SGR SpA;
• Euro 6,223 arising on consolidation of the subsidiary Farbanca SpA;
• Euro 4,121 in goodwill paid by the subsidiary Cariprato SpA to acquire a business from
Banca Steinhauslin &C.;
• Euro 176 arising on consolidation of the subsidiary Nordest Merchant SpA.
The carrying value of this goodwill has been tested for impairment in accordance with IAS 36,
since it represents an intangible asset with an indefinite useful life. The results of these tests
are discussed in the specific paragraph later on in this section.
The increase in “Other intangible assets” (line A.2) mostly refers to intangibles identified
as part of the purchase price allocation process relating to the acquisition of 61 branches
436
–
–
from the UBI Group at the end of 2007. In fact, IFRS 3 states that the cost of a business
combination (such as the acquisition of the 61 UBI branches) must be accounted for using
the purchase method and that the price paid be allocated to the assets acquired and liabilities
assumed as measured at their respective fair values.
The “intangibles” identified of Euro 24,100, expressing the value of the relationships
acquired, have been recognized as intangible assets at their fair value, while deducting a
corresponding amount from the goodwill provisionally recognized upon initially accounting
for these branches at the end of 2007. As assets with a finite useful life, these “intangibles”
are being amortized over the period they are expected to benefit (the average life is estimated
as 17 years for intangibles relating to individual customers and as 12 years for corporate
customers, corresponding to the related retention rates). The annual amortization charge for
the “intangibles” identified is Euro 1,649.
The other intangible assets classified in A.2.1 “Other intangible assets” mainly refer to
capitalized software and user licenses.
Information about impairment testing of goodwill and intangible assets with an indefinite
useful life (IAS 36, para. 134-137)
The following CGUs (Cash Generating Units) have been tested to verify the book value of
their goodwill, goodwill arising on consolidation classified in goodwill, and goodwill arising
on application of the equity method allocated to equity investments:
• CGU Banca Popolare di Vicenza (referring to the legal entity Banca Popolare di Vicenza
net of its equity investments and consequent effects on equity and income);
• CGU Cariprato (same as the legal entity);
• CGU Banca Nuova (refers to the legal entity Banca Nuova net of the equity investment in
Prestinuova and consequent effects on equity and income);
• CGU Farbanca (same as the legal entity);
• CGU 21 Investimenti Partners (same as the legal entity);
• CGU Prestinuova (same as the legal entity);
• CGU Vicenza Life (same as the legal entity);
• CGU BPVi Fondi (same as the legal entity).
The following table reports the value of goodwill allocated to the various CGUs (and for
completeness, also the goodwill arising on consolidation and on application of the equity
method):
CGU
Goodwill as per consolidated Goodwill arising on application
financial statements
of the equity method
Banca Popolare di Vicenza
599,996
Cassa di Risparmio di Prato 212,701
Banca Nuova 107,959
Farbanca 6,223
21 Investimenti Partners Vicenza Life BPVi Fondi Sgr 16,707
Nordest Merchant 175
Total 943,762 2,621
2,652
5,273
437
The value in use and market/disposal value, where considered significant, have been
determined for all the CGUs identified. Not only is this approach consistent with IAS 36,
which requires a CGU’s carrying amount to be compared with the higher of its value in use
and market/disposal value, it is also appropriate in view of current market uncertainty, causing
the making of financial forecasts to be particularly difficult and uncertain.
The different valuation techniques fall into the following core categories:
• analytical methods (for determining value in use)
• market methods (for determining fair value)
Analytical methods
In compliance with recent valuation practice, the adoption of value in use as the measure for
determining recoverable amount involves using methods based on estimating future income
or cash flow, such as for example, the dividends that a CGU is able to produce in the future
(Dividend Discount Model - DDM, with reference to “Excess Capital”).
The Dividend Discount Model is a variation on the cash flow method. In particular, this
method, in its “Excess Capital” variant, establishes that the economic value of a financial
company is given by discounting a stream of dividends determined on the basis of minimum
capital requirements dictated by the regulator.
Value in use has therefore been determined using methods currently adopted by sector players
(Dividend Discount Model for the banks and consumer credit companies and earnings
method for the insurance companies/21 Investimenti Partners).
Market methods
The two principal market methods are:
• the stockmarket quotations/market multiples method
• the comparable transactions method
The stockmarket quotations/market multiples method is based on analyzing listed companies
similar to the one being valued and particularly the relationship between the market value of
such companies and their balance sheet and profit indicators.
The comparable transactions method adopts a similar approach to that of the market multiples
method and involves analyzing the relationship between prices reported for company/business
acquisitions and the balance sheet and profit indicators of such companies.
The multiples of Italian listed banks have been considerably volatile in recent years. In fact,
Price/Book Value (P/BV) ratios have gone from 2 in 2007 to multiples ranging between 0.2
and 0.4 at the start of 2009, reflecting the general decline in all stocks in the Italian banking
sector. Despite the Bank of Italy’s reassurances about the relatively greater solidity of our
banking system compared with other countries, in the week from 16 to 20 February the
sector index in Milan lost 17%, more than the general Stoxx one (-14%). As noted in the
specialist press (Il Sole 24 Ore of 21 February 2009) “the markets are no longer capable of
distinguishing healthy companies from those in crisis”. Consequently, we are of the opinion
that in the current market context stockmarket multiples cannot be used as an indicator of
market/disposal value.
It has been decided instead to refer to multiples for comparable transactions, provided there
are a sufficient, appropriate number of recent transactions.
438
Summary of the valuation methods applied:
CGU tested
Banca Popolare di Vicenza
Cassa di Risparmio di Prato Banca Nuova Farbanca 21 Investimenti Partners Prestinuova Vicenza Life BPVi Fondi Sgr Recoverable amount higher of
Value in use
Market value
x
x
x
x
x
x
x
n.a. x
x
x
x
n.a.
n.a.
n.a.
x
In all the above cases, with the sole exception of Cassa di Risparmio di Prato, value in use
where calculated was higher than book value.
Analytical methods: financial and economic projections
The method adopted for determining value in use (specifically DDM), is based on constructing
the economic and financial projects needed to determine the estimated dividends that the
CGU is able to produce in the future.
The Board of Directors approved the Business Plan for 2008 – 2011 on 11 September 2008, ie.
before the bankruptcy of Lehman Brothers and the steady deterioration in the macroeconomic
environment. This plan was prepared using assumptions that, despite being based on estimates
by primary forecasting institutes, now appear to be superseded by events, at least as far as the
specific planning period is concerned.
In recent months the economic, financial and operating scenario for the sector has experienced
changes that are without precedent in recent history and still appears to feature exceptional
levels of uncertainty regarding the outlook for the real economy, financial markets and the
associated developments in monetary policy, as stated more than once by the ECB in its latest
bulletin in February 2009.
Since we are aware that the Business Plan for 2008-2011 has been prepared on the basis of
macroeconomic and operating assumptions that are no longer realistic, at least with reference
to the specific planning period, and that the Budget for 2009 subsequently prepared now
appears to be superseded, at least in part, by the current scenario and by the high degree of
uncertainty affecting the current outlook, we have prepared separate financial and economic
projections for valuation purposes based on the specific assumptions set of below and which
have been tested for sensitivity.
General approach used for making forecasts
The simulations/projections developed for DDM application purposes are based on the 2009
Budget, as revised solely to take account of the impact of adjusting rates and spreads for new
assumptions regarding trends in market rates but not for any other corrective actions; in the
case of Banca Popolare di Vicenza, the cost of credit has also been prudently revised with
reference to the amount of impaired loans.
439
The assumptions regarding rates are based on expectations reflected in the current rate curve
and on estimates contained in the Forecast published by Prometeia in January 2009.
The estimates for 2010 and 2011 have been prepared with reference to the growth rates
contained in the Plan, taking account of the need to ensure balanced growth in deposits and
lending and of certain specific assumptions particularly relating to the cost of credit.
The estimates for 2012 and 2013 are a steady-state projection that assumes a gradual
convergence of industry growth rates (based on the projections contained in the latest Forecast
Bank Results by Prometeia)
Consequently, these projections cannot be treated as a revision of the Business Plan, or even
less, of the budget; instead, they are a forecast of the possible evolution in the Group’s results
based on specific assumptions, that take account of projections by forecasting institutes, and
specifically prepared in order to have the information needed for the purposes of impairment
testing.
In addition, for the purposes of determining terminal value, it has been assumed that a steadystate level of income will be achieved based on a zero-growth extrapolation from the plan.
Summary of the assumptions used for deriving terminal value:
CGU
Banca Popolare di Vicenza
Cassa di Risparmio di Prato
Banca Nuova Farbanca
21 Investimenti Partners
Prestinuova Vicenza Life Method of calculating
terminal value
Growth rate
(g)
Post-tax
discount rate
Steady stete return
2%
8.48%
Steady stete return
2%
8.48%
Steady stete return
2%
8.48%
Steady stete return
2%
8.48%
Steady stete return
2%
9.32%
Steady stete return
2%
9.25%
Steady stete return
2%
9.57%
The comparable transactions method has referred to transactions in Italy in the second half of 2008
relating to multiples on equity, total deposits (as the value of goodwill), and the amount of assets managed, in the case of asset management.
440
13.2 Intangible assets: changes during the year
13.2.1 attributable to the banking group
Goodwill
A. Opening balance
Other intangible assets: generated internally
Finite
Indefinite
Other intangible assets: other
Finite
Indefinite
Total
1,194,181 –
–
13,959 A.1Total net reductions in value
217,185 –
–
6,019 –
223,204
A.2Opening net amount
976,996 –
–
7,940 –
984,936
16,919 –
–
–
–
–
26,009 1,909 –
–
42,928
1,909
x
x
–
x
x
–
16,919 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
24,100 –
–
–
–
–
–
–
–
–
–
–
–
–
41,019
5,811 –
–
–
5,729 5,674 –
55 –
–
–
55 –
–
–
–
–
–
–
55,964
–
7,115
5,674
1,441
–
1,441
–
–
–
B. Increases
B.1Purchases
B.2Increases in internally
generated intangible assets
B.3Writebacks
B.4Positive changes in fair value
– booked to equity
– booked to income statement
B.5Positive exchange rate adjustments
B.6Other changes
C. Decreases
C.1Sales
C.2Adjustments
– Amortization
– Writedowns
+ equity
+ income statement
C.3Negative changes in fair value
– booked to equity
– booked to income statement
C.4Transfer to non-current assets
held for sale
C.5Negative exchange rate adjustments
C.6Other changes
50,153 –
–
–
–
–
1,386 x
–
–
1,386 –
–
X
–
–
1,386 –
–
–
–
–
x
–
–
x
–
–
– 1,208,140
–
–
48,767 –
–
–
–
–
–
–
–
82 –
–
–
–
48,849
D. Closing net amount
943,762 –
–
28,138 –
971,900
D.1Total net value adjustments
218,571 –
–
11,748 –
230,319
1,162,333 –
–
39,886 – 1,202,219
E. Closing gross amount
Key:
Finite: finite life
Indefinite: Indefinite life
441
The opening balance of “Other intangible assets” does not include those assets which had
been fully amortized at the end of the prior year.
“Other increases” in goodwill mostly refer to related costs (legal and notary fees, indirect
taxes) incurred by the Parent Bank in relation to the acquisition of the UBI branches.
“Other decreases” in goodwill reflect Euro 18,654 for adjusting the provisional price of the
UBI branches previously recorded and Euro 24,100 for reclassifying to “Other intangible
assets” the “intangibles” identified as part of the purchase price allocation process (this same
amount features in the “Other increases” in “Other intangible assets”). Lastly, line C.6 also
reflects the reclassification to “Equity investments” of the goodwill arising on application of
the equity method in relation to the associated companies Vicenza Life, ABC Assicura and 21
Investimenti (Euro 5,794).
Intangible assets, except goodwill, are amortized systematically each year on a straight-line
basis over their estimated useful lives.
SECTION 14
Tax assets and liabilities – Asset line item 140 and liabilitiy line item 80
14.1 Deferred tax assets: analysis
Deferred tax assets
–
–
Deferred tax assets
booket to income statement
Deferred tax assets
booket to Equity
Total
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
114,822 –
– 114,822 6,742 –
–
121,564 –
– 121,564 103,107
6,742 95,033
8,074
14.2 Deferred tax liabilities: analysis
Deferred tax liabilities
–
–
Deferred tax liabilities
booket to income statement
Deferred tax liabilities
booket to equity
Total
442
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
52,037 –
–
52,037 30,482
6,322 –
–
6,322 4,606
58,359 –
–
58,359 35,088
14.3 Change in deferred tax assets (with matching entry in income statement)
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Opening balance
95,033 –
–
95,033 116,326
2. Increases
46,196 2.1 Deferred tax assets recorded
during the year 45,030 a) relating to prior years
2,097 –
b) due to changes in accounting policies
c) writebacks
–
d) other
42,933 2.2 New taxes or increases
in tax rates
–
2.3 Other increases
1,166 –
–
46,196 40,666
–
–
–
–
–
–
–
–
–
–
45,030 2,097 –
–
42,933 40,288
162
–
–
40,126
–
–
–
–
–
1,166 77
301
3. Decreases
26,407 –
– 26,407 61,959
3.1 Deferred tax assets reversing
during the year
26,217 –
– 26,217 35,200
a) reversals
26,170 –
– 26,170 33,171
b) written down as no longer recoverable
47 –
–
47 2,029
c) change in accounting policies
–
–
–
–
–
3.2 Reduction in tax rates
–
–
–
– 10,267
3.3 Other decreases
190 –
–
190 16,492
4. Closing balance
114,822 –
– 114,822 95,033
Line 2.1 a) reflects the recognition of deferred tax assets for IRAP (Italian regional business
tax) following changes to the law contained in Decree 185 of 29 November 2008, as converted
with amendments into Law 2 of 28 January 2009.
443
14.4 Change in deferred tax liabilities (with matching entry in income statement)
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Opening balance
30,482 –
–
30,482 75,353
2. Increases
29,683 2.1 Deferred tax assets recorded
during the year 28,472 a) relating to prior years
1,301 –
b) due to changes in accounting policies
c) other
27,171 2.2 New taxes or increases in tax rates
–
2.3 Other increases
1,211 –
–
29,683 28,477
–
–
–
–
–
–
–
–
–
–
–
–
28,472 1,301 –
27,171 –
1,211 24,272
–
–
24,272
156
4,049
8,128 –
–
8,128 73,348
8,112 8,112 –
–
–
16 –
–
–
–
–
–
–
–
–
–
–
–
8,112 31,827
8,112 30,787
–
–
– 1,040
– 7,983
16 33,538
52,037 –
–
3. Decreases
3.1 Deferred tax liabilities eliminated
during the year a) reversals
b) due to changes in accounting policies
c) other
3.2 Reduction in tax rates
3.3 Other decreases
4. Closing balance
52,037 30,482
Line 3.1.a) includes the removal of liabilities recognized in the past after Banca Nuova and
Cassa di Risparmio di Prato decided to frank “Form EC” by paying a flat tax in the year.
444
14.5 Change in deffered tax assets (with matching entry to equity)
1. Opening balance
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
8,074 –
–
8,074 927
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,644 1,136 –
–
1,136 –
508 11,221
11,221
–
–
11,221
–
–
3. Decreases
2,976 –
– 2,976 3.1 Deferred tax assets reversing
during the year 2,936 –
– 2,936 a) reversals
2,936 –
– 2,936 b) written down as no longer recoverable
–
–
–
–
c) due to changes in accounting policies
–
–
–
–
3.2 Reduction in tax rates
–
–
–
–
3.3 Other decreases
40 –
–
40 4,074
–
–
1
3,400
4. Closing balance
8,074
2. Increases
1,644 2.1 Deferred tax assets recorded during the year 1,136 a) relating to prior years
–
–
b) due to changes in accounting policies
c) other
1,136 2.2 New taxes or increases in tax rates
–
2.3 Other increases
508 6,742 –
–
6,742 673
673
445
14.6 Change in deferred tax liabilities (with matching entry to equity)
446
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Opening balance
4,606 –
–
4,606 6,230
2. Increases
2.1 Deferred tax assets recorded
during the year a) relating to prior years
b) due to changes in accounting policies
c) other
2.2 New taxes or increases in tax rates
2.3 Other increases
3,283 –
–
3,283 4,638
3,280 –
–
3,280 –
3
–
–
–
–
–
–
–
–
–
–
–
–
3,280 –
–
3,280 –
3
4,074
–
–
4,074
–
564
3. Decreases
3.1 Deferred tax assets reversing
during the year a) reversals
b) due to changes in accounting policies
c) other
3.2 Reduction in tax rates
3.3 Other decreases
1,567 –
–
1,567 6,262
1,567 1,567 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,567 1,567 –
–
–
–
3,148
3,148
–
–
1,236
1,878
4. Closing balance
6,322 –
–
6,322 4,606
SECTION 15
Non-current assets held for sale and associated liabilities – Asset line item 150
and liability line item 90
15.1 Non-current assets held for sale and associated liabilities: analysis by type
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
A. Individual assets
A.1 Equity investments
–
–
–
–
A.2 Property, plant and equipment
–
–
–
–
A.3 Intangible assets –
–
–
–
A.4 Other non-current assets
–
–
–
–
Total A
–
–
–
64,548
–
36,772
–
– 101,320
B. Groups of assets (discontinued operations)
B.1 Financial assets held for trading
–
–
–
–
B.2 Financial assets at fair value
–
–
–
–
B.3 Financial assets available for sale
–
–
–
–
B.4 Financial assets held to maturity
–
–
–
–
B.5 Loans and advances to banks
–
–
–
–
B.6 Loans and advances to customers
–
–
–
–
B.7 Equity investments
–
–
–
–
B.8 Property, plant and equipment
–
–
–
–
B.9 Intangible assets
–
–
–
–
B.10Other assets
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total B –
–
C. Liabilities associated with assets held for sale
C.1 Payables
–
–
–
–
C.2 Securities
–
–
–
–
C.3 Other liabilities
–
–
–
–
–
–
–
Total C –
–
D. Liabilities associated with assets held for sale
D.1 Deposits from banks
–
–
–
–
D.2 Due to customers
–
–
–
–
D.3 Debt securities in issue
–
–
–
–
D.4 Financial liabilities held for trading
–
–
–
–
D.5 Financial liabilities at fair value
–
–
–
–
D.6 Provisions
–
–
–
–
D.7 Other liabilities
–
–
–
–
–
–
–
–
–
–
–
Total D –
–
–
–
–
–
–
–
–
–
–
447
At 31 December 2007, line A.1 referred to the entire interest (47.9625% of capital stock)
held in Linea SpA while line A.3 reported the related goodwill arising on application of the
equity method, both of which reclassified to non-current assets held for sale, in compliance
with IFRS 5, after signing a contract in December 2007 for this company’s sale. This sale was
completed on 27 June 2008 and resulted in the recognition of a capital gain, net of related
costs, of Euro 91,646 in line item 240 “Profit (loss) from equity investments”.
SECTION 16
Other assets – Line item 160
16.1 Other assets: analysis
31/12/2008
1. Miscellaneous debits in transit 54,846 2. Miscellaneous security transactions
5,159 3. Amounts recorded on the last day of the year
124,552 4. Checks drawn on third parties sent for collection
19,935 5. Adjustments to non-liquid portion of notes discounted
with recourse
20,265 6. Accrued income and prepaid expenses not allocated
to specific accounts
15,258 7. Leasehold improvements
24,761 8. Items awaiting allocation
1,076 9. Other items relating to assets sold but not derecognized 71,041 10. Other miscellaneous items 82,107 Total 419,000 31/12/2007
58,474
3,591
89,644
26,493
23,547
22,027
22,501
1,622
–
49,340
297,239
“Leasehold improvements” consist of improvement expenditure that cannot be separated
from the assets themselves, meaning that it cannot be separately recognized in property, plant
and equipment. These costs are amortized over the period they are expected to benefit or the
residual duration of the lease, whichever is shorter.
“Amounts recorded on the last day of the year” refer to items almost all of which settled in the
first few days of the new year.
In compliance with the clarifications and explanations contained in a recent letter from the
Supervisory Authorities to bank intermediaries, as from 31 December 2008 “Other assets”
include “operating receivables” previously classified in “Loans and advances to customers”.
448
LIABILITIES AND EQUITY
SECTION 1
Deposits from banks – Line item 10
1.1 Deposits from banks: breakdown by type
Type of transaction/Members of the group
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Due to central banks
701,185 2. Due to other banks 2,375,533 2.1 Current accounts and sight deposits 168,832 2.2 Time deposits
1,589,227 2.3 Loans
517,734 2.3.1 Finance leases
–
2.3.2 Other
517,734 2.4 Payables for commitments to
repurchase own equity instruments –
2.5 Liabilities relating to assets sold
but not derecognized
99,721 2.5.1 Repurchase agreements
99,721 2.5.2 Other
–
2.6 Other payables
19 –
–
–
–
–
–
–
– 701,185 85,086
– 2,375,533 3,193,608
– 168,832 493,468
– 1,589,227 2,200,292
– 517,734 422,711
–
–
–
– 517,734 422,711
–
–
–
–
–
–
–
–
–
–
–
–
99,721 99,721 –
19 77,137
77,137
–
–
Total 3,076,718 –
– 3,076,718 3,278,694
Fair value
3,076,718 –
– 3,076,718 3,278,694
The increase in “Due to central banks” mainly reflects refinancing activity, through repurchase
agreements, directly with the European Central Bank.
“Loans: other” in line 2.3.2 include funding repurchase agreements arranged to match
equivalent lending repurchase agreements classified as loans to banks or to customers.
In view of the predominantly short-term nature of deposits from banks, their fair value is
conventionally taken to be their carrying amount.
449
SECTION 2
Due to customers – Line item 20
2.1 Due to customers: breakdown by type
Type of transaction/Members of the group
1.
2.
3.
4.
5.
6.
7.
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
Current accounts and sight deposits 10,001,254
Time deposits
182,612 Public funds administered
416 Loans
523,648 4.1 Finance leases
4
4.2 Other
523,644 Payables for commitments to
repurchase own equity instruments
–
Liabilities relating to assets sold
but not derecognized
1,416,625 6.1 Repurchase agreements
263,947 6.2 Other
1,152,678 Other payables
37,322 –
–
–
–
–
–
– 10,001,2548,624,574
– 182,612 25,720
–
416 510
– 523,648 1,070,312
–
4
–
– 523,644 1,070,312
–
–
–
–
–
–
– 1,416,625 1,631,160
– 263,947 –
– 1,152,678 1,631,160
– 37,322 127,083
–
–
Total 12,161,877 –
– 12,161,877 11,479,359
Fair value
12,161,877 –
– 12,161,877 11,479,359
“Liabilities relating to assets sold but not derecognized”, included in line 6.2, represent
the matching entry for the mortgages sold as part of the securitizations known as “Berica 5
Residential MBS” and “Berica 6 Residential MBS” which, since they do not satisfy the IAS 39
requirements for derecognition, have been “reinstated” in the financial statements as “assets
sold but not derecognized” reported under line item 70 “loans and advances to customers”.
The related decrease mostly refers to the repurchase in the year of Senior and Mezzanine notes
issued in relation to the above securitizations. The repurchased securities have been used for
refinancing at the European Central Bank and/or lodged with the Bank of Italy to guarantee
the Group’s daily settlements.
With reference to the “Berica 7 Residential MBS” securitization completed in the year and
also reinstated in the balance sheet, no “liabilities for assets sold but not derecognized” have
been recognized because the related asset backed securities have been subscribed in full by
the originators.
“Loans: other” in line 4.2 include funding repurchase agreements arranged to match
equivalent lending repurchase agreements classified as loans to banks or to customers.
Funding repurchase agreements arranged using investment securities are classified in line 6.1.
In view of the predominantly sight and/or short-term nature of amounts due to customers,
their fair value is conventionally taken to be their carrying amount.
450
SECTION 3
Debt securities in issue – Line item 30
3.1 Debt securities in issue: breakdown by type
Type of transaction/
Members of the group
Banking Group Insurance companies
Book
Fair
Book
Fair
value
value
value
value
Other companies
Book
Fair
value
value
31/12/2008
Book
Fair
value
value
31/12/2007
Book
Fair
value
value
A. Listed securities
1. Bonds
1.1 structured
1.2 other
2. Other securities
2.1 structured
2.2 other
B. Unlisted securities
1. Bonds
1.1 structured
1.2 other
2. Other securities
2.1 structured
2.2 other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,971,162 6,283,428 5,695,140 6,007,406 –
–
5,695,140 6,007,406 276,022 276,022 –
–
276,022 276,022 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 5,971,162 6,283,428 5,583,746 5,323,597
– 5,695,140 6,007,406 5,281,354 5,021,205
–
–
–
–
–
– 5,695,140 6,007,406 5,281,354 5,021,205
– 276,022 276,022 302,392 302,392
–
–
–
–
–
– 276,022 276,022 302,392 302,392
Total 5,971,162 6,283,428 –
–
–
– 5,971,162 6,283,428 5,583,746 5,323,597
451
3.2 Detail of line item 30 “Debt securities in issue”: subordinated securities
31/12/2008
Subordinated liabilities
31/12/2007
781,877 788,096
The subordinated bonds classified in this table are analyzed below:
Isin code
Issue Maturity Rate date
IT0003444574
2-05-2003
2-05-2009
Fixed
2.25%
IT0003631659
23-03-2004
23-03-2011
Fixed
4.05%
IT0003631642
2-04-2004
2-04-2009
Fixed
3.64%
IT0003662498
21-05-2004
21-05-2010
Fixed
3.95%
IT0003699649
16-08-2004
16-08-2010
Fixed
4.10%
IT0003748511
30-11-2004
30-11-2011
Fixed
3.49%
XS0210870415
3-02-2005
3-02-2015
Floating Euribor3m + 0.45
30-07-2007
30-07-2015
Fixed
2.15%
IT0004189343 1 XS0336683254
20-12-2007
20-12-2017
Floating Euribor3m + 2.35
IT0003782684
15-12-2004
15-12-2011
Fixed
4.18%
Nominal value
Book
value
8,298 9,777 24,731 23,359 13,941 48,932 200,000 241,451 200,000 19,990 8,534
9,883
24,951
23,460
14,147
48,987
201,383
230,756
199,749
20,027
Total
790,479 781,877
1
Interest rate
Bond with right of conversion into Banca Popolare di Vicenza ordinary shares: the bonds can be converted into
capital stock in a ratio of 2 shares of par value Euro 3.75 each for every bond of nominal value Euro 124 each.
The conversion ratio will be changed in the event of a bonus increase in capital via the issue of shares. The right
to convert can be exercised from 1 October 2010 to 31 December 2010. The shares delivered to the bondholders
who decide to convert will have dividend and voting rights from 1 January 2011. Bondholders are entitled to
convert early in the event of extraordinary operations involving capital, except for mergers with other companies
in the Banca Popolare di Vicenza Group or with companies controlled by the issuer.
All the above subordinated bonds have an early redemption clause that allows the Issuer to
redeem them early, not less than 18 months after the final date of placement, following prior
authorization from the Bank of Italy and giving at least one month’s notice.
Furthermore, all the above bonds contain a subordination clause whereby, if the Issuer is
wound up, they would be redeemed only after all other creditors, not subordinated to the
same extent, have been satisfied.
All the above bonds are included in the calculation of the Bank’s regulatory capital, on the
basis established in Circular 155 dated 18 December 1991 - XIIth update “Instructions for
reporting regulatory capital and prudent parameters”.
452
453
SECTION 4
Financial liabilities held for trading – Line item 40
4.1 Financial liabilities held for trading: breakdown by type
Type of transaction/Members of the groupBanking Group
NV FV
FV* Q
NQ A. Cash liabilities
1. Due to other banks
–
–
–
–
2. Due to customers
–
–
–
–
3. Debt securities in issue
–
–
–
–
3.1 Bonds
–
–
–
x
3.1.1 Structured
–
–
–
x
3.1.2 Other bonds
–
–
–
x
3.2 Other securities
–
–
–
x
3.2.1. Structured
–
–
–
x
3.2.2 Other
–
–
–
x
Total A B.
1.
2.
454
–
–
–
–
Derivatives
Financial derivatives
x
– 644,778 x
1.1 For trading
x
– 595,850 x
1.2 Connected with the fair value option
x
– 48,928 x
1.3 Other
x
–
–
x
Credit derivatives
x
–
–
x
2.1 For trading
x
–
–
x
1.2 Connected with the fair value optionn
x
–
–
x
2.3 Other
x
–
–
x
Total B –
–
644,778 –
Total (A+B)
–
–
644,778 –
Insurance companiesOther companies
NV FV
FV* NV FV
Q
NQ Q
NQ –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
x
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
x
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
FV*
–
–
–
x
x
x
x
x
x
–
–
x
–
–
x
x
–
–
–
–
–
–
x
–
–
–
–
–
–
x
–
–
–
–
–
–
x
–
–
x
–
–
x
x
–
–
–
–
–
–
x
–
–
–
–
–
–
x
–
–
–
–
–
–
x
–
–
x
x
x
x
x
x
x
x
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
455
Type of transaction/Members of the group31/12/200831/12/2007
NV FV
FV* NV FV
Q
NQ Q
NQ FV*
A. Cash liabilities
1. Due to other banks
–
–
–
–
–
–
–
2. Due to customers
–
–
–
–
–
–
–
3. Debt securities in issue
–
–
–
–
–
–
–
3.1 Bonds
–
–
–
x
–
–
–
3.1.1 Structured
–
–
–
x
–
–
–
3.1.2 Other bonds
–
–
–
x
–
–
–
3.2 Other securities
–
–
–
x
–
–
–
3.2.1. Structured
–
–
–
x
–
–
–
3.2.2 Other
–
–
–
x
–
–
–
–
–
–
x
x
x
x
x
x
Total A –
–
Derivatives
Financial derivatives
x
– 644,778 x
x
– 662,154 1.1 For trading
x
– 595,850 x
x
– 568,751 1.2 Connected with the fair value option x – 48,928 x
x
– 93,403 1.3 Other
x
–
–
x
x
–
–
Credit derivatives
x
–
–
x
x
–
–
2.1 For trading
x
–
–
x
x
–
–
1.2 Connected with the fair value option x –
–
x
x
–
–
2.3 Other
x
–
–
x
x
–
–
x
x
x
x
x
x
x
x
B.
1.
2.
–
–
–
–
–
–
Total B –
– 644,778 –
–
– 662,154 –
Total (A+B)
–
– 644,778 –
–
– 662,154 –
FV
FV*
VN
Q
NQ
456
=
=
=
=
=
Fair value
Fair value calculated excluding the differences in value due to changes in the issuer’s credit rating
Nominal or notional value
Listed
Non Listed
4.4 Financial liabilities held for trading: derivatives
4.4.1 Attributable to the banking group
Tipologia derivati/Underlying assets
Interest
rates
Other
31/12/2008
31/12/2007
A) Listed derivatives
1. Financial derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
– Options issued
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
– Options issued
–
–
–
–
–
– Other derivatives
–
–
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total A –
–
B. Unlisted derivatives
1. Financial derivatives
599,489 25,989 15,222 –
4,078 644,778 a) With exchange of capital
– 25,989 –
–
– 25,989 – Options issued
–
8,013 –
–
–
8,013 – Other derivatives
– 17,976 –
–
– 17,976 b) Without exchange of capital 599,489 – 15,222 –
4,078 618,789 – Options issued
185,435 – 15,222 –
– 200,657 – Other derivatives
414,054 –
–
–
4,078 418,132 2. Credit derivatives
–
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
662,154
35,182
8,714
26,468
626,972
245,230
381,742
–
–
–
Total B
599,489 25,989 15,222 –
4,078 644,778 662,154
Total (A+B)
599,489 25,989 15,222 –
4,078 644,778 662,154
–
Currency
Equities
Loans
and gold
–
–
–
–
457
SECTION 5
Financial liabilities at fair value – Line item 50
5.1 Financial liabilities at fair value: breakdown by type
Type of transaction/AmountsBanking Group
NV FV
FV* Q
NQ 1.
2.
3.
Due to other banks
1.1 Structured
1.2 Other
Due to customers
2.1 Structured
2.2 Other
Debt securities
3.1 Structured
3.2 Other
Total –
–
–
–
–
–
3,161,615 711,990 2,449,625 –
–
–
–
–
–
–
–
–
–
–
–
– 3,273,188 – 711,758 – 2,561,430 –
x
x
–
x
x
–
x
x
3,161,615 – 3,273,188 –
Type of transaction/Amounts31/12/200831/12/2007
NV FV
FV* NV FV
Q
NQ Q
NQ 1.
2.
3.
Due to other banks
1.1 Structured
1.2 Other
Due to customers
2.1 Structured
2.2 Other
Debt securities
3.1 Structured
3.2 Other
Total FV
FV*
VN
Q
NQ
458
=
=
=
=
=
FV*
–
–
–
–
–
–
3,161,615 711,990 2,449,625 –
–
–
–
–
–
–
–
–
–
–
–
– 3,273,188 – 711,758 – 2,561,430 –
–
–
–
–
–
–
–
–
–
–
–
– 2,594,185 – 933,679 – 1,660,506 –
–
–
–
–
–
–
–
–
–
–
–
– 2,545,976 – 893,102 – 1,652,874 –
–
–
–
–
–
–
–
–
3,161,615 – 3,273,188 – 2,594,185 – 2,545,976 –
Fair value
Fair value calculated excluding the differences in value due to changes in the issuer’s credit rating
Nominal or notional value
Listed
Non Listed
Insurance companiesOther companies
NV FV
FV* NV FV
Q
NQ Q
NQ FV*
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
“Debt securities” include own bonds correlated with derivative contracts that hedge interest
rate risk, valued by applying the fair value option, as allowed by IAS 39.
5.2 Detail of line item 50 “Financial liabilities at fair value”: subordinated liabilities
31/12/2008
Subordinated liabilities
31/12/2007
160,011 38,886
The subordinated bonds classified in this line item are analyzed below:
Isin code
Issue Maturity Rate date
Interest rate
Nominal value
Book
value
3.78%
5.00%
39,030 115,497 40,162
119,849
Total
154,527 160,011
IT0004015746
21-02-2006
21-02-2012
Fixed
IT0004424351
15-12-2008
15-12-2015
Fixed
459
The subordinated bond with Isin code IT0004015746 has an early redemption clause that
allows the Parent Bank to redeem it early, not less than 18 months after the final date of
placement, following prior authorization from the Bank of Italy and giving at least one month’s
notice.
Furthermore, all the above bonds contain a subordination clause whereby, if the Issuer is
wound up, they would be redeemed only after all other creditors, not subordinated to the
same extent, have been satisfied.
All the above bonds are included in the calculation of the Bank’s regulatory capital, on the
basis established in Circular 155 dated 18 December 1991 - XIIth update “Instructions for
reporting regulatory capital and prudent parameters”.
5.3 Financial liabilities at fair value: changes during the year
Due to other banks
Due to
customers
Debt securities in issue
Total
A. Opening balance
–
–
2,545,976 2,545,976
B. Increases
B.1Issues
B.2Sales
B.3Positive changes in fair value
B.4Other changes
–
–
–
–
–
–
–
–
–
–
1,064,629 877,393 27,978 151,402 7,856 1,064,629
877,393
27,978
151,402
7,856
C. Decreases
C.1Purchases
C.2Redemptions
C.3Negative changes in fair value
C.4Other changes
–
–
–
–
–
–
–
–
–
–
337,417 50,472 281,084 1,763 4,098 337,417
50,472
281,084
1,763
4,098
D. Closing balance
–
–
3,273,188 3,273,188
The “Positive and negative changes in fair value” (lines B.3 and C.3) are reported in line item
110 “Net change in financial assets and liabilities at fair value” of the income statement. These
changes are almost entirely offset by the results of valuing the associated derivative contracts,
also reported in the same line item of the income statement.
“Other changes” reported in lines B4. and C4. include trading profits and losses which are
recognized in line item 110 “Net change in financial assets and liabilities at fair value ” of the
income statement. Line C4. also includes Euro 5,416 in differentials between opening and
closing coupons and between opening and closing issue discounts.
460
SECTION 6
Hedging derivatives – Line item 60
6.1 Hedging derivatives: analysis by type of contract and underlying asset
6.1.1 attributable to the banking group
Interest
rates
Currency
and gold
Equity
securities
Loans
Other
Total
A) Quoted derivatives
1. Financial derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total A
–
–
B. Unlisted derivatives
1. Financial derivatives 31,201 –
–
–
–
a) With exchange of capital
–
–
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives
–
–
–
–
–
b) Without exchange of capital 31,201 –
–
–
–
– Issued options
–
–
–
–
–
– Other derivatives 31,201 –
–
–
–
2. Credit derivatives
–
–
–
–
–
a) With exchange of capital
–
–
–
–
–
b) Without exchange of capital
–
–
–
–
–
31,201
–
–
–
31,201
–
31,201
–
–
–
Total B
31,201 –
–
–
–
31,201
Total at 31/12/2008
31,201 –
–
–
–
31,201
Total at 31/12/2007
–
–
–
–
–
–
–
–
–
–
This line item reports interest rate swaps with a negative fair value, taken out to hedge interest
rate risk relating to a fixed-rate loan book.
461
6.2 Hedging derivatives: analysis by hedged portfolio and type of hedge
6.2.1 attributable to the banking group
1.
2.
3.
4.
5. Fair value
Specific
Interest Exchange
Credit
Price Multiple
rate risk rate risk risk risk
risk
Cash flow
Generic
Specific
Generic
Financial assets available for sale
–
Loans and receivables 31,201 Financial assets held to maturity
x
Portfolio
x
Foreign investments
x
–
–
–
x
x
–
–
–
x
x
–
x
x
x
x
–
–
–
x
x
x
x
x
–
x
–
–
–
x
–
x
x
x
–
x
Total assets 31,201 –
–
–
–
–
–
–
1. Financial liabilities
2. Portfolio
–
x
–
x
–
x
x
x
x
x
x
–
–
x
x
–
Total liabilities
–
–
–
–
–
–
–
–
1. Awaited transactions
x
x
x
x
x
x
–
–
SECTION 7
Remeasurement of financial liabilities backed by macro hedges – Line item 70
Nothing has been classified in this section because the Group has not taken out any macro
hedges against financial liabilities.
SECTION 8
Tax liabilities – Line item 80
Deferred tax liabilities are discussed in asset section 14.
462
SECTION 9
Liabilities associated with non-current assets held for sale – Line item 90
Nothing has been classified in this section.
SECTION 10
Other liabilities – Line item 100
10.1 Other liabilities: analysis
1.
2.
3.
4.
5.
6.
7.
8.
9.
Miscellaneous security transactions
Employee salaries and contributions Suppliers
Transactions in transit
Adjustments for non-liquid balances relating
to the portfolio
Liability for risks on guarantees and commitments
Accrued expenses and deferred income not allocated
to specific accounts
Other miscellaneous items
Differences on elimination
Total 31/12/2008
31/12/2007
13,589 58,735 55,812 196,529 20,156
60,579
57,708
85,849
163,410 5,572 169,058
4,606
3,088 146,358 1,972 7,514
148,274
6,185
645,065 559,929
Transactions in transit refer to positions taken in the last few days of the year, almost all of
which settled in the first few days of the new year.
463
SECTION 11
Provision for severance indemnities – Line item 110
11.1 Severance indemnities: changes during the year
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
A. Opening balance
82,329 82,329 88,672
B. Increases
B.1Provisions B.2Other increases
6,441 –
–
6,312 129 6,441 94
6,312 (3,511)
129 3,605
C. Decreases
C.1Payments made
C.2Other decreases
5,894 –
–
5,502 392 5,894 5,502 392 6,437
5,631
806
82,876 82,329
D. Closing balance
82,876 –
–
According to IFRIC, the provision for severance indemnities is a “post-employment benefit”
qualifying as a “defined-benefit plan”, the value of which according to IAS 19 must be
determined on an actuarial basis. As a consequence, the year-end valuation of this amount was
carried out by an independent actuary using the projected unit credit method with reference
to earned benefits. This method involves the projection of future payments with reference to
historical and statistical analyses and probabilities, adopting suitable demographic techniques.
This makes it possible to calculate the severance indemnities accruing at a specific date on an
actuarial basis, distributing the cost over the entire remaining service of the current workforce,
and no longer presenting them as a cost payable as if the business were to cease trading on the
balance sheet date.
The 2007 Finance Act (Law 296 of 27 December 2006) brought forward to 1 January 2007
the effective date of new pension fund legislation (Decree 252/2005). As a result of the new
legislation, provisions for severance indemnities from that date are being paid into external
pension funds or, at the employee’s specific request, into the specific fund set up under the
same law and managed by INPS (Italy’s social security agency).
Given the above, the provision for severance indemnities is therefore “static”, representing the
amount accruing for employees up until 1 January 2007.
The valuation performed at 31 December 2008 has revealed a difference of Euro 6.8 million
between severance indemnities calculated on an actuarial basis and those calculated under
prevailing law and collective payroll agreements.
464
SECTION 12
Provisions for risks and charges – Line item 120
12.1 Provisions for risks and charges: analysis
Items/Amounts
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Pensions and similar commitments
8,643 –
– 8,643 9,191
2. Other provisions 83,137 –
– 83,137 99,484
2.1 legal disputes 49,708 –
– 49,708 43,811
2.2 personnel expenses 13,745 –
– 13,745 13,524
2.3 other
19,684 –
– 19,684 42,149
Total
91,780 –
– 91,780 108,675
Provisions for pensions and similar charges refer to the Supplementary Section of the pension
fund operated by Cariprato SpA, more details of which can be found in note 12.3. The
Capitalization Section of this fund is a defined-contribution plan and so is not reported in the
balance sheet, in compliance with IAS 19.
465
12.2 Provisions for risks and charges: changes during the year
Items/Amounts
A. Opening balance
Banking Group
Pensions Other Total
provisions
9,191 99,484 108,675 B.
Increases
B.1Provisions
B.2Changes due to the passage of time B.3Changes due to variations in the discount rate
B.4Other changes 402 36,014 36,416 – 34,402 34,402 –
–
–
–
269 269 402 1,343 1,745 C.
Decreases
C.1Utilization during the year
C.2Changes due to variations in the discount rate
C.3Other changes
950 52,361 53,311 950 49,577 50,527 –
–
–
– 2,784 2,784 D. Closing balance
8,643 83,137 91,780 Line B.1 “Provisions” comprises:
• Euro 11,938 in provisions for future personnel expenses relating to the employee incentive
scheme, the matching entry to which is reported in “Payroll” (line item 180 a) of the income
statement);
• Euro 22,464 in provisions relating to legal disputes and sundry charges, the matching entry
to which is reported in “Net provisions for risks and charges” (line item 190 of the income
statement);
“Other increases” reported in line B.4 in relation to “Other provisions” reflect Euro 1,343
for the portion of 2007 net income allocated to the provision for charitable donations, aid
and works in the public interest, while the related utilizations of Euro 1,869 are included in
“Other decreases” in line C.3.
12.3 Defined-benefit company pension funds
1. Description of funds
Cassa di Risparmio di Prato operates a supplementary pension fund for employees under an
agreement signed on 30 June 1998 with the unions and its employees. This Fund, restricted
under article 2117 of the Italian Civil Code and governed by specific regulations, is divided
into two Sections:
• the Capitalization Section which guarantees supplementary pension benefits on a definedcontribution basis, requiring the bank to pay an annual amount calculated with reference to
the taxable base used for determining severance indemnity;
• the defined-benefit Supplementary Section, which is described in this note.
The Supplementary Section represents the continuation, under current rules, of the original
Fund set up under an in-house agreement dated 27 June 1972 to supplement the benefits
466
Insurance companies
Pensions
Other Total
provisions
Other companies
Pensions Other Total
provisions
Total
Pensions Other provisions
Total
–
–
–
–
–
–
9,191 99,484 108,675
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
402 36,014 36,416
– 34,402 34,402
–
–
–
–
269 269
402 1,343 1,745
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
950 52,361 53,311
950 49,577 50,527
–
–
–
– 2,784 2,784
–
–
–
–
–
–
8,643 83,137 91,780
payable by INPS. Its participants comprise persons who were already pensioners as of 1
July 1998, as well as the employees of the bank at 1 May 1981 who opted to remain in the
Supplementary Section on 1 July 1998.
The Fund guarantees pension benefits to members that supplement those paid by INPS under
the obligatory national scheme. These benefits can represent up to 75% of the last pensionable
salary received (after 35 years of service). As of 31 December 2008, the Supplementary
Section’s participants comprise 4 bank employees and 141 pensioners. The Fund’s financial
statements have been prepared in accordance with IAS 19.
2. Changes in funds during the year
The opening and closing balances of the present value of the defined benefit obligation are
reconciled below, indicating the effects of changes during the year:
Description
Reserve at 31.12.2007
Net earnings of the Fund
Cost
Payments made
Actuarial profit (loss) - 2008
Reserve at 31.12.2008
Mathematical reserve
9,011
400
2
(950)
25
8,488
Under IAS 19, the Fund made an actuarial loss during 2008, as represented by the difference
between the size of the Fund as of 31 December 2008 and the reserve calculated at that date.
Art. 8 of the Fund Regulations state that in the event of consistent surpluses in the Fund’s assets
over its mathematical reserve, the contracting parties will seek appropriate solutions by using
these surpluses essentially for the provision of benefits to pensioners. In compliance with this
467
rule, the overall accumulated actuarial profit of Euro 155 thousand at 31 December 2008 has not
been released to the bank’s income statement. The Fund’s assets are all invested in liquid assets.
3. Changes in year in plan assets and other information
The liquid assets in which the Fund’s cash balances are invested decreased from Euro 9,191
thousand at 31 December 2007 to Euro 8,643 thousand at 31 December 2008. Decreases
reflect the payment of Euro 950 thousand in pensions, while increases refer to Euro 402
thousand in interest income earned on cash balances.
4. Reconciliation between present value of the fund, present value of plan assets and assets and
liabilities reported in the balance sheet
There are no differences between the present value of plan assets and the assets and liabilities
reported in the balance sheet since all the fund’s resources are invested in liquid assets.
5. Description of principal actuarial assumptions
The amount of the supplementary fund in relation to the obligations to its participants is
reviewed once a year by an independent actuary.
The principal actuarial assumptions adopted for the latest calculation of the mathematical
reserve at 31 December 2008 are set out below.
This valuation has been made using the demographic, economic and financial assumptions
described below.
Demographic assumptions
The following criteria have been adopted:
• probability of death of current employees and pensioners: mortality rates applying to
the Italian population published by ISTAT in 2002; in the case of underage orphans the
probability was assumed to be zero;
• probability of termination of service for absolute and permanent disability: probabilities
adopted by the Treasury Ministry’s Pension Institutes, published in the report for 1969,
reduced to 75% of the original amount;
• age of retirement: it has been assumed that active employees who do not “die in service”
or “retire for intervening disability” stop working as soon as they reach the minimum
pensionable age/length of service established by current retirement legislation in Italy. As
stated in the introduction, no person may receive benefits unless they also qualify for a
pension payable by INPS;
• calculation of indirect expenses and of reversibility: the calculation refers to the composition
of the average surviving family unit, depending on sex and age of the pensioner’s death,
and the number of years since death. The probabilities of marriage (by sex and age) and
the probabilities of fertility (by age of the female and by order of birth of the children) have
been taken from the ISTAT “Marriage tables” (1971) and from the ISTAT “Female fertility
survey” (1974), with appropriate adjustments to take account of social changes in the past
twenty years. In order to take account of the changes introduced by Law 335/1995 on the
accumulation of surviving spouse pensions and beneficiary income, the pension payable
by INPS to surviving spouses has been reduced to 60% (based on information obtained in
468
relation to a major bank).
• types of remuneration: these have been taken, with suitable standardization, from actual
statistics relating to the staff of a bank at 31 December 1995, split between the four categories:
managers and officials, male middle managers and clerical staff, female middle managers and
clerical staff, subordinate and auxiliary staff. Since Cariprato only has a limited number of
employees, it was not considered to be a source of sufficiently significant data.
Economic and financial assumptions
The following rates have been adopted:
• technical discounting rate: 3.5%
• annual inflation rate: 2%
• annual rate of salary increases: 2.25%
• annual growth in nominal GDP (art. 1.9 Law 335/1995): 3%
6. Comparative information
The present value of the defined-benefit obligation and the fair value of the plan assets and
the plan’s surplus or deficit are presented for the current year and six previous ones:
Present value
2002
2003
2004
2005
2006
2007
2008
14,008 12,834 11,515 10,600 9,638 9,011 8,488 Fair value
assets
14,092 12,904 11,761 10,717 9,842 9,191 8,643 Surplus
or (Deficit)
16
30
178
113
204
180
155
Like in the past, the fund’s surplus relative to its mathematical reserve means that it is currently
not expected to have to make any new provisions in 2009.
12.4 Provisions for risks and charges– other provisions
The information required by paras. 85 and 86 of IAS 37 is provided below for each category
of contingent liability.
The provision for legal disputes relates to contingencies associated with claims against the
Group and from the liquidators of bankrupt companies.
The provision for employment costs refers to the incentive scheme and productivity bonuses
for employees.
The other provisions for risks and charges relate to complaints from customers, fiscal disputes
and other sundry charges.
Recent assessment indicates that the above contingencies are likely to be settled within the
next 12/18 months. Consequently, the charges associated with the above liabilities have not
been discounted since the effect would not be significant.
469
SECTION 13
Technical reserves
Nothing has been classified in this section.
SECTION 14
Redeemable shares – Line item 150
Nothing has been classified in this section.
SECTION 15
15.1 Group equity – Line items 140, 160, 170, 180, 190 and 220
15.1 Group equity: analysis
Items/Amounts
31/12/2008
1. Capital stock
261,460 2. Additional paid-in capital
1,960,355 3. Reserves
392,812 4. (Treasury shares):
(96,981)
a) Parent Bank
(96,981)
b) subsidiaries
–
5. Valuation reserves
90,362 6. Equity instruments
13,104 7. Net income for the year pertaining to the Group
108,739 Total
2,729,851 31/12/2007
261,656
1,963,297
324,487
–
–
–
66,081
13,630
113,731
2,742,882
The “reserves” included in line 3 comprise the pre-existing profit reserves (legal reserve,
statutory reserve, extraordinary reserve, reserve for the purchase of treasury shares etc.),
as well as the positive and negative reserves associated with the transition to IAS/IFRS not
classified in the other equity accounts. They also include the reserve for general banking
risks recorded pursuant to the former Decree 87/92 which, in accordance with IAS, has been
reclassified as part of equity.
The “valuation reserves” reported in line 5 include the reserves arising on the valuation of
property, land and works of art at fair value rather than cost, on the first-time adoption of
470
IAS/IFRS, together with the valuation reserves relating to AFS financial assets and the
monetary revaluation reserves.
“Equity instruments” reported in line 6 relate to the equity component embedded in the
“BPVi 13.a emissione 2007-2015” convertible bond issued by the Parent Bank which, in
accordance with IAS 32, has been separated and classified in equity, net of tax.
15.2 “Capital stock” and “Treasury shares”: analysis
– Treasury shares
– Nominal value
31/12/2008
31/12/2007
69,722,736 euro 3.75 69,775.066
euro 3.75
15.3 Capital stock - Number of shares issued by the Parent Bank: changes during the year
Items/Types
Ordinary
Other
A. Treasury shares at the beginning of the year
– fully paid
– not fully paid
A.1Treasury shares (-)
69,775,066 69,775,066 –
–
–
–
–
–
A.2Outstanding shares: opening balance
69,775,066 –
B. Increases
B.1New issues
– payment::
– business combinations
– conversion of bonds
– exercise of warrants
– other
– bonus:
– to employees
– to directors
– other
B.2Sale of treasury shares
B.3Other changes
3,601,004 5,620 –
–
–
–
–
5,620 5,620 –
–
3,595,384 –
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Cancellation
C.2Purchase of treasury shares
C.3Disposal of companies
C.4Other changes
5,269,680 57,950 5,211,730 –
–
–
–
–
–
–
D. Outstanding shares: closing balance
68,106,390 –
D.1Treasury shares (+)
D.2Treasury shares at the end of the year
– fully paid
– not fully paid
1,616,346 69,722,736 69,722,736 –
–
–
–
–
471
15.6 Valuation reserves: analysis
Items/Amounts
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1.
2.
3.
4.
5.
6.
7.
8.
4,001 –
–
–
–
–
–
86,361 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
4,001 (72,633)
–
–
–
–
–
–
–
–
–
–
–
–
86,361 138,714
90,362 –
–
90,362 Financial assets available for sale
Property, plant and equipment
Intangible assets
Hedges of foreign investments Cash-flow hedges
Exchange differences Non-current assets held for sale Special revaluation laws
Total
66,081
15.7 Valuation reserves: changes during the year
15.7.1 attributable to the banking group
Financial
assets available
for sale
Property, Intangible
Hedges Cash-flow Exchange Non-current
plant and
assets
of foreign hedges differences assets held
equipment investments
for sale
Special
revaluation
laws
A. Opening balance
(72,633)
–
–
–
–
–
– 138,714
B. Increases
B.1Increases in fair value
B.2Other changes
125,847 35,101 90,746 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Decreases di fair value
C.2Other changes
49,213 35,370 13,843 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52,353
–
52,353
4,001 –
–
–
–
–
–
86,361
D. Closing balance
15.8 Valuation reserves - AFS financial assets: analysis
Assets/Amounts
Banking Group
Insurance companies
Positive Negative Positive Negative
reserve reserve reserve reserve
1.
2.
3.
4.
4,042 (32,636)
40,731 (2,794)
937 (6,279)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 4,042 (32,636) 5,398 (26,517)
– 40,731 (2,794) 17,467 (68,064)
–
937 (6,279)
689 (1,606)
–
–
–
–
–
45,710 (41,709)
–
–
–
– 45,710 (41,709) 23,554 (96,187)
Debt securities
Equities
Mutual funds
Loans
Total
472
Other companies
Positive Negative
reserve reserve
31/12/2008
Positive Negative
reserve reserve
31/12/2007
Positive Negative
reserve reserve
This table reports the positive and negative reserves, net of tax, arising on the fair value
measurement of financial assets available for sale.
The negative reserve for debt securities includes Euro 34,953 in residual value of the valuation
reserve calculated on the basis of the fair value at the reclassification date (1 July 2008) of
securities reclassified from “Financial assets available for sale”, under the amendment to IAS
39 “Financial instruments: recognition and measurement” contained in the “Reclassification of
Financial Assets” published by the IASB on 13 October 2008 and endorsed by the European
Commission on 15 October 2008 with Regulation CE 1004/2008, as discussed more fully in
the specific section in the report on operations.
15.9 Valuation reserves - AFS financial assets: changes during the year
15.9.1 attributable to the banking group
1. Opening balance
2. Positive changes
2.1 Increases in fair value
2.2 Release to the income statement of
negative reserves:
– from impairment
– from disposals
2.3 Other changes
3. Negative changes
3.1 Negative changes in fair value
3.2 Impairment writedowns
3.3 Release to the income statement of
negative reserves: from disposals
3.4 Other changes
4. Closing balance
Debt securities
Equities
Mutual funds
Loans
(21,119)
(50,597)
(917)
–
19,217 5,045 103,161 29,237 3,469 819 –
–
3,826 217 3,609 10,346 2,017 1,490 527 71,907 612 612 –
2,038 –
–
–
–
26,692 23,808 –
14,627 4,130 –
7,894 7,432 –
–
–
–
772 2,112 3,953 6,544 –
462 –
–
(28,594)
37,937 (5,342)
–
Lines 2.3 and 3.4 report the positive and negative tax changes respectively in respect of
movements in the year in the valuation reserve for AFS financial assets.
Line 2.3 in relation to equities also includes the release of the valuation reserve relating to
the interest in Cattolica Assicurazione reported in the financial statements at 31 December
2007 (Euro 65,701), after this interest was reclassified in the year to “Equity investments”, as
already discussed in Section 4 of these notes.
Lastly, line 2.3 in relation to debt securities includes Euro 6,581 in amortization of reserves
relating to “Financial assets available for sale” reclassified to “Loans”; this amortization is
being calculated using the effective interest method over the residual life of the investment and
is recorded in line item 10 “Interest income and similar revenues” of the income statement as
a deduction from the interest income on the same securities, in compliance with para. 54 (a)
of IAS 39.
473
SECTION 16
Minority interests – Line item 210
16.1 Minority interests: analysis
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1.
2.
3.
4.
5.
6.
7.
53,851 6,367 28,827 –
62 –
–
–
–
–
–
–
–
–
–
–
–
–
2,316 –
–
2,316 3,809
91,423 –
–
91,423 94,009
Capital stock
Additional paid-in capital
Reserves
(Treasury shares)
Valuation reserves
Equity instruments
Net income (loss) for the year pertaining
to minority interests
Total
53,851 46,323
6,367 6,371
28,827 26,762
–
–
62 10,744
–
–
16.2 Valuation reserves: analysis
1.
2.
3.
4.
5.
6.
7.
8.
Financial assets available for sale
Property, plant and equipment
Intangible assets
Hedges of foreign investments
Cash-flow hedges
Exchange differences
Non-current assets held for sale Special revaluation laws
Total
474
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
26 –
–
–
–
–
–
36 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26 155
–
–
–
–
–
–
–
–
–
–
–
–
36 10,589
62 –
–
62 10,744
16.4 Valuation reserves - AFS financial assets: analysis
Assets/Value
1.
2.
3.
4.
Banking Group
Insurance companies
Positive Negative Positive Negative
reserve reserve reserve reserve
Debt securities
Equities
Mutual funds
Loans
Total
26 186 4
–
Other companies
Positive Negative
reserve reserve
31/12/2008
31/12/2007
Positive Negative Positive Negative
reserve reserve reserve reserve
(90)
(51)
(49)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26 186 4
–
(90)
(51)
(49)
–
32 186 –
–
(1)
(33)
(29)
–
216 (190)
–
–
–
–
216 (190)
218 (63)
16.5 Valuation reserves: changes during the year
16.5.1 attributable to the banking group
Financial
assets available
for sale
Property, Intangible
Hedges Cash-flow Exchange Non-current
plant and
assets
of foreign hedges differences assets held
equipment investments
for sale
Special
revaluation
laws
A. Opening balance
155 –
–
–
–
–
–
10,589
B. Increases
B.1Increases in fair value
B.2Other changes
240 –
122 –
118 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Decreases in fair value
C.2Other changes
369 280 89 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,553
–
10,553
26 –
–
–
–
–
–
36
D. Closing balance
475
OTHER INFORMATION
1. Guarantees given and commitments
Operations
1) Financial guarantees
a) Banks
b) Customers
2) Commercial guarantees
a) Banks
b) Customers
3) Irrevocable commitments
to make loans a) Banks
i) certain to be called on ii) not certain to be called on
b) Customers
i) certain to be called on
ii) not certain to be called on
4) Commitments underlying credit
derivatives:protection sold
5) Assets lodged to guarantee the
commitments of third parties 6) Other commitments
Total
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
539,087 298 538,789 883,498 53,417 830,081 –
–
–
–
–
–
–
–
–
–
–
–
539,087 298 538,789 883,498 53,417 830,081 1,825,729 180,080 158,724 21,356 1,645,649 1,463 1,644,186 –
–
–
–
–
–
–
– 1,825,729 1,749,935
– 180,080 245,703
– 158,724 230,602
– 21,356 15,101
– 1,645,649 1,504,232
– 1,463 58,389
– 1,644,186 1,445,843
–
–
–
–
1,825,455 –
–
–
–
–
– 1,825,455 1,402,656
5,073,769 –
– 5,073,769 4,355,168
–
466,421
286
466,135
736,156
37,233
698,923
–
“Other commitments” include the put options on debt securities and equities issued by the
Group, as well as undrawn revocable credit lines.
2. Assets pledged to guarantee own liabilities and commitments
Portfolio
31/12/2008
31/12/2007
1.
2.
3.
4.
5.
6.
7.
17,383 –
82,869 5,140 684,228 1,155,603 –
113,186
–
237,414
–
–
–
–
Financial assets held for trading
Financial assets at fair value
Financial assets available for sale
Financial assets held to maturity
Loans and advances to banks
Loans and advances to customers
Property, plant and equipment
The increase in assets pledged in guarantee mostly refers to asset backed securities relating to
own transactions repurchased/subscribed in the year and the bonds issued by Mediobanca,
used for refinancing at the Central European Bank and/or lodged with the Bank of Italy to
guarantee the Group’s daily settlements.
476
5. Administration and dealing on behalf of third parties
Type of service
1. Trading in financial instruments
on behalf of third parties a) Purchases
1. Settled
2. Unsettled
b) Sales
1. Settled
2. Unsettled
2. Private portfolios under management
a) Individual
b) Collective
3. Custody and administration of securities
a) Third-party securities on deposit: associated
with activities as a custodian bank
(excluding portfolio management)
1. securities issued by consolidated companies
2. other securities
b) Third party securities in custody
(excluding portfolio management): other 1. securities issued by consolidated companies 2. other securities
c) Third-party securities on deposit with third parties d) Own securities on deposit with third parties 4. Other transactions
31/12/2008
31/12/2007
3,528,432 1,335,970 1,323,415 12,555 2,192,462 2,178,370 14,092 4,541,174 4,333,318 207,856 19,794,363 6,849,449
3,064,071
3,059,573
4,498
3,785,378
3,778,926
6,452
5,851,922
5,211,861
640,061
17,248,026
1,162,525 –
1,162,525 1,244,069
–
1,244,069
15,741,611 5,362,271 10,379,340 16,206,699 2,890,227 –
14,881,354
4,052,570
10,828,784
15,474,267
1,122,603
–
477
478
Part C
INFORMATION ON THE CONSOLIDATED INCOME STATEMENT
SECTION 1
Interest – Line items 10 and 20
1.1 Interest income and similar revenues: analysis
1.1.1 attributable to the banking group
Items/Technical formsTechnical forms
Non-performnig
Debt securities
Loans
assets
Other assets
31/12/2008
31/12/2007
1. Financial assets held for trading
6,852 –
–
–
6,852 16,288
2. Financial assets at fair value
2,189 –
–
–
2,189 2,102
3. Financial assets available for sale
22,030 –
–
–
22,030 42,650
4. Financial assets held to maturity
1,288 –
–
–
1,288 2,243
5. Loans and advances to banks
13,514 77,797 –
–
91,311 77,771
6. Loans and advances to customers
10,612 1,283,475 697 – 1,294,784 1,002,158
7. Hedging derivatives
x
x
x
294 294 –
8. Financial assets sold but not derecognized
–
114,612 –
–
114,612 100,652
9. Other assets
x
x
x
192 192 240
Total
56,485 1,475,884 697 486 1,533,552 1,244,104
1.1.2 attributable to insurance companies
Items/Technical formsTechnical forms
Non-performnig
Debt securities
Loans
assets
31/12/2008
31/12/2007
1. Financial assets held for trading –
–
–
–
–
2. Financial assets at fair value
–
–
–
–
–
3. Financial assets available for sale
–
–
–
–
–
4. Financial assets held to maturity
–
–
–
–
–
5. Loans and advances to banks
–
–
–
–
–
6. Loans and advances to customers
–
–
–
–
–
7. Hedging derivatives
–
–
–
–
–
8. Financial assets sold but not derecognized
–
–
–
–
–
9. Other assets
–
–
–
–
–
11,674
100
–
–
282
–
–
–
–
Total
12,056
–
–
–
Other assets
–
–
479
1.2 Interest income and similar revenues: differentials relating to hedging transactions
Line items/Segments
Banking Insurance
Other 31/12/2008 31/12/2007
group companies companies
A. Positive differentials relating to:
A.1Specific hedges of asset fair value
294 –
–
294 A.2Specific hedges of liability fair value
–
–
–
–
A.3Portfolio hedges of interest rate risk
–
–
–
–
A.4Specific hedges of asset cash flows
–
–
–
–
A.5Specific hedges of liability cash flows
–
–
–
–
A.6Portfolio hedges of cash flows
–
–
–
–
–
–
–
–
–
–
Total positive differentials (A)
–
294 –
B. Negative differential relating to
B.1Specific hedges of asset fair value
–
–
–
B.2Specific hedges of liability fair value
–
–
–
B.3Portfolio hedges of interest rate risk
–
–
–
B.4Specific hedges of asset cash flows
–
–
–
B.5Specific hedges of liability cash flows
–
–
–
B.6Portfolio hedges of cash flows
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total negative differentials (B)
C. Balance (A–B)
294 –
–
–
–
–
–
294 –
–
294 –
1.3 Interest income and similar revenues: other information
1.3.1 Interest income on foreign currency financial assets
a) on foreign currency assets
480
31/12/2008
17,213 31/12/2007
22,279
1.4 Interest expense and similar charges: analysis
1.4.1 attributable to the banking group
Line items/Technical forms
Payables Securities
Other 31/12/2008 31/12/2007
liabilities
1. Deposits from banks
(149,760)
X
– (149,760) (115,405)
2. Due to customers
(246,170)
X
– (246,170) (170,467)
3. Debt securities in issue
X (274,548)
– (274,548) (210,451)
4. Financial liabilities held for trading
–
– (26,922) (26,922) (10,631)
5. Financial liabilities at fair value
– (111,978)
– (111,978) (79,273)
6. Financial liabilities associated
with assets sold but not derecognized (71,224)
–
– (71,224) (79,181)
7. Other liabilities
X
X
–
–
–
8. Hedging derivatives
X
X
–
–
–
Total
(467,154) (386,526) (26,922) (880,602) (665,408)
1.4.2 attributable to insurance companies
Line items/Technical forms
Payables Securities
Other 31/12/2008 31/12/2007
liabilities
1. Deposits from banks
–
–
–
–
2. Due to customers
–
–
–
–
3. Debt securities in issue
–
–
–
–
4. Financial liabilities held for trading
–
–
–
–
5. Financial liabilities at fair value
–
–
–
–
6. Financial liabilities associated
with assets sold but not derecognized
–
–
–
–
7. Other liabilities
–
–
–
–
8. Hedging derivatives
–
–
–
–
Total
–
–
–
–
–
–
–
–
(916)
–
–
–
(916)
1.6 Interest expense and similar charges: other information
1.6.1 Interest expense on foreign currency liabilities
a) on foreign currency liabilities
31/12/2008
31/12/2007
(17,127)
(22,280)
481
SECTION 2
Commissions – Line items 40 and 50
2.1 Fee and commission income: analysis
2.1.1 attributable to the banking group
Type of service/Segments
482
31/12/2008
31/12/2007
a) Guarantees given
b) Credit derivatives
c) Management, intermediation and advisory services: 1. trading in financial instruments
2. foreign currency trading
3. portfolio management
3.1 individual
3.2 collective
4. custody and administration of securities
5. custodian bank
6. placement of securities
7. acceptance of orders
8. advisory services
9. distribution of third party services
9.1 portfolio management
9.1.1 individual
9.1.2 collective
9.2 insurance products
9.3 other products
d) Collection and payment services
e) Services for securitizations
f) Services for factoring transactions
g)Tax collection services
h) Other services
12,442 –
143,341 4,060 10,698 15,862 12,460 3,402 3,012 1,315 31,300 8,068 5,889 63,137 496 5
491 25,573 37,068 17,474 4,646 –
–
122,418 11,011
–
148,342
3,025
10,626
24,404
18,325
6,079
2,407
1,576
42,368
9,979
6,084
47,873
486
51
435
16,474
30,913
17,512
4,650
–
–
115,654
Total
300,321 297,169
2.1.2 attributable to insurance companies
Type of service/Segments
31/12/2008
31/12/2007
a) Guarantees given
b) Credit derivatives
c) Management, intermediation and advisory services: 1. trading in financial instruments
2. foreign currency trading
3. portfolio management
3.1 individual
3.2 collective
4. custody and administration of securities
5. custodian bank
6. placement of securities
7. acceptance of orders
8. advisory services
9. distribution of third party services
9.1 portfolio management
9.1.1 individual
9.1.2 collective
9.2 insurance products
9.3 other products
d) Collection and payment services
e) Services for securitizations
f) Services for factoring transactions
g)Tax collection services
h) Other services
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,339
–
–
–
–
–
–
–
–
–
–
7,339
–
–
–
7,339
–
–
–
–
–
–
Total
–
7,339
2.2 Fee and commission income: product and service distribution channels: banking group
Channels/Segments
a)
b)
c)
At own branches:
1. portfolio management
2. placement of securities
3. third-party products and services
Door-to-door:
1. portfolio management
2. placement of securities
3. third-party products and services
Other distribution channels:
1. portfolio management
2. placement of securities
3. third-party products and services
31/12/2008
104.748 15.862 29.899 58.987 5.551 –
1.401 4.150 –
–
–
–
31/12/2007
109.206
24.404
40.731
44.071
5.439
–
1.637
3.802
–
–
–
–
483
2.2.1 Fee and commission income: product and service distribution channels: insurance companies
Channels/Segments
a)
b)
c)
At own branches:
1. portfolio management
2. placement of securities
3. third-party products and services
Door-to-door:
1. portfolio management
2. placement of securities
3. third-party products and services
Other distribution channels:
1. portfolio management
2. placement of securities
3. third-party products and services
31/12/2008
–
–
–
–
–
–
–
–
–
–
–
–
31/12/2007
7,339
–
–
7,339
–
–
–
–
–
–
–
–
2.3 Fee and commission expense: analysis
2.3.1 attributable to the banking group
Services/Segments
484
31/12/2008
31/12/2007
a) Guarantees received
(112)
b) Credit derivatives –
c) Management and dealing services
(9,165)
1. trading in financial instruments
(1,362)
2. trading in foreign currency
(348)
3. portfolio management:
(1,183)
3.1 own portfolio
(1,183)
3.2 third-party portfolio
–
4. custody and administration of securities
(98)
5. placement of financial instruments (1,381)
6. door-to-door distribution of financial instruments,
products and services
(4,793)
d) Collection and payment services
(4,922)
e) Other services
(14,268)
(5,428)
(5,823)
(14,617)
Total (30,130)
(28,467)
(117)
–
(9,573)
(1,743)
(306)
(827)
(827)
–
–
(1,269)
2.3.2 attributable to insurance companies
Services/Segments
31/12/2008
31/12/2007
a) Guarantees received
b) Credit derivatives c) Management and dealing services
1. trading in financial instruments
2. trading in foreign currency
3. portfolio management:
3.1 own portfolio
3.2 third-party portfolio
4. custody and administration of securities
5. placement of financial instruments 6. door-to-door distribution of financial instruments,
products and services
d) Collection and payment services
e) Other services
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8,962)
Total –
(8,962)
485
SECTION 3
Dividend and similar income – Line item 70
3.1 Dividend and similar income: analysis
Items/Income
Banking group
Insurance companies
Other companies
31/12/2008
31/12/2007
Dividends Income Dividends Income Dividends Income Dividends Income Dividends Income
from
from
from
from
from
mutual funds
mutual funds
mutual funds
mutual funds mutual funds
A.
B.
C.
D.
Financial assets held
for trading
Financial assets
available for sale
Financial assets
at fair value
Equity investments
Total
965 10,541 –
–
–
–
13,378 4,230 –
–
–
– 13,378 4,230 6,274 –
–
X
–
–
–
–
–
–
–
X
–
X
14,343 14,771 –
–
–
– 14,343 14,771 34,753 4,071
–
–
965 10,541 28,479 4,071
–
–
–
X
Income from mutual funds classified as “Financial assets held for trading” relate to the income
distributed by the BPVi Giada Equity closed-end fund and related tax credit, while income
from mutual funds classified as “Financial assets available for sale” includes Euro 3,814 in
income distributed by the Nem Imprese closed-end fund and related tax credit.
486
–
–
SECTION 4
Net trading income – Line item 80
4.1 Net trading income: analysis
4.1.1 attributable to the banking group
Transactions/Income items
GainsTrading
Losses
profits
Trading losses
1. Financial assets held for trading
281 3,605 (12,937) (16,488)
1.1 Debt securities
259 3,090 (10,414) (3,528)
1.2 Equities
22 490 (1,657) (7,684)
1.3 Mutual funds
–
25 (866) (5,276)
1.4 Loans
–
–
–
–
1.5 Other
–
–
–
–
2.
Net
result
(25,539)
(10,593)
(8,829)
(6,117)
–
–
Financial liabilities held for trading
2.1 Debt securities
2.2 Payables
2.3 Other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. Other financial assets and liabilities:
exchange differences
X
X
X
X
15,079
4. Derivatives
4.1 Financial derivatives:
– on debt securities and
interest rates
– on equities and
equity indices
– on currency and gold
– other
4.2 Credit derivatives Total
615,791 829,965 (627,566) (814,059) (2,766)
615,791 829,965 (627,566) (814,059) (2,766)
586,249 779,533 (598,024) (765,795)
29,542 X
–
–
1,963
50,432 (29,542) (48,264)
2,168
X
X
X (6,897)
–
–
–
–
–
–
–
–
616,072 833,570 (640,503) (830,547) (13,226)
This line item includes the net result up the reclassification date (1 July 2008) on financial
instruments for which the Group has taken up the option permitted by the amendments to
IAS 39, discussed earlier.
Trading profits (losses) and valuation gains (losses) relating to financial derivatives are
presented on an open account basis for each individual financial instrument.
487
SECTION 5
Net hedging gains (losses) – Line item 90
5.1 Net hedging gains (losses): analysis
Income items/Amounts
Banking Insurance
Other 31/12/2008 31/12/2007
group companies companies
A Income on:
A.1Fair value hedging derivatives
–
A.2Hedged financial assets (fair value)
31,662 A.3Hedged financial liabilities (fair value)
–
A.4Cash flow hedging derivatives
–
A.5Foreign currency assets and liabilities
–
–
–
–
–
–
–
–
–
–
–
–
31,662 –
–
–
–
–
–
–
–
Total hedging income (A)
31,662 –
–
31,662 –
B. Charges on:
B.1Fair value hedging derivatives
(31,201)
B.2Hedged financial assets (fair value)
–
B.3Hedged financial liabilities (fair value)
–
B.4Cash flow hedging derivatives
–
B.5Foreign currency assets and liabilities
–
–
–
–
–
–
– (31,201)
–
–
–
–
–
–
–
–
–
–
–
–
–
Total hedging expense (B)
(31,201)
–
– (31,201)
–
461 –
–
–
C. Net profit/loss on hedging
transactions (A–B)
461 Hedge effectiveness has been assessed at year end, as required by IAS 39. These assessments
have confirmed the effectiveness of such hedges and so the revaluations/writedowns of
hedging derivatives and hedged items have been recognized in this line item.
The net gain (loss) reported above reflects the partial ineffectiveness of hedges, which
nonetheless remains with the range permitted by IAS 39.
488
SECTION 6
Disposal/repurchase gains (losses) – Line item 100
6.1 Disposal/repurchase gains (losses): analysis
Items/Income items
Banking group
Insurance companies
Other companies
Profits Losses Net Profits Losses Net Profits Losses Net
result
result
result
Financial assets
1. Loans and advances
to banks
–
–
–
–
–
–
–
–
2. Loans and advances
to customers
5
(55)
(50)
–
–
–
–
–
3. Financial assets
available for sale
6,259 (7,190)
(931)
–
–
–
–
–
3.1 Debt securities
364 (7,051) (6,687)
–
–
–
–
–
3.2 Equities
5,891 (139)
5,752 –
–
–
–
–
3.3 Mutual funds
4
–
4
–
–
–
–
–
3.4 Loans
–
–
–
–
–
–
–
–
4. Financial assets held
to maturity
–
–
–
–
–
–
–
–
–
Total assets
–
–
–
–
–
–
–
6,264 (7,245)
(981)
–
–
–
–
–
–
Financial liabilities
1. Deposits from banks
–
–
2. Due to customers
12,321 –
3. Debt securities in issue 2,211 (3)
–
12,321 2,208 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total liabilities
14,529 –
–
–
–
–
–
14,532 (3)
489
Items/Income items
31/12/2008
31/12/2007
Profits Losses Net
Profits
Losses result
Net
result
Financial assets
1. Loans and advances to banks
–
–
–
–
–
–
2. Loans and advances to customers
5
(55)
(50)
16 (17)
(1)
3. Financial assets available for sale
6,259 (7,190)
(931)
10,228 (5,690)
4,538
3.1 Debt securities
364 (7,051)
(6,687)
2,540 (3,947)
(1,407)
3.2 Equities
5,891 (139)
5,752 7,688 (1,743)
5,945
3.3 Mutual funds
4
–
4
–
–
–
3.4 Loans
–
–
–
–
–
–
4. Financial assets held to maturity
–
–
–
–
–
–
Total assets
6,264 (7,245)
(981)
10,244 (5,707)
4,537
Financial liabilities 1. Deposits from banks
–
–
–
–
–
–
2. Due to customers
12,321 –
12,321 –
–
–
3. Debt securities in issue
2,211 (3)
2,208 1,730 (3)
1,727
Total liabilities
14,532 (3)
14,529 1,730 (3)
The gains and losses from “Financial assets available for sale” include the “release” to
income of the positive and negative valuation reserves, recorded separately under equity at 31
December 2007, as a result of selling assets during the year.
The gains relating to “Equities” classified as “Financial assets available for sale” mostly relate
to the sale of interests in certain Luxembourg-registered vehicle companies arising from the
investment in the property sector through participation in the “Investor Club” proposed by
Jargonnant Partners. The gains at 31 December 2007 mainly referred to the sale of all the
shares held in Banca Popolare di Intra.
The repurchase gains from “Due to customers” refer to the repurchase of part of the senior
and mezzanine notes issued in relation to the fifth and sixth securitizations undertaken by the
Group and “reinstated” in the financial statements.
490
1,727
SECTION 7
Net change in financial assets and liabilities at fair value – Line item 110
7.1 Net change in financial assets and liabilities at fair value: analysis
7.1.1 attributable to the banking group
Transactions/Income items
Gains
Gains on
Losses
disposals
Losses on Net profit
disposals
(loss)
1. Financial assets
– 1,014 (7,527)
– (6,513)
1.1 Debt securities
– 1,014 (7,527)
– (6,513)
1.2 Equities
–
–
–
–
–
1.3 Mutual funds
–
–
–
–
–
1.4 Loans
–
–
–
–
–
2.
Financial liabilities
2.1 Debt securities
2.2 Deposits from banks
2.3 Due to customers
3. Foreign currency financial assets
and liabilities: exchange differences
4. Derivatives
4.1 Financial derivatives
– on debt securities and
interest rates
– on equities and
equity indices
– on currency and gold
– other
4.2 Credit derivatives 1,763 1,763 –
–
X
4,098 (151,402) (2,440) (147,981)
4,098 (151,402) (2,440) (147,981)
–
–
–
–
–
–
–
–
X
X
X
–
148,968 13,430 (5,248)
(4,980) 152,170
148,968 13,430 (5,248)
(4,980) 152,170
–
X
–
–
–
X
–
–
–
X
–
–
–
X
–
–
–
–
–
–
Total derivatives
148,968 13,430 (5,248) (4,980) 152,170
Total
150,731 18,542 (164,177) (7,420) (2,324)
Trading profits (losses) and valuation gains (losses) relating to financial derivatives are
presented on an open account basis for each individual financial instrument.
491
SECTION 8
Net impairment adjustments – Line item 130
8.1 Net impairment adjustments to loans and advances: analysis
8.1.1 attributable to the banking group
Transactions/Income items
Adjustments
Writebacks
31/12/2008 31/12/2007
Specific
Portfolio
Specific
Portfolio
Write-offs
OtherA
BA
B
C. Total
(9,863) (194,664) (15,548)
A. Loans and advances
to banks
– (297)
–
–
–
–
– (297)
720
B. Loans and advances
to customers
(9,863) (194,367) (15,548)
8,478 57,932 1,480 70 (151,818) (136,563)
8,478 57,932 1,480 70 (152,115) (135,843)
Key:
A = interest
B = other
8.2 Net impairment adjustments to financial assets available for sale: analysis
8.2.1 attributable to the banking group
Transactions/Income items
Adjustments
Writebacks
31/12/2008
Specific
Specific
Write-offs
OtherA
B
A. Debt securities
(600)
(1,097)
–
–
(1,697)
B. Equities
–
(6,378)
x
x
(6,378)
C. Mututal funds
(5,621)
(4,241)
x
–
(9,862)
D. Loans and advances to banks
–
–
–
–
–
E. Loans and advances to customers
– (15,300)
–
– (15,300)
F. Total
(6,221)
(27,016)
–
–
(33,237)
Key:
A = interest
B = other
“Write-offs” in line C. “Mutual funds.” refer to the total write-off of the Farfield funds
following the “Madoff” crack. “Other” adjustments refer to certain financial instruments for
which impairment losses have been recognized in accordance with IAS 39.
Lastly, adjustments to “Loans to customers” refer to the partial writedown of a loan disbursed
as part of the disposal of all the shares in Linea Spa to Compass SpA (Mediobanca Group),
whose repayment depends on the performance of an underlying loan book.
492
31/12/2007
(773)
(9,249)
–
–
–
(10,022)
8.4 Net impairment adjustments to other financial transactions: analysis
8.4.1 attributable to the banking group
Transactions/Income items
Adjustments
Writebacks
31/12/2008 31/12/2007
Specific
Portfolio
Specific
Portfolio
Write-offs
OtherA
BA
B
A. Guarantees given
– (333)
(951)
–
304 –
24 (956)
B. Credit derivatives
–
–
–
–
–
–
–
–
C. Commitments
to disburse funds
–
–
(11)
–
–
–
–
(11)
D. Other transactions
–
–
–
–
–
–
–
–
E. Total
–
(333)
(962)
–
304 –
24 (967)
(426)
–
–
–
(426)
Key:
A = interest
B = other
493
SECTION 9
Net premium income – Line item 150
9.1 Net premium income: analysis
Premiums from
insurance business
Direct business
Indirect business
31/12/2008
31/12/2007
A. Life sector
A.1Gross premiums recorded (+)
–
A.2Premiums transferred to reinsurers (–) – A.3Total
–
–
–
–
–
–
–
241,395
(218)
241,177
–
–
–
–
–
–
–
–
B. Loss sector
B.1Gross premiums recorded (+)
B.2Premiums transferred to reinsurers (–)
B.3Change in gross amount
of premium reserve (+/–)
B.4Change in premium reserve
borne by reinsurers (+/–)
B.5Total
–
–
–
–
–
–
–
–
–
–
–
–
C. Total net premium income
–
–
–
241,177
The figures at 31 December 2007 related to the two insurance companies Berica Vita and
Vicenza Life. After selling 50% of Berica Vita and Vicenza Life on 5 September 2007, these
insurance companies have been carried at equity from this date rather than consolidated lineby-line.
494
SECTION 10
Other insurance income (charges) – Line item 160
10.1 Other insurance income (charges): analysis
Line items
31/12/2008
31/12/2007
1. Net change in technical reserves
2. Period claims settled during the year
3. Other insurance income (charges)
–
–
–
(153,475)
(60,396)
(22,459)
Total
–
(236,330)
31/12/2008
31/12/2007
10.2 Analysis of “Net change in technical reserves”
Net change in technical reserves
1. Life sector
A. Mathematical reserves
–
A.1Gross amount for year
–
A.2(–) Portion borne by reinsurers
–
B. Other technical reserves
–
B.1Gross amount for year
–
B.2(–) Portion borne by reinsurers
–
C.Technical reserves even though the investment risk
is borne by the insured parties
–
C.1Gross amount for year
–
C.2(–) Portion borne by reinsurers
–
(134,356)
(134,356)
–
(353)
(353)
–
(18,766)
(18,766)
–
Total “Life sector reserves”
–
(153,475)
2. Loss sector
Change in the technical reserves of the loss sector,
excluding the claims reserve, net of transfers to reinsurers
–
–
495
10.3 Analysis of “Claims relating to the year”
Charges for claims
31/12/2008
31/12/2007
Life sector: Charges for claims,
net of transfers to reinsurers
A.Amounts paid
–
(59,247)
A.1Gross amount for year
–
(59,247)
A.2(–) Portion borne by reinsurers
–
–
B. Changes in reserves for amounts to be paid
–
(1,149)
B.1Gross amount for year
–
(1,149)
B.2(–) Portion borne by reinsurers
–
–
Total “Life sector reserves”
–
(60,396)
Loss sector: Charges for claims, net of recoveries and transfers to reinsurers
C.Amounts paid:
–
–
C.1Gross amount for year
–
–
C.2(–) Portion borne by reinsurers
–
–
D. “Change in recoveries, net of the portion
borne by reinsurers”
–
–
E. Change in claims reserve
–
–
E.1Gross amount for year
–
–
E.2(–) Portion borne by reinsurers
–
–
Total “Claims - loss sector”
–
10.4 Analysis of “Other insurance income/charges, net”
31/12/2008
–
31/12/2007
a) Charges “Life sector”
b) Charges “Loss sector”
–
–
(22,459)
–
Total
–
(22,459)
The figures at 31 December 2007 related to the two insurance companies Berica Vita and
Vicenza Life. After selling 50% of Berica Vita and Vicenza Life on 5 September 2007, these
insurance companies have been carried at equity from this date rather than consolidated lineby-line.
496
SECTION 11
Administrative costs – Line item 180
11.1 Payroll costs: analysis
Type of expense/Segments
Banking Insurance
Other 31/12/2008 31/12/2007
group companies companies
1. Employees (392,692)
–
– (392,692) (336,904)
a) wages and salaries
(288,331)
–
– (288,331) (253,612)
b) social security contributions
(72,309)
–
– (72,309) (64,284)
c) severance indemnities
(409)
–
– (409)
(569)
d) pension costs
(867)
–
– (867)
(694)
e) provision for severance indemnities (6,312)
–
– (6,312)
3,511
f) provision for pensions and
similar benefits:
(838)
–
– (838) (1,047)
– defined contribution
(838)
–
– (838) (1,047)
– defined benefit
–
–
–
–
–
g) payments to external –
–
supplementary pension funds:
(22,551)
–
– (22,551) (18,199)
– defined contribution
(22,551)
–
– (22,551) (18,199)
– defined benefit
–
–
–
–
–
h) costs deriving from equity-settled
payment arrangements
(341)
– (341) (1,048)
i) other personnel benefits
(734)
–
– (734)
(962)
2. Other personnel (2,175)
–
– (2,175) (1,237)
3.Retired personnel
(7,651)
–
– (7,651) (4,744)
4. Directors and statutory auditors
(8,998)
–
– (8,998) (6,535)
Total
(411,516)
–
– (411,516) (349,420)
These costs also include provisions for future expenses relating to the employee incentive
scheme and productivity bonuses, in compliance with IAS which require costs to be classified
by “nature” of the expense.
Line 1.i) “other personnel benefits” reports costs associated with redundancy incentives under
Law 449/97.
In 2007 line 1.e) “Provision for severance indemnities” included not only the actual provision
for the year but also the extraordinary effect of curtailment.
In compliance with recent clarifications by the Supervisory Authorities, payments of severance
indemnity directly into INPS are reported in line 1.g) “payments to external supplementary
pension funds: defined contribution”. In addition, the fees paid to the statutory auditors have
been reclassified to “Payroll” in line 4) “Directors and Statutory Auditors”. The corresponding
amounts for 2007 have also been reclassified.
497
11.2 Average number of employees, by level: banking group
Banking Insurance
Other 31/12/2008 31/12/2007
group companies companies
1. Employees
a) Managers
b) Middle managers
of which: 3rd and 4th level
c) Other employees
2. Other personnel
5,536 125 2,157 1,130 3,254 30 –
–
–
–
–
–
–
–
–
–
–
–
5,536 125 2,157 1,130 3,254 30 5,108
116
1,953
990
3,039
24
Total 5,566 –
–
5,566 5,132
The average number of employees is calculated as the average of those at the start and end of
the year.
“Other employees” include staff working under contracts other than permanent employment
ones, such as temporary or project contracts.
The increase in the average number of employees is mainly due to the acquisition of 61
branches from the UBI Banca Group, involving the addition of 219 extra staff from 1 January
2008.
11.5 Other administrative costs: analysis
31/12/2008
31/12/2007
1.
2.
3.
4.
5.
6.
7.
(57,413)
(93,975)
(17,481)
(7,211)
(6,731)
(2,513)
(1,409)
(50,911)
(3,805)
(3,914)
(21,182)
(28,457)
(27,256)
(1,201)
(9,760)
(3,498)
(46,896)
(6,214)
(5,599)
(2,029)
(16,683)
(16,371)
(53,217)
(88,518)
(15,535)
(6,339)
(5,879)
(2,138)
(1,290)
(50,230)
(3,631)
(3,476)
(19,582)
(23,592)
(22,490)
(1,102)
(7,227)
(3,328)
(41,543)
(5,984)
(4,833)
(1,795)
(13,337)
(15,594)
(261,181)
(237,007)
Indirect taxes
Non-professional products and services
2.1.postage, telephone charges
2.2.security and valuables transportation
2.3.electricity, heating and water
2.4.transport 2.5.hire of programs and microfiches
2.6.data processing
2.7.stationery and printing
2.8.cleaning of premises
Professional services
Rentals
4.1.rent of buildings
4.2.machine lease installments
Maintenance of furniture and installations
Insurance premiums
Other expenses
7.1.surveys, searches and subscriptions
7.2.meal vouchers
7.3.membership fees
7.4.advertising and entertainment
7.5.other miscellaneous expenses
Total 498
SECTION 12
Net provisions for risks and charges – Line item 190
12.1 Net provisions for risks and charges: analysis
31/12/2008
31/12/2007
a) Provisions for legal disputes and other charges b) Provision for other risks and charges
(7,614)
(14,850)
(12,119)
(28,973)
Total
(22,464)
(41,092)
The provisions for legal disputes cover claims from the liquidators of bankrupt customers and
other claims against the Group.
The provisions for other risks and charges mainly relate to potential costs associated with the
effects on customer loans of the current adverse climate on financial markets and the likely
negative impact on the Group in terms of recovering its loans.
499
SECTION 13
Net adjustments to property, plant and equipment – Line item 200
13.1 Net adjustments to property, plant and equipment: analysis
13.1.1 attributable to the banking group
Assets/Income items
Depreciation
Impairment
Writebacks
adjustment
Net
result
A. Property, plant and equipment
A.1Owned
(20,423)
(4)
–
(20,427)
– for business purposes
(20,423)
(4)
–
(20,427)
– for investment purposes –
–
–
–
A.2Held under finance
lease:
–
–
–
–
– for business purposes
–
–
–
–
– for investment purposes
–
–
–
–
Total
500
(20,423)
(4)
–
(20,427)
SECTION 14
Net adjustments to intangible assets – Line item 210
14.1 Net adjustments to intangible assets: analysis
14.1.1. attributable to the banking group
Assets/Income items
Depreciation
Impairment
Writebacks
adjustment
Net
result
A. Intangible assets
A.1Owned
(5,674)
(55)
–
(5,729)
– internally generated
–
–
–
–
– other
(5,674)
(55)
–
(5,729)
A.2Held under finance lease
–
–
–
–
Total
(5,674)
(55)
–
(5,729)
501
SECTION 15
Other operating charges – Line item 220
15.1 Other operating charges: analysis
31/12/2008
31/12/2007
1.Amortization of leasehold improvements
2. Other charges
(7,083)
(15,912)
(5,364)
(5,013)
Total
(22,995)
(10,377)
The amount in line 1 relates to the amortization of leasehold improvements that cannot be
separated from the related assets and which, accordingly, are not reported separately under
property, plant and equipment. These costs are amortized over the period they are expected to
benefit or the residual duration of the lease, whichever is shorter.
“Other charges” in line 2 include the costs incurred by the Bank for early closure of certain
financial instruments subscribed by customers, and for the renegotiation of securitized
mortgages.
15.2 Other operating income: analysis
31/12/2008
31/12/2007
1. Expenses recharged to third parties
on current and savings accounts
2. Property rental income
3.Recharge of stamp duty and other indirect taxes
4. Other income
1,532 2,773 39,973 21,170 1,749
1,310
37,438
29,954
Total 65,448
70,451
Other income includes Euro 1,716 for the additional return received during the year on junior
notes held in relation to the Group’s own securitizations.
502
SECTION 16
Profit (loss) from equity investments – Line item 240
16.1 Profit (loss) from equity investments: analysis
Income item/Segments
1)
A.
B.
Companies under joint control
Income
91.646 –
– 91.646 6.473
1.Revaluations
–
–
–
–
–
2. Profit from disposals
91.646 –
– 91.646 –
3. Writebacks
–
–
–
–
–
4. Other positive changes –
–
–
– 6.473
Charges
–
–
–
–
–
1. Writedowns
–
–
–
–
–
2. Impairment writedowns –
–
–
–
–
3. Loss from disposals –
–
–
–
–
4. Other negative changes –
–
–
–
–
Net result
2)
A.
B.
Banking Insurance
Other 31/12/2008 31/12/2007
group companies companies
91.646 –
–
91.646 6.473
Companies subject to significant influence
Income
1.762 –
– 1.762 1.Revaluations
–
–
–
–
2. Profit from disposals
81 –
–
81 3. Writebacks
–
–
–
–
4. Other positive changes 1.681 –
– 1.681 Charges
(6.963)
–
– (6.963)
1. Writedowns
–
–
–
–
2. Impairment writedowns –
–
–
–
3. Loss from disposals –
–
–
–
4. Other negative changes (6.963)
–
– (6.963)
41.283
–
38.828
–
2.455
(845)
–
–
(395)
(450)
Net result
(5.201)
–
– (5.201)
40.438
Total
86.445 –
–
46.911
86.445 “Profits from disposals” of companies under joint control relate to the sale of all the shares
held in Linea Spa, classified in “Non-current assets held for sale” in the 2007 balance sheet.
“Profits from disposals” of companies subject to significant influence relate to the sale of the
entire interest in Otto a più investimenti Sgr.
“Other positive changes” and “Other negative changes” relating to companies subject to
significant influence refer to the results for the year of equity investments consolidated using
the equity method.
503
SECTION 17
Net gains (losses) arising on fair value adjustments to property, plant and
equipment and intangible assets – Line item 250
17.1 Net gains (losses) arising on fair value adjustments to property, plant and equipment and intangible assets: analysis
17.1.1 Attributable to the banking group
Assets/Income itemsRevaluationWritedowns Exchange differences
Net
Net
Positive Negative result at result at
31/12/2008 31/12/2007
A. Property, plant and equipment
A.1Owned:
– for business purposes
– for investment purposes
A.2Held under finance lease:
– for business purposes
– for investment purposes
B. Intangible assets
B.1Owned:
B.1.1 internally generated
B.1.2 other
B.2Held under finance lease
254 254 –
254 –
–
–
–
–
–
–
–
(159)
(159)
–
(159)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
95 95 –
95 –
–
–
–
–
–
–
–
172
172
–
172
–
–
–
–
–
–
–
–
Total
254 (159)
–
–
95
172
SECTION 18
Adjustments to goodwill – Line item 260
18.1 Adjustments to goodwill: analysis
a)Adjustments to goodwill
31/12/2008
31/12/2007
(1,386)
(660)
The adjustments reflect the total write-off of goodwill arising on consolidation of Nuova
Merchant SpA following this subsidiary’s net loss for the year.
504
SECTION 19
Gains (losses) on disposal of investments – Line item 270
19.1 Gains (losses) on disposal of investments: analysis
Income item/Segments
A.
B.
Buildings
– Profits from disposals
– Loss from disposals
Other assets
– Profits from disposals
– Loss from disposals
Net result
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
–
–
–
(201)
67 (268)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(201)
67 (268)
651
671
(20)
(6)
22
(28)
(201) –
–
(201) 645
The profits and losses reported above relate to the sale and/or retirement of certain property,
plant and equipment. as reported in Asset Section 11 of these notes, and to the writedown of
certain leasehold improvements after terminating the related leases early (Euro 224).
505
SECTION 20
Income taxes on current operations – Line item 290
20.1 Income taxes on current operations: analysis
Income item/Segments
Banking Insurance Other 31/12/2008 31/12/2007
group companies companies
1. Current income taxes (–)
(63,070)
2. Change in prior period
income taxes (+/–)
3,525 3.Reduction in current taxes (+)
–
4. Change in deferred tax assets (+/–)
18,813 5. Change in deferred tax liabilities (+/–) (20,360)
6. Income taxes for the year
(61,092)
–
– (63,070) (88,684)
–
–
–
–
–
– 3,525 1,752
–
–
–
– 18,813 (5,102)
– (20,360) 15,382
– (61,092) (76,652)
Current income taxes include withholding taxes on income from capitalization policies and
taxes paid abroad, as well as the option taken up by the subsidiaries Banca Nuova and Cassa
di Risparmio di Prato to pay a flat tax under art. 1.48 of the 2008 Finance Act, releasing them
from further tax on the differences between the book value and tax base of assets arising from
deductions made for tax but not in the accounts up until 31 December 2008 (known as the
“Form EC” release).
The change in prior period income taxes refers to surplus tax provisions booked in previous
years.
SECTION 21
Profit (loss) from disposal groups, net of tax– Line item 310
Nothing has been classified in this section.
506
SECTION 22
Minority interests – Line item 330
22.1 Analysis of line item 330 “Minority interests”
1.
2.
3.
4.
5.
6.
5.
Cassa di Risparmio di Prato SpA
Banca Nuova SpA
Nordest Merchant SpA
PrestiNuova SpA
BPVi Fondi Sgr SpA
Farbanca SpA
Verona Gestioni Sgr SpA
Total
31/12/2008
31/12/2007
(97)
(62) (166)
(140)
(457)
(1,394)
–
(2,569)
(41)
(86)
(138)
(227)
(407)
(341)
(2,316)
(3,809)
The absorption of the subsidiary Verona Gestioni Sgr into the subsidiary BPVi Fondi Sgr was
completed on 1 November 2008.
SECTION 23
Other information
23.1 Amounts collected on behalf of third parties: debit and credit adjustments
31/12/2008
31/12/2007
a)
b)
3,787,312 16,515 3,744,143 26,654 –
3,950,722 11,594 3,918,863 20,265 3,515,066
14,498
3,481,319
19,249
–
3,684,124
9,767
3,650,810
23,547
Debit adjustments
1. Current accounts
2. Central portfolio
3. Cash
4. Other accounts
Credit adjustments
1. Current accounts
2. Transferors of notes and documents
3. Other accounts
The difference between the “debit” and “credit” adjustments during the year is classified in
line item 100 “Other liabilities”.
507
SECTION 24
Earnings per share
Basic earnings per share and diluted earnings per share are reported below, as required by
para. 70.b) of IAS 33.
Basic earnings per share is determined by dividing the results attributable to the holders of the
Parent Bank’s ordinary equity instruments (the numerator) by the weighted average number of
ordinary shares outstanding during the year (the denominator).
Diluted earnings per share is determined by adjusting both the results attributable to the
holders of the Parent Bank’s ordinary equity instruments and the weighted average number of
shares outstanding to take account of any dilutive effects associated with the convertible bond
issued during the prior year.
Earnings per share (basic)
Earnings per share (diluted)
31/12/2008
1,569
1,588 31/12/2007
1,684
1,685
24.1 Average number of ordinary shares on dilution of share capital
Weighted average number of ordinary shares Dilution adjustment Weighted average number of ordinary shares
(fully diluted)
31/12/2008
31/12/2007
69,305,047
3,996,305
67,545,273
1,691,987
73,301,352
69,237,260
In order to determine the basic earnings per share, the weighted average number of ordinary
shares outstanding is calculated with reference to the number of ordinary shares outstanding
at the start of the year, as adjusted by the number of ordinary shares acquired or issued during
the year multiplied by the number of days such shares were in circulation in proportion to
the total number of days in the year. Treasury shares are not included in the total number of
shares outstanding.
In order to determine the diluted earnings per share, the weighted average number of ordinary
shares outstanding is increased by the weighted average number of additional ordinary shares
that would have been outstanding had all potential ordinary shares with a dilutive effect been
converted. The potential ordinary shares with a dilutive effect, calculated on the basis of the
conversion ratio established by the regulations of the convertible bond issued in the year, were
treated as if they had been converted into ordinary shares on the bond issue date (31 July
2007).
24.2 Other information
Since there are no preference shares, the results attributable to the holders of ordinary equity
instruments coincide with net income for the year.
508
Part D
SEGMENT INFORMATION
The composition of the various business segments is as follows:
Retail banks: Banca Popolare di Vicenza SCpA
Cassa di Risparmio di Prato SpA
Banca Nuova SpA
Farbanca SpA
Product companies:
B.P.Vi. Fondi SGR SpA
Nordest Merchant SpA
NEM Sgr SpA
NEM 2 SGR SpA
BPV Finance (International) Plc
PrestiNuova SpA
Nuova Merchant SpA
Service companies: Immobiliare Stampa SpA
Monforte 19 Srl
Servizi Bancari SpA
The composition of the various geographical areas is as follows:
Northern Italy: Banca Popolare di Vicenza SCpA
Immobiliare Stampa SpA
Servizi Bancari SpA
B.P.Vi. Fondi SGR SpA
Nordest Merchant SpA
NEM Sgr SpA
NEM 2 SGR SpA
Monforte 19 Srl
Central Italy:
Cassa di Risparmio di Prato SpA
Nuova Merchant SpA
Farbanca SpA
Southern Italy and the Islands: Banca Nuova SpA
PrestiNuova SpA
Other EU countries:
BPV Finance (International) Plc
509
A. PRIMARY SEGMENT
A.1 Distribution by business segments: income statement
Line items/SegmentsRetail
Product
Service
banks companies companies
OtherTotal
1. Interest income and similar revenues
(line item 10)
1,504,510 57,422 400 (28,780) 1,533,552
2. Interest expense and similar charges
(line item 20)
(868,911) (40,958) (1,934) 31,201 (880,602)
3. Net fee and commission income
(line item 60)
257,164 14,537 (84)
237 271,854
4. Dividend and similar income
(line item 70)
57,726 2,020 (30,632) 29,114
5. Net change in value of financial assets
and liabilities (line items 80, 90, 100
and 110)
19,227 (31,095)
– 10,327 (1,541)
6. Net impairment adjustments to financial assets (line item 130)
(175,667) (15,741)
– 5,089 (186,319)
7. Net income from insurance
activities (line items 150 and 160)
–
–
–
–
–
8.Administrative costs (line item 180) (660,127) (22,150) (11,961) 21,541 (672,697)
9. Net provisions for risks and charges (line item 190)
(22,559)
(10)
(50)
155 (22,464)
10. Net adjustments to property, plant and
equipment (line items 200 and 210) (19,759)
(325) (5,705)
(367) (26,156)
11. Other operating charges/income
(line items 220, 240, 250, 260 and 270) 135,339 996 23,564 (32,493) 127,406
Net result
226,943 (35,304)
4,230 (23,722) 172,147
The “Other” column includes the eliminations not considered since they relate to other
segments and consolidation adjustments.
510
A.2 Distribution by business segment: balance sheet
Retail
Product
Service
banks companies companies
OtherTotal
1. Loans and advances to customers
(line item 70)
22,587,294 684,485 – (567,139)
2. Deposits with banks and liquid
assets (line items 10 and 60)
2,545,372 146,990 11,016 (222,826)
3. Financial assets
(line items 20, 30, 40, 50 and 90)
1,216,855 94,978 4,726 (12,129)
4. Equity investments (line item 100)
1,427,456 2,400 – (1,110,256)
5. Property, plant and equipment and
intangible assets (line items 120 and 130) 944,054 4,833 357,605 213,327 6. Other assets (line items 150 and 160)
466,117 6,115 859 (54,091)
Total assets
29,187,148 939,801 374,206 (1,753,114)
1. Due to customers (line item 20)
12,115,206 –
– 46,671 2. Deposits from banks (line item 10)
2,836,348 793,886 134,025 (687,541)
3. Financial liabilities
(line items 30, 40, 50 and 60)
10,071,507 23,411 – (174,589)
4. Other liabilities (line items 100, 110
and 120)
834,733 25,992 10,942 (51,946)
Total liabilities
25,857,794 843,289 144,967 (867,405)
Total indirect deposits
15,890,206 – – 22,704,640
2,480,552
1,304,430
319,600
1,519,819
419,000
28,748,041
12,161,877
3,076,718
9,920,329
819,721
25,978,645
– 15,890,206
The “Other” column includes the eliminations not considered since they relate to other
segments and consolidation adjustments.
511
B. SECONDARY SEGMENT
B.1 Distribution by geographical area: income statement
Line items/Segments
Northern
Italy
Italy
Central Southern Italy
Italy and the Islands
Other EU
countries
OtherTotal
1. Interest income and similar revenues
(line item 10)
1,109,506 250,942 224,922 30,993 (82,811) 1,533,552
2. Interest expense and similar charges
(line item 20)
(704,314) (120,053) (115,662)
(25,805)
85,232 (880,602)
3. Net fee and commission income
(line item 60)
191,138 40,087 40,489 (138)
278 271,854
4. Dividends and similar income
(line item 70)
56,083 140 2,246 1,277 (30,632)
29,114
5. Net change in value of financial assets
and liabilities (line items 80, 90, 100
and 110)
15,889 (210)
3,731 (31,278)
10,327 (1,541)
6. Net impairment adjustments to
financial assets (line item 130)
(126,709)
(38,151)
(12,011)
(14,537)
5,089 (186,319)
7. Net income from insurance activities
(line items 150 and 160)
–
–
–
–
–
–
8.Administrative costs (line item 180)
(439,426) (124,795) (114,251)
(1,493)
7,268 (672,697)
9. Net provisions for risks and charges
(line item 190)
(15,382)
(4,540)
(2,697)
–
155 (22,464)
10. Net adjustments to property, plant and
equipment (line items 200 and 210)
(17,771)
(4,014)
(3,984)
(20)
(367)
(26,156)
11. Other operating charges/income
(line items 220, 240, 250, 260 and 270)
129,751 8,697 6,948 271 (18,261)
127,406
Net result
198,765 8,103 29,731 (40,730) (23,722)
172,147
The “Other” column includes the eliminations not considered since they relate to other
segments and consolidation adjustments.
512
B.2 Distribution by geographical area: balance sheet
Line items/Segments
Northern
Italy
Italy
Central Southern Italy
Italy and the Islands
Other EU
countries
OtherTotal
1. Loans and advances to customers
(line item 70)
15,894,016 3,713,398 3,221,013 315,813 (439,600)
2. Deposits with banks and liquid assets
(line items 10 and 60)
3,253,999 215,039 924,661 132,930 (2,046,077)
3. Financial assets (line items 20, 30, 40, 50
and 90)
1,103,636 82,743 50,455 79,725 (12,129)
4. Equity investments (line item 100)
1,394,241 2,525 33,090 – (1,110,256)
5. Property, plant and equipment and
intangible assets (line items 120 and 130) 1,109,505 112,504 84,466 16 213,328 6. Other assets (line items 150 and 160)
252,296 86,411 128,922 118 (48,747)
Total assets
23,007,693 4,212,620 4,442,607 528,602 (3,443,481)
1. Due to customers (line item 20)
7,482,117 1,919,896 2,690,240 –
69,624 2. Deposits from banks (line item 10)
3,631,348 797,931 583,710 472,964 (2,409,235)
3. Financial liabilities (line items 30, 40, 50
and 60)
8,182,321 1,065,815 823,370 23,411 (174,588)
4. Other liabilities (line items 100, 110
and 120)
647,623 119,807 98,550 350 (46,609)
Total liabilities
19,943,409 3,903,449 4,195,870 496,725 (2,560,808)
Total indirect deposits
12,926,080 1,692,686 1,271,440 –
22,704,640
2,480,552
1,304,430
319,600
1,519,819
419,000
28,748,041
12,161,877
3,076,718
9,920,329
819,721
25,978,645
– 15,890,206
The “Other” column includes the eliminations not considered since they relate to other
segments and consolidation adjustments.
513
Part E
INFORMATION ON RISKS AND RELATED HEDGING POLICY
SECTION 1
RISKS OF THE BANKING GROUP
1.1 CREDIT RISK
QUALITATIVE DISCLOSURES
1. General aspects
Credit risk is the risk of losses due to non-performance by the counterparty (specifically the
obligation to repay loans) or, more broadly, the failure of customers or their guarantors to
meet their obligations.
Credit risk also usually includes “Country risk”, being the risk that public and private
borrowers in a country might be affected by the political, economic and financial situation
there. In such cases, the failure to meet their obligations may depend on external factors
beyond their control (political and economic risks, currency controls etc.) that relate to the
country in which they are resident.
Lending by the BPVi Group has always aimed to support both the borrowing needs of
households and the development and consolidation of businesses, especially small and
medium-sized firms, which typify the local economies where the Group’s banks operates.
In keeping with prior years, the lending policy adopted in 2008 by the Group’s different
businesses sought to respond to the needs of individuals and firms, while paying particular
attention to the difficult economic situation, credit risk and an adequate level of guarantees.
With reference to private customers, the development of activities focused on the longer-term
segment with the granting and/or renegotiation of home mortgages and personal loans either
directly via the Group’s banks or via other companies.
Development activities in relation to small businesses have mainly focused on shortterm lending, where the risk is spread widely, using technical forms that are supported by
underwriting syndicates wherever possible. Medium-term lending has been expanded
in relation to medium and large businesses, with a special focus on those with secured
guarantees. In all cases, special care has been taken in the selection of economic sectors from
which borrowers come, in order to give preference to lower risk activities. Sector analysis
has become increasingly important in the credit management process and involves the
examination of internal data and external data provided by specialist Italyn companies, in
order to maximize their significance in view of the characteristics of the different banks and
areas in which they operate.
The Group is not active in the field of credit derivatives.
Lastly, it is reported that the disclosures required under Pillar 3 have been elaborated. The
new rules introduce compulsory disclosure concerning capital adequacy, exposure to risks
and the general characteristics of systems used to identify, measure and manage them. These
disclosures enhance the transparency of the banking business’s risk management. In particular,
the Bank of Italy has prepared specific tables containing the quantitative and qualitative
information that interAVERAGEries need to publish, hence allowing data comparison.
514
These disclosures will be published on the website of the parent bank Banca Popolare di
Vicenza (www.popolarevicenza.it) in the “Corporate Documents” section.
2. Credit risk management policies
2.1 Organizational aspects
The Group’s regulations for the management of lending, contained in its Credit Manual,
require a prudent approach to the assessment of risk. At the investigation stage, borrowers
are required to provide all the documentation needed for an adequate assessment of their
credit-worthiness. Such documentation must allow assessment of the consistency between
the amount requested, the technical form of the loan and the project to be financed; it must
also allow the characteristics and qualities of borrowers to be identified, having regard for all
forms of relationship with them.
The risks associated with individual customers from the same Group must be considered
separately. If there are legal or economic relations between individual customers, these parties
form a unit in risk terms and represent a Group (economic group or risk group).
When granting and/or renewing lines of credit, it is necessary to verify the exposure by the
entire BPVI Group to borrowers and that to any groups to which they belong.
Pricing and/or income from the relationship cannot be a factor when evaluating creditworthiness and agreeing a loan.
Account managers monitor and administer loans day by day and are responsible for their
granting. If customer risk increases, the operating objective is to contain the bank’s risk by
adopting all the measures needed for this purpose on a timely basis.
Further to the “New prudential supervisory instructions for banks” (Bank of Italy Circular
263/06), the Group has adopted a process which, as far as property securing loans is
concerned, constantly checks and updates its estimated value, also by using statistical methods
based on georeferenced systems. In accordance with these instructions, a new category of
anomalous loan (called “Past due”) was introduced at the end of 2007 for the purposes of
isolating “Past due exposures”. Unlike the other existing classifications, the new one originates
solely from the causes defined by the new supervisory rules.
With regard to the Basel II project, rating models have been implemented and put into
operation for retail counterparties (individuals and small firms) and for small corporate
counterparties (from Euro 2.5 to 50 million in turnover) and mid corporate counterparties
(from Euro 50 to 200 million in turnover).
The rating model for corporate counterparties with turnover in excess of Euro 200 million is
at an advanced stage of implementation at the Parent Bank.
515
2.2 Management, measurement and monitoring systems
The lending process is organized as follows:
– The granting of loans involves: investigation, assessment, decision, formalization of the loan
and any guarantees;
– The management of loans involves: way utilized, monitoring, review of facility, management
of anomalies;
– Management of non-performing loans and recovery of loans.
The first and most important step in the measurement and management of risk is taken when
loans are granted.
The Group’s regulations for the management of lending, contained in its Credit Manual,
require a prudent approach to the assessment of risk. The documentation needed to make an
adequate assessment of a borrower’s credit and the proposed structure of loan, with particular
attention to the medium/long-term feasibility of projects financed, must be obtained by bank
officials at the preliminary stage of the loan process. Credit-worthiness is also assessed on the
basis of all the relationships that the borrower, and its related economic group, has with the
BPVi Group. On the other hand, pricing and/or income from the relationship cannot be a
factor when evaluating credit-worthiness and agreeing a loan.
Account managers monitor and administer loans day by day and are responsible for their
granting.
The investigation process depends on the type of customer concerned. For individual and
small businesses, the granting or otherwise of the facility requested is dealt with at branch
or Area level for relatively small amounts. This follows a simplified process using an internal
scoring system, which is an IT tool that checks credit-worthiness at the time new lines of credit
are granted, using both internal and external sources of information. For better control over
the process of granting credit to individual customers, stricter limits have been introduced
on decision-making powers, identified on the basis of the risk profile attributed to the
counterparty by the internal scoring system.
The granting of loans to companies/entities follows a more complex process, which is
the responsibility of account managers, up to their authorization limits, and the central
departments for larger amounts. Proposed lending to such customers must be supported by
a technical opinion from the Ordinary Loans Department, presented by its Organizational
Units.
The risk-management system (SGR) plays an important role in the monitoring and
management of credit risk, allowing account managers to check on changes in the credit status
of customers and quickly identify any deterioration in the standing of borrowers.
As required by the Supervisory Instructions (Part IV, Chapter 11, Section II), suitable systems
for the identification, measurement and control of risks have been adopted in order to manage
lending in a proper and prudent manner.
516
Controls form an integral part of the daily activities of the Group. There are four types:
– Functional controls: these are performed at organizational level (e.g. hierarchical controls)
or are built into procedures or carried out as part of back-office work;
– Risk-management controls: these contribute to defining the ways in which risk is measured,
check compliance with the limits established for the various functions and monitor the
consistency of operations. These controls are performed by functions without operational
responsibilities;
– Internal revision: the purpose of this activity is to reassess the credit rating of individual
borrowers, at predetermined intervals.
– Inspections: these are carried out by the audit function both on-site and on a remote basis,
in order to verify the quality of loans and the support for decisions taken by the functions
responsible for granting and administering loans.
2.3. Credit risk mitigation techniques
The credit risk associated with individual counterparties or groups is mitigated by obtaining
security (pledges, mortgages and special privileges) and/or personal guarantees (sureties,
endorsements, credit mandates and letters of patronage).
The degree of mitigation attributed to each guarantee is governed by specific regulations that
take account of the varying nature of the guarantees obtained.
Analysis of these guarantees does not reveal a special degree of concentration within the
various technical forms of cover/guarantee since, except with regard to general sureties,
they are essentially “specific” to each position. In addition, overall, there are no contractual
restrictions that might undermine the legal validity of the guarantees obtained.
2.4 Impaired financial assets
Anomalous loans not classified as non-performing are monitored in a standard fashion for
all Group banks by the Anomalous Loans Unit, whose mission is to “prevent default”. This
Unit, which reports hierarchically and functionally to the Loans Division, operates at Head
Office and, with regard to the Parent Company, in the Area offices responsible for the branch
network.
The main tool used to identify “anomalous” loans is the SGR procedure (Sistemi Gestione
Rischi or Risk Management System) which provides a “performance rating”. In the first half of
2009 this procedure will interface with the new Early Warning monitoring system, developed
to make the identification of signs of deterioration more efficient and precise.
Once a month this procedure analyzes all individual and corporate customers with an open
position (the higher of the line of credit or the drawdown) of at least Euro 200, excluding the
positions that are already classified as past due, watchlist or non-performing, attributing them
a rating on the basis of a 12 point rising scale. This classification represents a forecast for the
next 6-12 months.
Based on the class of risk identified, the SGR system proposes to the account manager
a classification of the position in one of the following categories: “performing” (BO),
“observation” (OS), “high risk” (AR) or “past due” (SC).
517
The account manager, having assessed the real situation of the customer with regard to all
positions that are not automatically classified as “performing”, may:
– agree with the proposed classification and therefore establish a suitable plan for improving
the position;
– disagree with the proposed classification, being in possession of information that justifies
an exception to the system’s proposal, and not confirm the proposal. This option is not
available for “past due” classifications since the anomaly is identified on the basis of
objective factors (as defined by Basel 2) and may not be “excepted” by the account
manager.
Accordingly, with regard to customers with “anomalies”, account managers are required to
take a preventive approach rather than one based on justifications, thereby minimizing the
need to take action for the forced recovery of loans. In general, positions remain under
“observation” or “high risk” or “past due” for a maximum predefined period, after which
they are either returned to “performing“ or transferred to “default”.
“Restructured” loans are not automatically identified and managed by the SGR procedure,
but in compliance with the supervisory rules (“Cash and off-balance sheet exposures (...) for
which a bank, due to deterioration in the borrower’s economic and financial status, allows
the original contractual conditions to be revised (...) giving rise to a loss”), their management
focuses on checking observance of the agreed restructuring plan and the fact that they may be
compatible with other internal classifications, such as “watchlist”.
Activities relating to watchlist loans give priority to friendly, even if gradual, recovery of credit
or at least to the mitigation of any negative effects in the event of default.
The classification of loans as “non-performing” is based on the criteria laid down in the
supervisory regulations. Accordingly, this category comprises loans to parties that are insolvent
or in similar circumstances, even if not confirmed by a judge, the recovery of which is the
subject of court action or other suitable measures.
Specific staff functions within Banca Nuova and CariPrato are responsible for the management
of non-performing loans and the recovery of loans, while since the start of 2008 the Parent
Bank’s “Non-performing loans, recovery and disputed loans” unit has been incorporated in
the Anomalous Loans unit forming part of the Loans Division.
These units consist of internal lawyers and personnel who carry out administrative and
accounting activities in relation to the non-performing loans concerned. The accounting
processes make use of an IT procedure common to all the companies belonging to the Sec
Servizi consortium.
Recovery activities are carried out on a pro-active basis, with a view to optimizing the legal
procedures and maximizing the outcome in economic and financial terms. In particular, when
evaluating the steps to take, internal lawyers prefer to take out-of-court action with recourse to
settlements that accelerate recoveries and contain the level of costs incurred. Where this route
is not applicable, and especially with regard to larger amounts and when greater recoveries
can be expected, external lawyers are instructed to take legal action since this represents both
a method of putting legitimate pressure on the debtor and a way to resolve disputes.
Small loans that are uncollectible or difficult to collect are generally grouped together and
sold without recourse, given that legal action would be uneconomic in cost/benefit terms.
For financial reporting purposes, non-performing loans are analyzed on a case-by-case basis
518
to determine the provisions required to cover expected losses. The extent of the loss expected
from each relationship is determined with reference to the solvency of the debtor, the
nature and value of the guarantees obtained and the progress made by recovery procedures.
Estimates are made on a prudent basis using discounting criteria, as required by the applicable
accounting standards. This complex evaluation process is assisted by the subdivision of the
loan portfolio into similar categories and year of origin, taking account of the realizable value
of the personal and/or corporate assets of the debtor and the guarantors.
Lastly, the proper performance of the task of administering and evaluating non-performing
loans is assured by both periodic internal audit checks and by external verification activities,
carried out by the Board of Statutory Auditors and the independent auditors.
519
QUANTITATIVE DISCLOSURES
A. CREDIT QUALITY
A.1 IMPAIRED AND PERFORMING EXPOSURES: SIZE, ADJUSTMENTS, TRENDS,
ECONOMIC AND TERRITORIAL DISTRIBUTION
A.1.1 Distribution of financial assets by portfolio and credit quality (book values)
Portfolio/Quality
Banking group
Non- WatchlistRestructured
Past due Country
performing
risk
Other
assets
1. Financial assets held
for trading
5
3,726 –
1,344 – 788,966 2. Financial assets
available for sale
–
–
–
–
– 435,913 3. Financial assets held
to maturity
–
–
–
–
–
25,737 4. Loans and advances
to banks
–
911 –
–
– 2,304,707 5. Loans and advances
to customers
343,618 351,276 27,376 121,671 – 21,860,699 6. Financial assets
at fair value
–
–
–
–
–
17,077 7. Financial assets being sold
–
–
–
–
–
–
8. Hedging derivatives
–
–
–
–
–
–
Total at 31/12/2008
343,623 355,913 27,376 123,015 Total at 31/12/2007
315,561 273,957 40,360 520
89,910 Other companies
Impaired
Other
assets
Total
–
–
794,041
–
–
435,913
–
–
25,737
–
– 2,305,618
–
– 22,704,640
–
–
–
–
–
–
– 25,433,099 –
– 26,283,026
8,182 24,325,601 –
– 25,053,571
17,077
–
–
A.1.2 Distribution of financial assets by portfolio and credit quality (gross and net values)
Portfolio/Quality
Impaired assets Gross
Specific Portfolio
exposure adjustments adjustments
Net exposure
Other assets
Gross Portfolio
exposure adjustments Total
Net
exposure
A. Banking group
1. Financial assets held for trading
5,690 (615)
– 5,075 X
X 788,966 794,041
2. Financial assets available for sale
–
–
–
– 444,360 (8,447) 435,913 435,913
3. Financial assets held to maturity
–
–
–
– 25,737 – 25,737 25,737
4. Loans and advances to banks
1,208 (297)
–
911 2,304,707 – 2,304,707 2,305,618
5. Loans and advances to customers 1,284,649 (440,708)
– 843,941 21,967,362 (106,663) 21,860,699 22,704,640
6. Financial assets at fair value
–
–
–
– 17,077 – 17,077 17,077
7. Financial assets being sold
–
–
–
–
–
–
–
–
8. Hedging derivatives
–
–
–
–
–
–
–
–
Total A
B.
1.
2.
3.
4.
5.
6.
7.
8.
1,291,547 (441,620)
– 849,927 24,759,243 (115,110) 25,433,099 26,283,026
Other consolidated companies
Financial assets held for trading
–
–
–
–
–
–
–
–
Financial assets available for sale
–
–
–
–
–
–
–
–
Financial assets held to maturity
–
–
–
–
–
–
–
–
Loans and advances to banks
–
–
–
–
–
–
–
–
Loans and advances to customers
–
–
–
–
–
–
–
–
Financial assets at fair value
–
–
–
–
–
–
–
–
Financial assets being sold
–
–
–
–
–
–
–
–
Hedging derivatives
–
–
–
–
–
–
–
–
Total B
–
–
–
Total at 31/12/2008
1,291,547 (441,620)
Total at 31/12/2007
1,065,263 (301,135) (44,340)
–
–
–
–
–
– 849,927 24,759,243 (115,110) 25,433,099 26,283,026
719,788 24,439,621 (105,838) 24,333,783 25,053,571
521
A.1.3 Cash and off-balance sheet exposures to banks: gross and net values
Type of exposure/Amounts
Gross
exposure
Specific
adjustments
Portfolio
adjustments
Net
exposure
2,457,089 (297)
(2,225)
2,454,567
A.2Other companies
a) Impaired assets
–
–
–
b) Other
–
–
–
–
–
TOTAL A.2
A. CASH EXPOSURES
A.1Banking group
a) Non-performing loans
–
–
–
–
b) Watchlist loans
1,208 (297)
–
911
c) Restructured exposures
–
–
–
–
d) Past due exposures
–
–
–
–
e) Country risk
–
X
–
–
f) Other assets
2,455,881 X
(2,225)
2,453,656
TOTAL A.1
TOTAL A
–
–
–
–
2,457,089 (297)
(2,225)
2,454,567
B. OFF-BALANCE SHEET EXPOSURES
B.1Banking group
a) Impaired assets
–
–
–
–
b) Other
817,670 X
–
817,670
TOTAL B.1
817,670 –
–
817,670
B.2Other companies
a) Impaired assets
–
–
–
–
b) Other
–
–
–
–
TOTAL B.2
TOTAL B
522
–
–
–
–
817,670 –
–
817,670
A.1.4 Cash exposures to banks: changes in gross impaired loans and loans subject to “country risk”
Categories
Non-performing Watchlist Restructured Past
due
Country
risk
A. Opening gross exposure of which: sold but not derecognized
–
–
–
–
–
–
–
–
5,353
–
B. Increases
B.1Transfers from performing loans B.2Transfers from other categories
of impaired exposure
B.3Other increases
–
–
1,208 1,208 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Transfers to performing loans
C.2Write-offs
C.3Collections
C.4Proceeds from disposals C.5Transfers to other categories
of impaired exposure
C.6Other decreases
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,353
–
–
–
–
–
–
–
–
–
–
–
–
–
5,353
D. Closing gross exposure of which: sold but not derecognized
–
-
1,208 -
–
-
–
-
–
-
Past
due
Country
risk
A.1.5 Cash exposures to banks: changes in total writedowns
Categories
Non-performing Watchlist
Restructured A. Total opening adjustments
of which: sold but not derecognized
–
–
–
–
–
–
–
–
–
–
B. Increases
B.1Adjustments
B.2Transfers from other categories
of impaired exposure
B.3Other increases
–
–
297 297 –
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
C. Decreases
C.1Write-backs on valuation
C.2Write-backs due to collections
C.3Write-offs
C.4Transfers to other categories
of impaired exposure
C.5Other decreases
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
D. Total closing adjustments of which: sold but not derecognized
–
–
297 –
–
–
–
–
–
–
523
A.1.6 Cash and off-balance sheet exposures to customers: gross and net values
Type of exposure/Amounts
Gross
exposure
Specific
adjustments
Portfolio
adjustments
Net
exposure
23,657,948 (440,708)
(113,193)
23,104,047
A.2Other companies
a) Impaired assets
b) Other
–
–
–
–
–
–
–
–
TOTAL A.2
–
–
–
–
23,657,948 (440,708)
(113,193)
23,104,047
B. OFF-BALANCE SHEET EXPOSURES
B.1Banking group
a) Impaired assets
40,073 b) Other
4,941,719 (1,063)
X
–
(218)
39,010
4,941,501
TOTAL B.1