Coperta ING:Layout 1 · Corporate Name MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.p.A. “Monte dei Paschi di Siena” Banking Group Year of Incorporation 1954 as Mediocredito Regionale

FINANCIALSTATEMENTS

AS OF

31 December 2008

MPS Capital Services Banca per le Imprese SpA

FINANCIAL STATEMENTSAS OF 31 DECEMBER 2008

- Report on Operations 9

Reference Context 13

Salient Aspects of Management 21

Credit aggregates 24

Deposits 32

Main Financial Aggregates 33

Equity Investments 34

Risk Management 39

Human Resources 43

Organization, Control and Information Systems 46

Environmental Issues 49

Personal Data Protection 50

Relations with Group companies 51

Significant Events Subsequent to the End of the Year and Outlook on Operations 53

Proposals to the Shareholders’ Meeting 54

- Financial Statements 55

- Explanatory Notes 65

Part A - Accounting Policies 67

Part B - Notes to the Balance Sheet 89

Part C - Notes to the Income Statements 145

Part D - Segment Reporting 171

Part E - Information on Risks and Related Hedging Policies 172

Part F - Information on Equity 236

Part G - Business Combinations 243

Part H - Transactions with Related Parties 244

Part I - Share-Based Payments 247

Attachments to the Explanatory Notes 249

Certification Report 259

Report by the Board of Auditors 263

Summary of the main resolutions of the Shareholders’ Meeting 269

Table of contents

Financial Statements as of 31 December 2008 MPS CAPITAL SERVICES BANCA PER LE IMPRESE

5

Corporate Name MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.p.A.“Monte dei Paschi di Siena” Banking Group

Year of Incorporation 1954 as Mediocredito Regionale della Toscana

Registered Office and Florence - Viale G. Mazzini, 46General Management Telephone +39 055-24981 - Fax +39 055-242750

Website www.mpscapitalservices.it

Global Markets Division Siena - Viale G. Mazzini, 23Telephone +39 0577-209111 - 53711 Fax +39 0577-209100

Investment Banking Division Rome - Via Piemonte, 127 Telephone +39 06-42048325 - Fax +39 06-42016914

Branch Rome - Via Barberini, 86Telephone +39 06-42006611 - Fax +39 06-42006680

Representative Offices Turin - c/o Banca Monte dei Paschi di Siena - Via Mazzini, 14/16Telephone +39 011-837445 - Fax +39 011-8812091

Milan - Via Dante, 14 (2nd floor)Telephone +39 02-8823321 - Fax +39 02-88233233

Padua - c/o Banca Antonveneta - Piazzetta Turati, 17Telephone +39 049-6991659 - Fax +39 049-6992195

Mantua - c/o Banca Agricola Mantovana Via P. Verri, 14 Centro Direzionale BOMA Corpo “D”Telephone +39 0376-312091

Bologna - c/o Banca Monte dei Paschi di Siena - Via Riva di Reno, 65Telephone +39 051-264101 - Fax +39 051-2759398

Siena - c/o Banca Monte dei Paschi di Siena - Passaggio Stazione Vecchia, 2 Telephone +39 0577-271928

Perugia - c/o Banca Monte dei Paschi di Siena Largo Cacciatori delle Alpi, 1/3Telephone +39 075-5727249 - Fax +39 075-5739863

Ancona - Via 1 Maggio, 20Telephone +39 071-2905087 - Fax +39 071-12868033

Francavilla al Mare (CH) - Via Nazionale Adriatica, 56/ATelephone +39 085-492161 - Fax +39 085-814025

Naples - c/o Banca Monte dei Paschi di SienaCentro Direzionale - Via G. Porzio Isola B Lotto 4Telephone +39 081-7341052 - Fax +39 081-7341067

Bari - c/o Banca Monte dei Paschi di Siena - Piazza Aldo Moro, 21Telephone +39 080-5226268 - Fax +39 080-5220077

Catania - c/o Banca Monte dei Paschi di Siena - Via Umberto, 288Telephone +39 095-7349121 - Fax +39 095-7349100

Company Profile

MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements as of 31 December 2008

6

BOARD OF DIRECTORS

Chairman Aldighiero FINIVice-Chairman Massimo ABBAGNALEVice-Chairman Marco STADERINIManaging Director Antonio MARINODirector Graziano BATTISTIDirector Gabriele BENIDirector Sirio BUSSOLOTTIDirector Turiddo CAMPAINIDirector Gianni CASTAGNINIDirector Angelo MARTINELLIDirector Pietro PAGLIUCADirector Francesco POGGIDirector Riccardo RAPEZZIDirector Girolamo STROZZI MAJORCA RENZI

BOARD OF AUDITORS

Chairman Paolo FABBRINIActing Auditor Stefano BARTALINIActing Auditor Paolo BIGLIAZZISubstitute Auditor Agostino SANTONISubstitute Auditor Alessia BASTIANI

DIREZIONE

General Manager Giorgio PERNICISubstitute Assistant General Manager Leonardo ZAMPARELLAAssistant General Manager Gabriele GORIAssistant General Manager Carmine MANCINIAssistant General Manager Giulio PASCAZIOAssistant General Manager Federico VITTO

AUDITING COMPANY

RECONTA ERNST & YOUNG S.P.A.

Corporate Officers and Auditing Company


7

The following ratings have been assigned to the Bank by Moody’s Investors Services Ltd.:

• LONG-TERM DEBT RATING: A1• SHORT-TERM DEBT RATING: P-1• FINANCIAL STRENGTH RATING: D+

The rating assigned by Moody’s is unchanged compared to the past, with a stable outlook.The long-term debt rating is higher than the average ratings of competitors.The financial strength rating is in line with that assigned to other banks operating in medium-term lending which arepart of a banking group.

Ratings


8

As of 31 December 2008, the Share Capital broke down as follows:

Shareholder No. of shares Amount in euros PercentageBanca Monte dei Paschi di Siena SpA 763,191,238 206,061,634.26 89.15%Banca Toscana SpA92,155,200 24,881,904.00 10.77%Other shareholders709,551 191,578.77 0.08%Total 856,055,989 231,135,117.03 100.00%

Shareholding Structure


9

REPORT ONOPERATIONS

1.2

1.25

1.3

1.35

1.4

1.45

1.5

1.55

1.6

1.65

Jan 08 Mar 08 May 08 Jul 08 Sept 08 Nov 08

EURO/DOLLAR CROSS-RATE TREND

Source: Bloomberg

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5


ECB Rates Fed Rates

ECB/FED INTEREST RATES

Source: Bloomberg


Reference Context

In 2008, expectations of growth steadily deteriorated as the effects of the credit crunch took on increasingly largeproportions. Following the collapse of Bear Stearns in March, the outlook had seemed to improve; however, the sub-

sequent crises of two mortgage giants - Fannie Mae and Freddie Mac - and the bankruptcy of Lehman Brothers (Sep-tember 2008) had an enormous negative impact on operators’ expectations.

The US closed 2008 with GDP growth of 1.1%, from 2.1% in the previous year. For the Eurozone, 2008 closed withgrowth of 1.0%, while in Japan the GDP should result near zero.

Market rates both in the Eurozone and the US dropped during the second half of the year.

The Fed continued cutting interest rates, a process it began in 2007, bringing the Fed Funds Target rate from 4.25%at the beginning of the year to 0-0.25% at the end of the year, initiating a quantitative easing policy which involvesdirect acquisitions of assets on the market. The ECB initially raised rates by 25 bp (July 2008), then began a series ofcuts starting in October, bringing the ECB rate down to 2.5% from 4% at the beginning of the year.

In the first part of 2008, the USD depreciated against the Euro, reaching the record level of 1.6038 in July. Subse-quently, the new phase of increased risk perception, linked to the sharpening of the credit crunch, set off a processof market appreciation of “greenbacks” against the Euro, reaching an exchange rate of 1.2331 in October. The yearclosed in the grip of a new phase of depreciation for the USD, which returned to around 1.40 against the Euro.

13


Rates on government bonds, both in the US and the Eurozone followed a bearish trend during the second half of theyear. This trend specifically concerned two-year bonds, primarily in the US, where rates reached 0.60% in Decem-ber 2008. Similarly, in the Eurozone, two-year government bonds reached rates of 1.68% at year-end.

The curves of yield rates became progressively steeper, especially in the second part of the year. In the US, the 2-10spread on government bonds reached 260 bp in November, to then drop to 145 at the end of 2008. A similar but lessmarked trend was visible in the Eurozone, where the same spread reached 120 bp at the end of the year. The Euro-zone was significantly affected by the conduct of the ECB, which only in the last few months of 2008 began to im-plement a series of rate cuts, compared to the more or less steady cuts implemented by the Fed throughout 2008.

In the first part of 2008, the risk perception which can be deducted from the spread on emerging country governmentbonds was quite contained (see page 17). In effect, in the first six months of the year, the EMBI+ spread stood at about300 bp. Subsequently, spreads expanded considerably, up to the level of 865 bp in October (measured using thesame index), to then drop to about 700 bp by the end of the year.

The raw materials sector continued to show a bullish trend in the first part of the year, to then suffer a brusque down-turn primarily caused by the extremely sharp fall in the price of crude: the WTI crude oil price dropped from the recordhigh of 147$/b in July to a price near 45$/b at the end of the year. This trend was primarily determined by the con-cerns regarding growth and the considerable shrinkage of the speculative component.

In the first part of 2008, US and European stock indices showed almost parallel performance. Starting from May 2008,a marked bearish trend began, which brought the indexes near to their lowest values in the last five years. The per-formance of the S&P 500 currency index was -38.5%, compared to -45.6% of the DJ Stoxx600 index and a drop ofabout 42% in the Japanese Nikkei 225 index. Emerging stock markets also fell sharply, including -54% for the MSCIindex.

In terms of the volatility of stock indices, in 2008 both the Eurozone and the US recorded sharp increases in the sec-ond half of the year, reaching new record levels.

14

2- YEAR GOVERNMENT BOND RATES

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5


2-year US Gov. Bonds

2-year Eur. Gov. Bonds

Source: Bloomberg -30

20

70

120

170

220

270


2-10 spread Eur. Gov.

2-10 spread US Gov.

2-10 SPREAD (BP)

Source: Bloomberg


15

CRB INDEX

Source: Bloomberg

150

200

250

300

350

400

450

500


0

10

20

30

40

50

60

70

80

90


VIX index

VDAX index

VIX VS. VDAX

Source: Bloomberg

THE GLOBAL ECONOMY

In the US 2008 was characterised by the continuation of the negative impacts of both the real estate crisis (whichemerged in a marked way during 2007) and the financial crisis. During the year, residential real estate investmentscontinued their negative contribution to growth, a trend uninterrupted since the first quarter of 2006. Moreover, inthe third quarter of 2008, the negative contribution of commercial real estate investments also emerged, for the firsttime since the end of 2006. The GDP was sustained by the positive contribution of net exports (average of +1.6% inthe first nine months of 2008).

2008 was the year in which the real estate crisis transformed into an effective credit crunch, spreading its effects firstthrough the financial system, and then to the economy at large. The Fed reduced interest rates (from 4.25% at thebeginning of the year to 0-0.25% at the end of 2008) multiplying the various methods for injecting liquidity into thesystem.

The leading indicators are widely positioned in areas signalling a contraction phase for the GDP. At the same time,consumer confidence has reached new historical lows.

In terms of prices 2008 can substantially be divided into two parts. The first six months were characterised by an ex-tremely strong bullish trend, primarily driven by raw materials, reaching a peak of 5.6% in terms of growth trend inJuly. The second part of 2008 suffered the drastic fall in commodities (particularly marked for oil), which brusquelybrought growth to 0.1% yoy. On average, growth in consumer prices in 2008 reached 3.8%, from 2.9% in 2007.


1616

QoQ ANNUALISED GDP

Source: Bloomberg

-2

-1

0

1

2

3

4

5

6

7

8

Mar 00 Jul 01 Nov 02 Mar 04 Jul 05 Nov 06 Mar 08

US: MAN. AND NON-MANUFACTURING ISM INDICES

Source: Bloomberg

30

35

40

45

50

55

60

65

70

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

Manufacturing ISM Index

Non-Manufacturing ISM Index

In the Eurozone, 2008 was marked by the significant deterioration of growth, which specifically concerned the lastfew months of the year. After growth of 3% in 2006 and 2.6% in 2007, 2008 should close with growth of 1.1%, pe-nalised primarily by investments, which were affected by the sharp drop in the real estate market in several countriesand in orders for capital goods, especially in Germany. As for inflation, 2008 closed with growth of 3.3% in consumer prices, which were affected by the sharp rise in en-ergy and raw materials prices which took place primarily at the beginning of the year. In the last few months of theyear, on the contrary, oil prices dropped sharply, associated with a slowdown in consumer prices.

The trend in the M3 monetary aggregate slowed, recording a drop of 7.8% yoy in November, from 11.8% in December2007. Among the counterparts of M3, loans for home purchases and consumer credit slowed down, while growth inloans to non-financial companies, while showing a slowdown, continued to remain above 10%.

At the end of 2008, the leading indicators continued to forecast the extension of the contraction phase of the GDP.

17


17

US. UNEMPLOYMENT RATE

Source: Bloomberg

3

3.5

4

4.5

5

5.5

6

6.5

7

7.5

Jan 00 Mar 01 May 02 Jul 03 Sept 04 Nov 05 Jan 07 Mar 08

0

1

2

3

4

5

6

Jan 00 Jan 01 Jan 02 Jan 03 Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

General CPI YoY

Core CPI YoY

US: GENERAL CPI YoY AND CARE CPI YoY

Source: Bloomberg

EMU: GPD YoY%

Source: Datastream

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

1.00

1.20

Q1 200

4

Q2 200

4

Q3 200

4

Q4 200

4

Q1 200

5

Q2 200

5

Q3 200

5

Q4 200

5

Q1 200

6

Q2 200

6

Q3 200

6

Q4 200

6

Q1 200

7

Q2 200

7

Q3 200

7

Q4 200

7

Q1 200

8

Q2 200

8

Q3 200

8

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Jan 00 Feb 01 Mar 02 Apr 03 May 04 Jun 05 Jul 06 Aug 07 Sept 08

CPI YoY%

Core CPI YoY%

EMU: INFLATION RATE YoY%

Source: Bloomberg

The tensions on the financial markets, the repercussions on the economy and the slowdown in the inflation rate ledthe ECB to reduce the interest rate by 175 bp, to 2.5% at the end of December.

For Japan, 2008 saw the return of the recession, for the first time since the recession of 2001-2002. Consumer spend-ing levels over the year were highly disappointing. From March up to November (latest figures available), the trendin household spending continued to decline (-0.5 yoy - latest figure). During the year, the fall in demand from abroad,the marked appreciation of the Yen and the credit crunch caused companies to reduce business investments, specif-ically from the second quarter. In terms of prices, 2008 saw an increase in inflation until mid-year, on the wave ofthe rise in energy costs. Subsequently, inflation fell, standing at 1% yoy in November. In this context, the Bank of Japanlowered interest rates to 0.1%. Moreover, it announced a series of extraordinary measures to increase liquidity on themarkets, due to the increase in tensions on the domestic monetary market in the last part of the year.

In China, 2008 was marked by a series of natural disasters (earthquakes and severe freezes). The Olympics were animportant event, but immediately following, all the negative effects of the global crisis began to emerge, which be-fore September had had only a marginal effect on China. The 2008 GDP grew only by 9%, slowing down comparedto the 13% (figure revised upwards) in 2007. The figure for the fourth quarter stood at 6.8% yoy, the lowest in sevenyears. Though the growth rate in absolute terms is high if compared to those of other countries, the government hasset a minimum target of 8%. As in many other countries, in China inflation was a threat in the first half of the year, inlight of the sharp increases in the prices of raw materials for energy and foodstuffs. Faced with the deterioration ofthe economic trend, the government announced an extensive plan of 4 trillion Yuan (about 580 billion USD) to be“spread” over a period of 2 years.

For emerging markets, which had demonstrated relative strength during 2007 and the first part of 2008, the situationchanged radically in the second half of the year. In fact, as a result of the credit crunch and the weakness in the mainadvanced economies, foreign financing conditions began to tighten up, accentuating risks, mainly for countries witha negative current account balance. As a result, credit spreads expanded, as demonstrated by the EMBI+ spread,which recorded a record high since 2003 in October.


18

JAPAN: GDP YoY%

Source: Bloomberg

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Mar 00 Mar 01 Mar 02 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08

0%

2%

4%

6%

8%

10%

Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08

0%

5%

10%

15%

20%

1Y Loan Interest Rates

1Y Deposit Interest Rates

Obligatory reserves (right)

CHINA: 1Y DEPOSIT AND LOAN INTERESTRATES: OBLIGATORY RESERVES

Source: Bloomberg

Brazil, the largest economy in Latin America, was assigned an investment grade rating by the two ratings agenciesS&P and Fitch. The IMF expects that growth slowed to 5.2% in 2008. In June 2008, inflation remained above 6%, de-viating from the target value of 4.5%, primarily due to the increase in the prices of foodstuffs. Specifically to coun-teract inflation, the central bank increased interest rates five times, bringing them currently to the level of October 2006(13.75%), and thus cancelling the effects of the cuts implemented during 2007. The IMF estimates inflation of 5.7%for 2008.

For Russia the IMF has estimated an inflation level rising to 14% in 2008 from the previous 9% in 2007. The deteri-oration of the macroeconomic framework, also linked to the sharp drop in crude, has results in S&P lowering its sov-ereign debt rating for the first time in nine years, from BBB+ to BBB, in accordance with Fitch’s reduction of theoutlook from stable to negative. The recent collapse of crude prices weighs on growth estimates, which the IMF placesat 7% for 2008.

2008 was one of the worst years for raw materials, even though this segment attracted the attention of investors dur-ing the first half of the year. In the first three months industrial metals, precious metals and agricultural raw materialswere at the centre of attention. In the second half of the year, investors lightened their positions in these segments inlight of the weakness of European and US macroeconomic data, which also began to cause concerns that Europe wasnot immune to the slowdown in the US. The energy sector, however, bucked the trend, driven by the rise in crudeprices until the beginning of July. Starting from this month, a marked correction in this segment began, in light of thecontinuous negative signs regarding growth (including emerging markets) and the worsening of the financial crisis.The GSCI Excess Return index lost 47%, with a majority of its components decreasing. The worse included crude andsome minor industrial metals such as zinc, lead and nickel. Gold showed an opposite trend, as it was purchased asan investment asset. Cocoa also performed well.


19

EMBI + SPREAD

140

240

340

440

540

640

740

840

940

Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08

Source: JP Morgan

100

200

300

400

500

600

700

800

900

1000

Jan 04 Jan 05 Jan 06 Jan 07 Jan 08

Brazil

Turkey

TURKEY AND BRAZIL EMBI + SPREAD

Source: JP Morgan

THE ITALIAN ECONOMY

The year 2008 should close with a drop of 0.4% in growth, from 1.4% in 2007. Within this figure, a negative con-tribution should derive from private investments and consumer spending, while net exports should provide a posi-tive contribution. Growth in consumer prices in 2008 recorded an average increase of 3.3%, from 1.8% in 2007. Italian inflation wasaffected primarily by the increases in the transport sector, as a result of the increases in the price of crude and food-stuffs. As regards leading indicators, in 2008 SMEs in the service sector showed worse performance than the manufactur-ing sector. Both indicators dropped far below the threshold of 50. Business and consumer confidence also dropped,penalised by the sharp decrease in growth.


20

ITALY: GDP YoY%

Source: Bloomberg

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Mar 00 Jan 01 Nov 01 Sept 02 Jul 03 May 04 Mar 05 Jan 06 Nov 06 Sept 07 Jul 08

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Jan 00 Feb 01 Mar 02 Apr 03 May 04 Jun 05 Jul 06 Aug 07 Sept 08

ITALY: CONSUMER PRICES (NIC) YoY%

Source: Bloomberg


Salient Aspects of Management

MPS Capital Services Banca per le Imprese (hereinafter, also MPSCS) became operational in the last quarter of2007.

In order to align its development strategies to the indications in the Group’s new Business Plan 2008-2011, in the firsthalf of 2008, a new Business Plan was drawn up, covering the same time frame as the Group Plan.The new Business Plan aims for the strategic repositioning of MPS Capital Services, from a bank focused onmedium/long-term financing to small and medium-sized enterprises, to a corporate bank servicing medium-largeItalian companies.This repositioning is based on the conviction that the Italian mid-corporate market is an important segment whoseneeds are currently only partially served by market operators, and in relation to which the MPS Group (as both a net-work bank and MPSCS) can achieve distinctive positioning. The plan is based on a renovation of the loans portfolio and the strengthening of the organisation and range of prod-ucts and services offered by MPS Capital Services, a determining factor in order to adequately satisfy a customer seg-ment with increasingly complex, sophisticated needs. The mission of MPSCS is to evolve into the “bank of choice for Italian mid-corporates”, offering target companies so-lutions for all their needs related to business financing, risk management, and access to capital markets.The quantitative targets set require the implementation of integrated, efficient operations, with methods and processesthat permit the continuous development of a range of products and services that always meets customers’ needs. Atthe same time, the role of the Integrated Group Product Factory is being strengthened, engaged in meeting the needsof Corporate Customers of the Network Banks/Key Clients through specialised supporting product tools.To reach the targets set for the period in question, starting from the second half of 2008, significant investments wereplanned in terms of:• qualified, expert human resources for the launch of the services provided by the new “Investment Banking

Division” and to improve control over the existing services;• increase in shareholders’ equity through a share capital increase in the first half of 2008, equal to about €100

million (an additional increase of about €50 million is planned in the first six months of 2009);• logistics (creation of local logistics centres in Rome and Padua) and support tools (IT centre in Siena, IT tools for

new activities, etc.).At the same time, operational consolidation of placement of hedging derivatives continued. MPS Capital Services isthe organisation specializing in management of OTC derivatives and commercial relations with corporate customersfor this type of product. This resulted in the centralisation of transactions in derivatives over all segments. In this re-gard, as part of the integration of Banca Antonveneta (hereinafter BAPV) into the MPS Group, near the end of the firsthalf of the year, the Bank was also involved in the acquisition of all hedges of OTC derivatives on the markets, in-heriting from BAPV the qualification of specialist on the covered warrant market. According to the Plan, MPSCS will operate until the end of 2008 with an organisational model structured in threeProduct Divisions, two Commercial Divisions, and two Operational Divisions, with offices located in the five localheadquarters.

The continuation and monitoring of the Business Plan for 2008-2011 is organised on the basis of the following Busi-ness Units:Ordinary Finance BUCorporate Finance BUGlobal Markets BUInvestment Banking BU

The Investment Banking BU, created in the second half of 2008 and comprising a team of professionals, and head-quartered in Rome, will focus on the following: the Equity Capital Market (ECM), supporting companies in accessingthis market (IPOs, share capital increases, take-over bids, issues of convertible securities); the Debt Capital Market

21


(DCM), supporting companies in locating sources of financing on the market in alternative to bank debt and M&A, as-sisting companies in their corporate finance operations (mergers, acquisitions, carve-outs of business branches, etc.).

As regards the “Ordinary Finance” BU, over its history the Bank has developed significant skills and presence on themarket in relation to all product types.

For the Environmental sector, which has always been a priority, the focus is increasingly on actions with strategicvalue, implementing, as a result, investments and corporate requalifications with specific reference to “eco-sustain-able” initiatives.

In the Soft Financing segment, where MPS Capital Services has specific know-how, 2008 saw the Bank considerablyinvolved in the preliminary activities and management of related operations, as an “approved lender” by the Ministryfor Economic Development, the Ministry of Education, University an Research, Cassa Depositi e Prestiti S.p.A. (dis-bursement of post-reform Law 488 financing, disbursement and final reports of pre-reform Law 488 financing, oper-ations for the Technological Innovation Fund (FIT) and Government Research Grants (FAR), etc.).

In the Research segment, the operations acquired through the “GPS” tender were fine-tuned, and positive resultswere obtained from development activities. At the same time, the expansion of financing with special terms to thefarming sector continued, and the effective implementation of supply chain agreements and district agreements mostlikely from mid-2009.

The operations of the Corporate Finance Business Unit significantly expanded during the year. Specifically, it is notedthat in the field of Project Financing, the Bank’s presence was expanded in infrastructure sectors (both civil and hos-pital structures) and utilities, especially in the water, gas, waste management and renewable energy areas, throughthe development of important projects both in Italy and abroad. In the Real Estate sector, activities focused on the re-development of urban areas and large real estate operations, some of which involved the disposal of real estate as-sets of leading Italian banks. Lastly, regarding Shipping Finance, many financing operations were concluded withshipping groups for the purchase of vessels, both already operational and under construction.The development of the above activities also resulted in an increase in the activity of the Loan Agency, a business unitin charge of managing and monitoring structured finance operations which are nearing conclusion.For Acquisition Finance, the Bank increased the already significant trend in this sector, while Principal Investments(specifically Advisory and M&A) continued during 2008 with the management of existing mandates (currently, 5mandates for corporate finance transactions have been acquired).Private Equity operations, supporting the development of small and medium-sized enterprises with significant po-tential for growth, was mainly carried out through the subsidiary MPS Venture SGR. The company manages six closed-end real estate investment funds reserved for professional investors, with a total subscribed amount of approximately€360 million.As regards Securitisation and Principal Finance, it is noted that in 2008 the Parent Company completed an opera-tion of securitisation of performing mortgage loans, which resulted in the issue of over €3.4 billion in securities.Lastly, in relation to Syndication, during the year, working with banking counterparties, 26 transactions in the MPSCSportfolio were realised, totalling about €507.9 million. As of the end of the year, a further 16 operations, for an ad-ditional €624.2 million, were in the syndication phase.

We complete our illustration of business activities carried out by the Bank with the Global Markets Division, whichcontinued its traditional operations, further developing those in the commodities segment for corporate customers.For the corporate segment, operations in hedging derivatives showed an increase in volumes traded, also on ex-change rates. The interest rate derivatives segment was affected by the new MiFID Directive. In fact, the target client

22


base was significantly reduced, resulting in a reduction in volumes traded.The projects developed by the Global Markets Division with Group structures include:• the adjustment of the new IT platform with a view to systematic internationalisation in line with the provisions of

the new MiFID Directive; • conclusion of the development (of the base) of the PRA (Portfolio Risk Analysis) advisory platform, with subsequent

successful tests at several customers’ premises;• collaboration on the migration of BAPV network customers to the Group’s service model, which also resulted in

the transfer of the risks in those portfolios to MPSCS and the correct implementation of risk pricing andmanagement with a view to commercial continuity;

• realisation and first level deployment (at the regional desks) of the distributed pricing/settlement system for OTCderivatives (e-trade).

In compliance with the liquidity management policy, in 2008 the Parent Company made the deposits necessary to i)improve the liquidity profile of MPS Capital Services, and ii) comply with the short and medium-term limits assigned. Specifically, in the first half of 2008, funding totalled about €685 million, of which €335 million with maturity in 2010and €350 million with maturity in 2015. The measures implemented in the last quarter of 2008 were much more ex-tensive. Specifically, an additional €2,700 million in funding was concluded, of which €450 million with maturityin 2010, €1,100 million with maturity in 2015, and €1,150 million with maturity in 2016.

23

TOTAL LOANS

Loans to customers, calculated using the management method starting from this financial year, amounted to €12,964million as of 31 December 2008, a yoy increase of 11.10%. As of 31 December 2007 this item amounted to €11,669million.

The table below sets forth the reconciliation of the management figure as of 31 December 2008 with the financialstatement figures (amounts in millions of euros):


Credits aggregates

24

Reconciliation of “Management" data and Financial Statement data

Management Amount 12,964

Due from Banks (-) -20Operating receivables (+) 630Accruals and Deferrals (+) 106Receivables for collateral (+) 108Provisions for Adjustments to Loans (+) -616

Financial Statement Amount 13.172

10,000

11,000

12,000

13,000

9,000

8,000

7,000

6,000

5,000

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

DEVELOPMENT OF TOTAL LOANS(“Management” view)

4,412

5,165

6,431

7,943

9,109

9,918

10,773

11,669

12,964

(am

ount

s in

mill

ions

of e

uros

)


The table below analyses commercial flows for 2008.

APPLICATIONS FOR FINANCING SUBMITTED

(amounts in millions of euro)2008 2007 Change

Absolute %Number 1,326 2,165 -839 -38.8Amount 9,651 11,192 -1,541 -13.8

In line with the provisions of the Business Plan, in 2008 there was a clear reduction in the number of applicationssubmitted, accompanied, however, by significant growth in the average sizes of investments financed. In the secondhalf of the year, there was a significant slowdown in operations resolved and entered into as compared to the first half.As a result of the carrying over of volumes resolved at the end of 2007 and the beginning of 2008, the year closedwith agreements stipulated amounting to more than €4 billion compared to €3.8 billion in 2007.

25

12,000

10,000

8,000

6,000

4,000

2,000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

APPLICATIONS SUBMITTED - VOLUMES

3,573

(dat

a in

mill

ions

of e

uros

)

5,212

8,0178,405

7,343

6,296

8,128

11,1929,651

FINANCING AGREED


Absolute %Number 878 1,417 -539 -38.0Amount 5,549 7,191 -1,642 -22.8


26

APPLICATIONS SUBMITTED 2008Breakdown by Channel

Group

Direct

Others

20%

41%

39%

RATIO OF FINANCING AGREED TO APPLICATIONS SUBMITTED

2008 2007 2006 2005Number 66.2% 65.5% 71.9% 72.1%Amount 57.5% 64.3% 61.0% 57.3%


27

6,000

7,000

8,000

5,000

4,000

3,000

2,000

1,000

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

TRANSACTIONS RESOLVED

2,050

(am

ount

s in

mill

ions

of e

uros

)

2,503

4,131 3,869

3,434 3,608

4,961

7,191

5,549

AGREEMENTS ENTERED INTO


Absolute %Number 807 1,407 -600 -42.6Amount 4,026 3,792 234 6.2

FINANCING DISBURSED


Absolute %Number 2,434 2,646 -212 -8,0Amount 3,616 3,114 502 16.1


28

3,000

3,500

4,000

4,500

2,500

2,000

1,500

1,000

500

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

TRANSACTIONS ENTERED INTO

1,531(dat

a in

mill

ions

of e

uros

)

1,729

2,6562,879

2,4662,380

2,762

3,7924,026

TRANSACTIONS PERFORMED 2008

Group

Direct

Others

14%36%

50%

GEOGRAPHICAL BREAKDOWN OF DISBURSEMENTS 2008

24%

3%

35%

38%

North

Centre

Abroad

South and Islands

As regards disbursements, the year closed with significant growth (€ 3.6 billion compared to €3.1 billion in 2007).The number of “disbursements carried out” remains high, as a result of the company decision, which has been con-solidated over the years, to favour financing linked to future investments, in compliance with precise production de-velopment plans. Therefore, financing is disbursed in several tranches, according to the state of progress of the works.

It is also interesting to note the geographic distribution of disbursements.

73 % of disbursements were concentrated in the North and Centre of Italy, while the South and the Islands received24% of disbursements; and 3% is attributable to operations with non-resident parties.Therefore, this confirms the expansion of the Bank’s “original” activities, which until recently were mainly regionalin nature.


29

IMPAIRED ASSETS

The table below shows the distribution of impaired assets as of 31 December 2008 by portfolio - net of default in-terest (amounts in thousands of Euro):

(amounts in millions of euro)Portfolio Gross Specific Portfolio Net

exposure adjustments adjustments exposureFinancial assets held for trading 12,670 (9,582) - 3,088Loans to customers 2,013,788 (523,177) (30,400) 1,460,211Total 2,026,458 (532,759) (30,400) 1,463,299

Impaired assets are broken down by type below (amounts in thousands of Euro):

(amounts in millions of euro)Type of Gross Analytical Discounting Flat-rate Netimpaired assets exposure adjustments effect adjustments exposureNon-performing exposures 1,375,234 (362,539) (148,794) - 863,901Watch-list exposures 482,257 (18,801) (1,495) (22,300) 439,661Exposures past due by over 180 days 138,959 (944) - (7,100) 130,915Restructured exposures 30,008 (186) - (1,000) 28,822Total 2,026,458 (382,470) (150,289) *(30,400) 1,463,299

(*) Performing loans are subject to analytical adjustments for default interest of €674 thousand and flat-rateadjustments for €62,000 thousand. Analytical write-downs amounted to €533,433 thousand, while collectivewrite-downs totalled €92,400 thousand.

The balance of impaired assets, net of value adjustments and discounting, stands at €1,463 million. The change com-pared to the amount as of 31 December 2007 (€1,192 million) is 22.7%.Non-performing exposures deriving from loans to customers and financial assets increased from €645 million as of31 December 2007 to €864 million as of 31 December 2008 (+34.0%).Watch-list loans increased from €350 million as of 31 December 2007 to €440 million as of 31 December 2008(+25.7%).The above figures were affected by the critical issues which concerned almost all economic sectors, through the spe-cific departments in charge are continuing actions aimed at containing anomalous risk. In this sense, the reschedul-ing of overdue loans, which begun in the previous years, has continued. During the year in question, this activityalmost completely absorbed the specific allocations to reserves, for which a limit of €550 million was established.As of 31 December 2008, following an additional allocation of €500 million, €605 million had been used out of thetotal specific reserves of €1,050 million.The recovery of delinquent loans also continues, using accredited external companies and professionals, which re-sulted in the collection of approximately €25 million in past due loans with good performances, all susceptible toimprovement following the initial trial period.Moreover, starting with the maturities of December 2008, contact centre activities were launched, relating to themost significant maturities and those marked by previous episodes of delinquency, to facilitate payment and the man-agement of possible, contained, delays.During the year, analytical value adjustments were recorded for €37.5 million. Write-backs due to valuationamounted to €6.0 million, while those due to collection totalled €4.2 million. Discounting resulted in adjustments


30

of €89.7 million, while the related write-backs and the interest totalled €43.6 million. Flat-rate write-downs in-creased by €12.7 million (net of €2.2 million in utilizations) and reached €92.4 million (of which: €22.3 million tocover non-doubtful watch-list loans, €7.1 million for exposures past due by over 180 days, €1.0 million for restruc-tured loans, and €62.0 million to cover performing loans). In percentage terms, flat-rate write-downs cover 0.70%of loans to customers, the same percentage as of 31 December 2007.For guarantees issued and commitments, a write-down of €2.0 million was recorded under “other liabilities”, in-cluding €1 million recognised during the current year. Ascertained losses impacting the income statement amountedto €4.3 million. With regard to adjustments/write-backs for counterparty risk on derivative products, the effect recorded in the 2008Financial Statements were of an insignificant amount.


31

Group Funding

Sub. Bonds

Other Payables

15.034

181863

BREAKDOWN OF DEPOSITS AS OF 31/12/2008

Cash requirements were covered by channelling requests for long-term funds through MPS Ireland and coveringshort-term cash needs by using the Centralised Treasury of the Parent Company.

At the end of the year, total amounts due to the Parent Company and its non-banking foreign subsidiary, MPS Ireland,totalled €15,034 million (€13,600 million as of 31 December 2007), broken down as follows: €292 million on de-mand (€1,623.2 million as of 31 December 2007), €3,154 short term (€3,302 million as of 31 December 2007) and€11,588 million medium-long term (€8,675 million as of 31 December 2007).In June, in implementation of the strategy for rationalisation of the Group’s funding, medium/long-term loans con-tracted with the Frankfurt branch were taken over by MPS Ireland.The table below shows the breakdown of deposits by type as of 31 December 2008 compared with the situation atthe end of the previous year:

(amounts in millions of euro)31/12/2008 31/12/2007

Loans of the Parent Company and its subsidiaries:- on demand and short term 3,446 4,925- medium and long-term 11,588 8,675Bonds:- non-subordinate - -- subordinate 181 231Other payables to Banks and Customers 863 239TOTAL 16,078 14,070

Deposits


32

MPS Capital Services closed its financial statements as of 31 December 2008 with a net profit of €38 million,recognised according to the International Financial Reporting Accounting Standards (IAS-IFRS).

The reclassifications below were prepared based on the “management” criteria, shared with the specifically assigneddepartments of the Parent Bank.

ECONOMIC RESULTS(data in millions of euro)

MPS Capital Services Cons. as of Cons. as of % ChangeIAS Income Statement 31/12/2007 31/12/2008 2008-2007Interest margin 166 173 4%Total net fees from customers 19 26 37%Other revenues from financial management 79 22 -72%Income from fin. and ins. management 264 221 -16%Net value adjustments due to impairment -70 -92 31%Income from fin. and ins. management 194 129 -33%Operating costs -82 -80 -2%Net operating profit 112 49 -56%Net provisions for risks and charges 0 -3 300%Other operating income/charges 1 6 500%Profit (loss) before taxes 113 52 -54%Income taxes on current operations -27 -14 -48%Tax Rate 24% 27%Profit (loss) for the period 86 38 -56%

In brief, growth compared to the previous year can been seen in both the “Interest Margin” (+4%) and “Net Fees”(+37%), while “Other Revenues from Financial Management” recorded a significant drop (-72%). For a better inter-pretation of this result, it is important to take into consideration the results of the leading competitors during such acomplex, difficult year for the financial markets. Specifically, the dynamics in the company’s main markets in the lastquarter significantly reduced the revenues of the Global Markets Division, as in the first nine months of the year, thedevelopment of “Other Revenues from Financial Management” had been quite positive. As a result of the above, “In-come from Financial and Insurance Management” recorded a drop of 16% at the end of the year. Of considerable importance is the increase in “Adjustments due to Impairment”, which rose from €70 million in2007 to €92 million in 2008, growth of €22 million, equal to 31%. Just as important is the dynamics of “Operating Costs” where the Bank continues its search for constant, progressiveimprovement in terms of increasing management efficiency. Combined with the activities of the Parent Company,this action was aimed at carefully selecting expenses to be made and, on the whole, resulted in operating costs thatwere over €2 million lower than the 2007 levels. All of this in the presence of extremely significant commercial re-sults, and taking into consideration the extension of the Bank’s scope of operations which, starting from the secondhalf of the year, also involved the creation of the Investment Banking Division in Rome.

“Profit before taxes” amounted to €52 million compared to €113 million in 2007, a decrease of 54%. “Taxes” for the period, both current and deferred, amounted to €14 million (€27 million as of 31 December 2007),with a tax rate of 27%.“Profit for the Period”, net of taxes, stood at €38 million.

Main Financial Aggregates


33

Equity investments amounted to a total of € 47.9 million compared to €64.7 million as of 31 December 2007. Eq-uity investments are classified in the following financial statement items: “Financial assets available for sale - item

40” and “Equity investments - item 100”. The table below sets forth the main equity investments for each category:

(amounts in millions of euro)Company % Stake Carrying value

Kerself S.p.A. 3.83% 6.67Marina di Stabia S.p.A. 15.83% 5.19S.T.B. Società delle Terme e del Benessere S.p.A. 13.71% 4.62Volorosso S.r.l. 16.61% 2.50Moncada Solar Equipment S.r.l. 21.67% 2.47Ital TBS Telematic & Biomedical Services S.p.A. 2.44% 1.45Classica S.p.A. 10.00% 1.18Società Infrastrutture Toscane S.p.A. 4.80% 0.50ABS Technology S.p.A. 10.00% 0.50S.E.I. - Servizi Energetici Integrati S.p.A. 0.697% 0.34Arcea Lazio S.p.A. 5.00% 0.21Others 0.11Equity investments classified under item 40.“Financial assets available for sale” 25.74MPS Venture S.G.R. S.p.A. 70.00% 5.25Interporto Toscano Amerigo Vespucci S.p.A. 36.30% 8.37Agricola Merse S.r.l. 20.00% 5.00Newco S.p.A. 20.00% 2.00Sviluppo Imprese Centro Italia S.G.R. S.p.A. 29.00% 1.51Equity investments classified under item 100“Equity investments” 22.13TOTAL EQUITY INVESTMENTS 47.87

Equity Investments


34

The table below summarises investments made in 2008 which mainly involved the acquisition of capital in AgricolaMerse Srl, Moncada Solar Equipment S.r.l., Classica S.p.A. and S.E.I. - Servizi Energetici Integrati S.p.A. Investmentsclassified in the item “Others” regard share capital increases of companies in which the Bank already held a stake asof 31 December 2007:

(amounts in millions of euro)Name Investment

Headquarters AmountMoncada Solar Equipment S.r.l. 2,474Classica S.p.A. 1,175S.E.I. Servizi Energetici Integrati S.p.A. 440Others 1,043Financial assets available for sale 5,132Agricola Merse S.r.l. - Milan 5,004Others 435Equity investments 5,439TOTAL 10,571

Riportiamo invece nel seguente prospetto le cessioni effettuate nell’esercizio 2008:

(amounts in millions of euro)Name Sale

Headquarters priceFidi Toscana S.p.A. (1) 4,501Nuovi Cantieri Apuania S.p.A. 3,150S.T.A. S.p.A. (1) 2,710Siena Ambiente S.p.A. (1) 2,331TRA.IN S.p.A. (1) 933Lineapiù S.p.A. (1) 616CALP Immobiliare S.p.A. (1) 208Alexa S.p.A. (1) 172Others (2) 187Financial assets available for sale 14,808Marina Blu S.p.A. 5,264NewColle S.r.l. (1) 3,597Società Incremento Chiancano Terme S.p.A. (1) 2,527Equity investments 11,388TOTAL 26,196

(1) Equity investment sold to MPS Investments S.p.A.(2) The item “others” includes the equity investments in Agrisviluppo S.p.A., Crossing Europe GEIE, and ESCO SI Srlsold to MPS Investments S.p.A. (for a total of €181 thousand) and the equity investment in REA S.p.A. (amountingto €6 thousand), for which liquidation was concluded during 2008.


35

Regarding the transfers during the year, it is important to note the transfer of the portfolio of equity investments to MPSInvestments S.p.A., a non-banking investment holding company of the MPS Group. The transfer concerned a total oftwelve investee companies considered as no longer instrumental to the activities of MPS Capital Services, for a totalvalue of the transfers of €17.8 million. The transfer resulted in the recognition of a loss from sale of about €1.6 mil-lion and profit from sale of about €0.6 million, using the related “Valuation Reserves”, duly allocated as of 31 De-cember 2007. The other transfers during the year regarded:- the equity investment in Marina Blu S.p.A. (the concession holder for the “Marina di Rimini” tourist harbour), rep-

resenting 30% of the share capital, transferred in March 2008 as part of an operation involving purchase of the en-tire share capital of the company by a group of Italian and foreign investors. The transfer, which was concluded fora value of about €5.3 million, resulted in the recording of a slight loss (€48 thousand);

- the equity investment in Nuovi Cantieri Apuania S.p.A. (a shipbuilding company which designs, manufactures, re-pairs and sells vessels), representing 5.95% of the share capital, transferred in September 2008 to the majority share-holder Investire Partecipazioni S.p.A. The transfer was carried out at a price in line with the capital invested (€3.15million).

Lastly, below are several short notes regarding the main investee companies, starting with those classified under “fi-nancial assets available for sale”, indicating any changes during the year.

Kerself S.p.A. - Correggio (RE). A company listed on the Expandi market since January 2006. The Kerself Group cur-rently operates through two divisions: “Water Resources” (manufacturing of motors and pumps for irrigation) and“Alternative Energies” (production of photovoltaic cells and systems). In 2008 the Bank’s equity investment in thecompany was further diluted (from 3.97% to 3.83%) due to the subscription of a share capital increase which con-cluded during the year. The Bank sold the related option rights on the market.

Marina di Stabia S.p.A. - Castellammare di Stabia (NA). This company holds a fifty-year concession, granted in 2001,for the construction and management of a tourist marina in Castellammare di Stabia, deriving from the conversion ofan inactive industrial complex. The tourist marina began operating in the summer of 2006, and are expected to befully on stream by spring 2009. In addition to holding a stake of 15.8%, the Bank is also a co-advisor and co-financerof the project.

S.T.B. Società delle Terme e del Benessere S.p.A. - Prato. This company manages three spa resorts: “Grotta Giusti” -Monsummano Terme (PT), “Fonteverde” - San Casciano dei Bagni (SI) and “Bagni di Pisa” - San Giuliano Terme (PI).The majority shareholder is Investex S.p.A. The Bank’s equity investment represents 13.8% of the share capital.

Ital TBS Telematic and Biomedical Services S.p.A. - Trieste. This company works with medical and hospital structures,for the supply and maintenance of biomedical equipment, as well as integrated IT services. The Bank holds an eq-uity investment of 2.44%.

Volorosso Srl - Modigliana (FC). The company, operating in the wine industry and the distribution of wine, beer andbeverages in the HORECA channel, derives from a project created and developed by six leading cooperative winer-ies: CAVIRO (through Premium S.r.l.), Madonna dei Miracoli di Casalbrondino in Abruzzo, Cantina di Casteggio inLombardy, Cantina Sociale Europa in Sicily, La Delizia in Friuli and Cantine Leonardo da Vinci (through Dalla VigneS.p.A.) in Tuscany. The company is controlled by CAVIRO. During the year, the Bank’s equity investment was dilutedfrom 25% to 16.6% due to the full subscription by CAVIRO of a share capital increase.

Moncada Solar Equipment S.r.l. - Aragona (AG). This in a newly incorporated company which will construct a plantin the province of Agrigento for the production of thin film silicon panels, with an estimated generation capacity of


36

40 MW/year. The Bank is taking part in this initiative as a financial partner, with an equity investment representingabout 21.7% of the share capital, and a maximum financial commitment of €5 million. Capital invested as of 31 De-cember 2008 amounted to about €2.5 million.

Classica S.p.A. - Padua. This is a financial company which mainly offers consulting services on financial structuringto companies located in the “Triveneto” area. In 2008, the Bank acquired an equity investment representing 10% ofthe company’s share capital, for an investment of approximately €1.2 million.

ABS Technology S.p.A. - Florence. This company, incorporated in December 2007, derives from the partnership be-tween Amtec S.p.A. (Finmeccanica Group) and Bassilichi S.p.A., and operates in the production, sale and manage-ment of technological plants and systems and the supply of IT and electronic services dedicated to the security sector.Upon incorporation of the company, the Bank acquired a 10% equity investment. Control of the company is held byAmtec (60%), while Bassilichi holds 30% of the capital.

Società Infrastrutture Toscane S.p.A. - Florence. This is a special purpose vehicle, pursuant to Article 37 quinquiesof Law 109/94, for the “Bretella Autostradale Lastra Signa - Prato” motorway project, incorporated in June 2006. TheBank holds 4.8% of the share capital, which is subscribed for €30 million, and paid up for 35% of the par value. Theother main shareholders are Autostrade per l’Italia with 46%, the Florence Chamber of Commerce (C.C.I.A.A.) with31%, and Baldassini Tognozzi Pontello with 5%.

S.E.I. Servizi Energetici Integrati S.p.A. - Settimo Torinese (TO). This is a utilities company operating in district heat-ing, the generation and sale of electricity and the distribution of gas. The company is controlled by ASM - AziendaSviluppo Multiservizi S.p.A. The equity investment was acquired as part of the subscription offer reserved for profes-sional investors, upon the company’s placement on the MAC (Alternative Capital Market). Our Bank also carried outthe role of sponsor and specialist in the company’s placement on the MAC market.

Arcea Lazio S.p.A. - Rome. A company responsible for the design, construction and maintenance of the regionalmotorway network, established pursuant to Lazio Regional Law no. 37 of 28 October 2002. The Bank holds 5% ofthe share capital. The Lazio Regional Authorities are the majority public shareholder, with 51%. The other share-holders are Autostrade per l’Italia S.p.A., with 34%, and Consorzio 2050, with the remaining 10%.

MPS Venture S.G.R. S.p.A. - Florence. An asset management company 70%-owned by the Bank and 30%-owned byIntermonte SIM S.p.A. The company manages and promotes six closed-end real estate investment funds reserved forinstitutional investors (MPS Venture 1, MPS Venture 2, MPS Venture Sud, MPS Venture Sud 2, Siena Venture and EmiliaVenture). Until 30 May 2008, the asset management company also managed the Ducato Venture fund, a closed-endlisted retail fund, which was subject to early closure on that date.

Interporto Toscano Amerigo Vespucci S.p.A. - Livorno. This is a company responsible for the construction and man-agement of the logistics centre located on the Guasticce plains, in the municipality of Collesalvetti (Livorno). Themajority of share capital is held by public entities and administration (Tuscany Regional Authorities, Provincial Au-thorities and local municipalities, local Chambers of Commerce (CCIAA)). The Bank is the relative majority share-holder with 36.3%.

Agricola Merse S.r.l. - Milan. This company owns the luxury tourist resort “Tenuta di Bagnaia”, located in the provinceof Siena. The company is promoting an investment initiative involving supplementing the promotion of real estate tobe build on several lots in the resort, and the enhancement of several existing structures (a five-star hotel, a Confer-ence Centre, a four-star hotel and a wellness centre) destined for offering accommodation and hotel services. The Bank


37

is participating in the initiative as a financial partner. The equity investment, representing 20% of the share capital,was acquired from the majority shareholder “INFI - INDUSTRIALE E FINANZIARIA S.p.A.” in June 2008, for an in-vestment of €5 million, in relation to a maximum commitment of €10 million.

Newco S.p.A. - Naples. This is a special purpose vehicle, incorporated in 2004, for the purpose of enhancing thetouristic redevelopment of areas adjacent to the tourist harbour of Castellammare di Stabia. The Bank holds 20%.

Sviluppo Imprese Centro Italia S.G.R. S.p.A. - Florence. The company manages two closed-end real estate invest-ment funds - Centroinvest and Toscana Venture. In addition to the Bank, which holds 29%, the shareholding struc-ture is formed by Fidi Toscana (31%), Cassa di Risparmio di Firenze S.p.A. (15%), Cassa di Risparmio di San MiniatoS.p.A. (10%), Cassa di Risparmio di Prato S.p.A. (10%) and Banca Popolare dell’Etruria e del Lazio S.c.r.l. (5%).


38

Consistent with the historical strategy implemented and in line with the mission assigned to the Bank, MPS Capi-tal Services attributes a crucial role to risk management and identifies it as a critical factor for success. Due to

the operations carried out, the Bank comes up against various types of risk, which may be broken down into the fol-lowing: credit risk, market risk (relating to the trading portfolio), interest rate and price risks (as regards the bankingbook), liquidity risk, operational risks and business risk (meaning the risk of loss deriving from the volatility of the costand revenue structure).The measurement and monitoring of risks assumed is assigned directly to the Risk Management Department, basedon the specific Group regulations.MPSCS has adopted the Risk Management and Reporting system used by the MPS Group to measure and monitorfinancial risks, based on a complex architecture that is structured in various systems and applications. This systemaims at providing the Top Management of MPSCS and the competent control bodies with information supportingcompany decisions, details of the risk profiles of the trading portfolio and of the management economic resultsachieved.A short description of the Risk Management Process implemented at Group level and the main actions undertakenin 2008 are set forth below.

THE RISK MANAGEMENT PROCESS

The process of governing and defining risk management roles and responsibilities in the MPS Group, regulated by aspecific Group Directive on the issue, regularly implemented by our Bank on 13 February 2008, was further strength-ened during 2008, also as a result of the Bank of Italy’s recognition of advanced internal models for credit risk andoperational risk, for reporting purposes. The underlying principles that characterise this process in the MPS Group are based on a clear, precise distinction ofthe roles and responsibilities between the first, second and third level control functions.

The Parent Company’s Board of Directors is responsible for defining the strategies and risk management policies atleast on a yearly basis, and for expressing the Group’s overall risk appetite. The Board of Statutory Auditors and theInternal Control Committee are responsible for assessing the level of efficiency and adequacy of the Internal ControlSystem, specifically regarding control of risks.

The General Management is in charge of ensuring compliance with the risk policies and procedures. The Risks Com-mittee draws up the risk management policies and verifies overall compliance with the limits assigned to the variouslevels of operations. The Parent Company’s Risk Committee is assigned the responsibility for assessing - at overalllevel and for the individual companies - the risk profile reached, and thus, the consumption of capital, both regula-tory and economic capital, as well as the risk-return performance indicators. The Parent Company Finance Commit-tee is attributed duties regarding the planning of Group funding, the proposed allocation of capital to submit forapproval by the Board of Directors, the identification of initiatives to improve the Asset&Liability Management risk-return profile, and the definition of Capital Management actions.

The Parent Company Internal Control is in charge of defining the rules regarding internal controls and assessing theeffective application of and compliance with such rules.

The Parent Company Risk Management Department defines integrated analysis methods for measuring overall risks,in order to guarantee accurate measurement and constant monitoring of risks and to quantify economic capital,meaning the minimum amount of capital required to cover all risks effectively assumed. On the basis of the internalmodels developed for quantifying Value at Risk (VaR) and the sensitivity of the economic value to exposure to the var-

Risk Management


39

ious risk factors considered, this Department produces control reporting and verifies compliance with the operationallimits established by the Board of Directors. Over the years, the Risk Management Department’s monitoring activi-ties have extended to an ever-greater area of risk and of significant legal importance at Group level.

The Business Control Units implement compliance checks on operations and represent the first level of organisa-tional control of operations within the more general Internal Control System.

In line with the principles envisaged in the New Capital Adequacy Agreement (Basel 2), as regards Pillar I, during thefirst half of 2008 the MPS Group concluded its work on internal models for credit and operational risks. Pursuant toBank of Italy Circular 263/2006, on 12 June 2008 the MPS Group - the first in the Italian banking system - was for-mally authorised to use the advanced models for measurement and management of credit risk (AIRB - Advanced In-ternal Rating Based) and operational risk (AMA - Advanced Measurement Approach). It is important to note thatactivities are continuing for the improvement of the internal models for market and counterparty risk. Specifically, inthe second half of 2008, a Group Directive was issued for the purpose of governing and formalising Market Risk is-sues, redefining roles, responsibilities and processes for all parties involved.

Compliance activities relating to Pillar II also continued. To this end, in 2008 a specific Service was created withinthe Parent Company’s Planning Department, named the “Capital Adequacy Service”, with the purpose of coordinat-ing the optimisation and governance of all processes regarding the self-assessment of the Group’s capital adequacyas part of the ICAAP (Internal Capital Adequacy Assessment Process). In the second half of 2008 a Group Directivewas issued regulating roles and responsibilities in the governance of the ICAAP process, aimed at rationalising the en-tire process of governance of Total Internal Capital.

With regard to Pillar III (“Market Disclosure”), in order to set up all required actions to ensure compliance with theregulation’s disclosure obligations, the MPS Group launched a specific project as part of “Basel 2” activities, aimedat defining the structure and contents of the document (Market Disclosure - Pillar 3), as well as the related imple-mentation processes. All the main structures of the Parent Company participated in the working group, coordinatedby the Risk Management Department, under the responsibility of the Manager in Charge of Preparing the Company’sFinancial Reports. The “Pillar 3” Market Disclosure is an extremely effective summary document, which provides themarket with information regarding activities carried out, capital adequacy, exposure to risks and the general charac-teristics of risk identification systems, and the measurement and management of said risks. The disclosure has beenpublished on the MPS Group website (www.mps.it/Investor+Relations) and is constantly updated based on the pro-visions of the current regulations in force.

RISK FACTORS

As stated in the introduction, in its normal operations on the markets, the Bank, just as the entire MPS Group, is sub-ject to various types of risk which may be broken down into the following: credit risk, market risk (relating to the trad-ing portfolio), interest rate and price risks (as regards the banking book), liquidity risk, operational risks and businessrisk (meaning the risk of loss deriving from the volatility of the cost and revenue structure), and reputational risks (de-riving from the possibility of a deterioration in the trust relationship between customer and bank).

For many of these (certainly for those explicitly referred to in Pillar I of Basel 2) as well as for several others (for ex-ample, interest rate risk for the banking book and concentration risk), the MPS Group has developed its own internalmeasurement models, which are used in order to determine the Total Internal Capital required pursuant to Pillar II.Development activities are also continuing in terms of integrating risks and, specifically, fine-tuning business risk. As


40

regards liquidity risk, a strict measurement framework and policy were finalised, based on a view shared with thebank’s operating structures. All of these macro risk factors, which, in particular, have a direct impact on Group eq-uity, are regularly measured by the Parent Company Risk Management Department. In addition to reporting on themonitoring of the operational limits resolved by the Board of Directors, this Department also draws up the periodicdocumentation for the Parent Company’s Risk Committee (also sent to the Board of Directors).

ANALYSIS OF THE ECONOMIC CAPITAL OF MPS CAPITAL SERVICES

The Risk Management Department of the Parent Company MPS periodically determined the Economic Capital for eachtype of risk, mainly on the basis of internal measurement models. These models have been developed specifically forthe individual risk factors. They are substantially based on methods aimed at determining the maximum loss the bankcould incur, given a time frame of one year and a confidence interval compatible with the probability of default as-signed to the MPS Group by the ratings agencies. Economic Capital is understood as the minimum amount of capi-tal required to cover economic losses due to unexpected events generated by the various types of risk.

Significant risks in the perimeter measured concern: a) credit risk (including counterparty risk, issuer risk and con-centration risk), b) market risks on the trading portfolio, c) interest rate risk on the banking book (ALM), d) operationalrisk, e) equity risk, understood as the risk of losses deriving from the equity investment portfolio.

The VaR measurements - preserving their “individual” significance, according to the provisions of both current lawsin force and international best practice - are determined with holding periods and confidence intervals that are dif-ferentiated by risk factor, in compliance with the guidelines established by the latest supervisory provisions for banksissued by the Bank of Italy. Total Economic Capital derives from the measurement of the individual risk factors: Thesemeasurements are standardized over both the chosen time frame (holding period of one year) and confidence inter-val, in line with the rating assigned to the MPS Group by the official ratings agencies, and are subject to “intra-risk”and “inter-risk” diversification.


41

DIVERSIFIED ECONOMIC CAPITAL (EXCLUDING INTRAGROUP OPERATIONS)MPS CAPITAL SERVICES - 31 DECEMBER 2008

2,1%

21,6%2,3%

74,0%

Credit Risk

Operational Risk

Equity Risk

Financial Risk

The final output highlights total internal capital differentiated by Legal Entity, Business Unit and Area of Responsibil-ity. This output is periodically monitored and published by the Parent Company Risk Management Department. More-over, said measurement is performed, at centralised level, for the individual Legal Entities and subsequently sharedwith the corporate bodies of each entity through the preparation of a report suited to the specific business lines of thebanks within the scope of consolidation.

As of 31 December 2008, the economic capital of MPS Capital Services was 74% attributable to credit risk (includ-ing counterparty, issuer and concentration risk), 2.1% attributable to equity risk and 2.3% to operational risk. Riskmanagement capital covering financial risks (comprising the typical risks of the trading portfolio and the ALM-bank-ing book) amounted to approximately 21.6% of the total economic capital.


42

STAFF TREND

The bank workforce as of 31 December 2008 was as follows:

(a) (b) (c)MPS Capital Employees of MPS Employees of Workforce

Services Capital Services Group companies (a-b+c)employees at Group companies at MPS

or subsidiaries Capital ServicesExecutives 29 6 7 30Managers 254 70 31 215Professionals 262 96 14 180TOTAL 545 172 52 425

The workforce numbers were the result of the following changes during the year:

- Inflows (total of 47):23 new hires, including two reserved for differently-abled personnel;22 seconded personnel received, including 16 Banca Antonveneta workers;2 returns of personnel seconded to the Parent Company MPS.

- Outflows (total of 29):10 personnel seconded to the Parent Company MPS and other Group companies, including 2 to the “BranchNetwork” structures;4 personnel seconded to other companies (MPS Leasing & Factoring and Paschi Gestioni Immobiliari);3 terminations of secondments received;6 dismissals;3 terminations as a result of voluntary redundancy;3 terminations due to voluntary adhesion to the “Solidarity Fund for the support of income, employmentand professional retraining and career change for banking personnel”.

HIRING

Based on the trade union agreements signed in June 2007, 15 resources were hired, possessing professional qualifi-cations, to which are added 6 employees from the short-list for the Selection process which concluded at the end of2005, whose terms of validity were extended to the end of 2008.In line with company needs and the professional qualifications of the new hires, they were assigned to roles prima-rily related to satisfying needs of specialist activities.Two resources were also hired as per agreements signed with the competent Job-Placement Service for the Differently-Abled in the Province of Florence.

SECONDMENTS

As part of the initiatives implementing the Bank’s Business Plan 2008-2011, all of the activities aimed at integrating

Human Resources


43

the operations of the identical functions of Banca Antonveneta into our Global Markets and Sales Divisions werecarried out. Thus, during the year, 16 resources were temporarily acquired through secondment.There were also 6 resources seconded to the Parent Company, as they were functional to specific activities of the Bank.

VOLUNTARY REDUNDANCY PLAN

As part of initiatives aimed at pursuing Group objectives - targeted to favouring the dismissal of personnel with highlevels of seniority and/or qualifications, promoting actions aimed at the constant renewal of staff, growth in the lev-els of management flexibility and containing overhead costs - the “voluntary redundancy plan” for 2008 was com-pleted.The initiative concerned 3 resources belonging to the categories of Executives, Managers, and Professionals, respec-tively.

VOLUNTARY ADHESION TO THE “SOLIDARITY FUND FOR THE SUPPORT OF INCOME, EMPLOYMENT ANDPROFESSIONAL RETRAINING AND CAREER CHANGE FOR BANKING PERSONNEL”

This initiative, aimed at achieving joint of action for the pursuit of the objectives in the previous point resulted in 3adhesions, respectively by: 2 resources in the Professionals category, and 1 in the Managers category.

DISMISSALS

In 2008, there were dismissals of 6 employees, including five who were employed in the Corporate Finance Division.This figure highlights the level of attention that the market reserves for our employees operating in the sectors withthe highest levels of specialisation of the Bank.

EMPLOYMENT AND TRADE UNION RELATIONS

A long period of negotiations with the company trade union organisations was concluded positively. The significantamount of interest demonstrated regarding the issues defined through the signing of the agreements will continue toensure that the positive business climate achieve is maintained.

The first agreement regarded the “incentive system”, whose basic guidelines mirror those applied at Group level:comparison of results achieved with performance indicators in order to define the amount of the bonus to award andthe use of target bonuses. For the current year, the supplementary component, in relation to the pre-existing dis-bursement model, concerns personnel in the Professionals category and the 1st and 2nd Salary Levels of Managers.

The second agreement regarded the “training programme”, which has always been considered essential for expand-ing individual skills and knowledge, disseminating the skills considered useful for career development in the com-pany, and increasing the service levels that the Bank is capable of offering on the whole.


44

TRAINING OF PERSONNEL

In line with company strategies, during 2008, an extensive training programme was realised. Specifically, the great-est attention was dedicated to the functions involved in the business areas linked to structured finance, given theevolution of markets and the specifics of the company mission. Particular attention was focused on classroom courseswith instructors with considerable specialist experience.

The second cycle of English courses was carried out, with highly positive results, in collaboration with the compe-tent structure of the Parent Company MPS. The positive results are evidenced by the extremely high levels of partici-pation and enjoyment, given that the courses were provided outside office hours.In 2008, the Bank authorised a total of 8,576 hours of training for a total of 367 participants in courses provided bothinternally and externally to the Group.


45

ORGANISATION: DYNAMICS AND CONTROLS

The financial year 2008 was mainly characterised by the consolidation of the processes linked to activities on the fi-nancial markets, as well as the launch of the execution phase of the Business Plan 2008-2011. The sudden worsening of the international economic trend and the crisis in the global financial system, in additionto resulting in an adjustment to the set targets, also suggested adequate reflections regarding the development of saidprojects.

The formalisation of the main operating processes of the structures in charge of developing and promoting the rangeof financial products and services was substantially concluded. At the same time, the Bank’s Governance Manual andInternal Control Regulations were also published. With the support of the Risk Management Department of the Par-ent Company, an initial remodulation of the regulations regarding financial lending powers (Counterparty Risk) andMarket, Issuer and Country Risk.These activities, in consideration of the reorganised structure of MPS Capital Services - were joined by a new risk as-sessment process for operational risks linked to company processes and by a suitable strengthening of the internal con-trol system. In this area, specific attention was paid to supervision of conflicts of interest - through the issuing of asuitable policy document - as well as to Market Abuse regulations.

In relation to the revision of its organisational structure as a result of the acquisition of the operating branch of MPSFinanza S.p.a. (which was concluded in September 2007), the Bank updated its Model pursuant to Legislative De-cree 231/2001, consequently including the new offenses set forth in the regulations. The updated version of the Or-ganisational Model was approved by the Board of Directors in the meeting of 26 March 2008, and ratified by theParent Company’s Internal Control Committee with official notification on 17 April 2008.

As part of the process of integration of Banca Antonveneta (BAPV) into the MPS Group, MPS Capital Services has sub-stituted BAPV in the role and position of specialist for covered warrants, and has centralised within its organisationthe former BAPV customer desk functions located in Padua and Rome. As a result, a new commercial department hasbeen opened in Padua, which will oversee the “Triveneto” area, to directly support the corporate customers of BAPV.

Other significant events also occurred in 2008, common to the entire banking system, as illustrated below:• the adjustments to processes and business required by MiFID. From the organisational point of view, the main

internal regulations were issued, and the process for identifying and classifying customers was activated. All of thiswithin a series of Group initiatives on various fronts, not least the initiative pursuing the objective of creating a “bestexecution engine”. Of particular importance was the transformation of DDT (Deal Done Trading) from anOrganised Trading System into a Systematic Internaliser of the MPS Group;

• as regards the activities linked to the New Capital Accord, known as “Basel II”, in June the MPS Group, includingMPSCS, which falls within the scope of application, obtained authorisation from the Bank of Italy for the use ofadvanced internal systems for determining capital requirements to cover both credit risk (AIRB) and operationalrisk (AMA). The related development activities are obviously continuing, with specific reference to Credit RiskMitigation and the monitoring of the model sites for determining the absorption of Specialized Lending (ProjectFinancing, Object Financing and Real Estate), for which an internal model has been finalised and is currentlybeing tested.

• in 2008 the “3rd Anti-Money Laundering Directive”, deriving from the issue of Legislative Decree 231/2007 wasapplied. The issue was subject to specific examination by the Parent Company, which then issued a specificDirective. The particular attention required for adequate supervision of customers and for the constant monitoringof customers’ likelihood of being affected by risks of money laundering and terrorism suggested the adoption ofnew IT applications at Group level. The process will conclude with the issuing of the implementation regulations

Organization, Controland Information Systems


46

by the Bank of Italy and its Financial Intelligence Unit (UIF), both for the definition of the methods for suitablesupervision, and the indication of new regulations for maintaining the Centralised Computer Archive (AUI).

Other, more specific activities of the Bank were launched and/or continued, such as the adhesion to the AIM marketon the Italian Stock Exchange in the role of Nominated Advisor or Nomad, and the conclusion of transactions in de-rivatives and commodities for corporate customers.

Strict attention continues to be focused on containing administrative expenses, in line with the similar initiatives ofthe MPS Group. The creation of additional, new master plans as part of the general expenses process, promoted bythe Parent Company in drawing up the Budget 2009, will ensure ever-increasing control over said process in the fu-ture.

As regards Business Continuity Management (BOM), it is noted that the project has entered its management phase,though it continues to be highly dynamic in virtue of the upcoming changes in the Business Plan.

INFORMATION SYSTEMS AND INFRASTRUCTURES

The launch of the implementation phase of the Business Plan 2008-2011 repeatedly refers to the plan for the grad-ual adoption of the Operational Consortium IT procedures by the Bank, which will enable the Bank to acquire all thefunctions and potential already available to the other Group banks, improving the sharing and integration of theGroup’s databases. The preliminary activities for the migration of credit services to the Group Operational Consortium, services whosemanagement will be supported by custom-made applications produced by the former MPS Banca per l’Impresa, wascompleted in phases over the last few years. Due to the different priorities imposed on the Operational Consortium,in 2008 as well, it was not possible to complete the project in question.

THE CONTROL SYSTEM

According to the operating structure and strategies of the MPS Banking Group, MPS Capital Services was identifiedas the structure for covering markets that are increasingly evolved and competitive. As a result, in an evolved viewthat is consistent and compliant with the strategies established by the Group in organisational terms and as a gover-nance model, this required more in-depth verification activities, aimed at ensuring sound, prudent management andpreventing, or at least mitigating, credit, market and operational risks.In this view, two documents were issued during the year which are fundamental for the system for supervision of Bankactivities: the “Company Internal Control Regulations” and the “Governance and Control Manual”. The Manual governs the internal organisation and governance and control functions that are envisaged in relation torisks linked to company operations on the whole, including those carried out on financial markets on own behalf andon behalf of third parties. The Regulations, on the other hand, summarise the general principles laid down by the Su-pervisory Bodies, the Parent Company and, at the same time, define the guidelines for the verification activities.All three types of risk are carefully monitored and controlled through the assignment of specific responsibilities andoperating limits defined by the Board of Directors and the Top Management, in lien with the instructions on each issueset down in by the Parent Company.As regards lending activities, a specific regulation governs the various phases of the assessment and disbursementprocess, defining specific responsibilities, powers and controls. In assessing the creditworthiness of customers, in linewith Group level provisions, the Bank adopts an automated procedure to determine the customer’s rating. Then, in


47

line with the regulations, the ratings are validated by an independent department, separate from that which performedthe creditworthiness assessment. The Internal Audit Department performs checks, on a sample basis, in order to ver-ify full compliance with company regulations, during the following phases: in the phases of preliminary assessment,finalisation and acquisition of guarantees. Specific attention is also focused on problem loans, whether in arrears orclassified as watch-list loans. The monitoring of problem loans is assigned to two structures with distinct monitoringduties. Within this activity, significant importance is attributed to the analysis of “adjusted” non-performing loans,meaning positions that the system reports as non-performing to the Interbank Risk Service but which the Bank has notyet classified in that category, but which are reported to the Management and the competent department for the pur-pose of implementing the appropriate credit protection measures.Positions classified as non-performing are transferred to MPS Gestione Crediti Banca S.p.a. for the purposes of ad-ministration. This Group company is in charge of overseeing dispute proceedings on the basis of a mandate agree-ment, and is equipped with a consistent, autonomous system of controls. For exposures of significant amounts, internalanalyses are also carried out, in order to identify and predict any procedural gaps to be corrected.As regards activity on financial markets, the dynamics of VaR and the related effects on the income statement are mon-itored, as well as the trend in country, counterparty and issuer risk.For market risk, as for credit risk, as per Group regulations, the Bank turns to the centralised Risk Management De-partment, which is assigned all the activities connected with defining, developing and updating the measurementmodels for credit, market, and counterparty risk inherent in the interest rate and liquidity risk profiles, and equity riskin compliance with the qualitative and quantitative requirements set forth by the Supervisory Body. As regards operational risk, the Bank uses an integrated management system developed on the basis of a governancemodel managed by the Parent Company, aimed at the adoption of the advanced approach into regulations, which,based on the data provided, determines the related capital absorption.During the year, regulations on market abuse and conflicts of interest were issued. These matters are particularly sen-sitive for the Global Markets Division. Another significant event concerned the publication of the Code of Conduct, with which all employees must com-ply. This Code sets forth rules of conduct in providing services to ensure absolute compliance with the law in inter-nal relations and those between the bank and third parties, and to ensure that each activity is carried out withtransparency, loyalty, correctness, integrity and professional duty of care, avoiding and preventing the commission ofoffenses and crimes, with specific reference to those set forth in Legislative Decree 231/2001.


48

Also in 2008 MPS Capital Services maintained its Environmental Management System operations. This system pro-vides careful control and effective management of the company’s environmental impacts and the pursuit of en-

vironmental objectives and milestones that the Bank set with its “Environmental Program”.During the year, the contents of the Environmental Policy were updated, and the new document was approved by theBank’s Board of Directors on 26 March 2008.In line with the Group’s strategies, and based on the Business Plan, UNI EN ISO 14001:2004 certification was main-tained, which was confirmed by the RINA certification body through the periodic inspections on 28 and 29 April,while the EMAS registration pursuant to EMAS Regulation EC 761/2001 (EMAS II) and Social Accountability certifi-cation SA 8000 were not renewed.

There are two types of impacts of our activities on the environment: direct and indirect. Direct impacts are linked tooperations, consumption of paper, water and energy, and production of waste and greenhouse gas, while indirect im-pacts are attributable to activities of suppliers and customers, in relation to the environmental risk of activities fi-nanced, the improvement in ecological efficiency incentivised through customised financing and for pollutingactivities of suppliers or the products purchased.

Maintenance of the management system continued during the year. More specifically, Periodic monitoring was car-ried out on the management procedures, as well as specific activities for increasing the awareness of personnel re-garding the correct management of environmental impacts of the Bank, with particular focus on waste management.

The Bank also adopted the Safety Policy, which was approved by the Board of Directors on 30 October 2008, in linewith the Parent Company’s “corporate social responsibility” strategies, aimed at disseminating the culture of healthand safety in the workplace and of interaction between company structures.

Environmental Issues


49

In compliance with the regulations on personal data protection and, specifically, Legislative Decree no. 196 of 30June 2003 (Personal Data Protection Code), as amended, the Bank carried out the required fulfilments. In particular,

the version of the Security Planning Document referring to 31 December 2008 was drawn up pursuant to Article 34,subsection 1g) of the aforementioned Code and Technical Regulations (Attachments B-D of Legislative Decree no.196 of 30 June 2003).

Based on the analysis of risks, the distribution of duties and responsibilities relating to “data processing” attributed tothe Bank’s structures, the following are defined:• the technical and organisational criteria for the protection of the premises and rooms covered by the security

measures, as well as the procedures for controlling access of authorised personnel to said rooms;• the criteria and procedures to ensure data integrity;• the criteria and procedures for data transmission security, including those for electronically restricting access;• the training plan, for the purpose of informing the data processors of the risks identified and the methods for

preventing damages.

During the annual update, all areas of risk and countermeasures adopted were re-examined on the basis of regula-tory changes and the technical development of the sector, as well as in light of day-to-day experience.

Personal Data Protection


50

Transactions carried out with the Parent Company Banca Monte dei Paschi di Siena and with the other Group com-panies were numerous and significant during the entire year 2008. Refer to Part H “Transactions with Related Par-

ties” - in the Explanatory Notes - for a breakdown of the existing relations with Group companies as of 31 December.The main important aspects are commented on below.

Given that the guidance, control and support provided by the Parent Company over MPSCS’ operations was focusedon the areas of planning and control, legal and compliance, corporate identity and oversight of relations with super-visory authorities, these relations were characterised by proactive, constructive cooperation, with the Parent Companyissuing specific guidelines which were fully brought to the attention of the MPSCS Board of Directors.

The outsourcing of activities to other Group structures and companies has enabled MPSCS to increase its commer-cial focus, in addition to realising economies of purpose and scale and obtaining better technical services than thosewhich could be obtained from third parties.

As regards relation with the Parent Company and its subsidiaries, the following is specifically noted:• operations on the market carried out as part of the strategic mission of MPS Capital Services, which also resulted

in the subscription of financial instruments issued by foreign parties, subsequently sold to Group banks;• the agreement entered into at the time by the split-off MPS Finance Banca Mobiliare S.p.A. (January 2003)

governing the relations with Group companies and regarding the methods for the Bank to reacquire the innovativefinancial products, created by the Bank and placed by the Group’s commercial network;

• the granting of temporary loans and medium/long-term loans by Banca MPS and some of its subsidiaries, for thepurpose of funding the Bank’s normal operations. In March the last phases for centralising the management of theinterest rate and medium/long-term liquidity risk management process within the Parent Company’s ALM BusinessUnit were completed, in line with the indications of the BU on the matter of Asset and Liability Management andthe guidelines issued by the Parent Company (the related SLA is being defined). Moreover, at the end of June, allthe positions entered into at the time with the Frankfurt branch of BMPS were discharged to MPS Ireland.

• debt collection for problem loans carried out by MPS Paschi Gestione Crediti (a specialist bank of the Group), andgoverned by specific SLAs;

• the presence of personnel seconded from the Parent Company and other Group entities to MPS Capital Services;• the presence of employees of MPS Capital Services seconded to the Parent Bank and some of its subsidiaries,

including the Consorzio Operativo Gruppo MPS;• control of Risk Management and Legal OTC centralised within the Parent Company BMPS;• technological supervision, maintenance and development of the IT system assigned to the Consorzio Operativo

Gruppo MPS, with which a specific SLA has been defined; • the purchases of goods and services in amount exceeding the specific thresholds by Parent Company structures,

in the function of Centralised Group Purchasing;• the lease of premises owned by the Group.

2008 was also characterised by the following non-recurring transactions involving the Parent Company Banca Montedei Paschi di Siena S.p.A. and some of its subsidiaries: • the share capital increase against payment, amounting to approximately €100 million, which was concluded on

16 June; • Integration of Banca Antoniana-Popolare Veneta (BAPV) into the BMPS Group, finalised on 2 June, which involved

MPSCS, which was charged with guaranteeing commercial continuity and control of risks on services/productspreviously attributed to the Finance Department of BAPV. As a result, a series of complex positions were acquiredin OTC and listed derivatives, covered warrants and bonds, which were allocated to the various risk managementunits of MPSCS on the basis of principles of responsibility and continuity. Regarding covered warrants issued by

Relations with Group companies


51

BAPV, MPSCS substituted BAPV in the role of market maker. These positions in derivatives are joined by creditinstruments, primarily issued by banks or parabanking entities, acquired directly from BAPV in the last two weeksof May. Issuer risk was also hedged for these bonds, where appropriate;

• the transfer of some equity investments to MPS Investments S.p.A. (a non-banking investment holding companyof the MPS Group), which were no longer instrumental/institutional for our operations. The operation, carried outin several steps, was concluded in September.

The Shareholders’ Meeting of 20 December 2007 set down rules for operations in securities of the Parent CompanyBanca Monte dei Paschi di Siena S.p.A. in compliance with the current laws in force. In addition, these activities canbe substantially attributed to technical purposes linked to risk management through hedging strategies. This also re-quires operations on cash markets, through the trading of the securities underlying the derivatives contracts in place,normally based on baskets of securities which include the Banca MPS share. The same Shareholders’ Meeting resolvedthe purchase of shares of the Parent Company, up to a maximum of 244,200, for the purpose of stock grants to em-ployees of the Bank, in line with the provisions of the supplementary employment agreement.

During 2008 the Bank purchased 435,827 shares of Banca Monte dei Paschi di Siena S.p.A., of which i) 215,275 wereassigned to employees through stock grants referring to 2006; ii) 206,500 will soon be assigned to employees throughstock grants referring to 2007; and iii) 3,725 were transferred to the market.

It is noted that the transactions in question were carried out at market conditions.


52

The Bank’s operations in the period from the balance sheet date and the date of approval of these financialstatements substantially developed in continuity with the past, and according to the guidelines of the Parent

Company.

Significant Events Subsequentto the End of the Year andOutlook on Operations


53

Dear Shareholders,

We invite you to approve the 2008 Financial Statements, comprising the balance sheet, the income statement, thestatement of changes in shareholders’ equity with the related movements in reserves, the statement of cash flows andthe Explanatory Notes, as well as the related attachments and Report on Operations, as a whole and in their individualitems, as presented by the Board of Directors, and to attribute the profit for 2008 according to the following:

PROPOSED ALLOCATION OF PROFIT FOR 2008

- to ordinary reserves (1/20) € 1,904,313,47- to reserves required by the Articlesof Association pursuant to Article 26 (1/20) € 1,904,313,47

- to extraordinary reserves € 34,277,642,41PROFIT FOR 2008 € 38,086,269,35

Proposals to the Shareholders’ Meeting


54

FINANCIALSTATEMENTS

Assets 31/12/2008 31/12/200710. Cash and cash equivalents 2,770 90220. Financial assets held for trading 17,293,369,043 19,498,625,95240. Financial assets available for sale 315,253,833 277,386,30860. Due from banks 3,863,972,670 2,786,917,42270. Loans to customers 13,171,985,539 11,977,614,074

100. Equity investments 22,130,713 28,128,252110. Property, plant and equipment 41,392,742 41,933,183120. Intangible assets 75,286 199,887

of which goodwill - -130. Tax assets 81,103,145 47,569,982

a) current 8,890,896 7,912,057b) prepaid 72,212,249 39,657,925

150. Other assets 53,905,144 47,102,085Total Assets 34,843,190,885 34,705,478,047

Balance Sheet


57

Liabilities and Shareholders’ Equity 31/12/2008 31/12/200710. Due to banks 5,103,148,341 12,289,262,38220. Due to customers 10,794,155,793 2,226,449,58630. Oustanding securities 181,211,653 231,201,49940. Financial liabilities held for trading 17,617,902,471 18,942,570,88460. Hedging derivatives 59,042,691 4,526,38280. Tax liabilities 9,568,740 42,460,130

a) current 6,415,027 11,110,508b) deferred 3,153,713 31,349,622

100. Other liabilities 106,783,859 88,648,213110. Employee Severance Indemnity 4,193,155 4,891,963120. Provisions for risks and charges: 11,103,778 8,700,748

a) pensions and similar obligations 7,057,823 7,096,361b) other provisions 4,045,955 1,604,387

130. Valuation reserves (11,569,580) 37,075,744160. Reserves 509,218,576 423,005,635170. Share premium reserve 189,210,022 108,598,083180. Share capital 231,135,117 211,873,857200. Profit for the period 38,086,269 86,212,941

Total Liabilities and Shareholders’ Equity 34,843,190,885 34,705,478,047

Balance Sheet


58

Items 31/12/2008 31/12/200710. Interest income and similar income 1,208,946,863 1,106,742,16620. Interest expense and similar charges (1,036,173,418) (941,179,745)30. Interest margin 172,773,445 165,562,42140. Fee income 75,509,512 62,039,83750. Fee expense (49,693,785) (43,625,744)60. Net fees 25,815,727 18,414,09370. Dividends and similar income 273,919,418 252,947,60880. Net income from trading activities (251,322,531) (171,866,378)90. Net income from hedging activities 365,640 228,589

100. Profit (loss) from sale or repurchase of: (1,004,544) 383,322a) loans - -b) financial assets available for sale (1,004,544) 383,322c) financial assets held to maturity - -d) financial liabilities - -

110. Net result from financial assets and liabilities at fair value - (3,833,007)120. Operating income 220,547,155 261,836,648130. Net value adjustments/write-backs due to impairment of: (91,397,833) (69,724,774)

a) loans (90,368,422) (65,805,046)b) financial assets available for sale - (2,335,577)c) financial assets held to maturity - -d) other financial transactions (1,029,411) (1,584,151)

140. Net income from financial management 129,149,322 192,111,874150. Administrative expenses (78,570,992) (80,357,859)

a) personnel expenses (44,153,372) (47,307,462)b) other administrative expenses (34,417,620) (33,050,397)

160. Net provisions for risks and charges (2,941,568) (500,000)170. Net value adjustments/write-backs to property, plant and equipment (1,066,459) (1,051,661)180. Net value adjustments/write-backs to intangible assets (124,601) (315,094)190. Other operating income/charges 5,844,199 3,633,321200. Operating costs (76,859,421) (78,591,293)210. Profit (loss) from equity investments (47,519) -230. Value adjustments to goodwill - (594,286)250. Profit (loss) from current operations

before taxes 52,242,382 112,926,295260. Income taxes on current operations (14,156,113) (26,713,354)290. Profit (loss) for the period 38,086,269 86,212,941

Income Statement


59

(amounts in thousands of euros)Allocation of previous Changes during the period

year’s results Shareholders’ Equity transactions

Share capital: 211,874 211,874 19,261 231,135a) ordinary shares 211,874 211,874 19,261 231,135b) other shares

Share premium reserve 108,598 108,598 80,612 189,210Reserves:423,005 423,005 86,213 509,218

a) profit 176,675 176,675 86,213 262,888b) other 246,330 246,330 246,330

Valuation reserves 37,076 37,076 (48,646) (11,570)a) available for sale 5,349 5,349 (48,646) (43,297)b) cash flow hedgingc) other 31,727 31,727 31,727

Equity instrumentsTreasury sharesProfit (loss) for the period 86,213 86,213 (86,213) 38,086 38,086Shareholders' Equity 866,766 866,766 0 0 (48,646) 99,873 38,086 956,079

Note:on 13 February 2008 the Shareholders' Meeting resolved to increase share capital from €211,873,857.30 to €231,135,117.03through the issue of 71,337,999 ordinary shares with a par value of €0.27, in addition to a share premium of €1.13 per share.

Bal

ance

s as

at

31/1

2/20

07

Cha

nges

in in

itial

bala

nces

Bal

ance

s as

at

01/0

1/20

08

Res

erve

s

Div

iden

ds a

ndot

her

allo

catio

ns

Cha

nges

in r

eser

ves

Issu

e of

new

sha

re

Purc

hase

of

trea

sury

sha

res

Extra

ordi

nary

divi

dend

dis

trib

utio

n

Cha

nge

in e

quity

inst

rum

ents

Cha

nge

in e

quity

capi

tal

Stoc

k op

tions

Prof

it (lo

ss)

for

the

peri

od 2

008

Shar

ehol

ders

’ Equ

ityas

at 3

1/12

/200

8


Statement of Changes in ConsolidatedEquity 31/12/2007 - 31/12/2008

60

(amounts in thousands of euros)Allocation of previous Changes during the period

year’s results Shareholders’ Equity transactions

Share capital: 135,771 135,771 76,103 211,874a) ordinary shares 135,771 135,771 76,103 211,874b) other shares

Share premium reserve 108,598 108,598 108,598Reserves:274,398 274,398 19,210 129,397 423,005

a) profit 157,465 157,465 19,210 176,675b) other 116,933 116,933 129,397 246,330

Valuation reserves 31,775 31,775 5,301 37,076a) available for sale 48 48 5,301 5,349b) cash flow hedgingc) other 31,727 31,727 31,727

Equity instrumentsTreasury sharesProfit (loss) for the period 64,467 64,467 (19,210) (45,257) 86,213 86,213Shareholders' Equity 615,009 615,009 0 (45,257) 5,301 205,500 86,213 866,766

New shares were issued for the purpose of the split-off of the operating branch of MPS Finance Banca MobiliareS.p.A. Other reserves increased as a result of the surplus from the split-off.

Bal

ance

s as

at

31/1

2/20

06

Cha

nges

in in

itial

bala

nces

Bal

ance

s as

at

01/0

1/20

07

Res

erve

s

Div

iden

ds a

ndot

her

allo

catio

ns

Cha

nges

in r

eser

ves

Issu

e of

new

sha

re

Purc

hase

of

trea

sury

sha

res

Extra

ordi

nary

divi

dend

dis

trib

utio

n

Cha

nge

in e

quity

inst

rum

ents

Cha

nge

in e

quity

capi

tal

Stoc

k op

tions

Prof

it (lo

ss)

for

the

peri

od 2

007

Shar

ehol

ders

’ Equ

ityas

at 3

1/12

/200

8


Statement of Changes in ConsolidatedEquity 31/12/2006 - 31/12/2007

61

(amounts in thousands of euros)A. OPERATING ACTIVITIES 31/12/2008 31/12/20071. Management (28,384) 141,556

- profit (loss) for the period [+/-) 38,086 86,213- gains/losses on financial assets held for trading

and on financial assets/liabilities at fair value (95,941) 2,370- net value adjustments/write-backs due to impairment 87,043 67,389- net value adjustments/write-backs to property,

plant and equipment and intangible assets 1,191 1,961- net provisions to risks and charges and other costs/revenues 2,942 500- taxes not paid (13,005) 26,713- other adjustments (48,700) (43,590)

2. Cash flows absorbed by financial activities: 98,286 (22,064,828)- financial assets held for trading 2,342,280 (19,107,851)- financial assets available for sale (43,363) (243,334)- due from banks - other receivables (1,156,520) (2,083,045)- loans to customers (1,079,009) (827,646)- other assets 34,898 197,048

3. Cash flows generated by financial liabilities: 1,226,991 17,990,938- due to banks - other payables (5,730,070) 108,041- due to customers 8,504,033 1,642,718- outstanding securities and financial liabilities at fair value (51,251) (2,489,580)- financial liabilities held for trading (1,345,878) 18,802,155- other liabilities (149,843) (72,396)Net cash flows absorbed/generated by operating activities 1,296,893 (3,932,334)

B. INVESTING ACTIVITIES1. Cash flows generated by: 7,558 7

- sale of equity investments 5,997 -- dividends from equity investments 1,561 -- sale of property, plant and equipment - 7- sale of intangible assets - -

2. Cash flows absorbed by: (526) (2,758)- purchase of equity investments (2,167)- purchase of property, plant and equipment (526) (591)- purchase of intangible assets - -Net cash flows absorbed by investing activities 7,032 (2,751)FUNDING ACTIVITIESissue/purchase of treasury shares 99,873 -issue/purchase of equity instruments - -distribution of dividends and other purposes - (45,257)Net cash flows absorbed by funding activities 99,873 (45,257)NET CASH FLOWS ABSORBED/GENERATED DURING THE PERIOD 1,403,798 (3,980,342)

Statement of Cash Flowsindirect method


62

(amounts in thousands of euros)Items 31/12/2008 31/12/2007Cash and cash equivalents at the beginning of the period (4,159,977) (179,635)Total net cash flows absorbed/generated during the period 1,403,798 (3,980,342)Cash and cash equivalents effect of changes in exchange rates - -Cash and cash equivalents at the end of the period (2,756,179) (4,159,977)

Note:Cash and cash equivalents include on demand payables and receivables and deposits with banks.

Reconciliation


63

EXPLANATORYNOTES

A.1 - GENERAL INFORMATION

Section 1 - STATEMENT OF COMPLIANCE WITH THE INTERNATIONAL ACCOUNTING STANDARDS

These Financial Statements, in application of Legislative Decree no. 38 of 28 February 2005, have been drawn up ac-cording to the International Accounting Standards issued by the International Accounting Standards Board (IASB) andthe related interpretations by the International Financial Reporting Interpretations Committee (IFRIC), endorsed by theEuropean Commission, as established by EU Regulation no. 1606 of 19 July 2002, and in force at the time the Fi-nancial Statements were approved. The International Accounting Standards were also applied with reference to theIASB “Framework for the Preparation and Presentation of Financial Statements” (the “Framework”).In the absence of an accounting standards or interpretation specifically applicable to a transaction, other event or cir-cumstance, the Company Management used its own judgement in developing and applying an accounting standard,in order to provide disclosure that is: • significant for the purposes of financial decisions made by users of the financial statements;• reliable, so that the financial statements:

- provide a true representation of the equity-financial position, income statement and cash flows of the entity;- reflect the economic substance of the transactions, other events and circumstances, and not merely their legal

form; - are neutral, meaning free of prejudice;- are prudent; - are complete, with reference to all significant aspects.

In exercising said judgement, the Company Management referred to and considered the applicability of the followingsources, in decreasing order of importance:

- the provisions and application guidelines contained in the Accounting Standards and Interpretations dealing withsimilar or related cases;

- the definitions, recording criteria, and measurement concepts for the recognition of assets, liabilities, revenuesand costs contained in the Framework.

In expressing judgements, the Company Managements may also consider:- the provisions most recently issued by other entities responsible for ratifying accounting standards, which use a

conceptually similar framework in developing the accounting standards;- other accounting literature- generally accepted practices in the sector.

In compliance with Article 5 of Legislative Decree no. 38 of 28 February 2005, whenever, in exceptional cases, theapplication of a provision of the International Accounting Standards was incompatible with the true and accurate rep-resentation of the equity, financial and income situation, such provision was not applied. The Explanatory Notes pro-vide explanations for these derogations and their influence on the representation of the equity, financial and incomeposition.In the financial statements, any profits deriving from such derogation are recorded in a reserve which may be dis-tributed only to the extent of the actual amount recovered.

Section 2 - GENERAL PRINCIPLES FOR THE PREPARATION OF THE FINANCIAL STATEMENTS

For the purposes of presentation and measurement, the Financial Statements have bee prepared in accordance withthe IAS/IFRS issued by the International Accounting Standard Board (IASB) and the related interpretations by the In-ternational Financial Reporting Interpretations Committee (IFRIC), endorsed by the European Commission, and the

Part AAccounting Policies


67

provisions of Bank of Italy Circular no. 262 of 22 December 2005 governing the format and rules for the preparationof bank financial statements.The financial statements consist of the balance sheet, the income statement, the statement of changes in sharehold-ers’ equity, the statement of cash flows and the explanatory notes, and are supplemented by the Director’s Report onOperations. As permitted by IAS 27, the Bank, as the parent company of other companies in turn controlled by the Parent Com-pany Banca Monte dei Paschi di Siena S.p.A., which draws up consolidated financial statements compliant with theIAS/IFRS for public use, presents its own separate financial statements as its sole annual financial statements (cf. IAS27, par. 8-10). In light of the above, the investments in subsidiaries, associated companies and jointly controlled en-tities are accounted for at cost (IAS 27, par. 37). For a breakdown of equity investments, see Section 6 under Assetsin the Explanatory Notes.The Consolidated Financial Statements are drawn up by the Parent Company Banca Monte dei Paschi di Siena S.p.A.- with registered office in Piazza Salimbeni no. 3 - Siena, enrolled in the Banking Register and the Banking GroupsRegister with no. 5274 - and are made available to the public at said registered offices.The financial statements have been prepared with clarity, and provide a true and accurate representation of the eq-uity, financial and income situation for the year.If the disclosure required by the International Accounting Standards and the provisions contained in the Bank of ItalyCircular no. 262 of 22 December 2005 is not sufficient to provide a true, accurate, meaningful, reliable, compara-ble and understandable representation, then supplementary information required for this purpose is provided in theExplanatory Notes. The balance sheet and income statement consist of numbered items, sub-items identified by letters, and by addi-tional details, the “of which” of the items and sub-items. The items, sub-items and related details constitute the fi-nancial statement accounts.The prior-year balance has also been reported for each item of the balance sheet and income statement. If the accountbalances are not comparable, the prior-year balances are adjusted. The lack of comparability and the restatement orthe impossibility of restatement are noted and discussed in the Explanatory Notes.The offsetting of assets and liabilities and of costs and revenues is note permitted, except where allowed or requiredby the International Accounting Standards of the provisions of Bank of Italy Circular no. 262 of 22 December 2005.Balance sheet and income statement items with a zero balance for the year and for the prior year are not presented.If an asset or liability can be booked to more than one balance sheet item, the explanatory notes provide an expla-nation of its referability to accounts other than the account in which it is recognised, if necessary for the purpose ofunderstanding of the financial statements. Revenues are reported in the income statement and the related section ofthe explanatory notes without a +/- sign, while costs are indicated in parentheses.In compliance with Article 5 of Legislative Decree no. 38 of 28 February 2005, the financial statements have beenprepared using the Euro as the functional currency. Specifically, the balance sheet and income statement are presentedin euros, whereas all amounts in the Explanatory Notes are presented in thousands of euros. Tables which showedzero balances were omitted from the Explanatory Notes.The financial statements have been drawn up with the view of the company as a going concern, in accordance withthe matching principle, the principle of the importance and significance of information, and the principle of theprevalence of substance over form, as well as in order to favour consistency with future presentations. Items with dif-ferent natures or purposes have been presented separately, unless the related amounts were considered immaterial.It was not necessary to adjust the amounts recorded in the Financial Statements in order to reflect events subsequentto year end which, pursuant to IAS 10, require adjustment. Subsequent events not requiring adjustments and, thus,reflecting circumstances occurring after the balance sheet date are disclosed in the Section 3 of the Explanatory Noteswhen significant, and thus, when they are capable of influencing the financial decisions of users of the financial state-ments.


68

Section 3 - EVENTS AFTER THE REPORTING PERIOD

IAS 10, “Events after the Reporting Period” expressly governs the treatment to be applied to favourable or unfavourableevents occurring between the balance sheet date and the date on which the Board of Directors authorises the finan-cial statements for publication. The standard distinguishes between events requiring an adjustment to Financial State-ment data and events which do not require adjustment but necessitate the provision of disclosure should the eventsbe significant or important.Events subsequent to the balance sheet date are discussed in the Report on Operations, in the section “SignificantEvents Subsequent to the End of the Year and Outlook on Operations”.

Section 4 - OTHER INFORMATION

On 13 October 2008 the IASB issued amendments regarding "Reclassification of Financial assets" to IAS 39 "Finan-cial Instruments: Recognition and Measurement" and to IFRS 7 "Financial Instruments: Disclosure", which were en-dorsed by the European Commission on 15 October 2008 with Regulation no. 1004/2008. The amendments removesome prohibitions against reclassification. Specifically, the changes to IAS 39 concern financial assets other than de-rivatives classified in the accounting items “financial assets held for trading” and “financial assets available for sale”.In this regard, two distinct cases are identified:1. reclassifications from “financial assets held for trading” to other asset portfolios of financial instruments (“loans

and receivables”, “financial assets available for sale” and “financial assets held to maturity”). Reclassifications arepermitted if the entity no longer intends to continue to hold the instrument for trading purposes, or if the instrumentno longer has the characteristics or requisites to meet said definition. Two possible cases are envisaged: a)reclassifications permitted only in “rare circumstances” and, in this regard, the IASB pointed out that the marketconditions in the third quarter 2008 constitute an example of “rare circumstances”; b) reclassifications permittedat any time, provided that upon initial classification the financial instrument possessed the characteristics forpossible alternative classification under “loans and receivables” and, provided that, subsequent to the transfer, theentity has the intent and the ability to hold the instrument in the new portfolio for the foreseeable future;

1. reclassifications from “financial assets available for sale” to “loans and receivables” if the entity has the intent andability to hold the financial asset for the foreseeable future.

On the contrary, reclassifications to “financial assets held for trading” remain prohibited. Any reclassifications are to be made at the fair value of the financial asset at the date of reclassification, and gains orlosses previously recognised may not be written back. The fair value at the date of reclassification becomes the newcost or amortised cost of the financial asset. For instruments from “financial assets available for sale”, the amountrecognised in shareholders’ equity reserves must be reversed to the income statement using the effective interest rate,for debt instruments, or at the moment of transfer. The amendments to the standard are effective from 1 July 2008, provided that the reclassifications are performed by31 October 2008. Reclassifications cannot be made retrospectively or by redetermining the effects of accruals for theprevious periods. Reclassifications performed from 1 November 2008 produce effects subsequent to the effectivetransfer.Lastly, on 27 November 2008, the IASB issued an amendment supplementing the above amendments, “Reclassifi-cation of Financial Instruments - Effective Date and Transition” (amendments IAS 39 “Financial Instruments: Recog-nition and Measurement” and to IFRS 7 “Financial Instruments: Disclosure”). These additional amendments clarify thatall reclassifications performed after 31 October 2008 take effect at the date of reclassification. The amendments havenot yet been endorsed by the European Commission.MPS Capital Services did not carry out any reclassifications of financial assets.


69

A.2 - PRINCIPAL FINANCIAL STATEMENT AGGREGATES

Accounting Standards

The accounting standards adopted with reference to the principal asset and liability items for the preparation of theFinancial Statements as of 31 December 2008 are described below.

1) FINANCIAL ASSETS HELD FOR TRADING

a) initial recognitionFor purchase and sale transactions involving standard financial instruments, assets are initially recorded at the fairvalue at which they are acquired (“regular way”, whose settlement terms are generally established by regulations ormarket conventions), and are booked as of the settlement date. Other financial instruments are booked as of the trans-action date (see derivative contracts).

b) classificationThe following are classified in this category: i) financial assets acquired primarily for the purpose of generating earn-ings as a result of short-term price fluctuations; ii) financial assets that are part of portfolios of financial instrumentswhose overall management is geared towards effective strategies for securing profits in the short term; iii) derivativecontracts, with the exception of those designated as hedging derivatives; and iv) structured instruments (for these fi-nancial instruments, derivatives embedded in the primary contracts have not been reported separately).

c) measurement criteriaFollowing initial recognition, the trading portfolio is measured as follows: • financial instruments such as securities and derivatives are stated at fair value, including unsettled positions related

to regular way contracts;• financial instruments such as repurchase agreements and securities lending are stated at fair value, including the

accrued income and expenses as of the balance sheet date;• equity securities which do not have a price listed in an active market, and whose fair value cannot be reliably

measured, and their related derivatives, are stated at purchase cost, adjusted to take into account any impairmentlosses. Impairment testing is carried out at the close of each set of financial statements or interim report. When thereasons for the impairment no longer apply, as the result of an event occurring subsequent to the recognition ofimpairment, the amounts are written back.

It is noted that in determining the cost of the securities portfolio, the Bank applies the “weighted average daily cost”method”.To determine the fair value of financial instruments listed on active markets, market prices are used. In the absenceof an active market, generally accepted estimation methods and measurement models are used, which are based ondata obtained from the markets, such as: methods based on the measurement of listed instruments with similar char-acteristics, discounted cash flow methods, option price models, and prices recorded in recent comparable transac-tions.Equity instruments and the related derivatives whose fair value cannot be reliably determined according to the guide-lines above, are stated at cost, adjusted for any impairment losses. These impairment losses are not written back.In the case of some financial instruments measured at fair value and not traded in active markets, which are meas-ured using parameters that cannot be observed on the market, there may be a difference between the fair value at the


70

time of initial recognition, meaning the amount paid or received, and the amount determined as of said date usingthe measurement technique: this difference (the Day-1 Profit/Loss) is not immediately recorded in the income state-ment, but is “deferred” and amortised over the term of the transaction. In the event of early redemption of the in-strument, the amount not yet amortised is booked to the income statement.

b) derecognitionFinancial assets are eliminated from the accounts within the same time frame indicated for initial recognition, whenthe contractual rights expire or when the financial asset is sold, essentially transferring all the related risks/benefits. Regarding repurchase agreements and securities lending, for which the Bank continues to essentially retain all the risksand benefits of ownership of the transferred asset, the Bank continues to record the entire amount of the transferredasset in the balance sheet, as an offsetting entry to financial liability equal to the consideration received.

e) income recognition criteriaThe effects of measurement, transfers and/or closures are booked to Item 80 of the income statement, “Net incomefrom trading activities”, while coupon income or any remuneration accrued for activities regarding repurchase agree-ments or securities lending are recorded in the income statement, under Item 10 “Interest income and similar in-come” and Item 20 “Interest expense and similar charges”. Dividends on equity instruments are booked to the income statement on the date when the right to receive paymentbecomes effective, under Item 70 “Dividends and similar income”. Differentials on transactions in derivatives are booked to the income statement under the suitable item in relation tothe management nature of the contracts. Item "80 - Net income from trading activities” also includes the recognisedand reversed effects of the Day 1 Profit/Loss.

2) FINANCIAL ASSETS AT FAIR VALUE

a) initial recognitionFinancial assets are initially recorded at the settlement date for debt and capital securities, and at the granting datefor receivables.These financial assets are initially measured at their fair value, which generally corresponds to the amount paid, with-out considering the transactions costs or income directly attributable to the instrument itself, which are booked to theincome statement.The Fair Value Option (FVO) is applied to all financial assets and liabilities which cause distortion in accounting rep-resentation, and all instruments which are managed and measured with a view to fair value.

b) classificationFinancial assets to be measured at fair value through profit and loss (with the exception of equity instruments lack-ing a reliable fair value) are classified under this category when:• designation at fair value eliminates or reduces the significant distortions in the accounting representation of the

financial instruments or between financial instruments and non-financial assets/liabilities; or: • the management and/or measurement of a group of financial instruments at fair value through profit and loss is

consistent with a risk management or investment strategy, documented and reported to the company management; or: • in the event of an instrument containing an embedded derivative which significantly changes the cash flows of the

host instrument, and which must be separated.


71


c) measurement criteriaSubsequent to initial recognition, these assets are measured at fair value. To determine the fair value of financial instruments listed on active markets, market prices are used. In the absence of an active market, the estimation methods illustrated in Section 17 “Other Information - Fair Value”are used.

d) derecognitionFinancial assets are eliminated when the contractual rights over the cash flows deriving from the assets expire orwhen the financial assets are sold, essentially transferring all the related risks/benefits.

e) income recognition criteriaGains and losses deriving from the measurement of financial assets at fair value are recorded in Item “110 - Net re-sult from financial assets and liabilities at fair value" in the income statement.

3) FINANCIAL ASSETS AVAILABLE FOR SALE

a) initial recognitionFor purchase and sale transactions involving standard financial instruments, assets are initially recorded at the fairvalue at which they are traded, including transactions costs (“regular way”, whose settlement terms are generally es-tablished by regulations or market conventions), and are booked as of the settlement date. Other financial instru-ments are booked as of the transaction date (receivables are initially recorded at the disbursement date). For debt securities, any difference between the initial amount and the repayment amount is amortised over the termof the instrument, at amortised cost.

b) classificationThis category includes non-derivative financial assets not classified as receivables, assets held for trading or assets heldto maturity.This category specifically includes equity investments not held for trading purposes and not qualifiable as controllinginterests, associates or jointly-controlled companies, and bonds which are not subject to trading.

c) measurement criteriaThe measurement criteria adopted for financial instruments classified in this category (including regular way contractsto be settled) is fair value. Capital securities which do not have a price listed in an active market, and whose fairvalue cannot be reliably measured, and their related derivatives, are stated at cost, adjusted to take into account anyimpairment losses. Impairment testing is carried out at the close of each set of financial statements or interim report.When the reasons for the impairment no longer apply, as the result of an event occurring subsequent to the recogni-tion of impairment, the amounts are written back.Upon measurement, the difference between the amortised cost (determined on the basis of the effective interest rate)calculated as of the balance sheet date - for bonds, or between the carrying amount - for equities, and the fair valueis recorded in specific shareholders’ equity reserves for gains/losses deriving from measurement at fair value - Lia-bilities, Item "130 - Valuation reserves”, with the exception of impairment losses and exchange gains and losses (cf.Section 16 “Transactions in Foreign Currency”).

d) derecognitionElimination follows the rules indicated for financial assets held for trading. Upon the elimination of the financial as-

72


sets, the total gains or losses previously recorded in shareholders’ equity are transferred to the income statement.

e) income recognition criteriaWhen the assets are sold, the results accumulated to AFS reserves are transferred to the income statement, under Item"100 - Profit (loss) from sale of financial assets available for sale”, including the difference accrued during the period.At each balance sheet date, if there is objective evidence that a financial asset or group of financial assets classifiedin this item is impaired, the effect of this impairment is recorded in the income statement under Item "130 - Net valueadjustments due to impairment of financial assets available for sale”, along with any amount previously booked asrevaluation reserves. The amount of said loss is equal to the difference between the purchase cost (net of any repay-ment of principle and interest) and the current fair value, deducting any impairment losses previously booked to theincome statement. Should the reasons for the impairment cease to exist following an event that occurred subsequentto the recording, write-backs are posted to the income statement (under Item 130 as above) if the loss related to debitand credit instruments, or to shareholders’ equity, Item 130 under Liabilities, “Valuation reserves”, if relating to eq-uity instruments. However, the amount of the write-back cannot exceed the amortised cost of the instrument hadthere been no prior adjustments. Subsequent increases exceeding the cost must be posted to shareholders’ equity asrevaluation reserves.The effective interest accrued is booked to the income statement, under Item "10 - Interest income and similar in-come”. Dividends on equity instruments are booked to the income statement on the date when the right to receivepayment becomes effective, which generally corresponds to the year in which the dividend is paid, under Item 70“Dividends and similar income”.

4) FINANCIAL ASSETS HELD TO MATURITY

a) initial recognitionThese financial assets are initially recorded at the settlement date. They are initially recorded at their fair value, whichnormally corresponds to the amount paid, inclusive of transaction costs or income directly attributable to the instru-ments.If an item is recorded in this category due to reclassification from Assets available for sale, the fair value of the assetat the reclassification date is adopted as the new amortised cost of the asset.

b) classificationThis category includes non-derivative financial assets with fixed or determinable payments and set maturities, whichthe Bank has the intent and the ability to hold until maturity. If, following a change in intent or ability, it is no longerdeemed feasible to hold an investment to maturity, the investment is reclassified under assets available for sale. Whenever sales or reclassifications are material in terms of quantity or quality, any remaining investment held to ma-turity must be reclassified as available for sale.

c) measurement and income recognition criteriaSubsequent to their initial recording, the financial assets held to maturity are measured at amortised cost using theeffective interest rate method, adjust to take into account any effects of write-downs.

The result of applying this method is booked to the income statement, under Item "10 - Interest income and similarincome”.Gains and losses deriving from the sale of these assets are booked to the income statement, under Item “100 - Profit(loss) from sale or repurchase of: c) financial assets held to maturity”.

73

Impairment tests are carried out at the close of each set of financial statements or interim report. If there is evidence of impairment, the amount of the impairment loss is measured as the different between the asset’scarrying amount and the current value of estimated future cash flow, discounted at the effective original interest rate.The amount of the loss is booked to the income statement under Item “130 - Net value adjustments/write-backs dueto impairment of: c) financial assets held to maturity”.When the reasons for the impairment no longer apply, as the result of an event occurring subsequent to the recogni-tion of impairment, write-backs are booked to the income statement, under the same Item 130.

d) derecognitionFinancial assets are eliminated when the contractual rights over the cash flows deriving from the assets expire orwhen the financial assets are sold, essentially transferring all the related risks/benefits.

5) RECEIVABLES

a) initial recognitionReceivables are recorded in the financial statements at the disbursement date, or when the creditor acquires the rightto payment of the contractually agreed amounts, while debt instruments are recorded at the settlement date. The initial amount is quantified on the basis of the financial instrument’s fair value, normally equal to the amount dis-bursed, or the subscription price, including costs/income directly attributable to the individual instrument, which canbe defined from the beginning of the transaction, even if settled subsequently. Costs that have the aforementioned char-acteristics but are reimbursed by the debtor counterparty or which can be classified as normal internal administra-tive expenses are excluded.

b) classificationReceivables include non-derivative financial assets with customers or banks, provided directly and/or acquired fromthird parties, involving fixed or definable payments, which are not listed on an active market.

c) measurement and income recognition criteriaAfter initial recording, receivables are measured at the amortised cost, equal to the originally recorded value de-creased/increased by repayments of principal, value adjustments/write-backs and amortisation - calculated using theeffective interest rate method - of the difference between the amount disbursed and the amount repayable at matu-rity, typically attributable to the costs/income directly related to the individual receivable. The effective interest rateis the rate that renders the current value of future credit flows, in terms of principal and interest, equal to the amountdisbursed, including the costs/income attributable to the receivable. The economic effect of the costs and income isdistributed throughout the expected residual life of the receivable.The amortised cost method is not used for short-term loans, for which the effect of application of the discounting logicis negligible. These receivables are shown at their original carrying amount. A similar measurement criteria is adoptedfor receivables with undefined maturity date or which are valid until cancelled.At each balance sheet date, or interim report, receivables are examined in order to identify those which, as a resultof events occurring after their recording, show objective evidence of possible impairment. In classifying impaired exposures into the various risk categories (non-performing, watch-list, restructured and pastdue exposures), the Bank referred to the regulations issued by the Bank of Italy.Receivables are analytically or collectively measured, depending on the various levels of impairment, In order to de-termine the adjustments to be made to the amounts in the financial statements, as illustrated below.Analytical measurement is used for non-performing loans and watch-list exposures, while collective measurement is


74

used for past due and/or in serious default by over 180 days, exposures subject to country risk, and performing expo-sures, as well as watch-list exposure which, according to the analytical analysis, do not present any value adjustments.For receivables subject to analytical measurement, the amount of the value adjustment to each loan is equal to thedifference between the carrying amount of said receivables at the time of measurement (amortised cost) and the cur-rent value of future cash flows, calculated applying the original effective interest rate.The expected cash flows take into account the expected recovery times, the presumable realisable value of any guar-antees, as well as the costs that are likely to be incurred for the recovery of the credit exposure.The adjustment component attributable to the discounting of cash flows is recognised on an accruals basis using theeffective interest rate method, and booked to write-backs.The original value of the receivables is restored in subsequent years to the extent in which the reasons that led to theadjustment cease to exist, provided that this valuation is objective supported by an event that occurred subsequentlyto the actual adjustments. The write-back is booked to the income statement, and cannot exceed the amortised costof the loan had there been no prior adjustments.Receivables for which no individual, objective evidence of impairment was detected are subject to collective meas-urement to detect impairment. This measurement, developed based on risk management models, is carried out on ho-mogeneous categories of loans in terms of credit risk, and the related loss percentages are estimated by taking intoaccount historical series, based on observable elements on the measurement date, which enable the value of the la-tent impairment to be estimated for each category of receivables. The value adjustments determined on a collective basis are booked to the income statement.At each balance sheet date or interim report, any additional value adjustments or write-backs are recalculated, usingdifferential calculation methods, with reference to the entire portfolio of performing receivables at the same date.All value adjustments and write-backs linked to the measurement of loans are recorded under Item "130 - Net valueadjustments/write-backs due to impairment of loans".

d) derecognitionReceivables transferred are written off of the assets in the financial statements only when the transfer results in the es-sential transfer of all risks/benefits linked to the receivables. On the other hand, when all the risks and benefits relat-ing to the transferred receivables are retained, these receivables continue to be recorded under financial statementassets, even though legally, ownership of the receivable has been effectively transferred.If it is not possible to verify the essential transfer of risks and benefits, the receivables are derecognised from the fi-nancial statements when no type of control is held over them. Conversely, the maintenance of even partial controlrequires the receivables to be kept in the financial statements in an amount equal to the residual involvement, meas-ure by the exposure to changes in the value of the loans transferred and to changes in their cash flows.Lastly, transferred receivables are eliminated from the financial statements if the contractual right to receive the re-lated cash flows has been retained, with the concurrent assumption of an obligation to pay said flows, and only saidflows, to other third parties.

6) HEDGING TRANSACTIONS

a) initial recognition - purpose Hedging transactions are aimed at neutralising potential losses on a specific item or group of items, attributable to aspecific risk, by using profits from a different item or group of items should that particular risk effectively occur.

b) classification - hedging typeIAS 39 envisages the following types of hedging:


75

• fair value hedging, which aims at hedging exposure to changes in the fair value of a financial statement itemattributable to a specific risk;

• cash flow hedging, which aims at hedging exposure to changes in future cash flows attributable to specific risksassociated with financial statement items;

• foreign investment hedge, which aims at hedging the risks of an investment in a foreign operation in foreign currency.

c) measurement and income recognition criteriaHedging derivatives are measured at fair value. Specifically:• in the case of fair value hedging, the change in fair value of the item hedged is offset with the change in fair value

of the hedging instrument. This offsetting is recognised by booking the changes in value to the income statement,for both the item hedged (as regards the changes produced by the underlying risk factor), and the hedginginstrument. Any differences, which represent the partial ineffectiveness of the hedge, constitute the net economiceffect, which is booked to Item "90 - Net income from hedging activities”;

• In the case of cash flow hedging, the changes in fair value of the derivative are recorded under shareholders’ equityin a specific reserve, for the effective amount of the hedge, and are recorded in the income statement, always underItem "90 - Net income from hedging activities" only when the change in fair value of the hedging instrument doesnot offset the changes in cash flows of the hedged transaction.

• foreign investment hedges are accounted for using the same method as for cash flow hedges.The hedging transaction must be related to a predefined risk management strategy, and must be consistent with therisk management policies adopted. Moreover, the derivative instrument is designated as a hedging instrument if thereis official documentation regarding the relationship between the instrument hedged and the hedging instrument, andif it is effective both at the time the hedging begins and throughout the life of the hedge.Hedging effectiveness depends on the degree to which the changes in fair value of the instrument hedged or the re-lated expected cash flows are offset by those of the hedging instrument. Consequently, the effectiveness is measuredby comparing these changes, taking into account the intended goal of the Bank at the time the hedge was established.A hedge is effective (within the limits established by the range 80%-125%) when the changes in the fair value (or cashflows) of the hedging financial instrument almost completely neutralise the changes in the hedged instrument, resultingfrom the risk element being hedged.The effectiveness of the hedge is carried out at the end of each year, using:• Prospective tests, which justify application of hedge accounting, as they demonstrate its expected effectiveness;• retrospective tests, which highlight the degree of hedging effectiveness reached during the related period.

d) derecognition - ineffectivenessIf the tests do not confirm the effectiveness of the hedge, both retrospectively and prospectively, the accounting of thehedged operations, according to the above, is interrupted and the hedging derivative contract is reclassified amonginstruments held for trading, while the financial instrument being hedged is once again measured based on its orig-inal class. In case of a cash flow hedge, any reserve is reversed to the income statement according to the amortisedcost method over the residual life of the instrument.The hedging relationships also cease when the derivative expires or when it is sold or exercised, or when the hedgedelement is sold, expires or is repaid.

7) EQUITY INVESTMENTS

a) initial recognition The item includes the equity investments held in subsidiary and associated companies and in joint ventures.


76

Initial recognition, carried out as of the settlement date, takes place at purchase cost, in other words the price paidplus any costs directly attributable to the transaction.

b) classification For the purposes of classification in this item, subsidiary companies are considered to be those over which the powerto determine the financial and operating policies is held so as to obtain benefits from its activities. This occurs whenmore than half the voting rights are held directly and/or indirectly or in the presence of other effective conditions ofcontrol, such as, for example the appointment of the majority of the directors.Jointly-controlled entities are considered to be those for which contractual, shareholder or other types of agreementsexist for the joint management of the activities and the appointment of the directors.Associated companies are those in which 20% or more of the voting rights are held and those companies which, dueto particular legal ties, such as participation in shareholders’ voting pacts, must be considered to be subject to sig-nificant influence.Within the sphere of such classification, the existence or otherwise of legal status is not taken into account and whenascertaining the voting rights, the potential voting rights which can currently be exercised are also considered.

c) measurement and income recognition criteriaThe method for measurement subsequent to initial recognition is cost. At each balance sheet date or interim report,any objective evidence that the equity investment has undergone impairment is assessed.If evidence exists that the value of any equity investment may have undergone impairment, steps are taken to esti-mate the recoverable value of said equity investment, taking into account the current value of the future cash flowswhich the investment may generate, including the final disposal value of the same.If the recovery value is lower than the carrying amount, the related difference is stated in the income statement underitem "210 - Profit (losses) from equity investments".If the reasons for the impairment cease to exist following an event which occurs after the recognition of the impair-ment, write-backs are made with booking to the income statement under the same item 210.Income relating to these investments is recorded in the income statement solely to the extent that the investee com-pany pays dividends generated subsequently to the acquisition date. Dividends received in excess of the profits gen-erated after the acquisition date are considered as realized by the equity investment and deducted from the cost ofthe same.

d) derecognition The financial assets are eliminated when the contractual rights over the cash flows deriving from the assets expire orwhen the financial assets are sold, essentially transferring all the related risks and benefits.

8) PROPERTY, PLANT AND EQUIPMENT

a) initial recognition Property, plant and equipment is initially stated at cost which comprises both the purchase price and all the possiblerelated charges directly attributable to the purchase and bringing on stream of the asset.Extraordinary maintenance costs which involve an increase in the future economic benefits are booked as an in-crease in the value of the assets, while ordinary maintenance costs are recorded in the income statement under item"150 - Administrative expenses - other". Borrowing costs are recognised according to the specific accounting treat-ment envisaged by IAS 23 and therefore recorded as a cost in the period in which they are incurred (see Section 17below - "Other information”).


77

b) classification Property, plant and equipment includes land, properties used for business purposes, investment properties, plant, fur-niture and furnishings and all types of equipment. They are held to be used in the production or supply of assets and services, to be rented to third parties, or for ad-ministrative purposes and if it is deemed they will be used for more than one period.This item also includes the assets used under financial lease agreements, even if the legal ownership of the same re-mains with the lessor, improvements and incremental costs incurred on third party assets relating to Property, plantand equipment which can be identified and separated. With regard to properties, the components referring to landand buildings represent separate assets for accounting purposes and are stated separately at the time of purchase.

c) measurement and income recognition criteriaProperty, plant and equipment, including properties not used for business purposes, are measured at cost, less anyaccumulated depreciation and impairment losses.The fixed assets are systematically depreciated over their useful lives, adopting the straight-line basis as the depreci-ation method, with the exception of land and works of art which have an indefinite useful life and cannot be depre-ciated. The depreciation method (useful life) and the residual value (usually considered to be irrelevant) are reviewed at leastat the end of each year and, if the forecasts differ from the previous estimates, the change is recorded as an accountingestimate amendment (IAS 8).Assets held as a result of financial lease agreements are depreciated with reference to their estimated useful life asare owned assets, or, if lower, on the basis of the expiry deadlines of the lease agreements.On closure of each set of financial statements or interim report, the presence of any signs of impairment is checked,meaning indications which demonstrate that an asset may have undergone a loss in value.In the event of the presence of said signs, steps are taken to compare the carrying amount of the asset with its re-coverable value, equating to the lower of the fair value, net of any costs to sell, and the related value in use of theasset, understood to be the current value of the cash flows originated by the asset. Any adjustments are recorded inthe income statement under item "170 -Net value adjustments/write-backs to property, plant and equipment".If the reasons which led to the recognition of the impairment loss cease to exist, a write-back is made. This must notexceed the value that the asset would have had, net of the depreciation calculated in the absence of prior impairment.Leasehold improvement costs (typically on leased property), other than those referable to this section, are capitalizedby aligning the useful life with the duration of the lease agreement. They are recorded in the item "150 - Other as-sets”, while the related depreciation is stated in item "190 - Other operating income/charges”.

d) derecognition Property, plant and equipment is eliminated from the balance sheet at the time of disposal or when the assets are per-manently withdrawn from use and future economic benefits are not expected from their disposal. With regard to as-sets temporarily unusable or withdrawn from use to be sold, the depreciation process is not interrupted, unless theassets have been fully depreciated.

9) INTANGIBLE ASSETS

a) initial recognitionIntangible assets are non-monetary assets, which are identifiable and lacking a physical presence, held to be used overthe long-term or indefinitely. They are stated at cost, as adjusted by any related charges, only if it is probable that thefuture economic benefits attributed to the assets will arise and if the cost of the assets can be reliably determined. Oth-


78

erwise, the cost of the intangible assets is recorded in the income statement in the period in which it was incurred. Goodwill is booked to assets when it derives from a business combination transaction in accordance with the cal-culation approach envisaged by accounting standard IFRS 3, as the residual excess between the cost incurred in totalfor the transaction and the net fair value of the assets and liabilities acquired. If the cost incurred is lower than the fair value of the assets and liabilities acquired, the negative difference (badwill)is booked directly to the income statement.

b) classification, measurement and income recognition criteriaThe cost of intangible fixed assets is amortized on a straight-line basis over the related useful life. If the useful life isindefinite, the asset is not amortized, but merely subjected to a periodic check of the adequacy of the value recordedfor the fixed assets in the financial statements. Intangible assets deriving from software developed internally or acquiredfrom third parties are amortized on a straight-line basis as from the completion and bringing on stream of the appli-cation on the basis of the related useful life. On closure of each set of financial statements, in the presence of evidence of impairment, steps are taken to estimatethe recoverable value of the assets. The amount of the impairment loss, recorded in the income statement item "180Net value adjustments/write-backs to intangible fixed assets ", is equal to the difference between the carrying amountof the assets and the recoverable value. Recorded goodwill is not amortised but subject to periodic checks on its carrying amount, carried out annually ormore frequently in the presence of signs of an impairment in value. For such purposes, the cash generating units towhich the goodwill is to be allocated are identified.The amount of any impairment is determined on the basis of the difference between the initial recognition value ofthe goodwill and its recoverable value, if lower. This recoverable value equates to the fair value of the cash generat-ing unit, net of any cost to sell, or the related value in use, represented by the current value of the estimated cash flowsfor the periods of operation of the cash generating unit, and deriving from its disposal at the end of its useful life,whichever amount is the higher. The consequent value adjustments are recorded in the income statement item "230- Value adjustments to goodwill". The statement of any subsequent write-backs is not permitted.

c) derecognitionIntangible fixed assets are eliminated from the balance sheet at the time of disposal and if future economic benefitsare not expected from the same.

10) NON-CURRENT ASSETS HELD FOR SALE

a) initial recognitionInitial recognition is carried out at carrying amount or fair value net of costs to sell, whichever is the lower.

b) classificationThe item contains the classification of non-current assets held for sale and discontinued operations, in relation towhich the decision to dispose of them has been made (disposal which will probably take place within twelve months)and whose respective carrying amount is considered recoverable mainly as a result of being sold off.

c) measurement income recognition criteriaSubsequent to initial recognition, non-current assets held for sale and discontinued operations are stated at carryingamount or fair value net of costs to sell, whichever is the lower, except for those which have already been measuredat fair value. The related income and expense (net of taxation) is stated in the income statement under a separate item


79

"280 - Gain/loss on non-current assets held for sale, net of taxation” when they relate to discontinued operations. At the time of classification of a non-current asset under non-current assets held for sale, the amortisation/deprecia-tion process is suspended.

d) derecognitionNon-current assets held for sale and discontinued operations are eliminated from the balance sheet on disposal.

11) CURRENT AND DEFERRED TAXATION

a) initial recognitionThe effects relating to current and deferred taxes calculated in observance of national tax legislation are recorded onan accruals basis, in line with the methods for recording the costs and revenues which have generated them in thefinancial statements, applying current tax rates.Income taxes are recorded in the income statement, with the exception of those relating to items booked or crediteddirectly to shareholders’ equity.The provision for income taxes is determined on the basis of a prudent forecast of the current, prepaid and deferredtax liability.In detail, current taxation includes the net balance between current liabilities for the year and the current tax assetsrepresented by advances and other tax credits for withholdings made.Prepaid and deferred taxes are determined on the basis of the timing differences- without time-limits - between thevalue assigned to an asset or a liability according to statutory criteria and the corresponding values adopted for taxpurposes.Prepaid tax assets are recorded in the financial statements to the extent that they will probably be recovered, as-sessed on the basis of the ability of the Bank or all the pertinent companies taking part in the “tax consolidation”, togenerate positive taxable income on an on-going basis. Deferred tax liabilities are recorded in the financial statements,with the sole exception of the reserves subject to deferred taxation, since the balance of the unrestricted reserves al-ready subject to taxation reasonably suggests that no operations will be carried out resulting in taxation of the same.

b) classification and measurement criteriaPrepaid and deferred tax assets and liabilities are systematically valued so as to take into account any changes in leg-islation or rates.Furthermore, the carrying amount of deferred tax assets is reviewed as of each balance sheet date to check the con-tinuance of the condition of recoverability and, if necessary, it is reduced to the extent it is no longer probable thatsufficient taxable income exists for the purpose of permitting the full or partial recovery of said assets.As a result of compliance with the tax consolidation system, the liability relating to tax charges for IRES (companyearnings’ tax) which may be realistically predicted on the basis of legislation or current tax regulations, stated on thebasis of a prudent estimate of the taxable income, has been recorded in relation to the Consolidating Entity under item"100 - Other liabilities”. In the presence of tax losses, the Consolidating Entity recognises the credit (to be classifiedunder item "150 - Other assets”) on condition that, and to the extent that, the Bank itself can use the losses within thefive-year period envisaged by law (in other words as if the Bank had not complied with the tax consolidation system).The credit which may be recorded vis-à-vis the Parent Company for this purpose is measured each year so as to checkthe status of the recoverability conditions.

c) measurement and income recognition criteriaCurrent taxes are recorded as an offsetting entry to the income statement item "260 - Income taxes for the year on


80

current operations”. The same item contains the deferred tax assets and liabilities relating to components which haveaffected in the income statement. In the cases where deferred and prepaid taxes concern transactions which have di-rectly affected the shareholders’ equity without influencing the income statement, for example valuations of finan-cial instruments available for sale, the same are recorded as an offsetting entry to shareholders’ equity, affecting thespecific reserves when envisaged.

12) PAYABLES AND OUTSTANDING SECURITIES

a) Initial recognition and classificationThe items “Due to banks” and “Due to customers” include non-derivative financial liabilities with fixed or deter-minable payments not listed on an active market, stated as of the settlement date at fair value (equating to the trans-action price of the payment received in line with market interest rates). The item “outstanding securities” includes the Bank’s issues recorded as of the settlement date. Initial recognitiontakes place at fair value, usually equal to the issue price, increased by any additional costs/income directly attribut-able to the individual transactions, excluding internal administration costs. With regard to structured instruments, ifthe requirements envisaged by IAS 39 are observed, the embedded derivative is separated from the host agreementand stated at fair value in the liability item "40 - Financial liabilities held for trading”. In this case, the host agreementis initially recognised at amortised cost.

b) measurement and income recognition criteriaLoans and outstanding securities are valued at amortised cost (calculated on the basis of the effective interest ratemethod), except for short-term loans which are maintained at the carrying amount of the original liability, given theirrelevant effect of discounting. If these instruments are subject to an effective hedging transaction, they are measuredaccording to the rules envisaged for the hedging instrument and not on the basis of amortised cost.Contractual interest accrued is charged to the income statement item "20 - Interest expense and similar charges”.

c) DerecognitionFinancial liabilities are eliminated from the financial statements when they have matured or been discharged.Derecognition also takes place in the presence of the repurchase of securities previously issued. The difference be-tween the carrying amount of the liability and the amount paid to acquire it is recorded in the income statementunder item " 100 -- Profit (loss) from sale or repurchase of financial liabilities”.The re-placing of own securities on the market subsequent to their repurchase is considered as a new issue with state-ment at the new re-placement price, without any effect on the income statement. In observance of the provisions of IAS 32, the potential commitment to purchase own shares due to the issue of putoptions is represented in the financial statements as a financial liability with a reduction in the shareholders’ equityfor the pre-established forward amount as a direct offsetting entry.

13) FINANCIAL LIABILITIES HELD FOR TRADING

a) initial recognitionThis category contains:• derivatives (with the exception of derivatives which are designated and effective hedging instruments), including

embedded derivatives separated from structured financial instruments in accordance with the indications of IAS 39;


81

• liabilities referring to technical overdrafts on securities;• repurchase agreements and security lending transactions.

b) classification, measurement, derecognition and income recognition criteriaThe approach for recognition, subsequent measurement, derecognition and recognition of income components isthe same as that illustrated in the previous Section 1 “Financial assets held for trading”.

14) FINANCIAL LIABILITIES AT FAIR VALUE

a) initial recognitionInitial recognition of financial liabilities takes place as of the settlement date at their fair value which normally cor-responds to the amount collected without considering the transaction costs or proceeds directly attributable to saidinstrument, which by contrast are booked to the income statement. The Fair Value Option (FVO) is applied to all financial assets and liabilities which cause distortion in accounting rep-resentation and to all instruments which are managed and measured with a view to fair value. The fair value of anyfinancial liabilities issued at conditions other than market ones is subject to specific estimate and the difference withrespect to the amount collected is charged directly to the income statement, only when the conditions envisaged byIAS 39 have been satisfied.

b) classificationFinancial liabilities which are intended to be valued at fair value through profit and loss are classified in this categorywhen:• lthe designation at fair value eliminates or reduces the significant distortions in the accounting representation of the

financial instruments or between financial instruments and non-financial assets/liabilities; • lor when the management and/or measurement of a group of financial instruments at fair value through profit and

loss is consistent with a risk or investment monitoring strategy, documented and reported to the companymanagement;

• lor in the event of an instrument containing an embedded derivative which significantly changes the cash flows ofthe host instrument and which must be separated.

c) measurement criteriaSubsequent to initial recognition, financial liabilities are stated at fair value. To determine the fair value of the financial instruments listed on an active market, market listed prices are used. In the absence of an active market, the estimation methods illustrated in section 17 "Other information - Fair Value"are used.

d) derecognitionFinancial liabilities are eliminated when they have matured or been discharged. Derecognition also takes place whenpreviously issued securities are repurchased issued. The difference between the carrying amount of the liability andthe amount paid to acquire it is recorded in the income statement under item “110 - Net result from financial assetsand liabilities at fair value”.

e) income recognition Gains and losses deriving from the change in the fair value of financial liabilities are recorded in the income state-ment item "110 - Net result from financial assets and liabilities at fair value”; the same treatment is reserved for de-


82

rivative liability instruments associated with the fair value option, whose economic effect is classified in item "110 -Net result from financial assets and liabilities at fair value".

15) PROVISIONS FOR RISKS AND CHARGES

a) initial recognition, classification, measurement criteria, and income recognition criteria Provisions for risks and charges comprise the provisions relating to liabilities whose timing and extent is unknown,but which are probable and can be estimated, and which involve the Bank making an outlay to discharge them (e.g.onerous contracts). The provision is recorded in the income statement item "160 - Net provisions for risks and charges”.No provision is made for liabilities which are merely potential and not probable, but a description is however pro-vided of the nature of the liability in the explanatory notes when considered significant. When the timing element is significant, the provisions are discounted back using the curve of the zero coupon rateswith specific maturities coinciding with the time horizon relating to the recovery of the provision for the dischargeof the estimated liability. This interest component is also recorded in the income statement under item "160 - Net pro-visions for risks and charges”.The provision is used only for the costs for which said provisions were originally made.As of each balance sheet date, these provisions are adjusted to reflect the best current estimate. If this is not neces-sary, the provision is cancelled and reversed to the income statement item "160 - Net provisions for risks andcharges”.The sub-item “Pensions and similar obligations” includes the provisions recorded on the basis of international ac-counting standard IAS 19 “Employee benefits” for the purpose of making good the technical deficit of the supple-mentary welfare funds with defined benefits.Pension plans are divided up into the two categories “defined benefits” and “defined contributions”. With regard todefined contribution plans, the liability of the company is established in advance; with regard to defined benefitplans, the liability is estimated and must take into account any insufficiency in the contributions or an insufficient re-turn on the assets in which these contributions are invested, when required.With regard to defined benefit pension plans, the determination of the actuarial values required by the applicationof the afore-mentioned standards is carried out by an independent actuary, with the use of the Projected Unit CreditMethod. In detail, the obligation is calculated as the algebraic sum of the following values:- current average value of the pension benefits determined considering, for employees in service, solely the years of

service already accrued and making reference to hypotheses which take into account future salary increases;- less the current value of any plan assets;- (subtracted or added) any actuarial loss or gain not recorded in the financial statements, on the basis of the “corridor”

method.The corridor method envisages that the actuarial gains and/or losses, defined as the difference between the carryingamount of the liability and the current value of the Bank’s commitments at period end, are recorded in the financialstatements only when they exceed 10% of the current average value of the pension benefits or 10% of the currentvalue of the assets of the pension fund, whichever is the higher. The excess with respect to said 10% is charged to theincome statement in line with the average residual duration of the working life of the employees in service and theestimated average residual duration of life for retirees as from the following year.The provision for the year is recorded in the income statement under item “150 - Administrative expenses, of whicha) personnel expenses”; it equates to the sum of the annual interest accrued on the current average value of the pen-sion benefits at the start of the year and the current average value of the benefits accrued by workers in service dur-ing the year, net of the expected return during the year in the assets invested by the fund.


83

The sub-item “other” includes the provisions against estimated losses on legal disputes, including action for revoca-tion, the estimated outlays for customer claims on security brokerage activities, and other outlays estimated for legalor implicit obligations existing at the end of the period. When the provisions have been valued analytically, theamounts provided are used directly to cover the charges effectively incurred.

16) FOREIGN CURRENCY TRANSACTIONS

a) initial recognitionForeign currency transactions are recorded in the financial statements as of the settlement date, in the reporting cur-rency, and are converted into Euro using the exchange rate in force as of the transaction date.

b) classification, measurement, derecognition and income recognition criteriaAs of the close of each set of financial statements or interim report, the foreign currency financial statement items aretreated as follows:• monetary items are converted using the exchange rate as of the period-end date;• non-monetary items stated at historic cost are converted using the exchange rate as of the transaction date;• non-monetary items valued at fair value are converted using the exchange rates in force as of the period-end date. The exchange differences which derive from the settlement of monetary elements or from the conversion of mone-tary elements at rates other than for initial conversion, or conversion of the previous financial statements, are recordedin the income statement item "80 - Net income from trading activities” (with the exception of financial instrumentsat fair value).When a gain or a loss relating to a non-monetary element is recorded under shareholders’ equity, the exchange dif-ference relating to this element is also stated under equity. By contrast, when a gain or a loss is stated in the incomestatement, the related exchange difference is also recorded in the income statement, again in item 80.It should also be noted that with regard to financial assets available for sale, whose amortised cost is as if it had beenrecorded in foreign currency, the exchange differences which derive from the changes in the amortised cost arerecorded in the income statement, while other changes in the carrying amount are recorded in accordance with thematters indicated in Section 2 “Financial assets available for sale”. In the event of financial assets available for salewhich are not monetary elements (for example equity instruments), the gain or the loss recorded directly under share-holders’ equity includes any related exchange differences.

17) OTHER INFORMATION

� Treasury sharesAny treasury shares held are charged directly against shareholders’ equity. No gain or loss is recorded in the incomestatement on the purchase, sale, issue or cancellation of the Bank’s equity instruments. The amount paid or receivedis directly recorded under shareholders’ equity.

� Share-based paymentsThe outstanding stock granting plan envisages the purchase and assignment on an annual basis to employees of a num-ber of Banca Monte dei Paschi di Siena SpA shares, equivalent in value to the amounts recognised as part of theCompany Bonus.This value is recorded as a personnel expense on an accruals basis.


84

� Employee severance indemnityThe employee severance indemnity is recorded on the basis of its actuarial value since it takes on the form of an em-ployee benefit due on the basis of the defined benefits plan.For discounting back purposes, the Projected Unit Credit method is used which envisages the projection of the fu-ture outlays on the basis of historic statistical analysis and the population curve and the financial discounting backof these flows on the basis of a market interest rate.The plan service costs are recorded under personnel expenses as the net amount of the contributions paid, contri-butions pertaining to previous years not yet accounted for, estimated revenues deriving from plan assets, borrowingcosts and actuarial profits/losses. The latter are calculated on the basis of the “corridor” method, or rather as the ex-cess of the accumulated actuarial profits/losses, emerging at the end of the previous year, with respect to 10% of thecurrent value of the plan benefits or 10% of the fair value of the plan assets, whichever is the higher. This excess isalso compared to the expected average working life of the plan participants.Following the supplementary welfare reform pursuant to Italian Legislative Decree No. 252/2005, the portions ofseverance indemnity accrued up until 31 December 2006 remain with each Group company, while the portions ofseverance indemnity accruing as from 1 January 2007 are, at the discretion of the employee, assigned to supple-mentary welfare plans or are maintained within the individual companies, which then take steps to transfer said por-tions to the Treasury Funds managed by INPS (National Institute of Social Insurance).

� Other assets and other liabilitiesOther assets and liabilities stated in the balance sheet, under asset item 150 “Other assets” and liability item 100“Other liabilities” respectively, mainly refer to items in transit, trade and tax receivables and payables, credit/debt po-sitions deriving from the tax consolidation system. They are recorded only when one of the parties has provided the assets or concluded their service in accordance withthe matters envisaged in the contract; by contrast, elimination takes place upon maturity, which usually correspondswith the collection or payment date.

� Borrowing costsThese are recorded as a cost in the period in which they are incurred, with the exception of cases when - since theyare directly attributable to the acquisition, construction or production of an asset - their capitalization is justified. Inthis latter case, they are capitalized as part of the cost of said assets only if it is probable that they will have futureeconomic benefits for the Bank and if they can be reliably determined (expense which would not however have beenincurred if the outlay for said assets had not been incurred). Borrowing costs are capitalised at a rate deriving fromthe weighted average of the borrowing costs relating to outstanding loans during the year, other than loans obtainedspecifically for the purpose of acquiring an asset which justifies capitalization. The amount of the borrowing costs cap-italized during the year cannot exceed the amount of the borrowing costs incurred during that year.

� Dividends - Interest and similar income - Interest expense and similar chargesDividends are recorded when the rights of the shareholders to receive the payment is established (usually coincidingwith the date of resolution by the shareholders’ meeting of the investee company which approves the financial state-ments and the related profit allocation proposal). Interest is recorded on an accruals basis using:the effective interest rate method for assets and liabilities present in the categories “financial assets held to maturity”,“financial assets held for sale” and “outstanding securities”;the nominal rate method for financial assets and liabilities held for trading;the effective interest rate or nominal rate method for amounts due to and from banks and customers, according to thematurities.Default interest is recorded in the income statement solely at the time it is effectively collected.


85

� Other costs and revenuesThe value of the services acquired or provided is recorded when the related payment is reliably estimated, also in ac-cordance with the valuation of the work carried out and/or received as of the balance sheet date. Costs are stated in the income statement in the periods in which the related revenues are recorded. Costs which can-not be associated with income are immediately stated in the income statement.Revenues are recorded when it is probable that the future economic benefits are the result of the business and, if theresult of the provision of services is not reliably estimated, the revenues are only charged to the extent the costs arerecoverable. If the latter are not recoverable, the revenues are not recorded. In the event of uncertainty regarding therecoverability of a value already included under the revenues, the unrecoverable value or the value whose recoveryis no longer probable, is recorded as cost, and not as an adjustment to the revenue originally stated.Fees for revenues from services are stated, on the basis of the existence of contractual agreements, in the period inwhich the services were provided.Any estimation errors on the costs provided in previous years are recorded in the pertinent individual items.

� Guarantees givenAdjustments due to any impairment in guarantees given are recorded under item 100 “Other liabilities”. Write-downsdue to impairment are stated under item “130 d) Net value adjustments/write-backs due to impairment of other fi-nancial transactions” in the income statement.

DEFINITIONS PERTINENT FOR IAS/IFRS PURPOSES

� Fair ValueThe fair value is the amount at which an asset could be exchanged, or a liability discharged, in an unrestricted trans-action between informed and independent parties.With regard to financial instruments, the fair value is determined by means of the use of prices acquired from finan-cial markets in the case of financial instruments listed on active markets, or by means of the use of internal valuationmodels for other financial instruments.

� Active MarketsThe existence of official listed prices on an active market is the best proof of the fair value and, when they exist, theyare used to value the financial asset or liability.A financial instrument is considered to be listed on an active market i) if the listed price are promptly and duly avail-able in a list recognized by the supervisory authorities ii) if these prices represent effective market transactions whichregularly take place in normal dealings. If the official listed price on an active market does not exist for a financialinstrument in its entirety, but active markets exist for the parts which comprise it, the fair value is determined on thebasis of the pertinent market prices for the parts which comprise it.Considering the identifying elements of official Italian markets and active markets as can be identified by means ofIAS 39, it is possible to consider that, in principle, organized markets, identified in the specific list held by Consob,can be deemed to be “active markets”.

� Inactive MarketsIf a financial instrument is not traded on an active market, to determine the fair value it is necessary to resort to:1) prices relating to recent market transactions between informed and independent parties;2) the current market value of essentially identical instruments;3) measurement techniques consistent with pricing methods commonly used in market practice.


86

If the fair value is determined using a valuation technique, this has the aim of:• maximizing the use of “specific” market parameters minimizing, at the same time, use of “entity specific input”;• incorporating all the factors which the market participants would consider for the purpose of determining theprice.Specifically, the fair value of a financial instrument is based on the following factors, if significant:• the timing value of the cash, in other words the interest at a risk-free base rate;• the credit risk;• the foreign currency exchange rates;• the prices of the assets;• the prices of equity instruments;• the size of the future changes in the price of the financial instruments, in other words the volatility of the latter;• the risk of early repayment or redemption;• the service costs of a financial asset or liability.It is necessary to check and periodically test the validity of the measurement technique using the prices of current mar-ket transactions which concern the same instrument or on the basis of observable and available market prices.

� Method for determining amortised cost The amortized cost of a financial asset or liability is the value at which it has been gauged on initial recognition netof repayments of principal, increased or decreased by total amortisation calculated using the effective interest ratemethod, on the differences between the initial value and net of any permanent impairment.The effective interest rate is that which equals the current value of the contractual flows of the future payments or col-lections in cash until maturity or as of the subsequent date for the recalculation of the price at net carrying amountof the financial asset or liability. For the calculation of the current value, the effective interest rate is applied to the flow of the future collections or pay-ments estimated over the entire useful life of the financial asset or liability - or a shorter period in the presence of cer-tain circumstances (for example the review of the market rates). In cases where it is not possible to reliably estimate the cash flows or the estimated life, the Bank uses the cash flowsenvisaged contractually for the entire duration of the agreement.Subsequent to initial recognition, the amortised cost makes it possible to allocate revenues and costs decreasing orincreasing the instruments over the entire estimated life of the same via the amortization process. The determinationof the amortized cost differs according to whether the financial assets/liabilities being measured are fixed or floatingrate.With regard to fixed-rate instruments, the future cash flows are quantified on the basis of the interest rate noted overthe duration of the loan. With regard to floating-rate financial assets/liabilities, whose variability is not known in ad-vance (because, for example, it is linked to an index), the determination of the cash flows is carried out on the basisof the last known rate. As of every rate review date, steps are taken to recalculate the repayment plan and the effec-tive rate of return over the entire useful life of the instruments, in other words to maturity. The adjustment is recog-nised as a cost or as income in the income statement.Measurement at amortised cost is carried out for receivables, financial assets held to maturity and those available forsale, for payables and outstanding securities.Financial assets and liabilities traded at market conditions are initially recognised at their fair value, which normallycorresponds with the amount disbursed or paid inclusive - for instruments valued at amortised cost - of the transac-tion costs and the directly attributable commission such as fees and commission paid to agents, consultants, brokersand operators, as well as contributions collected by regulatory bodies and by the Stock Exchanges, taxes and trans-fer charges. These costs, which must be directly ascribable to the individual financial asset or liability, weigh into theoriginal effective return and render the effective interest rate associated with the transaction different to the contrac-tual interest rate.


87

The calculation of the amortised cost does not taken into account the costs which the Bank should incur irrespectiveof the transaction (for example: administrative, stationery, communication costs), those which, despite being specif-ically attributable to the transaction, belong to the normal loan management activities (for example: assets for the pur-pose of disbursing the credit facility).With particular reference to receivables, the flat-fee reimbursements of costs incurred by the Bank for the perform-ance of a service must not be booked as a decrease of the cost of disbursing the loan but, since they are able to adoptthe form of other operating income, the related costs must be charged to their own income statement item.


88

ASSETS

Section 1 - CASH AND CASH EQUIVALENTS - Item 10

1.1 Cash and cash equivalents: breakdown

31 Dec. 2008 31 Dec. 2007a. Cash 3 1b. Unrestricted deposits with Central Banks

Total 3 1

Part BNotes to the Balance Sheet


89

Section 2 - FINANCIAL ASSETS HELD FOR TRADING - Item 20

2.1 Financial assets held for trading: breakdown by type of asset

Items / Balances 31 Dec. 2008 31 Dec. 2007Listed Unlisted Listed Unlisted

A. Cash assets1. Debt securities 1,331,966 2,011,598 1,690,821 1,109,199

1.1 Structured securities 34,953 227,554 294,527 566,3691.2 Other debt securities 1,297,013 1,784,044 1,396,294 542,830

2. Equity securities 86,183 11,694 248,116 5,0793. Units in collective investment undertakings 8,091 10,714 10,596 11,8374. Loans 5,187,669 11,561,106

4.1 Lending repurchase agreements 2,399,484 9,583,4294.2 Other 2,788,185 1,977,677

5. Impaired assets 3,088 7,9756. Assets sold not derecognised

Total A 6,616,997 2,034,006 13,510,639 1,134,090B. Derivative instruments1. Financial derivatives: 414,154 7,932,846 108,064 4,570,875

1.1 trading 414,154 7,932,846 108,064 4,570,8751.2 associated with fair value option1.3 other

2. Credit derivatives 295,366 174,9582.1 trading 295,366 174,9582.2 associated with fair value option2.3 otherTotal B 414,154 8,228,212 108,064 4,745,833Total (A+B) 7,031,151 10,262,218 13,618,703 5,879,923

Note:The above table includes the valuations on off-balance sheet transactions and the accrued coupon component.

2.1.a Dettaglio dei titoli di debito: titoli strutturati (valore di bilancio)

Structured debt securities 31 Dec. 2008 31 Dec. 2007a. Equities 217,730 504,744b. Credit linked notes 11,860 17,156c. Commodities 15,239 30,011d. Receivables - 175,638e. Inflat. - 56,022d. Other 17,678 77,001Total 262,507 860,572


90

2.2 Financial assets held for trading: breakdown by debtor/issuer

Items/Balances 31 Dec. 2008 31 Dec. 2007A. CASH ASSETS1. Debt securities 3,343,564 2,800,020

a) Governments and Central Banks 1,129,485 1,060,395b) Other public entities 92 193c) Banks 1,804,530 1,270,889d) Other issuers 409,457 468,543

2. Equity securities 97,877 253,195a) Banks 14,011 29,652b) Other issuers 83,866 223,543

- insurance companies 4,608 793- finance companies 9,008 36,643- non-financial companies 34,348 186,107- other 35,902

3. Units in collective investment undertakings 18,805 22,4324. Loans 5,187,669 11,561,106

a) Governments and Central Banksb) Other public entitiesc) Banks 1,881,260 7,716,684d) Others 3,306,409 3,844,422

5. Impaired assets 3,088 7,975a) Governments and Central Banksb) Other public entitiesc) Banksd) Others 3,088 7,975

6. Assets sold not derecogniseda) Governments and central banksb) Other public entitiesc) Banksd) Other issuersTotal A 8,651,003 14,644,728

B. DERIVATIVE INSTRUMENTSa) Banks 7,556,275 4,318,747b) Customers 1,086,091 535,150Total B 8,642,366 4,853,897Total (A+B) 17,293,369 19,498,625

2.2.a Units in collective investment undertakings: breakdown by main categories

Categories / Balances 31 Dec. 2008 31 Dec. 2007a. Equity 891 1,376b. Balanced 17,735 19,528d. Other 179 1,528Total 18,805 22,432


91

2.3 Financial assets held for trading: derivative instruments

Type of derivative Interest Foreign Equity Loans Other Total as Total asUnderlying asset rates currency securities of 31 Dec. of 31 Dec.

and gold 2008 2007A. LISTED DERIVATIVES1. Financial derivatives: 158,692 221,104 34,358 414,154 108,064

With exchange of capital 6,971 9,598 16,569 6,368- options purchased 6,489 9,581 16,070 6,368- other derivatives 482 17 499Without exchange of capital 151,721 211,506 34,358 397,585 101,696- options purchased 151,721 211,506 1,140 364,367 101,696- other derivatives 33,218 33,218

2. Credit derivatives:With exchange of capitalWithout exchange of capitalTotal A 158,692 221,104 34,358 414,154 108,064

B) UNLISTED DERIVATIVES1. Financial derivatives: 7,247,628 183,731 474,079 27,408 7,932,846 4,570,875

With exchange of capital 123,335 67,348 95,103 285,786 206,883- options purchased 123,050 58,436 95,103 276,589 97,242- other derivatives 285 8,912 9,197 109,641Without exchange of capital 7,124,293 116,383 378,976 27,408 7,647,060 4,363,992- options purchased 695,091 21,460 378,976 27,408 1,122,935 1,074,107- other derivatives 6,429,202 94,923 6,524,125 3,289,885

2. Credit derivatives: 295,366 295,366 174,958With exchange of capital 292,868 292,868 174,958Without exchange of capital 2,498 2,498Total B 7,247,628 183,731 474,079 295,366 27,408 8,228,212 4,745,833Total (A+B) 7,406,320 183,731 695,183 295,366 61,766 8,642,366 4,853,897

Note:OTC structured derivative contracts, which involve different risk profiles, are broken down into their elementary componentsand stated as such in this table as interest rate derivatives, equity securities and other underlying instruments.

Derivatives contracts entered into with companies belonging to the Monte dei Paschi di Siena Group as of the bal-ance sheet date amounted to 26.41% of the total.


92

2.4 Cash financial assets held for trading (other than those sold and not yet derecognised and impaired assets):changes in the year

Units inDebt Equity collective Equity Total

securities securities investmentundertakings

A. Opening balances 2,800,020 253,195 22,433 11,561,106 14,636,754B. Increases 82,456,486 6,835,419 2,130 186,292,491 275,586,526B1. Purchases 81,797,323 6,620,076 1,740 186,279,670 274,698,809B2. Positive fair value changes 40,617 16,715 57,332B3. Other changes 618,546 198,628 390 12,821 830,385C. Decreases 81,912,942 6,990,737 5,758 192,665,928 281,575,365C1. Sales 79,287,829 6,503,627 1,782 192,623,962 278,417,200C2. Negative fair value changes 50,705 42,397 2,496 41,966 137,564C3. Other changes 2,574,408 444,713 1,480 3,020,601D. Closing balances 3,343,564 97,877 18,805 5,187,669 8,647,915

Note:Items B4 and C3 “Other changes” in the columns “Debt securities” and “Equity securities” include the components relating totechnical overdrafts, while those in the “Loans” column relate to accruals for securities lending transactions and repurchase agree-ments accrued as of 31 December 2008.


93

Section 3 - FINANCIAL ASSETS AT FAIR VALUE - Item 30

None of the Bank’s financial assets are classified in this category.


94

Section 4 - FINANCIAL ASSETS AVAILABLE FOR SALE - Item 40

4.1 Financial assets available for sale: breakdown by type of asset

Items / Balances 31 Dec. 2008 31 Dec. 2007Listed Unlisted Listed Unlisted

1. Debt securities 264,573 23,327 240,8171.1 Structured securities1.2 Other debt securities 264,573 23,327 240,817

2. Equity securities 6,665 19,078 7,107 29,4622.1 Measured at fair value 6,665 19,072 7,107 29,4562.2 Measured at cost 6 6

3. Units in collective investment undertakings 1,6114. Loans5. Impaired assets6. Assets sold not derecognised

Total 271,238 44,016 247,924 29,462

Note:A portion of the listed debt securities present in this portfolio (€ 238,208 thousand) is hedged against interest rate risk. Suchhedging is carried out by means of derivative contracts such as asset swaps (fair value hedges).


95

4.2 Financial assets available for sale: break down by debtor / issuer

Item / Balances 31 Dec. 2008 31 Dec. 20071. Debt securities 287,900 240,817

a) Governments and Central Banks 238,208 240,817b) Other public entitiesc) Banksd) Other issuers 49,692

2. Equity securities 25,742 36,569a) Banksb) Other issuers 25,742 36,569- insurance companies- finance companies 1,175 4,057- non-financial companies 24,567 32,512- other

3. Units in collective investment undertakings 1,6114. Loans

a) Governments and Central Banksb) Other public entitiesc) Banksd) Others

5. Impaired assetsa) Governments and Central Banksb) Other public entitiesc) Banksd) Others

6. Assets sold not derecogniseda) Governments and Central Banksb) Other public entitiesc) Banksd) OthersTotal 315,253 277,386

4.3 Financial assets available for sale: hedged assets No financial assets classified in this category have been subject to macro-hedging.


96

4.4 Financial assets available for sale: assets subject to micro-hedging

Item / Balances 31 Dec. 2008 31 Dec. 20071. Financial assets subject to fair value micro-hedging 238,208 240,817

a) interest rate risk 238,208 240,817b) price riskc) exchange rate riskd) credit riske) cumulative risks

2. Financial assets subject to cash flow micro-hedgina) interest rate riskb) exchange rate riskc) otherTotal 238,208 240,817

4.5 Financial assets available for sale (other than those sold and not yet derecognised and impaired assets): changesin the year

Units inDebt Equity collective Loans Total


A Opening balances 240,817 36,569 277,386B. Increases 79,550 5,295 1,611 86,456B1. Purchases 66,446 5,132 1,500 73,078B2. Positive fair value changes 163 111 274B3. Write-backs

- booked to income statement- booked to shareholders’ equity

B4. Transfers from other portfoliosB5. Other changes 13,104 13,104C. Decreases 32,467 16,122 48,589C1. Sales 5,763 14,808 20,571C2. Redemptions 12,967 12,967C3. Negative fair value changes 13,698 1,314 15,012C4. Write-downs due to impairment

- booked to income statement- booked to shareholders’ equity

C5. Transfers to other portfoliosC6. Other changes 39 39D. Closing balances 287,900 25,742 1,611 315,253

Note:In accordance with the Group’s Business Plan, by means of the resolution of the Board of Directors adopted on 7 May 2008, thetransfer to MPS Investments of a number of equity investments, considered non-strategic for our business, was approved. Theitem "Sales" includes the value of the securities transferred for € 11,652 thousand.


97

Section 5 - FINANCIAL ASSETS HELD TO MATURITY - Item 50

None of the Bank’s financial assets are classified in this category.


98

Section 6 - DUE FROM BANKS - Item 60

6.1 Due from banks: breakdown by type of asset

31 Dec. 2008 31 Dec. 2007A. Due from Central Banks

1. Restricted deposits2. Compulsory reserve3. Lending repurchase agreements4. Other

B. Due from banks 3,863,973 2,786,9171. Current accounts and unrestricted deposits 436,789 490,2202. Restricted deposits 165,944 200,0383. Other loans: 3,257,182 2,091,8243.1 Lending repurchase agreements3.2 Financial leases3.3 Other 3,257,182 2,091,8244. Debt securities4.1 Structured securities4.2 Other debt securities5. Impaired assets6. Assets sold not derecognised7. Operating receivables 4,058 4,835

Total (carrying amount) 3,863,973 2,786,917Total (fair value) 3,863,973 2,786,910

Note:The item "Other loans: other" mainly comprises receivables such as collateral with short-term maturities.

6.2 Due from banks: assets subject to micro-hedgingNo financial assets classified in this category have been subject to micro-hedging.


99

Section 7 - LOANS TO CUSTOMERS - Item 70

7.1 Loans to customers: breakdown by type of asset

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Current accounts 49 4052. Lending repurchase agreements3. Mortgage loans 10,971,592 10,096,6324. Credit cards, personal loans and loans secured over wages and salaries 1,453 1,1605. Financial leases6. Factoring7. Other transactions 108,355 39,9108. Debt securities

8.1. Structured securities8.2. Other debt securities

9. Impaired assets 1,460,210 1,183,56810. Assets sold not derecognised11. Operating receivables 630,326 655,939

Total carrying amount 13,171,985 11,977,614Total fair value 13,956,428 12,829,989

Note:The item "Other transactions” comprises receivables for collateral with short-term maturities.

7.1.a Loans to customers: analysis of impaired assets

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Non-performing loans 860,813 637,1302. Watch-list loans 439,661 349,7933. Restructured exposures 28,821 25,3214. Past due exposures 130,915 171,324

Total carrying amount 1,460,210 1,183,568

7.1.b Loans to customers: analysis of operating receivables

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Deposits for disbursement of real estate credit transactions 595,160 620,6942. Fees to be collected 277 6193. Payments for services to be collected 11,464 12,8174. Grants to be collected 10,744 10,8305. Sundry items associated with the granting of mortgage loans 8,871 8,8576. Other loans to customers 3,810 2,122

Total carrying amount 630,326 655,939


100

7.2 Loans to customers: breakdown by debtor / issuer

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Debt securities:

a) Governments and Central Banksb) Other public entitiesc) Other issuers

- non-financial companies- finance companies- insurance companies- other

2. Loans to: 11,711,775 10,794,046a) Governments 21,248 21,726b) Other public entities 31,448 20,074c) Others 11,659,079 10,752,246

- non-financial companies 10,926,188 10,251,769- finance companies 503,962 238,606- insurance companies 505 384- others 228,424 261,487

3. Impaired assets: 1,460,210 1,183,568a) Governmentsb) Other public entities 4,402 4,300c) Others 1,455,808 1,179,268

- non-financial companies 1,416,843 1,135,763- finance companies 9 9- insurance companies- other 38,956 43,496

4. Assets sold not derecognised:a) Governmentsb) Other public entitiesc) Others

- non-financial companies- finance companies- insurance companies- other

Total 13,171,985 11,977,614

7.3 Loans to customers: assets subject to micro-hedgingNo financial assets classified in this category have been subject to micro-hedging.


101

Section 8 - HEDGING DERIVATIVES - Item 80

There are no such transactions for this financial statement item.


102

Section 9 - VALUE ADJUSTMENTS TO FINANCIAL ASSETS SUBJECT TO MACRO-HEDGING - Item 90



103

Section 10 - EQUITY INVESTMENTS - Item 100

10.1 Equity investments in subsidiaries under joint control or under significant influence: information on investmentrelationships

Name Registered Type of % Stake Available Carryingoffices relationship votes % amount

A. Subsidiaries held exclusively 5,2501. MPS Venture SGR SpA Florence control 70.000 70.000 5,250B. Subsidiaries under joint control

- - - - -C. Companies subject to significant influence 16,8811. Interporto Toscano SpA Livorno associated 36.303 36.303 8,3702. Agricola Merse Srl Milan associated 20.000 20.000 5,0043. Newco SpA Naples associated 20.000 20.000 2,0004. Sviluppo Imprese Centro Italia SpA Florence associated 29.000 29.000 1,507

Total (A+B+C) 22,131

Note:The Bank, despite having a controlling interest, does not draw up consolidated financial statements since it is the intermediateparent company and therefore this requirement does not apply, as disciplined by IAS 27.

10.2 Equity investments in subsidiaries under joint control or under significant influence: accounting information

Name Total Total Profit Sharehold Carrying Fair valueassets revenues (loss) ers’ equity amount (if listed)

A. Subsidiaries held exclusively 5,2501. MPS Venture SGR SpA 17,818 11,089 5,293 13,785 5,250B. Subsidiaries under joint controlC. Companies subject to significant influence 16,8811. Interporto Toscano SpA 100,275 12,703 3,945 17,167 8,3702. Agricola Merse Srl 44,071 3,417 (2,786) 21,741 5,0043. Newco SpA 9,960 0 (17) 9,941 2,0004. Sviluppo Imprese Centro Italia SpA 8,287 1,913 490 7,221 1,507

Total (A+B+C) 22,131

Note:with regard to the controlling interest, the figures shown are taken from the draft financial statements as of 31 December 2008,while for the other equity investments the figures refer to the last set of approved financial statements (31 December 2007).


104

10.3 Equity investments: changes in the year

31 Dec. 2008 31 Dec. 2007A Opening balances 28,128 25,961B Increases 5,439 2,167

B1. Purchases 5,439 2,167B2. Write-backsB3. RevaluationsB4. Other changes

C. Decreases 11,436C1. Sales 11,389C2. Value adjustmentsC3. Other changes 47

D. Closing balances 22,131 28,128E. Total revaluationsF. Total adjustments

Note:In accordance with the Group’s Business Plan, by means of the resolution of the Board of Directors adopted on 7 May 2008, thetransfer to MPS Investments of a number of equity investments, considered non-strategic for our business, was approved. Theitem “C. Decreases - C1. Sales" includes the value of the two equity investments (Società Incremento Chianciano Terme S.p.A.and Newcolle S.r.l. for an overall total of € 6,125 thousand), subject to the afore-mentioned transfer.

10.4 Commitments relating to equity investments in subsidiariesAs of the balance sheet date, there were no commitments relating to equity investments in subsidiaries.

10.5 Commitments relating to equity investments in subsidiaries under joint controlAs of the balance sheet date, the Bank did not have any equity investments in subsidiaries under joint control.

10.6 Commitments relating to equity investments in companies under significant influenceAs of the balance sheet date, there were no commitments relating to equity investments in companies under signifi-cant influence.


105

Section 11 - PROPERTY, PLANT AND EQUIPMENT - Item 110

11.1 Property, plant and equipment: breakdown of assets measured at cost

Assets / Balances 31 Dec. 2008 31 Dec. 2007A. Assets used in the business

1.1 owned 41,393 41,933a) land 25,826 25,826b) buildings 14,114 14,904c) furniture 978 648d) electronic equipment 279 319e) other 196 236

1.2 held under financial leasesa) landb) buildingsc) furnitured) electronic equipmente) other

Total A 41,393 41,933B. Assets held for investment purposes

2.1 owneda) landb) buildings

2.2 held under financial leasesa) landb) buildings

Total BTotal A+B 41,393 41,933

11.2 Property, plant and equipment: breakdown of assets measured at fair value or revaluedThere is no property, plant and equipment classified in this category.


106

11.3 Property, plant and equipment used in the business: changes in the year

Land Buildings Furniture Electronic Other Totalequipment

A. Opening balances - gross 25,826 26,317 4,450 8,995 330 65,918A.1 Total value reductions - net 11,413 3,802 8,676 94 23,985A.2 Opening balances - net 25,826 14,904 648 319 236 41,933B. Increases: 502 68 44 614B.1 Purchases 426 62 44 532B.2 Capitalised improvement costsB.3 Write-backsB.4 Positive fair value changes

booked to:a) shareholders’ equityb) income statement

B.5 Exchange gainsB.6 Transfer from investment propertyB.7 Other changes 76 6 82C. Decreases: 790 172 108 84 1,154C.1 SalesC.2 Depreciation 790 166 108 2 1,066C.3 Value adjustments due to

impairment booked to:a) shareholders’ equityb) income statement

C.4 Negative fair value changes booked to:a) shareholders’ equityb) income statement

C.5 Exchange lossesC.6 Transfers to:

a) intangible assets held for investment purposes

b) assets held for saleC.7 Other changes 6 82 88D. Closing balances - net 25,826 14,114 978 279 196 41,393D.1 Total value reductions - net 12,203 3,968 8,785 41 24,997D.2 Closing balances - gross 25,826 26,317 4,946 9,064 237 66,390E. Measured at cost


107

11.4 Property, plant and equipment held for investment purposes: changes in the yearNo property, plant and equipment is held by the Bank for investment purposes.

11.5 Commitments to buy Property, plant and equipmentAs of the balance sheet date, there were no commitments undertaken to buy Property, plant and equipment.

11.6 Property, plant and equipment: useful life

Main categories of Property, plant and equipment yearsLand and works of art indefiniteBuildings 33Furniture 8Electronic and ordinary office machines 5Electronic data processing equipment 2Vehicles 4Telephones 5

Statement of revaluations made (Article 10 of Italian Law No. 72/83)

Properties Law No. Law No. Law No. Law No. Law No. Law No.576/75 72/83 408/90 413/91 342/00 266/06

Florence - Viale Mazzini, 46 775 4,893 840 4,828 4,405Florence - Via Scialoia, 47 180 336 237Florence - Via dei Della Robbia, 41 4,263 80 7,609 3,373Florence - Piazza D'Azeglio, 22 230 804 2,745 1,175 336 1,857Florence - Piazza D'Azeglio, 26 319 173 4,638 1,109 3,670Florence - Via della Mattonaia 97Florence - Piazza Stazione (parking space) 14 3Total 230 1,898 12,254 6,733 14,232 13,642


108

Section 12 - INTANGIBLE ASSETS - Item 120

12.1 Intangible assets: breakdown by type of asset

Assets / Balances 31 Dec. 2008 31 Dec. 2007Limited Unlimited Limited Unlimitedduration duration duration duration

A.1 GoodwillA.2 Other intangible assets 75 200A.2.1 Assets measured at cost: 75 200

a) Intangible assets valued internallyb) Other assets 75 200

A.2.2 Assets measured at fair value:a) Intangible assets valued internallyb) Other assets

Total 75 200


109

12.2 Intangible assets: changes in the year

Other intangible Other intangibleassets: assets:

generated otherinternally

Goodwill Limited Unlimited Limited Unlimited Totalduration duration duration duration

A. Opening balances 3,137 3,137A.1 Total value reductions - net 2,937 2,937A.2 Opening balances - net 200 200B. IncreasesB.1 PurchasesB.2 Increases in internal intangible assetsB.3 Write-backsB.4 Positive fair value changes

- booked to shareholders’ equity- booked to income statement

B.5 Exchange gainsB.6 Other changesC. Decreases 125 125C.1 SalesC.2 Value adjustments 125 125

- Amortisation 125 125- Write-downs- booked to shareholders’ equit- booked to income statement

C.3 Negative fair value changesa) booked to shareholders’ equityb) booked to income statement

C.4 Transfers to non-current assets held for saleC.5 Exchange lossesC.6 Other changesD. Closing balances - net 75 75D.1 Total value adjustments - net* 3,062 3,062E. Closing balances - gross 3,137 3,137F. Measured at cost


110

12.3 Intangible fixed assets: useful life

Main categories of intangible assets yearsIndustrial patents and intellectual property rights unlimitedTrademarks unlimitedSoftware 3Concessions and other licences 5


111

Section 13 - TAX ASSETS AND LIABILITIES - ASSET ITEM 130 AND LIABILITY Item 80

13.1 Prepaid tax assets: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Receivables 44,365 31,0792. Other financial instruments 25,838 7,2543. Goodwill4. Deferred charges5. Intangible fixed assets6. Entertaining expenses 22 397. Staff related costs 668 5658. Tax losses9. Valuation reserves

10. Other 1,319 721Prepaid tax assets - gross 72,212 39,658

13.2 Deferred tax liabilities: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Capital gains to be split into instalments2. Goodwill3. Intangible fixed assets4. Receivables 23,3085. Financial instruments 2,508 7,4106. Personnel-related costs 239 2667. Other 407 365

Deferred tax liabilities - gross 3,154 31,349

Note:with reference to sub-item 4. Receivables, note that the total outgoing of the liabilities is mainly due to : i) € 4,226 thousand forfreeing up of the provisions for doubtful loans as envisaged by Article 1.48 of Italian Law No. 244/07 and ii) € 21,149 thousandfor the application of the provisions contained in Article 15 of Italian Decree Law No. 185 dated 29 November 2008 concern-ing “urgent measures for the support of households, work, employment and business to re-plan the national strategic frameworkas an anti-crisis measure”, relating to the realignment of the tax values with the accounting value of the item “former provisionsfor doubtful loans”.


112

13.3 Change in prepaid taxes (as offsetting entry to the income statement)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Opening balance 39,658 96,5312. Increases 17,244 21,9372.1 Increases for business combination transactions 3,1092.2 Prepaid taxes recorded in the year 17,244 18,166

a) relating to previous yearsb) due to change in accounting standardsc) write-backsd) other 17,244 18,166

2.3 New taxes or increase in tax rates2.4 Other increases 6623. Decreases 8,153 78,8103.1 Prepaid taxes cancelled during the year 8,153 72,142

a) transfers 8,153 72,142b) written-off as non-recoverablec) due to changes in accounting standards

3.2 Reductions in tax rates 6,0053.3 Other decreases 6634. Closing balance 48,749 39,658

13.4 Change in deferred taxes (as offsetting entry to the income statement)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Opening balance 31,349 92,9992. Increases 948 14,8492.1 Increases for business combination transactions 6,5692.2 Deferred taxes recorded during the year 948 8,280

a) relating to previous yearsb) due to change in accounting standardsc) other 948 8,280

2.3 New taxes or increase in tax rates2.4 Other increases3. Decreases 29,566 76,4993.1 Deferred taxes cancelled during the year 29,566 68,784

a) transfers 29,566 68,784b) due to change in accounting standardsc) other

3.2 Reductions in tax rates 7,7153.3 Other decreases4. Closing balance 2,731 31,349


113

13.5 Variazione delle imposte anticipate (in contropartita del patrimonio netto)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Opening balance2. Increases 23,4642.1 Increases for business combination transactions2.2 Deferred taxes recorded during the year 23,464

a) relating to previous yearsb) due to change in accounting standardsc) other 23,464

2.3 New taxes or increase in tax rates2.4 Other increases3. Decreases3.1 Deferred taxes cancelled during the year

a) transfersb) due to change in accounting standardsc) other

3.2 Reductions in tax rates3.3 Other decreases4. Closing balance 23,464

13.6 Change in deferred taxes (as offsetting entry to shareholders’ equity)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Opening balance2. Increases 4232.1 Increases for business combination transactions2.2 Deferred taxes recorded during the year 423

a) relating to previous yearsb) due to change in accounting standardsc) other 423

2.3 New taxes or increase in tax rates2.4 Other increases3. Decreases3.1 Deferred taxes cancelled during the year

a) transfersb) due to change in accounting standardsc) other

3.2 Reductions in tax rates3.3 Other decreases4. Closing balance 423


114

13.7 Current tax assets

Items / Balances 31 Dec. 2008 31 Dec. 2007IRES (company earnings tax) advancesIRAP (regional business tax) advances 8,527 7,443Other receivables and withholdings 364 469Current tax assets - gross 8,891 7,912Offsetting against current tax liabilitiesCurrent tax assets - net 8,891 7,912

Note:In relation to IRES advances, see Section 15 “Other assets”.


115

Section 14 - NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS, AND ASSOCIATEDLIABILITIES - Asset Item 140 and Liability Item 90



116

Section 15 - OTHER ASSETS - Item 150

15.1 Other assets: breakdown

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Amounts due from the tax authorities and similar 4,424 3,6162. Items being processed 12,256 8,2223. Amounts receivable associated with the supply of goods and services 146 1384. Improvement and incremental costs on third party assets - 195. Accrued income not attributable to own items 9,849 7,7216. Prepaid expenses not attributable to own items 2,913 2,7737. Credits for tax consolidation system 18,634 24,4268. Other 5,683 187

Total 53,905 47,102

Note:"Amounts due from the tax authorities and similar" include amounts due from foreign tax authorities for €177 thousand; while“Credits for tax consolidation system” mainly represent IRES (company earnings’ tax) advances vis-à-vis the Parent CompanyBMPS.


117

LIABILITIES AND SHAREHOLDERS’ EQUITY

Section 1 - Due to banks - Item 10

1.1 Due to banks: breakdown by type of liability

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Due to Central Banks2. Due to banks 5,103,148 12,289,262

2.1 Current accounts and unrestricted deposits 291,601 1,623,2022.2 Restricted deposits 3,067,308 3,227,0322.3 Loans 1,716,445 7,397,9212.3.1 Financial leases2.3.2 Other 1,716,445 7,397,9212.4 Amounts due for commitments to repurchase own equity instruments2.5 Liabilities for assets sold not derecognised from the financial statements2.5.1 Borrowing repurchase agreements2.5.2 Other2.6 Other amounts payable 27,794 41,107Total 5,103,148 12,289,262Fair Value 5,155,730 12,289,262

Note:The consistent reduction in loans from banks is essentially due to the transfer of the funding from the “Frankfurt branch” of BancaMonte dei Paschi di Siena to the MPS Group’s finance company “Monte Paschi Ireland Ldt”, classified under customers. The item"Loans: other" also includes amounts payable as short-term collateral.

1.2 Analysis of Item 10 “Amounts due to banks”: subordinated liabilitiesNo subordinated liabilities in relation to banks are recorded in the financial statements.

1.3 Analysis of Item 10 “Due to banks”: structured liabilities No structured liabilities in relation to banks are recorded in the financial statements.

1.4 Analysis of Item 10 “Due to banks”: subject to by micro-hedgingNo financial liabilities classified in this category are subject to micro-hedging.

1.5 Liabilities for financial leasesThere is no liability for financial leases recorded in the financial statements.


118

Section 2 - DUE TO CUSTOMERS - Item 20

2.1 Due to customers: breakdown by type of liability

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071 Current accounts and unrestricted deposits2 Restricted deposits 3,222 5,9203 Third party funds under administration 250 8974 Loans 10,182,147 1,584,505

4.1 Financial leases4.2 Other 10,182,147 1,584,505

5 Amounts due for commitments to repurchase own equity instruments6 Liabilities for assets sold not derecognised from the financial statements

6.1 Borrowing repurchase agreements6.2 Other

7 Other amounts payable 608,537635,128Total 10,794,156 2,226,450Fair Value 10,972,963 2,226,450

Note:The consistent decrease in amounts Due to customers is essentially due to the transfer to the MPS Group’s finance company“Monte Paschi Ireland Ldt”, of the funding originally stipulated with the “Frankfurt branch” of Banca Monte dei Paschi di Siena.The item "Loans: other" also includes amounts payable as short-term collateral.

2.1.a Due to customers: analysis of other payables

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Deposits for disbursement of real estate credit transactions 595,160 620,6942. Guarantee deposits 2,524 3,1483. Fees and amounts to be settled 778 1,2894. Contributions to be settled 9,182 9,9975. Other 893 -

Total carrying amount 608,537 635,128


119

2.2 Analysis of Item 20 “Due to customers”: subordinated liabilitiesNo subordinated liabilities in relation to customers are recorded in the financial statements.

2.3 Analysis of Item 20 “Due to customers”: structured liabilities No structured liabilities in relation to customers are recorded in the financial statements.

2.4 Analysis of Item 20 “Due to customers”: subject to micro-hedgingNo financial liabilities classified in this category are subject to micro-hedging.

2.5 Liabilities for financial leasesThere is no liability for financial leases recorded in the financial statements.


120

Section 3 - OUTSTANDING SECURITIES - Item 30

3.1 Outstanding securities: breakdown by type of liability

Type of security /Balances 31 Dec. 2008 31 Dec. 2007Carrying amount Fair value Carrying amount Fair value

A. Listed securities1. bonds

1.1 structured1.2 other

2. other securities2.1 structured2.2 other

B. Unlisted securities1. bonds 181,187 180,415 231,176 231,298

1.1 structured1.2 other 181,187 180,415 231,176 231,298

2. other securities 25 25 26 262.1 structured2.2 other 25 25 26 26Total 181,212 180,440 231,202 231,324

Note:The carrying amount includes €1,262 thousand in interest accrued as of the balance sheet date.


121


3.2 Analysis of item 30 “Outstanding securities”: subordinated securities

Name of liability Currency Issue date Maturity Interest Carrying amountdate rate 31 Dec. 08 31 Dec. 07

1. HT Series bond € 30 Sept. 2003 30 Sept. 2013 floating 74,110 74,0092. HU Series bond € 30 Sept. 2003 30 Sept. 2013 floating 7,100 7,0913. BancaVerde bond € 22 Dec. 2003 22 Dec. 2013 floating 50,052 50,0694. Series II bond € 30 June 2005 30 June 2015 floating 49,925 50,0005. MPSFinance 08 Sub 3 LIV € 30 June 2005 30 June 2008 floating - 50,007

181,187 231,176

Main features of the subordinated securitiesHT/HU Series: Repayment is envisaged by means of five straight-line principal instalments on 30 September of each

year as from the end of the sixth year of duration; the faculty of early, partial or total, repayment isenvisaged subject to the authorization of the Bank of Italy, as from 30 September 2008.

Bancaverde: Repayment is envisaged by means of five straight-line principal instalments on 22 December of eachyear as from the end of the sixth year of duration; the faculty of early, partial or total, repayment isenvisaged subject to the authorization of the Bank of Italy, as from 22 December 2008.

Series II: Repayment is envisaged by means of five straight-line principal instalments on 30 June each year asfrom the end of the sixth year of duration; the faculty of early repayment is not envisaged.

The subordination clauses envisage that in the event of the winding-up of the Bank, the loans will be repaid only afterall the other creditors not equally subordinate have been satisfied. The Bank can freely purchase portions of loans onthe market for an amount of no more than 10% of the value of the same. Higher amounts will be subject to the priorapproval of the Bank of Italy. As of 31 December 2008, the Bank did not hold any portions of these securities in its receivable portfolio.

3.3 Outstanding securities: securities subject to micro-hedgingNo financial liabilities classified in this category have been subject to micro-hedging.

122

31 Dec 2008 31 Dec 2007Type of transaction / Balances Par or Fair value Fair Par or Fair value Fair

notional Listed Unlisted value notional Listed Unlisted valuevalue (*) value quotati (*)

1. Due to banks 1,971,920 31,111 2,003,031 5,493,720 1,248 5,494,9682. Due to customers 6,647,647 17,038 6,664,685 8,239,485 8,239,4853. Other securities 68,454 68,454 91,526 91,526Total A 8,688,021 48,149 13,824,731 1,248B. Derivative instruments1. Financial derivatives 334,479 8,259,301 134,802 4,806,320

1.1 For trading 334,479 8,259,301 134,802 4,806,3201.2 Associated with the fair value option1.3 Other

2. Credit derivatives 287,952 175,4702.1 For trading 287,952 175,4702.2 Associated with the fair value option2.3 Other

Total B 334,479 8,547,253 134,802 4,981,790Total A+B 9,022,500 8,595,402 13,959,533 4,983,038


Section 4 - FINANCIAL LIABILITIES HELD FOR TRADING - Item 40

4.1 Financial liabilities held for trading: breakdown by type of liability

(*)= fair value calculated by excluding the changes in value due to the change in the creditworthiness of the issuer since the issuedate.

Note:“Due to banks” and “Due to customers” conventionally include technical overdrafts on bonds per financial counterparty, whilethe item “other securities” shows the technical overdrafts on equity securities and similar instruments. They are valued at fairvalue on a consistent basis with the approach applied to long (bull) positions.The overall difference deriving from the recording of the “Day One Profit/Loss” still to be recorded in the income statement atthe end of the current year, comes to €9,282 thousand (to be amortised over a maximum period of 6.5 years). The outflow to theincome statement in the period came to €2,206 thousand, versus €4,381 “suspended” deferred.Item B. “Derivative instruments - 1.1 For trading” includes the amount of €1,419 equating to the net equivalent value of the de-faulted position vis-à-vis certain counterparties of the Lehman Group.

123

4.2 Analysis of item 40 “Financial liabilities held for trading”: subordinated liabilities

Name of liability Currency Issue date Maturity Interest Carryingdate rate amount

A. Due to banks- BMPS 4.875 SUB 2016 € 31 May 2006 31 May 2016 floating 5,257- MEDIOBANCA TV 16 € 11 Oct. 2006 11 Oct. 2016 floating 4,439- BC POP UNITE 18 TV € 30 Oct. 2006 30 Oct. 2018 floating 1,943- BCA POP MI TV05/15 € 29 June 2005 29 June 2015 floating 501- BCA POP VER NOV09 TV € 5 Dec. 2006 5 June 2009 floating 342- COMMERZBK 09 4.75 € 21 April 1999 21 April 2009 fixed 228- BMPS TV 05/17 € 30 Nov. 2005 30 Nov. 2017 floating 106- UNICREDITO ITAL16 TV € 20 Sept. 2006 20 Sept. 2016 floating 80- DEUTSCHE BK 03/13 5, € 31 Jan. 2003 31 Jan. 2013 fixed 92- CAPITALIA TV 2015 € 23 June 2005 31 May 2016 floating 77B. Due to customers 50- MUNICH R F TV 03/23 € 16 April 2003 21 June 2023 floating 50Total (A+B) 13,115

4.3 Analysis of Item 40 “Financial liabilities held for trading”: structured liabilitiesThere are no structured liabilities recorded in the financial statements.


124

4.4 Financial liabilities held for trading: Derivative instruments

Derivatives /Underlying assets Interest Currency Equity Recei- Other Total as Total asrates and gold securities vables of 31 of 31

Dec. 08 Dec. 07A. Listed derivatives1. Financial derivatives: 9,765 287,265 37,449 334,479 134,802

With exchange of capital 5,800 20,801 26,601 31,863- options issued 4,985 19,470 24,455 31,863- other derivatives 815 1,331 2,146Without exchange of capital 3,965 266,464 37,449 307,878 102,939- options issued 3,965 266,464 9,332 279,761 102,939- other derivatives 28,117 28,117

2. Credit derivatives:With exchange of capitalWithout exchange of capitalTotal A 9,765 287,265 37,449 334,479 134,802

B. Unlisted derivatives1. Financial derivatives: 7,412,488 143,299 676,709 26,805 8,259,301 4,806,320

With exchange of capital 16,012 50,274 77,430 719 144,435 173,260- options issued 15,998 48,567 77,430 719 142,714 53,674- other derivatives 14 1,707 1,721 119,586Without exchange of capital 7,396,476 93,025 599,279 26,086 8,114,866 4,633,060- options issued 868,364 15,253 599,279 24,666 1,507,562 1,394,943- other derivatives 6,528,112 77,772 1,420 6,607,304 3,238,117

2. Credit derivatives: 287,952 287,952 175,470With exchange of capital 286,975 286,975 175,470Without exchange of capital 977 977Total B 7,412,488 143,299 676,709 287,952 26,805 8,547,253 4,981,790Total (A+B) 7,422,253 143,299 963,974 287,952 64,254 8,881,732 5,116,592

Derivative contracts entered into with companies belonging to the Monte dei Paschi di Siena Group as of the balancesheet date, amounted to 27.29% of the total.


125

4.5 Cash financial liabilities held for trading (excluding "technical overdrafts"): changes in the year

Changes/ Types Due to Due to Total Totalebanks customers 31 Dec. 08 31 Dec. 07

A. Opening balances 5,486,751 5,866,127 11,352,878B Increases 126,519,251 620,113,616 746,632,867 504,146,268

B.1 Changes for businesscombination transactions 9,391,309

B.2 Sales 126,513,315 620,111,884 746,625,199 494,721,737B.3 Other increases 5,936 1,732 7,668 33,222

C Decreases 130,036,619 619,731,747 749,768,366 492,793,390C.1 Purchases 130,009,163 619,725,981 749,735,144 492,770,321C.2 Other decreases 27,456 5,766 33,222 23,069

D. Closing balances 1,969,383 6,247,996 8,217,379 11,352,878

Note:Items B.3 and C.2 “Other changes” include the components relating to interest accrued at year end.


126

Section 5 - FINANCIAL LIABILITIES AT FAIR VALUE - Item 50

No positions have been classified in these categories.


127


128

Section 6 - HEDGING DERIVATIVES - Item 60

6.1 Hedging derivatives: breakdown by type of contract and underlying asset

Type of derivative Interest Foreign Equity Receivables Other Total as of Total as ofUnderlying asset rates currency securities 31 Dec. 31 Dec.

and gold 2008 2007A. Listed derivatives1) Financial derivatives

- With exchange of capital- options issued- other derivatives

- Without exchange of capital- options issued- other derivatives

2) Credit derivatives- With exchange of capital- Without exchange of capital

Total AB. Unlisted derivatives 59,043 4,5261) Financial derivatives 59,043 4,526

- With exchange of capital- options issued- other derivatives

- Without exchange of capital 59,043 4,526- options issued- other derivatives 59,043 4,526

2) Credit derivatives- With exchange of capital- Without exchange of capital

Total B 59,043 4,526Total (A+B) 31 Dec. 2008 59,043 4,526Total (A+B) 31 Dec. 2007 4,526 4,526

6.2 Hedging derivatives: breakdown by portfolio and type of hedge

Transactions Fair Value Cash flows Fair ValueType of Microhedge Interest Exchange Credit Price Cumulative Macro Micro Macro

rate risk rate risk risk risk risks1. Financial assets

available for sale 59,0432. Receivables3. Financial assets

held to maturity4. Portfolio5. Foreign investments

Total assets 59,0431. Financial liabilities2. Portfolio

Total liabilities1. Expected settlements


129

Section 7 - VALUE ADJUSTMENTS TO FINANCIAL LIABILITIES SUBJECT TO MACRO-HEDGING - Item 70



130

Section 8 - TAX LIABILITIES - Item 80

8.1 Current tax liabilities

Items / Balances 31 Dec. 2008 31 Dec. 2007taxation to taxation to taxation to taxation to

shareholders’ income shareholders’ incomeequity statement equity statement

1. IRES (company earnings’ tax) payables2. IRAP (regional business tax) payables 6,415 11,1113. Other amounts due for current income taxes

Amounts due for current taxes - gross 6,415 11,111Offsetting against tax assetsAmounts due for current taxes - net 6,415 11,111

With regard to tax liabilities relating to IRES, following the Bank’s participation in the tax consolidation system of theMPS Group, the IRES liability is classified under Other liabilities in the item “amounts due to the Parent Company fortax consolidation”.

8.2 Deferred tax liabilitiesDetails on deferred tax liabilities are indicated in Section 13 of Assets.


131

Section 9 - LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE - Item 90

None of the Bank’s liabilities are classified in this category.


132

Section 10 - OTHER LIABILITIES - Item 100

10.1 Other liabilities: breakdown

Type of transaction / Balances 31 Dec. 2008 31 Dec. 20071. Taxes due to the tax authorities and similar 19,162 7,1082. Amounts due to social security and welfare institutions 1,264 1,2843. Amounts due to the Parent Company for tax consolidation 36,000 25,3884. Sums available to customers 197 2705. Liabilities for payment agreements on Parent Company shares 2,107 1,7976. Other amounts due to employees 12,413 15,8977. Items being processed 7,984 24,7008. Amounts payable associated with the payment

of supplies of goods and services 6,447 6,2449. Guarantees given 2,000 960

10. Accrued expenses not attributable to own items - 3811. Deferred income not attributable to own items 2,131 57712. Other 17,079 4,385

Total 106,784 88,648

Note:the item "taxes due to the tax authorities and similar" includes the substitute tax for a total of €10,405 thousand, calculated inaccordance with the criteria envisaged by Italian Decree Law No. 185 dated 29 November 2008, approved finally in Italian Leg-islative Decree No. 1315 dated 27 January 2009, with reference to the permitted faculty of freeing up the misalignments be-tween the statutory value and the tax value of certain items as referred to in Article 15, sections 1 to 9.


133

Section 11 - EMPLOYEE SEVERANCE INDEMNITY - Item 110

11.1 Employee severance indemnity: changes in the year

31 Dec. 2008 31 Dec. 2007A. Opening balances 4,892 4,421B Increases 211 1,689

B.1 Changes for business combination transactions 1,464B.2 Provision for the yearB.3 Other increases 211 225

C Decreases 910 1,218C.1 Indemnities paid 576 869C.2 Other decreases 334 349

D. Closing balances 4,193 4,892

11.1.1. Main actuarial hypotheses used

Main actuarial hypotheses / Percentages 31 Dec. 2008 31 Dec. 20071. Average discounting back rate(*) 3.9421% 4.9408%2. Estimated salary increase rates - -

Note:the zero coupon rates curve as of 31 December, taken from Euro swap rates, was used.


134

Section 12 - PROVISIONS FOR RISKS AND CHARGES - Item 120

12.1 Provisions from risks and charges: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Company pension funds 7,058 7,0962. Other provisions for risks and charges 4,046 1,604

2.1 legal disputes 2,3692.2 staff costs2.3 other 1,677 1,604

Total 11,104 8,700

Note: the sub-item “other” includes the provisions covering possible future problems associated with the new facilitated operationsamounting to €1,037 thousand and provisions for possible settlements for €3,009 thousand.

12.2 Provisions for risks and charges: changes in the year

Pension funds Other TotalA. Opening balances 7,096 1,604 8,700B. Increases 565 3,077 3,642

B.1 Provision for the year 565 3,009 3,574B.2 Changes due to the passage of time 50 50B.3 Changes due to discount rate changes 18 18B.4 Other increases

C Decreases 603 635 1,238C.1 Uses in the year 603 500 1103C.2 Changes due to discount rate changesC.3 Other changes 135 135

D. Closing balances 7,058 4,046 11,104

12.3 Defined-benefit company pension funds

12.3.1. Illustration of the fundsReference should be made to the statements of account for the pension funds attached to the explanatory notes.


135

12.3.2. Changes in the year in company pension funds

Items/ Balances 31 Dec. 2008 31 Dec. 2007Internal External Internal Externalplans plans plans plans

Opening balances 7,096 7,193Increases 565 510Welfare cost relating to current work servicesBorrowing costsMembers contributions to planActuarial lossesExchange lossesWelfare cost relating to past work services 565 510Other changesDecreases 603 607Indemnities paid 603 607Welfare cost relating to past work servicesActuarial gainsExchange gainsEffect of reductions in fundEffect of discharges on fundOther changesClosing balances 7,058 7,096

12.3.3 Changes in the year in plan assets and other informationThe assets of the defined-benefit pension funds are invested in the Bank’s assets; no specific assets have been classi-fied as plan assets.

12.3.3.a Fair value of the plan assets: breakdownNo specific asset is classified under plan assets.

12.3.4. Reconciliation between the current value of the funds, current value of the plan assets, and assets and lia-bilities recorded in the balance sheetNo specific asset is classified under plan assets.

12.3.5. Main actuarial hypotheses used

Main actuarial hypotheses / Percentages 31 Dec. 2008 31 Dec. 20071. Average discounting back rate 4.50% 4.50%2. Estimated salary increase rates 1.80% 2.80%


136

Section 13 - REFUNDABLE SHARES - Item 140



137

Section 14 - BANK’S SHAREHOLDERS’ EQUITY - Items 130, 150, 160, 170, 180, 190 and 200

14.1 Bank’s shareholders’ equity: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Share capital 231,135 211,8742. Share premium reserve 189,210 108,5983. Reserves 509,219 423,0064. (Treasury shares)5. Revaluation reserves (11,570) 37,0766. Equity instruments7. Profit (loss) for the year 38,086 86,213Total 956,080 866,767

Note:With regard to the increase in share capital, reference should be made to Section 14.4 “Share capital: other information”

14.1a Bank’s shareholders’ equity: availability and possibility of distribution of the various items

Summary of usesmade in previous

three yearsNature / Content Possibility Available For coverage For other

Amount of use (*) portion of loss reasonsShare capital 231,135Capital reserves 324,986 A,B,C, 324,986Profit reserves 320,044 A,B,C 292,309Revaluation reserves subjectto deferred taxation 31,727 A,B,C 31,727Other reserves subject to deferred taxation 10,632 A,B,C 10,632Other IAS reserves (530) A,B,C 42,767TOTAL RESERVES 686,859 702,421Profit for 2008 38,086Total Equity 956,080

Key:A for share capital increases; B for coverage of losses; C for distribution to shareholders.


138

14.2 “Share capital” and “Treasury shares”: breakdown

14.2.a Share capital: breakdown

Items /Balances Number Unit Shareof shares par value capital

a) ordinary shares (fully paid-up) 856,055,989 €0.27 231,135

14.2.b Treasury shares: breakdownAs of the balance sheet date, the Bank did not hold any treasury shares.


139

14.3 Share capital - number of shares: changes in the year

Items/ Type Ordinary OtherA. Shares at beginning of year 784,717,990

- fully paid-up 784,717,990- partly paid-up

A.1 Treasury shares (-)A.2 Share in circulation: opening balances 784,717,990B. IncreasesB.1 New issues 71,337,999

- against payment: 71,337,999- business combination transactions- conversion of bonds- exercise of warrants- other 71,337,999- bonus:- in favour of employees- in favour of directors- other

B.2 Sales of treasury sharesB.3 Other changesC. DecreasesC.1 CancellationC.2 Purchase of treasury sharesC.3 Sales of companiesC.4 Other changesD. Share in circulation: closing balances 856,055,989D.1 Treasury shares (+)D.2 Shares existing at the end of the year 856,055,989

- fully paid-up 856,055,989- partly paid-up

14.4 Share capital: other informationThe share capital, amounting to € 231,135 thousand, is fully subscribed and paid-in.

During the Shareholders’ Meeting held on 13 February 2008, a share capital increase against payment was approvedfor €19,261,259.73 (from €211,873,857.30 to €231,135,117.03) by means of the issue of 71,337,999 ordinaryshares with a par value of €0.27 each, plus a share premium of €1.13 per share (€80,611,938.87). The transaction was concluded on 16 June 2008 with the full subscription and paying in of the resolved share capi-tal increase.


140

14.5 Profit reserves: other informationThe Shareholders’ Meeting held on 20 December 2007 resolved to grant the Board of Directors the faculty to pur-chase shares of Banca Monte dei Paschi di Siena (parent company), in observance of the limits and the formalitiesenvisaged by Article 2359 bis pursuant to Article 2357.2 of the Italian Civil Code and the matters governed by Arti-cle 132 of Italian Law Decree No. 58/98, for the purpose of carrying out the correct management of the risks asso-ciated with the derivative financial instruments linked to shares or indexes (where present the listed securities of theParent Company). These purchases must be limited to a total amount of €4,000 thousand (indicated in the sub-item“reserves”). As of 31 December 2008, €32 thousand of these specific reserves had been used. This amount is alsojoined by the equivalent value of the shares issued by the Parent Company acquired on the market, for the purposeof applying the trade union agreements inherent to payment of part of the 2007 company bonus, amounting to €316thousand.

14.6 Equity instruments: breakdown and changes in the yearThere are no such transactions for this financial statement item.

14.7 Valuation reserves: breakdown

Items / Components 31 Dec. 2008 31 Dec. 20071. Financial assets available for sale (66,338) 5,3492. Property, plant and equipment3. Intangible assets4. Foreign investment hedging5. Cash flow hedging6. Exchange differences7. Non-current assets held for sale8. Special revaluation laws 31,727 31,7279. Tax effect 23,041

Total (11,570) 37,076

Note:the reserves pursuant to point 1 are essentially attributable to a position in government debt securities subject to hedge account-ing (fair value hedge).


141

14.8 Revaluation reserves: changes in the year

Financial Non-current Special Tax Totalassets assets held revaluation effect

available for sale lawsfor sale

A. Opening balances 5,349 31,727 37,076B. Increases 1,912 23,464 25,376

B.1 Fair value increases 274 274B.2 Other changes 1,638 23,464 25,102

C. Decreases 73,599 423 74,022C.1 Fair value decreases 72,995 72,995C.2 Other changes 604 423 1,027

D. Closing balances (66,338) 31,727 23,041 (11,570)

14.9 Valuation reserves relating to financial assets available for sale: breakdown

31 Dec. 2008 31 Dec. 2007Assets / Balances Positive Negative Positive Negative

reserve reserve reserve reserve1. Debt securities 72,598 9182. Equity securities 6,250 100 7,905 1,6383. Units in collective investment undertakings 1114. Loans

Total 6,361 72,698 7,905 2,556

14.10 Valuation reserves relating to financial assets available for sale: changes in the year

Units inDebt Equity collective Loans


1. Opening balances (918) 6,2672. Positive changes 1,801 111

2.1 Fair value increases 163 1112.2 Transfer to income statement of negative reserves 1,638

- due to impairment- due to conversion 1,638- 2.3 Other changes

3. Negative changes 71,681 1,9183.1 Fair value decreases 71,681 1,3143.2 Transfer to income statement of positive reserves 604

- due to conversion 6043.3 Other changes

4. Closing balances (72,599) 6,150 111


142

OTHER INFORMATION

1 Guarantees issued and commitments

Transactions 31 Dec. 2008 31 Dec. 20071. Financial guarantees given 232,790 698,466

a) Banks 480,886b) Customers 232,790 217,580

2. Commercial guarantees given 114,959 64,388a) Banksb) Customers 114,959 64,388

3. Irrevocable commitments to grant finance 3,711,993 3,554,888a) Banks 70,570 71,445

- certain to be called on 70,570 71,445- not certain to be called on

b) Customers 3,641,423 3,483,443- certain to be called on 1,450,406 1,772,023- not certain to be called on 2,191,017 1,711,420

4. Commitments underlying derivatives on receivables:protection sales 4,368,008 2,345,045

5. Assets lodged as collateral for third party bonds6. Other commitments 395,622 473,960

Total 8,823,372 7,136,747

2 Assets lodged as collateral for the Bank’s liabilities and commitments

Portfolios 31 Dec. 2008 31 Dec. 20071. Financial assets held for trading 2,896,470 995,2522. Financial assets at fair value3. Financial assets available for sale 217,4674. Financial assets held to maturity5. Due from banks 3,233,625 2,272,0356. Loans to customers 30,200 39,5587. Property, plant and equipment

Note:These are mainly assets lodged as collateral for repurchase agreements, security lending transactions and derivatives.

3 Information on operating leases

Items / Balances 31 Dec. 2008 31 Dec. 2007- Within 1 year 649 642- Between 1 and 5 years 655 422


143

4 Management and brokerage on behalf of third parties

Type of services 31 Dec. 2008 31 Dec. 20071. Trading of financial instruments on behalf of third parties

a) Purchases 1,589,592 911,3081. Settled 1,583,106 904,4512. Not settled 6,486 6,857

b) Sales 1,589,592 911,3081. Settled 1,583,106 904,4512. Not settled 6,486 6,857

2. Asset managementa) Individualb) Collective

3. Custody and administration of securitiesa) Third party securities deposited with the Bank associated

with its role as custodian bank (excluding asset management)1. Securities issued by the Bank2. Other securities

b) Third party securities on deposit (excluding asset management): other 222,142 210,5901. Securities issued by the Bank 25 9152. Other securities 222,117 209,675

c) Third party securities deposited with third parties 155,039 128,023d) Bank’s securities deposited with third parties 3,642,456 859,285

4. Other transactions

Note:The amounts indicated in point 3 concern the par value of the securities.Third party securities for €6,721 thousand represent guarantees given against securities lending and derivative activities. Theseguarantees have a total fair value of €7,518 thousand and remain deposited with the custodian bank Monte dei Paschi di Siena.


144

Section 1 - INTEREST - Items 10 and 20

1.1 Interest and similar income: breakdown

Performing financialItems / Technical forms assets Impaired Other Total Total

Titoli di Finanzia- financial assets 31 Dec. 31 Dec.debito menti assets 2008 2007

1. Financial assets held for trading 146,749 212,153 358,902 402,5772. Financial assets available for sale 13,035 13,035 2,2273. Financial assets held to maturity4. Due from banks 117,984 9,983 127,967 111,9335. Loans to customers 669,082 39,928 709,010 589,9836. Financial assets at fair value7. Hedging derivatives8. Financial assets sold but no derecognised9. Others assets 33 33 22

Total 159,784 999,219 39,928 10,016 1,208,947 1,106,742

Note:Interest on Assets sold not derecognised is summarized in the pertinent categories of said assets.

1.2 Interest and other income: other information

31 Dec. 2008 31 Dec. 20071. Interest income on foreign currency financial assets 39,177 50,622

2. Interest income on financial lease transactions

3. Interest on receivables with third party funds under administration 9 22

Parte CNotes to the Income Statement


145

1.3 Interest expense and similar charges: breakdown

Items / Technical forms Payables Securities Other Total 31 Total 31liabilities Dec. 08 Dec. 07

1. Due to banks (452,630) (452,630) (501,303)2. Due to customers (261,111) (261,111) (20,474)3. Outstanding securities (11,381) (11,381) (12,718)4. Financial liabilities held for trading (310,833) (310,833) (341,990)5. Financial liabilities at fair value 0 (64,309)6. Financial liabilities associated with assets

sold but not derecognised7. Other liabilities (82) (82) (138)8. Hedging derivatives (136) (136) (248)

Total (1,024,574) (11,381) (218) (1,036,173) (941,180)

1.4 Interest expense and similar charges: differentials relating to hedging transactions

Types /Items 31 Dec. 2008 31 Dec. 2007Differentials (136) (248)

1.5 Interest expense and similar charges: other information

31 Dec. 2008 31 Dec. 20071. Interest expense on foreign currency liabilities (34.548) (41.790)

2. Interest expense on liabilities for financial lease transactions -

3. Interest expense on third party funds under administration (5) (8)


146

Section 2 - FEES - Items 40 and 50

2.1 Fee income: breakdown

Type of services /Balances 31 Dec. 2008 31 Dec. 2007a) on guarantees given 1,661 682b) on credit derivativesc) on asset management, services and consultancy: 26,360 29,907

1. financial instrument trading2. foreign exchange trading3. asset management

3.1. individual3.2. collective

4. securities custody and administration5. custodian bank6. securities placement 20,984 24,0057. order taking 410 2608. advisory services 4,966 5,6429. distribution of third party services

9.1. asset management9.1.1. individual9.1.2. collective

9.2. insurance products9.3. other products

d) on collection and payment servicese) on securitisation servicesf) on factoring servicesg) on tax collection and State lottery servicesh) on other services 47,489 31,451

Total 75,510 62,040

2.1.a Fee income: breakdown of fees for consulting activities

Type of services / Balances 31 Dec. 2008 31 Dec. 2007a) project finance activities 1,989 2,658b) sworn certification activities 386 292c) acquisition finance activities 1,620 1,003d) advisory activities 38 1,538e) principal finance securitisation activities 400 -f) other innovative finance activities 188 121g) other 345 30

Total 4,966 5,642


147

2.1.b Fee income: breakdown of fees for other services

Type of services / Balances 31 Dec. 2008 31 Dec. 2007a) for early repayment/termination of loans and mortgage loans 24,416 18,192b) fees for services 4,426 2,909c) other 18,647 10,350

Total 47,489 31,451

2.2 Fee income: distribution channels for products and services

Channels / Balances 31 Dec. 2008 31 Dec. 2007a) at Bank branches:

1. asset management2. securities placement3. third party services and products

b) door-to-door sales:1. asset management2. securities placement3. third party services and products

c) other distribution channels:1. asset management2. securities placement 20,984 24,0053. third party services and products


148

2.3 Fee expense: breakdown

Services / Balances 31 Dec. 2008 31 Dec. 2007a) on guarantees received (114) (230)b) on credit derivativesc) on asset management and other services: (28,079) (25,289)

1. financial instrument trading (13,521) (11,345)2. foreign currency trading (19) (19)3. asset management:

3.1. own portfolio3.2. third party portfolios

4. securities custody and administration5. financial instrument placement (14,539) (13,925)6. financial promoters offering financial instruments, products and services

d) on collection and payment services (36) (55)e) on other services (21,465) (18,052)

Total (49,694) (43,626)

2.3.a Fee expense: breakdown of fees for other services

Type of services / Balances 31 Dec. 2008 31 Dec. 2007a) presentation of loan applications (6,042) (4,330)b) handling of non-performing positions (3,861) (3,099)c) fees for services (21)d) expense and fees paid to Barclays, Citibank and Clearstream (2,579) (1,852)e) other (8,983) (8,750)

Total (21,465) (18,052


149

Section 3 - DIVIDENDS AND SIMILAR INCOME - Item 70

3.1 Dividends and similar income: breakdown

Items / Income 31 Dec. 2008 31 Dec. 2007Dividends Income from Dividends Income from

units in units incollective collectiveinvestment investment

undertakings undertakingsA. Financial assets held for trading 271,798 252,915B. Financial assets available for sale 1,561 32C. Financial assets at fair valueD. Equity investments 560

Total 273,919 252,947


150

Section 4 - NET INCOME (LOSS) FROM TRADING ACTIVITIES - Item 80

4.1 Net income from trading activities: breakdown

Capital gains Trading Capital Trading Net incomeTransactions / Income components (A) gains losses losses (A+B-C-D)

(B) (C) (D) 31 Dec. 08 31 Dec. 071. Financial assets held for trading

1.1 Debt securities 40,759 55,565 (49,177) (75,863) (28,716) 8301.2 Equity securities 1,906 119,516 (42,917) (335,886) (257,381) (242,348)1.3 Units in collective

investment undertakings 392 (2,496) (1,480) (3,584) 1,7011.4 Loans1.5 Other

2. Financial liabilities held for trading2.1 Debt securities 1,190 9,188 (2,357) (14,866) (6,845) (1,049)2.2 Other 15,826 11,673 (811) (18,596) 8,092 (49,489)

3. Other financial assets and liabilities:- exchange differences (121) (25)

4. Derivative instruments4.1 Financial derivatives:

- on debt securitiesand interest rates 3,536,639 10,352,450 (3,511,025) (10,246,596) 131,468 71,946

- on equity securities andshare indexes 263,361 1,418,147 (272,875) (1,533,737) (125,104) 13,877

- on foreign currency and gold 12,076 9,590- other 46,035 60,660 (45,348) (50,997) 10,350 19,867

4.2 Credit derivatives 177,735 101,358 (172,847) (97,803) 8,443 3,234Total 4,083,451 12,128,949 (4,099,853) (12,375,824) (251,322) (171,866)

Note:The effect deriving from the “Day One Profit/Loss” of the activities for the current period amounts to €4,381 thousand. The flowto the income statement in the period came to €2,206 thousand.


151

Section 5 - NET INCOME FROM HEDGING ACTIVITIES - Item 90

5.1 Net income from hedging activities: breakdown

Income components / Balances 31 Dec. 2008 31 Dec. 2007A. Income relating to:A.1 Fair value hedging derivativesA.2 Hedged financial assets (fair value) 57,983 1,904A.3 Hedged financial liabilities (fair value)A.4 Financial derivatives hedging cash flowsA.5 Foreign currency assets and liabilities

Total income from hedging activities (A) 57,983 1,904B. Expense relating to:B.1 Fair value hedging derivatives (57,617) (1,676)B.2 Hedged financial assets (fair value)B.3 Hedged financial liabilities (fair value)B.4 Financial derivatives hedging cash flowsB.5 Foreign currency assets and liabilities

Total expense from hedging activities (B) (57,617) (1,676)C. Net income from hedging activities (A-B) 366 228


152

Section 6 - PROFIT (LOSS) ON SALE/REPURCHASE - Item 100

6.1 Profit (loss) on sale/repurchase: breakdown

31 Dec. 2008 31 Dec. 2007Items / Income components Gains Losses Net Gains Losses Net

result resultFinancial assets1. Due from banks2. Loans to customers3. Financial assets available

for sale 637 (1,642) (1,005) 383 3833.1 Debt securities 33 (4) 293.2 Equity securities 604 (1,638) (1,034) 383 3833.3 Units in collective

investment undertakings3.4 Loans

4. Financial assets heldto maturityTotal assets 637 (1,642) (1,005) 383 383Financial liabilities

1. Due to banks2. Due to customers3. Outstanding securities

Total liabilities


153


Section 7 - NET RESULT FROM FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE - Item 110

7.1 Net change in value of financial assets and liabilities at fair value: breakdown

Capital gains Trading Capital Trading Net incomeTransactions / Income components (A) gains losses losses (A+B-C-D)

(B) (C) (D) 31 Dec. 08 31 Dec. 071. Financial assets

1.1 Debt securities1.2 Equity securities1.3 Units in collective

investment undertakings1.4 Loans

2. Financial liabilities 17,6022.1 Outstanding securities 17,6022.2 Due to banks2.3 Due to customers

3. Foreign currency financialassets and liabilities

- exchange differences4. Derivative instruments

4.1 Financial derivatives: (21,435)- on debt securities and interest rates (21,435)- on equity securities and share indexes- on foreign currency and gold- other

4.2 Credit derivativesTotal derivatives (21,435)Total (3,833)

154

Transactions / Income Value adjustments Write-backs Totalcomponents Specific Specific Portfolio

A. Due from banksB. Loans to customers (4.355) (127.221) (14.859) 43.641 10.276 2.150 (90.368) (65.805)C. Total (4.355) (127.221) (14.859) 43.641 10.276 2.150 (90.368) (65.805)

Can

cella

tions

Oth

er

Port

folio

From

inte

rest

Oth

er w

rite

back

s

From

inte

rest

Oth

er w

rite

back

s

31 D

ec. 2

008

31 D

ec. 2

007

Transactions / Income Value adjustments Write-backs Totalcomponents Specific Specific

A. Debt securitiesB. Equity securities (2.336)C. Units in collective

investment undertakingsD. Loans to banksE. Loans to customersF. Total (2.336)

Can

cella

tions

Oth

er

From

inte

rest

Oth

er w

rite

back

s

31 D

ec. 2

008

31 D

ec. 2

007


Section 8 - NET VALUE ADJUSTMENTS/WRITE-BACKS DUE TO IMPAIRMENT - Item 130

8.1 Net value adjustments due to impairment of receivables: breakdown

8.2 Net value adjustments due to impairment of financial assets available for sale: breakdown

155

8.3 Net value adjustments due to impairment of financial assets held to maturity: breakdown None of the Bank’s financial assets are classified in the category “Financial assets held to maturity”.

8.4 Net value adjustments due to impairment of other financial transactions: breakdown


156

Transactions / Income Value adjustments Write-backs Totalcomponents Specific Specific Portfolio

A. Guarantees given (1,040) (1,040) (340)B. Credit derivativesC. Commitments to

disburse fundsD. Other transactions (85) 96 11 (1,244)E. Total (85) (1,040) 96 (1,029) (1,584)

Can

cella

tions

Oth

er

Port

folio

From

inte

rest

Oth

er w

rite

back

s

From

inte

rest

Oth

er w

rite

back

s

31 D

ec. 2

008

31 D

ec. 2

007

Section 9 - ADMINISTRATIVE EXPENSES - Item 150

9.1 Personnel expenses: breakdown

Type of costs / Balances 31 Dec. 2008 31 Dec. 20071. Employees (43,069) (46,451)

a) wages and salaries (28,904) (30,253)b) social security charges (6,070) (8,531)c) severance indemnities (2,173) (1,909)d) pension costse) provision for severance indemnitiesf) provision for pensions and similar obligations: (1,272) (926)

- defined-contributions (707) (415)- defined-benefits (565) (511)

g) payments to external supplementary welfare funds- defined-contributions- defined-benefits

h) costs deriving from payment agreements based on Parent Company equity instruments (stock granting) (1,236) (865)

i) costs incurred for staff on rest leave (881) (2,358)f) other employee benefits (2,533) (1,609)

2. Other personnel (174) (154)3. Directors (910) (702)

Total (44,153) (47,307)

9.2 Average number of employees by category

Employee categories /Average number 31 Dec. 2008 31 Dec. 2007Employees: 416 440a) executives 28 26b) total middle managers 201 197

- 3rd and 4th level 116 112c) other employees 187 217

Other personnel 7 10Total 423 450


157

9.3 Company pension funds: total costs

Items / Balances 31 Dec. 2008Defined Employeebenefit severance

company indemnitiespensionfunds

1. Welfare cost relating to current employment services (+)2. Borrowing costs (+) (211)3. Estimated return on plan assets (-)4. Envisaged return on any reimbursement rights

recorded as assets (-)5. Actuarial gains and losses (±)6. Welfare cost relating to past employment services (+) (565)7. Effect of any reduction or discharge8. Effect deriving from booking of assets

Total (565) (211)

9.3.a Contribuzioni al piano che la Banca stima di corrispondere nel prossimo esercizio

Items / Balances 31 Dec. 2008Defined Employeebenefit severance

company indemnitiespensionfunds

1. Contributions to the Plan which the Banksestimates it will pay out in the next year (550)


158

9.5 Other administrative expenses: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. substitute tax (1,523) (592)2. municipal property tax (104) (104)3. stamp duty (6) (161)4. other taxation (186) (684)5. rental of bank properties (1,634) (1,375)6. fees for outside professionals (6,189) (7,965)7. maintenance of furnishings and

property used for business purposes (788) (1,092)8. postal charges (113) (130)9. telephone charges (724) (521)

10. advertising (377) (535)11. sundry rents and leasing (615) (1,111)12. information and searches (137) (358)13. transport (255) (229)14. electricity, heating and water (299) (296)15. security (237) (243)16. reimbursement of staff vehicle and travel costs (656) (650)17. other staff costs (1,104) (1,350)18. contracts for cleaning of premises (351) (365)19. rental of data lines and transmission (5,517) (4,694)20. printed matter, stationery and consumables (206) (156)21. insurance (18) (223)22. services outsourced to Group companies (12,240) (8,400)23. membership fees (303) (505)24. entertaining expenses (418) (385)25. subscriptions to publications (71) (108)26. sundry (347) (818)

Total (34,418) (33,050)


159

Section 10 - NET PROVISIONS FOR RISKS AND CHARGES - Item 160

10.1 Net provisions for risks and charges: breakdown

31 Dec. 2008 31 Dec. 2007Items / Balances Damage Damage

compensation Legal Other compensation Legal Otherand disputes and disputes

bankruptcy bankruptcyrevocation revocation

1. Provisions for the year (2.369) (708) (500)2. Uses in the year 135

Totale 135 (2.369) (708) (500)


160

Section 11 - NET VALUE ADJUSTMENTS/WRITE-BACKS TO PROPERTY, PLANT AND EQUIPMENT - Item 170

11.1 Net value adjustments on property, plant and equipment: breakdown

Assets / Income components Depreciation Value Write Net result(A) adjustments for backs (A+B-C)

impairment (C) 31 Dec. 08 31 Dec. 07(B)

A. Property, plant and equipmentA.1 Owned by the Bank (1,066) (1,066) (1,052)

- For use in business (1,066) (1,066) (1,052)- Investment property

A.2 Acquired under financial lease- For use in business- Investment propertyTotal (1,066) (1,066) (1,052)


161

Section 12 - NET VALUE ADJUSTMENTS/WRITE-BACKS TO INTANGIBLE FIXED ASSETS - Item 180

12.1 Net value adjustments to intangible fixed assets: breakdown

Assets / Income components Amortisation Value Write Net result(A) adjustments for backs (A+B-C)

impairment (C) 31 Dec. 08 31 Dec. 07(B)

A. Intangible assetsA.1 Owned by the Bank (125) (125) (315)

- Generated internally by the Bank (125) (125) (315)- Other

A.2 Acquired under financial leaseTotal (125) (125) (315)


162

Section 13 - OTHER OPERATING INCOME AND CHARGES - Item 190

13.1 Other operating charges: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Amounts not receivable not attributable to own items (133) (193)2. Out-of-period expense not attributable to own items (5) (86)3. Amortisation of leasehold improvement costs (19) (88)4. Other (21) (1,331)

Total (178) (1,698)

13.2 Altri proventi di gestione: composizione

Items / Balances 31 Dec. 2008 31 Dec. 20071. Amounts not payable not attributable to own items 402. Out-of-period income not attributable to own items 66 3373. Rental income from properties used for business 370 4004. Other costs charged back 5,355 4,0755. Other 191 519

Total 6,022 5,331


163

Section 14 - PROFIT (LOSS) FROM EQUITY INVESTMENTS - Item 210

14.1 Profit (loss) from equity investments: breakdown

Income components / Balances 31 Dec. 2008 31 Dec. 2007A. Income

1. Revaluations2. Gains on disposal3. Write-backs4. Other positive changes

B. Expense (47)1. Write-downs2. Value adjustments due to impairment3. Losses on disposal (47)4. Other negative changesNet result (47)

Note:These are losses recorded on the disposal of the equity investment in Marina Blu S.p.A.


164

Section 15 - NET RESULT FROM PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS AT FAIR VALUE- Item 220

15.1 Net result of fair value valuation of revalued property, plant and equipment and intangible assets: breakdownThere are no such transactions for this financial statement item.


165

Section 16 - VALUE ADJUSTMENTS TO GOODWILL - Item 230

16.1 Value adjustments to goodwill: breakdown

Items / Balances 31 Dec. 2008 31 Dec. 20071. Impairment of goodwill on "Capital Markets" business unit (594)

Total (594)


166

Section 17 - GAINS (LOSSES) ON DISPOSAL OF INVESTMENTS - Item 240



167

Section 18 - INCOME TAXES FOR THE YEAR ON PROFIT FROM CURRENT OPERATIONS - Item 260

18.1 Income taxes for the year on profit from current operations: breakdown

Components / Balances 31 Dec. 2008 31 Dec. 20071. Current taxes (-) (39,300) (38,543)2. Changes in current taxes for previous years (+/-) (12,565) 3,5933. Reduction in current taxes for the year (+)4. Change in prepaid taxes (+/-) 9,091 (59,981)5. Change in deferred taxes (+/-) 28,618 68,2186. Taxes for the year (-) (14,156) (26,713)

Note:The item “current taxes” includes the negative effect deriving from the partial deductibility of interest expense as introduced byItalian Law Decree No. 112/08 converted into Italian Law No. 133/08.The item "changes in current taxes for previous years" includes i) the substitute tax pursuant to Article 1.48 of Italian Law No. 244dated 24 December 2007, ii) the substitute tax calculated in accordance with the provisions contained in Article 15 of Italian LawDecree No. 185 dated 29 November 2008 containing “urgent measures for the support of households, work, employment andbusiness to re-plan the national strategic framework as an anti-crisis measure”. The latter was resolved by the Board of Directorsduring the meeting held on 6 March, which approved compliance with the option offered by Article 15 of Italian Law Decree No.185/08 relating to the realignment of the tax values with the accounting values of the item “former provisions for doubtful loans”.

18.2 Reconciliation between the theoretical tax charge and the actual tax charge in the financial statements

Items / Balances 31 Dec. 2008 31 Dec. 2007A. Profit (Loss) on current operations, gross of taxation 52,242 112,926B. Profit (Loss) from discontinued operations, gross of taxation

Profit (Loss) gross of taxation (A+B) 52,242 112,926- Current IRES (company earnings’ tax) rate (%) 27.50% 33.00%Theoretical tax charge 14,366 37,265- theoretical tax charge on business segment

spin-off pertaining to MPS Finance (14,487)- Application of participation exemption 306- Permanent differences (1) 5,728 2,169- Change in current taxes for previous years (3,593)- Change in tax rates: effects on prepaid and deferred taxation (1,710)- Tax effect of freeing up the provisions for doubtful loans (9,544)- IRAP (regional business tax) 3,300 10,027- MPS Finance taxation (2,958)Income taxes for the year 14,156 26,713

Of which: - Income taxes for the year from current operations 14,156 26,713- Income taxes for the year of discontinued operations

(1)2007 accounting period: mainly referring to dividends2008 accounting period: mainly referring to the portion of interest expense not deductible (3%) as envisaged by Italian Law De-cree No. 112/2008 converted into Italian Law No. 133/2008


168

Section 19 - GAINS (LOSSES) ON DISCONTINUED OPERATIONS, NET OF TAXATION - Item 280



169

Section 21 - EARNINGS PER SHARE

21.1 Weighted average reconciliation of outstanding ordinary shares

Items / Balances 31 Dec. 2008 31 Dec. 20071. Weighted average of outstanding shares (+) 842,009,525 784,717,9902. Diluting effect deriving from put options sold (+)3. Diluting effect deriving from ordinary shares to be

assigned as a the result of share-based payments4. Diluting effect deriving from convertible liabilities (+)

Weighted average of the outstanding ordinary sharesfor diluted earnings per share 842,009,525 784,717,990

21.2 Other information

21.2.a Reconciliation of profit (loss) for the period - basic earnings per share numerator(amounts in euros)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Net profit (loss) 38,086,269 86,212,9412. Profit (loss) attributable to other categories of shares

Net profit attributable to ordinary shares -basic earnings per share numerator 38,086,269 86,212,941

21.2.b Net profit (loss) reconciliation - diluted earnings per share numerator(amounts in euros)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Net profit (loss) 38,086,269 86,212,9412. Profit (loss)attributable to other categories of shares3. Interest expense on convertible instruments (+)4. Other (+/-)

Net profit attributable to ordinary shares - diluted earnings per share numerator 38,086,269 86,212,941

21.2.c Basic and diluted earnings per share(amounts in euros)

Items / Balances 31 Dec. 2008 31 Dec. 20071. Basic earnings per share 0.04523 0.109862. Diluted earnings per share 0.04523 0.10986


170

The segment reporting is prepared by the Parent Company Banca Monte dei Paschi di Siena S.p.A. in part D of theexplanatory notes to its consolidated financial statements as of 31 December 2008.

Parte DSegment Reporting


171

SECTION 1 - CREDIT RISK

QUALITATIVE INFORMATION

1. General aspects

As part of the strategic priorities established in the Parent Company’s Business Plan, the Bank continues to pursue animprovement in the quality of its loan portfolio with the aim of contributing towards the generation of value, contain-ing the cost of the credit risk and the flow of non-performing positions. In this context, during 2008, activities were com-pleted with the aim of requalifying the loans portfolio and reviewing the loan processes in line with “Basel 2” legislation.In June 2008, the Montepaschi Group received authorization from the Bank of Italy to use advanced internal meth-ods for the determination of the capital requirements to cover credit risk.MPS Capital Services uses the internal estimates of the probability of default (PD) and the loss given default (LGD)for the loan portfolio, relating to the exposures towards businesses and to retail customers. With regard to these port-folios, the EAD supervisory parameter will have to be used until the end of 2009, after which - subject to acknowl-edgement of the related models by the Supervisory Body- the internal estimates of this parameter can be adopted. All the rating models pertaining to Corporate and Retail customers have been completed, modifying or adapting thosepreviously developed in line with the qualitative/quantitative requirements advanced by the Supervisory Authority forthe purpose of rendering them compliant with the matters laid down by “Basel 2” legislation. An additional, but byno means secondary, endeavour was to adapt the instruments - with regard to organization and computerisation -which use the internal rating system both in the Bank’s lending processes (disbursement and monitoring system) andin the risk management, budgeting, planning and capital management processes for the purpose of permitting the useof said ratings for the numerous management and budget planning activities according to a new model based on thecreation of value and the gauging of the adjusted performances for the risk.

The new rating creation process requires that the following be acquired:• quantitative information (economic-financial and performance-related);• qualitative information.In addition, the decision-making system, endowed with specific independence, can exercise the “override” faculty,changing the rating in the presence of qualitative-quantitative elements not considered in the previous stages.For the purpose of making the valuation of the legal-economic links objective and unequivocal, within the MPSGroup, a customised process has been developed entitled “Associated Customer Groups” which makes it possible toestablish and up-date the mapping of the afore-mentioned links by means of the application of automatic process ruleswhich handled the objective data which can be gathered from internal and external official sources.

2. Credit risk handling policies: Banking book

2.1 Organizational aspects - Management and gauging systems

The Bank carries out medium and long-term lending, both ordinary and facilitated, of all types, to customers, di-rected at the growth of manufacturing and production sectors. The risk undertaken is represented by the total amountsof the credit facilities and the repayment sources are essentially assessed on the basis of the prior, current and futureincome-earning capacity of the applicant and/or the project financed. The quality of the management and the qual-

Parte EInformation on Risks andRelated Hedging Policies


172

ity and quantity of the assets protecting the risk also become significant. The presence of secured guarantees (mortgages, liens) or unsecured guarantees (sureties, patronage, joint facilities)contribute towards mitigating the underlying risk.

On the basis of the afore-mentioned criteria, the transactions are grouped into categories of differing risk intensity,essentially real estate and non-real estate, on which the decision-making autonomy limits for the credit of the vari-ous appointed bodies are parameterized; these limits undergo an increase or decrease depending on the rating as-signed to said counterparty.

Lending/financial activities are also carried out through the granting of credit facilities for derivative transactionsaimed at changing the exposure to market risks (interest rate risk, exchange rate risk) of the contracting parties.

The General Management, on a consistent basis with the directives of the Credit Policies and Control Department ofthe Parent Company, periodically establishes the criteria and methods for following and monitoring the credit facil-ity positions, which in any event will have to be carried out as fully as possible sharing the information relating to theposition, information which is made available within the Group.

The activities described above are carried out by the Loan Division, whose mission has the primary objective of dis-bursing credit with levels of excellence with regard to timeframes and technical valuations and protection of thequality, as well as handling all the activities (amendments/changes) which involve an assessment of the creditwor-thiness in the subsequent stages of the disbursement of the loan.The Loan Division departments in charge are:

• CREDIT ASSESSMENT department, in relation to the following activities:- implementation of initiatives aimed at achieving the loan quality objectives by product/segment and other

parameters (e.g. watch-list loan flows) within the framework of the overall economic consistencies outlined byGeneral Management via the Planning, Management Control and Risk Management staff;

- assessment of creditworthiness via i) the examination of the proposals originating from the outlaying Local Officesof the Sales Division, ii) the analysis of the credit capacity of the applicant, the risk of the transaction and theguarantees backing the same;

- drawing up of a preliminary report which recapitulates and summarizes the assessments and valuations carriedout, including the proposal with regard to the assignment of the counterparty and project rating

- resolution of the rating on the basis of the proposals formulated at the time of valuating the credit worthiness, withpossible override validation. • CREDIT DISBURSEMENT department, with regard to the resolution of the credit facility proposals falling under

its autonomy and the proposal of the others, with justified opinion, to the supervising Bodies.• STIPULATIONS department, relating to both the stipulation of the loan agreements with checking of the

documentation and necessary fulfilments, and the disbursement of the loan after having checked all theenvisaged conditions.

Subsequent to disbursement of the balance, in the event of request for any type of changes, if it is performing the po-sition returns to being the responsibility of the POST DISBURSEMENTS sector of the Credit Assessment department;otherwise, in the presence of arrears and even more serious situations which lead to the classification of the expo-sures within the sphere of doubtful loans, it becomes the responsibility of the respective departments reporting to thehead office.

The matters illustrated above are dealt with analytically in the Company regulations by various documents including“Regulation No. 5 - Lending Activities” and “Credit Disbursement Operating Process”.


173

2.2 Control and rating system

During 2008, the MPS Group obtained authorisation from the Bank of Italy for its internal rating system. MPS Capi-tal Services falls within the perimeter of application of this method. Among the various activities, the rating reviewprocess has been put together with the aim of ensuring an accurate up-dating of the customer rating by the Rater bank,in other words the bank appointed to calculate and up-date the rating of a specific customer, subsequently used bythe other banks concerned within their processes. The Bank’s internal regulations, which govern the entire valuation process for the credit risk and detail the criteria foridentifying and gauging the individual risk types adopted, has consequently been up-dated for the purpose of acquiringand defining these new processes. In brief, the structured and documented system of regulations targeted at each individual counterparty of a ratingclass identified in the scale represents the “Rating System”. The rating assignment process is divided up into the fol-lowing stages: i) gathering of the information;ii) compilation of the qualitative questionnaire (the responsibility of the Sales Division); iii) determination of the rat-ing; iv) resolution of the rating. The rating thus assigned has an ordinary validity of twelve months and can only bevaried by means of review processes (rating review). As is known, the assignment of a sole rating for all the banks belonging to a Banking Group is envisaged for each coun-terparty. Therefore, MPSCS takes steps to assign the rating only for its exclusive customers, while in the case of cus-tomers shared with the Group Network, MPS uses the rating assigned by the commercial bank which undertakes therole of Rater Bank (in line with the internal regulation “Operating process for the assignment and review of ratings ofcustomers with credit facilities”).

By contrast, with regard to the transactions identified by “Basel 2” as Specialised Lending, since the capital absorp-tion relating to these transactions is currently calculated using the standard methods, the Bank continues with activ-ities for defining the models for identifying and valuating the same. During 2008, activities in fact continued for thedefinition of on own statistical model in relation to which, with the aid of consultancy, a first model prototype wasdeveloped for the Project transactions and an additional prototype for the IPRE transactions; the related experimen-tation took place, albeit at rudimentary stage. Experimentation also continued on the use of Slotting Criteria, pend-ing possible validation of the above-mentioned expert models. Presumably within the first few months of 2009,inclusion of the Slotting Criteria is envisaged directly within the credit assessment process and preparatory experi-mentation will be launched for the use of the Slotting classification for the calculation of the capital absorption as fromthe supervisory reporting as of 31 December 2009.

2.3 Credit risk mitigation techniques

The Banks’ operations essentially envisage the acquisition of secured guarantees, usually for transactions which aremedium or long-term. In particular, mortgages are currently acquired on property assets, related to real estate oper-ations for acquisition, construction and restructuring of buildings, both those intended for sale and those for the di-rect use of the applicants for production investments.Other secured guarantees acquired mainly concern securities listed on organized markets and are also used to sup-port short-term transactions.Both short and medium-term loan transactions are sometimes backed by unsecured guarantees, provided essentiallyby private individuals (sureties) and sometimes by businesses (sureties and binding letters of patronage).With regard to credit facilities granted to economic operators, additional guarantees are often acquired, granted byCredit Consortiums whose activities are often carried out in collaboration with Trade Associations.Many of the main Credit Consortiums are reviewing their processes so as to make the guarantees they issue “eligi-


174

ble” according to Basel 2, AIRB method regulations. “Basel 2” legislation introduces important regulatory innovations on the management of secured and unsecured guar-antees, enhancing the fundamental role that they cover in lending processes as a risk protection element.The New Capital Adequacy Agreement in fact offers banks the opportunity to endow themselves with an internal sys-tem dedicated to the handling of the credit risk mitigation techniques (Credit Risk Mitigation, hereinafter CRM), whichunder certain conditions make it possible to cut down capital absorption and therefore the capital remuneration cost.The mitigation effect is obviously only permitted in the presence of regulatory requirements established by the abovelegislation, diversified in relation to the various capital requirement calculation methods.The MPS Group is currently implementing an internal CRM system capable of satisfying the recognisability requisitesin accordance with the legislative indications as per Circular No. 263 issued by the Bank of Italy Supervisory Bodyon 27 December 2006 (as subsequently updated).The project proposes to define the development guidelines of the guarantee handling processes, from credit dis-bursement to debt collection, and to complete the design of the governance system for the credit risk started with thePillar I project activities.The plan of the activities envisages the analysis of the unsecured guarantees, mortgages, cash pledges and securitypledges and, on a consistent basis with the AIRB validation process undertaken by the MPS Group, verification of theeligibility of the guarantees using both the standard and AIRB methods.

3. Impaired financial assets

Management and control activities for impaired loans (with the exception of non-performing positions) are disci-plined by the Bank’s Document No. 56 dated 30 July 2008 and the Parent Company’s Document No. 857 dated 12August 2003, which discipline the extensive category of “doubtful loans”.All the positions which are classified as “past due 180 days” (positions in arrears by more than 180 days), “watch-list” (positions meeting “objective watch-list” requirements) or “restructured loans” are handled by the Bank’s CreditManagement division, while recovery activities for positions classified as “non-performing” are entrusted to the Groupcompany MPS Gestione Crediti Banca (hereinafter MPSGCB), specialising in this sector.Impaired positions which are not non-performing are looked after by the Credit Management division which followsthe handling of the same, with the aim of recovering the arrears and restoring the position to performing status. Onthe basis of the analysis of each individual position and joining up with the other Group banks, the most appropri-ate decisions are adopted, both with regard to the recovery times and methods and in relation to the classification ofsaid position.This analysis is then joined by a specific automatic procedure which highlights the imminent changeover to the “180days past due” category and proposes transfer to the watch-list category on a monthly basis.The return of “impaired loans” to performing status takes place in various ways according to the classification cate-gory: with regard to “180 days past due” the mere payment of the arrears present beyond 180 days is sufficient, whilefor watch-list positions not only must payment take place but also the disappearance of any subjective hypothesiswhich could have led to this classification must be verified. With regard to restructured positions, the instructions ofthe Supervisory Body must be followed. In relation to non-performing positions, their return to performing status isalso possible, only if, on payment of the amount in arrears (and any instalments due over the short-term) the absenceof enforcement procedures and reports of dispute to the Risk Authority, and the overcoming of the economic-finan-cial difficulties which led to the classification, are verified. Since non-performing positions, as already previouslymentioned, are handled by MPSGCB, returns to performing status must be analyzed and proposed to the Bank by theassignee.All “doubtful loan” positions are analyzed with regard to the ageing of the arrears: in particular, the valuation con-cerns both positions due to be included in the category “180 days past due”, and those present in this category (so


175


as to assess any requisites for changeover to watch-list or non-performing status), as well as those present in thewatch-list category (since the time factor affects the valuation of the reversibility of the debtor’s state of difficulty).The analysis and the handling of the position obviously also involves the estimation of the write-downs of the par val-ues of the loans (doubtful outcomes and discounting back in accordance with the criteria identified as per the IAS).These decisions, which exclusively concern “watch-list” or “non-performing” positions, take into account the loanrecovery prospects, usually basing themselves on the value of the guarantees acquired to cover said transactions.With regard to the valuation of “non-performing” loans, the proposal to update the assessment obviously comes fromMPSGCB who manages the position.

176


QUANTITATIVE INFORMATION

A. CREDIT QUALITY

A.1 Impaired and performing positions: amounts, value adjustments, changes and economic and geographic dis-tribution

A.1.1. Distribution of financial assets by portfolio category and credit quality (carrying amount)

Portfolios /Quality Non Watch Restructured Past Country Other Totalperforming list due risk assets

1. Financial assets held for trading 3,088 17,290,281 17,293,369

2. Financial assets availablefor sale 315,254 315,254

3. Financial assets heldto maturity

4. Due from banks 3,863,973 3,863,9735. Loans to customers 860,813 439,661 28,822 130,915 11,711,775 13,171,9866. Financial assets

at fair value7. Financial assets pending

disposal8. Hedging derivatives

Total 31 Dec. 2008 863,901 439,661 28,822 130,915 33,181,283 34,644,582Total 31 Dec. 2007 645,105 349,793 25,321 171,324 33,349,000 34,540,543

Note:financial assets held for trading classified in the "non-performing" category are represented by exposures to the Lehman Group.

177

A.1.2 Distribution of financial assets by portfolio category and credit quality (gross and net amounts)

Impaired assets Other assetsPortfolios /Quality Gross Specific Portfolio Net Gross Portfolio Net Total

exposure adjust- adjust- exposure exposure adjust- exposure (netments ments ments exposure)

1. Financial assets held for trading 12,670 (9,582) 3,088 17,332,791 (42,510) 17,290,281 17,293,3692. Financial assets available for sale 321,705 (6,451) 315,254 315,2543. Financial assets held to maturity4. Due from banks 3,863,973 3,863,973 3,863,9735. Loans to customers 2,013,788 (523,177) (30,400) 1,460,211 11,774,449 (62,674) 11,711,775 13,171,9866. Financial assets at fair value7. Financial assets held for sale8. Hedging derivatives

Total 31 Dec. 2008 2,026,458 (532,759) (30,400) 1,463,299 33,292,918 (111,635) 33,181,283 34,644,582Total 31 Dec. 2007 1,627,557 (408,844) (27,170) 1,191,543 33,404,466 (55,466) 33,349,000 34,540,543

A.1.3 Cash and off-balance sheet exposures to banks: gross and net amounts

Type of exposure / Balances Gross Specific Portfolio Netexposure value value exposure

adjustments adjustmentsA. Cash exposuresa) Non-performingb) Watch-listc) Restructuredd) Past duee) Country riskf) Other assets 7,563,467 306 7,563,773Total A 7,563,467 306 7,563,773B. Off-balance sheet exposuresa) Impairedb) Assets 3,297,386 3,297,386Total B 3,297,386 3,297,386


178

A.1.4 Cash exposures to banks: changes in gross impaired positions and positions subject to “country risk” No cash transactions vis-à-vis banks have been classified under impaired exposures.

A.1.5 Cash exposures to banks: changes in overall value adjustments The table concerns the value adjustments on impaired positions; no cash transactions vis-à-vis banks have beenclassified in impaired loan categories.

A.1.6 Cash and off-balance sheet exposures to customers: gross and net values

Type of exposure / Balances Gross Specific Portfolio Netexposure value value exposure

adjustments adjustmentsA. Cash exposuresa) Non-performing 1,375,234 (511,333) 863,901b) Watch-list 482,257 (20,296) (22,300) 439,661c) Restructured 30,008 (186) (1,000) 28,822d) Past due 138,959 (944) (7,100) 130,915e) Country riskf) Other assets 17,087,084 (111,941) 16,975,143Total A 19,113,542 (532,759) (142,341) 18,438,442B. Off-balance sheet exposuresa) Impairedb) Other 7,973,096 (2,000) 7,971,096Total B 7,973,096 (2,000) 7,971,096


179

A.1.7 Cash exposures to customers: changes in gross impaired exposures and exposures subject to country risk

Changes /Categories Non Watch Restructured Past Countryperforming list due risk

A. Gross opening balance 1,031,095 388,587 26,192 181,683- of which: transferred and not derecognised

B. Increases 465,739 309,356 25,088 133,824B.1 transfers from performing loans 145,851 193,026 20,513 128,005B.2 transfers from other categories of

impaired exposures 206,490 88,301 3,040 106B.3 Other increases 113,398 28,029 1,535 5,713C. Decreases 121,600 215,686 21,272 176,548C.1 transfers to performing loans 29 10,553 4,900 26,983C.2 cancellations 29,363 4,521 24C.3 collections 92,208 38,218 368 30,001C.4 disposalsC.5 transfers to other categories

of impaired exposures 162,394 16,004 119,540C.6 Other decreasesD. Gross closing balance 1,375,234 482,257 30,008 138,959

- of which: transferred and not derecognised

A.1.8 Cash exposures to customers: changes in overall value adjustments

Changes /Categories Non Watch Restructured Past Countryperforming list due risk

A. Opening balance of value adjustments 385,990 38,794 871 10,359- of which: transferred and not derecognised

B. Increases 188,565 14,730 321 880B.1 value adjustments 183,356 14,217 307 871B.2 transfers from other categories of

impaired exposures 5,209 513 14 9B.3 Other increasesC. Decreases 63,222 10,928 6 3,195C.1 write-backs from valuation 26,943 497 1 2,145C.2 write-backs from collection 6,916 988 4 204C.3 cancellations 29,363 4,521 24C.4 transfers to other categories

of impaired exposures 4,922 1 822C.5 Other decreasesD. Closing balance of overall

value adjustments 511,333 42,596 1,186 8,044- of which: transferred and not derecognised


180

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 classes

External rating classesExposures AAA/AA- A+/A- BBB+/BBB- BB+/BB- B+/B- Lower than B- Without rating Total

A. Cash exposures 3,546,445 2,822,143 115,703 29,106 3,033 2,889 19,482,896 26,002,215B. Derivatives 1,825,394 2,909,072 984,396 122,894 39,674 32,372 669,084 6,582,886

1. Financial derivatives 656,240 1,317,728 535 55 1 1,974,5592. Credit derivatives 1,169,154 1,591,344 983,861 122,839 39,674 32,371 669,084 4,608,327

C. Guarantees given 682,133 682,133D. Commitments to

disburse funds 1,963,534 616,208 984 996 2 1,421,739 4,003,463Total 7,335,373 6,347,423 1,101,083 152,996 42,707 35,263 22,255,852 37,270,697

A.2.2 Distribution of cash and off-balance sheet exposures by internal rating classes

Internal rating classesExposures High Good Sufficient Mediocre Weak Without Default Total

quality quality quality quality quality ratingA. Cash exposures 538,098 1,739,777 5,689,982 2,277,258 343,839 13,810,620 1,602,641 26,002,215B. Derivatives 49,950 104,977 31,396 5,799 557 6,390,207 0 6,582,886

1. Financial derivatives 13,203 17,530 31,396 5,799 557 1,906,074 1,974,5592. Credit derivatives 36,747 87,447 4,484,133 4,608,327

C. Guarantees given 25,870 60,248 170,074 63,993 361,948 682,133D. Commitments to disburse funds 109,842 283,068 1,246,908 354,292 9,040 2,000,313 4,003,463

Total 723,760 2,188,070 7,138,360 2,701,342 353,436 22,563,088 1,602,641 37,270,697


181

A.3 Distribution of guaranteed exposures by type of guarantee

A.3.1 Guaranteed cash exposures to banks and customers

Guaranteed exposures Guaranteed exposuresto banks to customers

Fully Partially Fully Partiallyguaranteed guaranteed guaranteed guaranteed

Exposure value 9,541,273 977,453Secured guarantees 0 0 9,203,125 269,890

- properties 8,982,926 134,251- securities 206,131 103,744- other assets 14,068 31,895

Unsecured guarantees- Credit derivatives- Governments- Other public entities- Banks- other operators

- Endorsement credits 337,756 277,881- Governments 1,166 987- Other public entities 33,818 1,807- Banks 12,930 4,897- other operators 289,842 270,190

Total guarantees 9,540,881 547,771


182

A.3.2 Guaranteed off-balance sheet exposures to banks and customers

Guaranteed exposures Guaranteed exposuresto banks to customers

Fully Partially Fully Partiallyguaranteed guaranteed guaranteed guaranteed

Exposure amount 9,935 875,260 955,646 3,578,772Secured guarantees 9,935 258,853 821,275 51,046

- properties 788,714 9,628- securities 29,755 3,938- other assets 9,935 258,853 2,810 37,480

Unsecured guarantees- Credit derivatives

- Governments- Other public entities- Banks- other operators

- Endorsement credits 134,366 29,711- Governments- Other public entities 396- Banks 300 1- other operators 134,066 29,314

Total guarantees 9,935 258,853 955,641 80,757


183

A.3.3 Guaranteed impaired cash exposures to banks and customers

Guaranteed exposures to banks Guaranteed exposures to customersover between 100% between 50% under over between 100% between 50% under

150% and 150% and 100% i50% 150% and 150% and 100% 50%Exposure value 1,172,253 165,389 72,954 22,473Guaranteed amount 1,172,253 165,389 69,578 14,043Guarantees (fair value)Secured guarantees 1,166,881 155,829 46,549 14,502

- properties 1,163,112 155,527 45,222 13,694- securities 2,339 81 1,327 808- other assets 1,430 221

Unsecured guarantees- Credit derivatives

- Governments and central banks- Other public entities- Banks- finance companies- insurance companies- non-financial companies- other operators

- Endorsement credits 5,372 9,560 26,247 2,224- Governments and central banks 269 759 176- Other public entities 221 492- Banks 398 329 1,353 318- finance companies 827 5,045 2,456 1,906- insurance companies 745 109 210- non-financial companies 532 928 7,180- other operators 2,380 2,390 14,380

Total guarantees 1,172,253 165,389 72,796 16,726Fair value excess on guarantees 3,338,909 166,418 47,093 3,378

A.3.4 Impaired off-balance sheet guaranteed exposures to banks and customersNo off-balance sheet exposure is classified as impaired.


184

B. CREDIT DISTRIBUTION AND CONCENTRATION

B.1a Segment distribution of cash exposures to customers

Counterparties / Exposures Non Watch Restructured Past Other Total 31 Total 31performing list due Dec. 08 Dec. 07

Governments and central banks- Gross exposures 1,383,940 1,383,940 1,322,943- Specific value adjustments- Portfolio value adjustments 5,001 5,001 (5)- Net exposure 1,388,941 1,388,941 1,322,938Other public entities- Gross exposures 8,825 33,628 42,453 32,823- Specific value adjustments (4,423) (4,423) (3,971)- Portfolio value adjustments (53) (53) (228)- Net exposure 4,402 33,575 37,977 28,624Finance companies- Gross exposures 12,670 11 4,213,197 4,225,878 4,182,737- Specific value adjustments (9,582) (2) (9,584) (14,152)- Portfolio value adjustments (35,236) (35,236) (10,523)- Net exposure 3,088 9 4,177,961 4,181,058 4,158,062Insurance companies- Gross exposures 66,024 66,024 1,180- Specific value adjustments- Portfolio value adjustments (945) (945) (3)- Net exposure 65,079 65,079 1,177Non-financial companies- Gross exposures 1,313,160 470,842 29,979 134,114 11,160,635 13,108,730 12,055,801- Specific value adjustments (480,981) (19,556) (185) (891) (501,613) (375,938)- Portfolio value adjustments (21,785) (1,000) (6,853) (79,472) (109,110) (73,713)- Net exposure 832,179 429,501 28,794 126,370 11,081,163 12,498,007 11,606,150Other operators- Gross exposures 40,579 11,404 29 4,845 229,660 286,517 782,982- Specific value adjustments (16,347) (738) (1) (53) (17,139) (15,358)- Portfolio value adjustments (515) (247) (1,236) (1,998) (2,071)- Net exposure 24,232 10,151 28 4,545 228,424 267,380 765,553


185

B.1b Segment distribution of off-balance sheet exposures to customers

Counterparties / Exposures Non Watch Restructured Past Other Total 31 Total 31performing list due Dec. 08 Dec. 07

Governments and central banks- Gross exposures 1,677,357 1,677,357 1,619,897- Specific value adjustments- Portfolio value adjustments- Net exposure 1,677,357 1,677,357 1,619,897Other public entities- Gross exposures 249,540 249,540 15,000- Specific value adjustments- Portfolio value adjustments- Net exposure 249,540 249,540 15,000Finance companies- Gross exposures 501,823 501,823 855,656- Specific value adjustments- Portfolio value adjustments (109) (109)- Net exposure 501,714 501,714 855,656Insurance companies- Gross exposures 227,616 227,616 86,630- Specific value adjustments- Portfolio value adjustments- Net exposure 227,616 227,616 86,630Non-financial companies- Gross exposures 5,292,273 5,292,273 3,653,235- Specific value adjustments- Portfolio value adjustments (1,797) (1,797) (960)- Net exposure 5,290,476 5,290,476 3,652,275Other operators- Gross exposures 24,487 24,487 355,696- Specific value adjustments (94) (94)- Portfolio value adjustments- Net exposure 24,393 24,393 355,696


186

B.3a Geographic distribution of cash exposures to customers

Geographic area / Exposures Non Watch Restructured Past Other Total 31 Total 31performing list due Dec. 08 Dec. 07

Italy- Gross exposure 1,353,871 476,072 30,008 137,975 16,348,857 18,346,783 17,329,065- Net exposure 859,543 437,733 28,822 129,944 16,277,743 17,733,785 16,845,314Other European countries- Gross exposure 20,869 984 521,153 543,006 876,196- Net exposure 4,243 971 501,939 507,153 867,946America- Gross exposure 494 6,185 187,091 193,770 136,874- Net exposure 115 1,928 173,889 175,932 132,913Asia- Gross exposure 25,928 25,928 28,615- Net exposure 14,677 14,677 28,615Rest of world- Gross exposure 4,055 4,055 7,716- Net exposure 6,895 6,895 7,716

B.3b Geographic distribution of off-balance sheet exposures to customers


Italy- Gross exposure 4,311,539 4,311,539 4,276,533- Net exposure 4,309,626 4,309,626 4,275,593Other European countries- Gross exposure 3,139,278 3,139,278 1,880,183- Net exposure 3,139,191 3,139,191 1,880,183America- Gross exposure 496,358 496,358 429,331- Net exposure 496,358 496,358 429,331Asia- Gross exposure- Net exposureRest of world- Gross exposure 25,921 25,921 47- Net exposure 25,921 25,921 47


187

B.4a Geographic distribution of cash exposures to banks


Italy- Gross exposure 3,574,079 3,574,079 4,558,862- Net exposure 3,582,681 3,582,681 4,558,862Other European countries- Gross exposure 3,805,800 3,805,800 7,090,347- Net exposure 3,802,009 3,802,009 7,090,347America- Gross exposure 135,005 135,005 73,034- Net exposure 131,226 131,226 73,034Asia- Gross exposure 1,709 1,709- Net exposure 983 983Rest of world- Gross exposure 46,874 46,874 77,417- Net exposure 46,874 46,874 77,417

B.4b Geographic distribution of off-balance sheet exposures to banks


Italy- Gross exposure 786,743 786,743 535,855- Net exposure 786,743 786,743 535,855Other European countries- Gross exposure 2,258,548 2,258,548 829,730- Net exposure 2,258,548 2,258,548 829,730America- Gross exposure 233,946 233,946 161,321- Net exposure 233,946 233,946 161,321Asia- Gross exposure 3,942 3,942 1,904- Net exposure 3,942 3,942 1,904Rest of world- Gross exposure 14,207 14,207 164- Net exposure 14,207 14,207 164

B.5 Significant risks

31 Dec. 2008 31 Dec. 2007a) amount 583,847 -b) number 4 -


188

C. SECURITISATION TRANSACTIONS AND TRANSFER OF ASSETS

C.1 SECURITISATION TRANSACTIONS


The Bank acts as investor as well as market maker for issues where the Parent Company is the originator.

The internal organizational structure which oversees these operations is the Credit Trading Desk. Its main objectiveinvolves providing liquidity for the transactions carried out by the MPS Group with a view to also providing supportin terms of pricing to customers who have acquired the securitisations of the Group. For such purposes, ongoing andstructured analysis is used on the underlying flows of these transactions principally attributable to residential mort-gage loans and consumer credit disbursement activities of the Parent Company.

With regard to the role of investor, in relation to deals originated outside the MPS Group, activities are oriented atseizing the various opportunities which the market offers, so as to maximize the portfolio’s returns in terms of profit.

Activities for controlling and mitigating risks are mainly carried out via the study and daily analysis of the underlyingflows. The protection instruments (CDS and synthetic indexes) besides being extremely illiquid, are difficult to referto the same seniority class of the securitised instrument present in the portfolio; this is why is considered more effectiveand prudent to hedge the underlying element using credit indexes and CDS. In this way, it is possible to anticipateany cash drops in these flows which could have an impact on the performance of said issues.

During 2008, operations on securities relating to securitisation were carried out via purchases and sales on the sec-ondary market. These financial instruments are classified for a total of €184.9 million in the trading portfolio (assetitem 20 "Financial assets held for trading”) and for an overall equivalent value of €49.7 million in the banking book(asset item 40 “Financial assets available for sale). The Bank only holds cash exposures (guarantees or credit facili-ties).

The Bank also acted as arranger for any securitisation transactions on behalf of the Parent Company.

The Bank has no equity investments in special purpose vehicles and does not perform servicer activities in transac-tions of this type.


189

C.1.1 Exposures deriving from securitisations broken down by quality of underlying assets

Cash exposuresQuality of underlying assets / Senior Mezzanine Junior

exposures Gross Net Gross Net Gross Netexposure exposure exposure exposure exposure exposure

A. Bank’s underlying assetsa) Impairedb) Other

B. Third party underlying assets 220,263 205,676 33,982 27,183 2,036 1,685a) Impaired 15,776 14,408 2,568 803b) Other 204,487 191,268 31,414 26,380 2,036 1,685Total 220,263 205,676 33,982 27,183 2,036 1,685

C.1.2 Exposures deriving from the Bank’s main securitisations broken down by type of asset securitised and type of exposure

The Bank has not carried out any securitisation transaction on its own assets.

C.1.3 Exposures deriving from main “third party” securitisations broken down by type of asset securitised and type of exposure

Cash exposuresQuality of underlying assets / Senior Mezzanine Junior

exposures Gross Net Gross Net Gross Netexposure exposure exposure exposure exposure exposure

- residential mortgage loans 53,526 (5,681) 10,575 (3,526) 1,685 (351)- non-residential mortgage loans 17,478 (2,979) 2,868 (484)- other assets 134,672 (5,927) 13,740 (2,789)

Total 205,676 (14,587) 27,183 (6,799) 1,685 (351)


190

C.1.3a Type of securitisation assets: analysis of residential mortgage loans

Cash exposuresExposures Senior Mezzanine Junior

Carrying Value Carrying Value Carrying Valueamount adjustments amount adjustments amount adjustments

write-backs write-backs write-backsBBVAR 2007-1 A2 50TV 5,410 (769)HMSF X A 02-34 TV 338 (34)BANCAJA TV 2043 3,528 (342)HIPO HIPO 4B TV 33 436 (99)ARMS G3 A1B TV 04/35 1,167 (50)ARENA 04-I B MTGE 823 (125)GRAN 2004-2 2B TV 44 198 (552)AIREM2004-1X3BE66TV 652 (173)PROVI A04-1 A 45 TV 1,127 (20)PROVI A04-1 B 45 TV 1,403 (30)GIOTT 1B TV 02/09 2,488 49SIENA MORT CLA2 37 C 3,534 (107)SIENA 2003-4 A2 387 (10)SIENA MORTG CL.C 1,685 (351)SPOLETO SUB A2 35 TV 1,294 (126)MEDIA 1 A 2,271 (22)ASTI FIN 1A 05-41 TV 1,119 (81)MARCH MUT2 06-38CLA2 3,788 (574)CORDUSIO A2 42 TV 11,018 (1,498)CAPIM A1 TV 47 7,829 (898)BPMO 07 A2 TV 4,234 (674)ATLAM 1 A 03-36 TV 2,049 (114)PERMA 3 4B 42 MTG 2,884 7GRAN 2044 TV 1,691 (2,603)STORM TV 2048 4,433 (362)

53,526 (5,681) 10,575 (3,526) 1,685 (351)


191

C.1.3b Type of securitisation assets: analysis of non-residential mortgage loans



write-backs write-backs write-backsEPC 1 A TV 04/13 1,013 (264)FIP FUNDING 023 TV 5,898 (1,248)TAURUS CMBS2 C 15TV 1,030 (446)ATLAF 1 A 3,073 (307)PTRMO TV 2021 B 1,818 (258)IMSER 2 A1A 995 (45)DECO 2005-E1X B TV14 1,301 (315)WINDM X-X A TV 19 2,194 (331)TITN 2007-2X B 1,567 (169)PTRMO TV 2021 A 1,457 (80)GIOTT 1B TV 02/09 2,488 49

17,478 (2,979) 5,356 (435)


192

C.1.3c Type of securitisation assets: analysis of other assets



write-backs write-backs write-backsPREPS TV 2014 4,681 (1,093)METRX 1X B2 05-19 TV 1,607 (176)PREPS-2 TV 06-14 3,332 (2,656)PREPS2007-1 A1 TV 16 1,717 (1,267)SMILE 01-27 C1 TV 109 4TREVI 3 A TV 01 11 158 3SAN GIORGIO 09 TV 350 4AGRI2002-1A TV02/15 776 (22)DOLOMITI FI 17 CLA2 4,779 (87)VELA LEASE CLA2 2015 383 13INTESA LEASE 15A3 TV 242 3MPSASSETSEC33 DSUBTV 3,192 (134)AQUA 2 B 12 TV 3,001 40ARCOBALENO 30 B TV 1,359 (236)CARDS 2002-A B 11TV 480 (1)CREDICO F3 A1 15 TV 281 3VINTAGE B-TV 00/10 1,993 8PATAGONIA-ZC 01/16 100,100 493MPSF FIRST 09 TV 1,196 (529)EMPYR 1 A1E7 TV13 3,622 50RUTLN DRYD-2X A4TV13 2,439 60KENMO 2X 7EB1 TV 14 803 (1,765)GREYL A1EL14TV 8,504 150CLOVERIE 2007-2 14TV 691 (1,269)SHAMR B1 07/12 TV 2,617 (312)

134,672 (5,927) 13,740 (2,789)


193


C.1.4 Exposures deriving from securitisations broken down by financial asset portfolio and type

Financial Financial Financial Financial Receivables Total TotalExposures assets assets assets assets 31 Dec. 31 Dec.portfolio held for fair value available held to 2008 2007

trading option for sale maturity1. Cash exposures 184,852 49,692 234,544

- Senior 163,927 41,749 205,676- Mezzanine 19,240 7,943 27,183- Junior 1,685 1,685

2. Off-balancesheet exposures- Senior- Mezzanine- Junior

C.1.5 Total amounts of securitised assets underlying junior securities or other forms of credit support

Assets / Balances Traditional Syntheticsecuritisations securitisations

A. Own underlying assets:A.1 Entirely derecognisedA.2 Partly derecognisedA.3 Not derecognised

B. Third party underlying assets 52,067B.1 Non-performing 702B.2 Watch-list 452B.3 RestructuredB.4 Past due 139B.5 Other assets 50,774

194


D. CREDIT RISK GAUGING MODELS

Analysis of the credit risk is carried out by means of the use of the Loan Portfolio Model developed internally withinthe Parent Company; as analytical output it produces the classic risk measurements of the Estimated Loss, UnestimatedLoss and Economic Capital diversified inter-risk, with a timeframe of one year and a confidence interval gauged tothe official rating assigned to said Group. The inputs are numerous: probability of default, LGD rates, number of typesof guarantees which assist the loan transaction, internal operating EAD ratios, correlation models. The latter compo-nent, based on internal estimates (on which periodic improvements are made so as to introduce more advancedgauging methods), makes it possible to quantify - per individual position - the diversification / concentration com-ponent between the various positions contained in the portfolio. The calculation logic for the economic capital is based on Credit-VaR metrics, in accordance with that also widelyachieved by other banking groups; the output of the portfolio model provides analytical measurements per single po-sition (it makes it possible to highlight the timing dynamic of the lending risk according to the various possibilities ofaggregation of the variables subject to analysis, by legal entity, customer type, geographic area, business sector, rat-ing class, continent) as well as the operating capital component absorbed with indication of the impact of the diver-sification with respect to a building-block logic. Further indications deriving from the Loan Portfolio Model refer to the “what-if” analysis produced on certain dis-criminating variables such as the probabilities of default, the LGD rates, the performance of the value of the guaran-tees and the available margins on credit facilities, so as to quantify levels of Estimated Loss and Economic Capitalshould the underlying hypothesis (both hypothetical and historic) occur.

The chart below indicates the distribution of the loan quality of MPS Capital Services’s loan portfolio (excluding po-sitions in financial assets). The representation analysis shows that around 39% of the exposures at risk are granted tohigh and goods quality customers. The grading indicated below also includes the exposures to unsupervised banks,government bodies and financial and banking institutions, counterparties which, within the sphere of the portfoliomodel, are in any event assigned - even if a specific plan for implementation of the internal ratings for validation pur-poses with the Supervisory Authority is not envisaged over the short-term - a credit standing valuation, using the of-ficial ratings, whether present, or appropriate values established internally.The following chart, by contrast, shows the distribution of the loan quality only in relation to the Corporate and Re-tail portfolios validated by the Supervisory Authority for Basel 2 purposes (internal rating models). Note how the in-cidence of the exposures with a high, good and sufficient quality as of 31 December 2008 comes to approximately77% of total exposures.

195

60%

50%

40%

30%

20%

10%

0%

Highquality

Goodquality

Sufficientquality

Mediocrequality

Weakquality

QUALITY DISTRIBUTION OF PERFORMING LOAN PORTFOLIOCORPORATE AND RETAIL SEGMENTS

Surveys carried out at the end of December 2008 show howthe exposures to risk pertaining to MPS Capital Servicesmainly concern “Industry” customers (76.9% of total dis-bursements) and “Banks and Finance companies” (20.8%);also note that total exposures to “Households” equate to1.4%, while the portion pertaining to “Government and pub-lic authorities” comes to around 1%.

The risk measurements show how well over 96% of the Esti-mated Loss and the Economic Capital is attributable to the“Industry” customer segment.


196196

RISK EXPOSURE (excluding intragroup operations)

31 December 2008

Governmentand publicauthorities

0.9%

Industry76.9%

Households1.4%

Banksand financecompanies

20.8%

ESTIMATED LOSS(excluding intragroup operations)

31 December 2008

Industry98.0%


0.1%

Households1.0%


0.9%

ECONOMIC CAPITAL(excluding intragroup operations)

31 December 2008

Industry96.0%


0.4%

Households0.6%


3.0%

An analysis of the geographic distribution of MPS CapitalServices’s operations, relating to the Italian market, revealsthat activities are mainly concentrated in the regions ofNorth Italy (26.4%), Tuscany and Umbria (20.3%); theSouth and Sicily follow (19.2%) and Central Italy and Sar-dinia (12.9%). 21.2% of risk exposure is in conclusiongranted to customers abroad.0

197


197

EXPOSURE TO RISK(excluding intragroup operations)

31 December 2008

Centre andSardinia12.9%

Abroad21.2%

Nord26.4%

Tuscany and Umbria20.3%

South andSicily

19.2%


The overall risk measurements (Estimated Loss + Economiccapital) are also more fully explained in the concentrationof the loans in North Italy (34.9%), in Tuscany and Umbria(23.6%), and the South and Sicily (23.6%). They are fol-lowed by the other regions of Central Italy and Sardinia(14.9%) while the remaining balance is the contribution tothe risk measurements relating to customers abroad (2.9%).In conclusion, the analysis of the exposures of the leading10 sectors by economic activities in accordance with theBank of Italy classification - which represent around 86%of total loans - discloses that the greatest absorptions of therisk measurements are essentially attributable to the fol-lowing sectors: “Other services for sale” (28.55%), “Agri-cultural, forestry and fishing products” (14.92%) and“Retail and Wholesale services” (9.13%), which togetherrepresent around 52.6% of total risk measurements. Thesesectors are followed by “Construction and Public Works”,“Hotel and Public concern services” and “Food productsand Beverages” which together represent 22.6% of thetotal Estimated Loss and the Economic Capital.

198

RISK MEASUREMENTS % (Estimated Loss + Economic Capital) - situation as of 31 December 2008

Centre andSardinia14.9%

Abroad2.9%Nord

34.9%

Tuscany and Umbria23.6%

South andSicily

23.6%

Other services for sale

Agricultural, forestry andfish products

Retail and Wholesaleservices

Construction and publicworks

Hotel and publicconcern services

Food products andbeverages

Energy products

Transport services

Materials and Supplies

Air and maritimetransport services

1.89%

1.89%

2.48%

4.23%

4.97%

8.59%

9.05%

9.13%

14.92%

28.55%

RISK MEASUREMENTS % (Estimated Loss + Economic Capital) as of 31 December 2008

SECTION 2 - MARKET RISK

MARKET RISKS RELATING TO THE SUPERVISORY TRADING PORTFOLIO

The presence of market risks is particularly significant in the integrated management of the risks and capital of theMPS Group; both those associated with the Trading Portfolio and those pertaining to the Banking Book, inclusive ofMPS Capital Services’ outstanding positions.The market risks of the Trading Portfolio are monitored for operating purposes in terms of Value-at-Risk (VaR). Eachof MPS Capital Services’ Global Market Division desks operates individually on its portfolio within the operating au-thority established by the Board of Directors, while at global level monitoring is carried out in an integrated mannerconsidering all the positions on interest rates, shares, exchange rates and credit. Note that the aggregate monitoredusing integrated VaR methods is the widest of those relevant for supervisory purposes, since it also includes a num-ber of positions which for reporting purposes flow into the Banking Book, but which from a management point of vieware under the operating responsibility of the Business Units which carry out trading activities in a strict sense. Theseare essentially positions which with regard to management are attributable to the Global Markets Division, but do nothave the requisites for being able to be considered in the Supervisory Trading Portfolio (e.g. AFS securities subject tohedge accounting). For the purposes of this section, with reference to just the VaR metrics, these positions are mon-itored using the methods of the Trading Portfolio’s risks.The portfolio is subject to daily monitoring and reporting by the Parent Company’s Risk Management Department, onthe basis of its own systems. The operational VaR is calculated independently with respect to the operating depart-ments, using the internal risk measurement model implemented by the Risk Management Department itself, in linewith the leading international best practices. The operating limits on trading activities, resolved by the Board of Directors, are expressed for each level of author-ity in terms of VaR diversified between risk factors and portfolios and monthly and annual Stop Loss. In particular, forthe trading book’s credit risk, besides being included in the VaR calculations and in the respective limits for the creditspread risk part, it is also subject to specific operating limits with regard to bond issuer and concentration risk, whichenvisage notional ceilings by type of guarantor and rating classes.The VaR is calculated with a confidence internal of 99% and a holding period of the positions of one business day.The method used is that of historic simulation with daily full revaluation of all the elementary positions, on a win-dow of 500 historic readings of the risk factors (lookback period) with daily flow. The VaR calculated in this mannermakes it possible to take into account all the effects of diversification between risk factors, portfolios and type of in-struments traded. It is not necessary to hypothesise up front any functional form in the distributions of the returns ofthe activities and also the correlations between different financial instruments are implicitly captured in the VaR onthe basis of the historic joint performance of the risk factors. The macro-types of risk factors considered within the Internal Markets Risks Model are IR, EQ, FX, CS, as illustratedbelow:• IR: interest rates on all the relevant curves and related volatility• EQ: equity prices, indexes and baskets and related volatility• FX: exchange rates and related volatility • CS: credit spread levelsThe VaR, (or diversified VaR, or Net VaR, in other words net of all the diversification effects) which is in any event cal-culated as the sole and integrated measurement, is however calculated and separated daily at least in line with threemain analysis dimensions: • organization/operations of the Portfolios• by Financial Instruments• by Risk Family


199

It is then possible to assess the VaR in relation to each combination of these dimensions so as to be able to facilitatevery detailed analysis of the phenomena which affect the portfolios.With reference in particular to the risk factors, the following are identified: the Interest Rate VaR (IR VaR), the EquityVaR (EQ VaR), the Forex VaR (FX VaR) and the Credit Spread VaR (CS VaR). The algebraic sum of these componentsproduces the “Gross VaR” (or non-diversified VaR) which compared with the diversified VaR makes it possible toquantify the benefit of diversification between risk factors deriving from holding portfolios allocated on asset classesand risk factors not perfectly correlated. This information can also be analyzed in relation to all the dimensions indi-cated above. In conclusion, scenario analysis is carried out regularly on the various risk factors with differentiated levels of gran-ulation.

***

The trend in MPSCS’s risks during 2008 was essentially affected by two macro-phenomena: the change in the internal model, following the introduction of the new Market Risk Management system, which hasmade it possible to model a certain number of risk factors more precisely;the deterioration of the international crisis, which in particular as from the default of Lehman Brothers onwards, ledto a generalized increase in the volatility of all the risk factors, with a persistent effect also in the following months.

The trend in the daily VaR during 2008 is shown below.


200

MPS CAPITAL SERVICES: VALUE-AT-RISK (VAR)- VaR 99% 1 day in €/mln -

0.0

5.0

10.0

15.0

20.0

25.0

31-Dec

-07

31-Ja

n-08

29-Fe

b-08

31-M

ar-08

30-Apr-0

8

31-M

ay-0

8

30-Ju

n-08

31-Jul-08

31-Aug

-08

30-Sep

-08

31-Oct-0

8

30-Nov-

08

31-Dec-

08

In terms of break down of the VaR by risk factors, as of31 December 2008 the MPS Capital Services portfoliowas around 41% allocated on share-type risk factors(EQ VaR), 26% was absorbed by Credit Spread-typerisk factors (CS VaR), 26% was absorbed by interestrate-type risk factors (IR VaR) while the remaining 7%was absorbed by foreign exchange-type risk factors (FXVaR).

During the year, the VaR fluctuated within a rangewhich went from a minimum of €5.36 millionrecorded on 8 September, to a maximum of €21.02million on 20 November. On average, the VaR duringthe year stood at €10.85 million. The absolute figurefor the end of 2008 came to €14.68 million.

VAR MPS CAPITAL SERVICESVaR Breakdown per Risk factor: 31.12.2008

EQ VaR41%

IR VaR26%

FX VaR7%

CS VaR26%

MPS CAPITAL SERVICESVaR 99% 1 day in €/mln

VaR Date

Period end 14.68 31/12/2008Minimum 5.36 08/09/2008Maximum 21.02 20/11/2008Average 10.85


201

2.1 INTEREST RATE RISK - SUPERVISORY TRADING PORTFOLIO


A. GENERAL ASPECTS

The risk exposure in the Interest Rate segment mainly derives from the activities and from the role performed by theBank in structuring activities, hedging of the issuers and trading of structured products, both as market maker of thestructured securities issued (including covered warrants) and other bond-related securities, listed on different organ-ized markets or trading systems like Deal Done Trading. Furthermore, the Bank operates via the Government BondDesk, in the primary Government securities market, as Specialist, as well as on the secondary Government securitiesmarkets as Superprimary. In detail, activities on the rates include the management of the medium/long-term structural positions on linear in-struments such as interest rate swaps, basis swaps, futures and the management of volatility products (plain and ex-otic), such as caps & floors, swaptions, options on futures on interest rates.The management of the rate risk follows a logic of minimising the risk that the portfolio is exposed to overall: in thissense, the hedging of the risks deriving from the afore-mentioned activities takes place by means of operational macro-hedge, or using instruments highly correlated with the specific underlying elements. These hedging instruments canbe traded on organized markets or on the OTC market and are chosen on the basis of the opportunities offered bythe market.

B. INTEREST RATE RISK MANAGEMENT PROCESSES AND GAUGING METHODS

With regard to the market risk management process pertaining to management and the methods for gauging the in-terest rate risk, and the assumptions underlying the correlations between risk factors, reference should be made to thematters already described in the general section relating to “Market Risks Pertaining to the Trading Portfolio”.


202

QUANTITATIVE INFORMATIION

1. Supervisory trading portfolio: distribution by residual duration (re-pricing date) of cash financial assets and lia-bilities and financial derivatives

Currency: Euro

Type / Residual duration On demand Up to Between Between Between Between Beyond Unspe-3 months 3 months 6 months 1 year 1 years 1 years cified

and and and and duration6 months 1 year 5 years 10 years

1. Cash assets1.1 Debt securities

- with early repayment option 41,226 17,296 16,148 75,463 13,831 2,762- other 1,092,899 1,012,071 896,833 1,283,622 184,762 358,175

1.2 Other assets 2,323,726 153,8582. Cash liabilities2.1 Borrowing repurchase agreements 5,507,473 31,7172.2 Other liabilities 375,095 404,230 174,984 831,930 140,959 255,9563. Financial derivatives3.1 with underlying security

- options- long positions 19,477 70,136 92,170- short positions 181,784- Other derivatives- long positions 1,230,208 934,753 10,393 373,539 51,536 147,834- short positions 1,691,228 689,233 31,241 214,349 36,481 85,731

3.2 Without underlying security- options- long positions 11,070,310 3,344,738 4,225,118 11,912,498 2,325,660 880,998- short positions 10,811,727 3,518,198 3,753,269 11,916,297 2,340,546 1,069,641- Other derivatives- long positions 125,831,567 7,339,807 10,747,659 60,257,884 23,804,890 9,438,687- short positions 125,926,072 4,756,016 11,519,066 62,383,584 23,502,222 9,377,026


203

Currency: US Dollar




- with early repayment option 3 615- other 7,440 1,753 2,181 8,920 1,594 159

1.2 Other assets 24,2662. Cash liabilities2.1 Borrowing repurchase agreements2.2 Other liabilities 78 113. Financial derivatives3.1 with underlying security

- options- long positions 1,540 906- short positions 906 1,540- Other derivatives- long positions 779 613 26 11,788 4,572- short positions 17,002 13 613 6 134 10

3.2 Without underlying security- options- long positions 1,869,633 2,057,735 1,002,320 2,277,735 142,530 21,386- short positions 2,658,147 1,849,719 782,508 1,932,844 191,264 70,746- Other derivatives- long positions 5,900,535 1,148,743 1,143,914 3,213,307 732,259 198,742- short positions 4,849,554 1,185,929 1,414,098 3,994,280 651,110 196,522


204

Currency: Other Currencies




- with early repayment option- other 323 1,114 444 437 4,913 762

1.2 Other assets2. Cash liabilities2.1 Borrowing repurchase agreements2.2 Other liabilities 683. Financial derivatives3.1 with underlying security

- options- long positions- short positions- Other derivatives- long positions 759 214 23 504 4- short positions 749 214 48 493

3.2 Without underlying security- options- long positions 3,597 14,797 23,347 61,116- short positions 11,132 5,100 73,600 165,733- Other derivatives- long positions 3,491,833 1,200,727 96,204 1,864,169 158,065 33,670- short positions 4,027,832 706,132 138,194 1,787,449 153,890 33,670

The above tables have been compiled on the basis of the data present for basic Y supervisory reporting (capital re-quirements).


205

MPS CAPITAL SERVICES Trading PortfolioIn thousands of euros

Risk family Scenario Total effectInterest Rate + 100bp on all curves 3.27Interest Rate - 100bp on all curves 88.75Interest Rate + 1% Interest Rate Volatility 2.31


2. Supervisory trading portfolio: internal models and other methods for sensitivity analysis

The rate risk of the trading portfolio is monitored in terms of VaR and analysis scenario. The simulated interest ratescenarios are:• parallel shift of + 100bp on all the interest rate curves;• parallel shift of - 100bp on all the interest rate curves;• parallel shift of +1% of all the volatility surfaces of all the interest rate curves.The total effect, determined as a market value change, has been estimated considering just the positions pertainingto the Trading Portfolio in a strict sense, both from an operating and reporting standpoint. The positions, all classifiedas HFT in the accounts, “offload” the market value changes directly to the income statement.

The results of the scenario analysis are mainly influenced by optional portfolios on Interest Rate Futures with short-term maturities, which, given the absolute levels of the US$ and EUR exchange rates, lead to the exercise of said op-tions for a shift of -100bp in the curves, with consequent potential estimated earnings at market value equating toaround €88.75 million.

206


2.2 INTEREST RATE RISK - BANKING BOOK


A. General aspects, management procedures and gauging methods for interest rate risk

In accordance with the best international practices, the Banking Book identifies all the commercial operations of thebank associated with the transformation of the financial statement asset and liability, Cash Management and refer-ence hedging derivative maturities. The definition of the perimeter of the Banking Book (aligned with that of the Su-pervisory Banking Book) and the process for centralizing the ALM operations are contained in the resolution of theParent Company’s Board of Directors which concerns the “Centralization of the Asset & Liability Management oper-ations and operating limits vis-à-vis the interest rate risk and liquidity of the Group’s Banking Book” approved in Sep-tember 2007 and assimilated by MPS Capital Services’ Board of Directors during the meeting held on 16 April 2008.The operating and strategic choices of the Banking Book, adopted by the Finance and Liquidity Committee and mon-itored by the Parent Company’s Risks Committee, are based on a gauging of the interest rate risk with a view to “totalreturn” and are aimed at minimizing the volatility of the interest margin within the current financial year (12 months)or minimizing the volatility of the overall economic value on change in the structures of the rates.

B.Fair value and cash flow hedging

Analysis of the change in the interest margin at risk and analysis of the change in the economic value of the assetsand liabilities of the Banking Book is developed by applying deterministic shifts of 25bp, 100bp and 200bp, the lat-ter in accordance with the matters laid down in the Basel 2 “Pillar II”, placed in relation in percentage terms with bothTier 1 and the consolidated supervisory capital.The MPS Group, and on a consistent basis MPS Capital Services, during the last quarter of 2008 also introduced, inthe rate risk measurements, a behavioural model which takes into account the phenomenon of early repayments ofmortgage loans (prepayment risk). The repayment rates of the loans and in particular of the residential mortgage loanshave potentially become more unstable due to a series of concurrent risks such as for example the greater volatilityof the rates curve due to the international crisis.

MPS Capital Services’ rate and liquidity risk is handled at central level by the Group’s Cash & Capital ManagementDepartment.Within the sphere of the Cash & Capital Management Department, the Centralized Cash Management Service han-dles the short-term rate risk and liquidity risk of the Group. The Group Balance Sheet Management Service managesthe structural rate and maturity transformation risk (structural liquidity) for the Group, carrying out monitoring activ-ities and management of the hedges (with the various accounting models used), and joint protection for the forma-tion of the internal rates of the “network” (BMPS and other Group companies) for the Euro and the currency for allthe concerned transactions with due dates beyond the short-term, proposing to the Finance and Liquidity Commit-tee the economic conditions for Group companies to access the funds. It handles the Group’s funding requirements,proposing new bond issues, and centrally manages the administrative fulfilments related to the Group’s bond issues.The only position, in government securities, defined as hedge accounting is hedged by an asset swap (OTC deriva-tive) as a specific hedge of the interest rate risk from “fair value”.

207


1. Banking book: internal models and other methods for sensitivity analysis

MPS Capital Services’ sensitivity, at the end of 2008, presents a risk exposure profile due to a rise in interest rates.The entity of the economic value at risk is in any event perfectly compatible with both the sum total of Tier 1 and theSupervisory Capital, and is well below the level considered to be the attention threshold (set at 20% for a rate shockof 200 bp) by the New Capital Adequacy Agreement (Basel 2).

31 Dec. 08Risk indexes per shift (+/-) of 100 bp +100 bp -100 bpInterest margin at risk / Final margin 2.48% 2.35%Economic value at risk / Tier 1 3.97% 4.60%Economic value at risk / Supervisory Capital 3.40% 3.90%


208

2.3 PRICE RISK - SUPERVISORY TRADING PORTFOLIO


A. General aspects

The price risk exposure relates to the activities of the Equity & Other Derivatives desk which focuses its operationson both plain vanilla products such as futures, options on indexes and single stock, listed and over the counter prod-ucts, and operations on associated exotic products, in particular, structured finance issues intended for the customersof the MPS Group and third party networks. The operations of the Desk also extend to market making activities onstructured securities listed on the Deal Done Trading platform.The main financial instruments used in this segment for the purpose of structuring and hedging the risks are securi-ties share indexes, options (plain and exotic) and futures.

B. Management processes and gauging methods for price risk

With regard to the market risk management process pertaining to the handling and gauging methods for price risk,reference should be made to the matters already specified previously in the general section “Market Risks Pertainingto the Trading Portfolio”.


209


1. Supervisory trading portfolio: cash exposures in equity securities and collective investment undertakings

Long positions

Type of exposure / Balances Carrying amountListed Unlisted

A. Equity securities 86,183 11,694A.1 Shares 86,183 11,694A.2 Innovative equity instrumentsA.3 Other equity securitiesB. Collective investment undertakings 1,070B.1 Italian 50

- open-ended harmonized 50- open-ended unharmonized- closed-ended- reserved- speculative

B.2 Other EU Member States 179- harmonized 179- open-ended unharmonized- closed-ended unharmonized

B.3 Non-EU nations 841- open-ended 841- closed-ended

Total 87,253 11,694


210

Short positions


A. Equity securities 68,454A.1 Shares 68,454A.2 Innovative equity instrumentsA.3 Other equity securitiesB. Collective investment undertakingsB.1 Italian

- open-ended harmonized- open-ended unharmonized- closed-ended- reserved- speculative

B.2 Other EU Member States- harmonized- open-ended unharmonized- closed-ended unharmonized

B.3 Non-EU nations- open-ended- closed-ended

Total 68,454


211


2. Supervisory trading portfolio: breakdown of exposures in equity securities and share indexes for the main coun-tries of the listing market

Type of transaction / Listed UnlistedListing index Italy USA Japan Germany France Other

countriesA. Equity securities

- long positions 38,390 15,432 12,623 724 7,370 11,645 8,645- short positions 3 34,273 3,533 1,822 2,156 26,667

B. Purchases/sales not yetsettled on equity securities- long positions 896 1,342- short positions 1,006 368 505 736

C. Other derivatives on equity securities- long positions 151,401 217,579 26,694 13,900 8,845 42,143 93,487- short positions 190,477 191,455 27,590 5,319 6,923 30,913 65,682

D. Derivatives on share indexes- long positions 156,438 186,903 189,221 43,702 655,272 29,519 4,920- short positions 159,754 237,544 175,644 39,947 668,008 31,727 12,527

The table has been compiled on the basis of the data present for basic Y supervisory reporting (capital requirements).

212

MPS CAPITAL SERVICES Trading PortfolioIn millions of euros

Risk family Scenario Total effectEquity + 1% Equity Prices (prices, indexes, baskets) 0.09Equity - 1% Equity Prices (prices, indexes, baskets) -0.09Equity + 1% Equity Volatility -1.21


3. Supervisory trading portfolio: internal models and other sensitivity analysis methods

The price risk of the Trading Portfolio is monitored in terms of VaR and analysis scenario.The simulated price scenarios are:• +1% of each equity, commodity, index, basket price;• -1% of each equity, commodity, index, basket price;• +1% of all the volatility surfaces of all the equity and commodity risk factors.The total effect, determined as the market value change, has been estimated considering just the positions pertainingto the Trading Portfolio in a strict sense, both from an operating and reporting standpoint. The positions, all classifiedas HFT in the accounts, “offload” the market value changes directly to the income statement

213


2.4 PRICE RISK - BANKING BOOK


A. General aspects, management procedures and gauging methods for price risk

The gauging of the price risk on the MPS Capital Services’ Banking Book is carried out on equity positions held forpurposes other than trading. The positions handled in the Supervisory Trading Portfolio are excluded from this sec-tion (see the section “MARKET RISKS PERTAINING TO THE TRADING PORTFOLIO”).MPS Capital Services’ equity investment portfolio comprises around twenty equity investments in companies outsidethe Group, or rather in companies not consolidated at Group level either line-by-line or proportionally, and its valueis around 70% concentrated on five investments.

Banking book: internal models and other sensitivity analysis methods

The instrument used for gauging the price risk for the equity investment portfolio is the Value-at-Risk (VaR), which rep-resents the loss which the portfolio in question, valued at fair value, could undergo over the duration of a quarter ofa year, considering a confidence interval of 99%. The VaR model used is parametric in type and is based on the tra-ditional approach of the variance-co-variance model. To estimate the volatility of the prices, times series of the mar-ket returns are used for listed companies and time series of sector indexes are used for unlisted companies. Theportfolio taken into consideration by the analysis comprises all the equity investments held by MPS Capital Servicesin outside companies, or rather in companies not consolidated either line-by-line or proportionally.The VaR of the equity investment portfolio (as 99%, holding duration 1 quarter) amounts at year end to around 22%of the portfolio’s fair value, with a high concentration of the risk on the five most significant equity investments. Theabove-calculated VaR also represents the basis for the determination in Economic Capital, by means of the stan-dardization of both of the holding period (transformation of the holding period to 1 year) and in the confidence in-terval (adaptation to the level compatible with the rating level assigned to the MPS Group by the official ratingagencies). This undiversified measure of Economic Capital is then further processed so as to take into account the di-versification factor existing between the different types of risk.The Risk Management Department - which develops and maintains the internal gauging system - periodically re-ports, during the Banking Group Parent’s Risk Committee meetings, on the entity of the risks on the equity investmentportfolio and their evolution over time. The hedge fund portfolio is not monitored in terms of VaR-type models. Nevertheless, the Risk Management Depart-ment - which develops and maintains the internal gauging system - periodically reports, during the Banking GroupParent’s Risk Committee meetings, on the entity of the risks on the portfolio, using a risk management measurementaccording to the standard supervisory approach. This measurement is also used for the purpose of calculating the Eco-nomic Capital. With regard to the sensitivity analysis, the analysis scenario is used both for the equity investment portfolio and thehedge fund portfolio, where a change in the prices is envisaged ranging between +1% and -1%. A summary of thescenario analysis is presented below.

214

MPS CAPITAL SERVICES Banking BookIn millions of euros

Risk Family Scenario Total effectEquity + 1% Equity Prices (prices, indexes, baskets) 0.61Equity - 1% Equity Prices (prices, indexes, baskets) -0.61


215


1.Banking book: cash exposures in equity securities and collective investment undertakings


A. Equity securities 6,665 19,078A.1 Shares 6,665 14,022A.2 Innovative equity instrumentsA.3 Other equity securities 5,056B. Collective investment undertakings 7,021 12,325B.1 Italian 7,021 12,325

- open-ended harmonized 7,021 10,714- open-ended unharmonized- closed-ended 1,611- reserved- speculative

B.2 Other EU Member States- harmonized- open-ended unharmonized- closed-ended unharmonized- harmonized

B.3 Non-EU nations- open-ended- closed-ended

Total 13,686 31,403


216

2.5 EXCHANGE RISK


A.1 General aspects, management procedures and gauging methods for exchange risk - supervisory trading port-folio

The exposure to exchange rate risk is essentially of a limited extent and mainly derives from the role performed bythe Bank in trading activities on structured products, and the related hedging carried out, which due to the featuresinvolved lead the exposure on non-Euro currencies. Such exposures are in fact mainly concentrated on the US Dol-lar (USD).The main financial instruments used in this segment are spot forwards, options, futures. The risks are gauged andmonitored, as in the other segments, via sensitivities and VaR, consequently reference should be made to the mattersalready described previously.Handling of this risk takes place by aggregating all the risk factors indicated above by means of use of the Risk Man-agement system of the Murex application. Each Desk manages their own exposure within the authorized limits andin any event with a view to minimizing currency risk.

A.2 General aspects, management procedures and gauging methods for exchange risk - banking book

With regard to this type of portfolio, the exchange risk is represented by losses which the Bank could incur due to sud-den fluctuations in the exchange rates should foreign currency loans and deposits not be perfectly balanced. In orderto check this type of risk, a specific automatic procedure is in use which uses the data from the accounts matrix. Typically, foreign currency investments are financed by deposits expressed in the same currency without incurring anyexchange rate risk. In fact, as of the end of 2008 the Bank had an essentially balance foreign exchange position forthe banking book.


217



1. Breakdown of assets, liabilities and derivatives by currency of denomination

Items / Currencies US Pounds Yen Swiss New Turkish Otherdollars sterling francs Lira currencies

A. Financial assets 444,443 18,130 65,413 99,007 25,417 15,268A.1 Debt securities 22,666 1,642 308 5,614 428A.2 Equity securities 16,146 1,043 12,623 953 4,546A.3 Loans to banks 144,681 8,621 52,333 34,692 19,801 2,473A.4 Loans to customers 257,367 6,824 149 63,362 5,817A.5 Other financial assets 3,583 2 2,004B. Other assetsC. Financial liabilities 299,866 7,706 4,133 65,009 68 4,654C.1 Due to banks 232,798 6,810 149 62,967 4,646C.2 Due to customers 67,068 896 3,984 2,042 68 8C.3 Debt securitiesD. Other liabilities 5,086 36 1 342E. Financial derivativeE.1Options

- long positions 265,881 2,221 13,778 1,067 149- short positions 395,537 17,722 98 1,428 149

E.2Other derivatives- long positions 349,869 98,875 200,000 269,770 30

- short positions 312,932 98,859 200,000 284,216 20Total assets 1,060,193 119,226 79,191 300,074 295,187 15,447Total liabilities 1,013,421 124,323 4,232 266,779 284,284 4,823Imbalance (+/-) 46,772 (5,097) 74,959 33,295 10,903 10,624

The above tables have been compiled on the basis of the data present for basic Y supervisory reporting (capital re-quirements).

2. Internal models and other sensitivity analysis methods

The exchange risk is monitored in terms of VaR and analysis scenarios. The simulated scenarios on exchange rates are:• +1% of all the exchange rates against EUR• -1% of all the exchange rates against EUR• +1% of all the volatility surface areas of all the exchange ratesThe effect on the net interest and other banking income and the result for the year has been estimated consideringonly the positions classified in the accounts as HFT, which “offload” the market value changes directly to the incomestatement. The effect on the shareholders’ equity is negligible. The total effect is reflected by the algebraic sum of thetwo components. A summary of the scenario analysis follows..

218

MPS CAPITAL SERVICES Banking BookIn millions of euros

Risk Family Scenario Effect on net interest Effect on Netand other banking income shareholders’ effect

and economic result equityForex + 1% exchange rates against EURO 0.70 0.00 0.70Forex - 1% exchange rates against EURO -0.70 0.00 -0.70Forex + 1% forex volatility -0.05 0.00 -0.05


219

2.6 FINANCIAL DERIVATIVE INSTRUMENTS

A. FINANCIAL DERIVATIVES

A.1 Supervisory trading portfolio: period-end and average notional values

Debt securities and Equity securities and Exchange rates Other Total Total

Type of derivatives interest rates share indexes and gold instruments 31 Dec. 2008 31 Dec. 2006

Underlying elements Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted1. Forward rate agreements 0 2,295,0002. Interest rate swaps 227,801,161 227,801,161 226,090,0823. Domestic currency swaps4. Currency interest rate swaps 1,437,296 1,437,296 1,698,2635. Basis swaps 14,934,108 183,506 15,117,614 13,288,5556. Share index swaps7. Commodity index swaps8. Futures 9,033,639 150,692 198,639 9,382,970 13,532,9309. Cap options 3,593,750 66,824,499 3,593,750 66,824,499 65,241,608

- purchases 3,593,750 33,010,958 3,593,750 33,010,958 29,457,458- issues 33,813,541 33,813,541 35,784,150

10. Floor options 5,565 41,212,159 5,565 41,212,159 45,672,308- purchases 19,757,695 19,757,695 17,859,277- issues 5,565 21,454,464 5,565 21,454,464 27,803,031

11. Other options 50,293,723 9,054,536 4,746,539 25,450,873 2,109,787 90,339 206,161 55,130,601 36,821,357 17,300,835 33,425,214- Purchases 43,683,103 4,987,833 1,934,336 10,378,870 929,549 17,604 70,081 45,635,043 16,366,333 15,566,259 14,359,229- plain vanilla 43,683,103 4,987,833 1,934,336 3,615,577 929,549 17,604 70,081 45,635,043 9,603,040 15,566,259 8,514,457- exotic 6,763,293 6,763,293 5,844,772- issues 6,610,620 4,066,703 2,812,203 15,072,003 1,180,238 72,735 136,080 9,495,558 20,455,024 1,734,576 19,065,985- plain vanilla 6,610,620 4,066,703 2,812,203 4,496,042 1,180,238 72,735 136,080 9,495,558 9,879,063 1,734,576 9,914,138- exotic 10,575,961 10,575,961 9,151,847

12. Forward agreements 2,638,949 28,772 5,408 749 1,379,649 2,644,357 1,409,170- Purchases 1,495,633 20,939 3,554 426,092 1,499,187 447,031- Sales 1,143,316 7,833 1,854 749 62,560 1,145,170 71,142- currency against currency 890,997 890,997

13. Other derivative contractsTotal 65,565,626 359,855,235 4,902,639 25,635,128 4,926,732 288,978 206,161 70,757,243 390,623,256 30,833,765 338,341,030Averages xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx


220

A.2 Banking book: period-end and average notional values

A.2.1 For hedging



Underlying elements Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted1. Forward rate agreements2. Interest rate swaps 235,000 235,000 235,0003. Domestic currency swaps4. Currency interest rate swaps5 Basis swap6. Share index swaps7. Commodity index swaps8. Futures9. Cap options

- purchases- issues

10. Floor options- purchases- issues

11. Other options- Purchases- plain vanilla- exotic- issues- plain vanilla- exotic

12. Forward agreements- Purchases- Sales- currency against currency

13. Other derivative contractsTotal 235,000 235,000 235,000

Averages xxxx xxxx

A.2.2 Other derivatives

There are no transactions for this category of derivatives.


221

A.3 Financial derivatives: purchase and sale of underlying items



Underlying elements Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed UnlistedA. Supervisory trading portfolio 65,565,627 344,921,126 4,902,638 25,451,622 4,926,733 288,978 206,161 70,757,243 375,505,642 30,833,764 375,052,4761. Transactions with exchange of capital 2,723,149 3,814,962 416,461 843,708 2,896,212 72 3,139,610 7,554,954 371,249 3,401,50

- Purchases 1,579,833 3,254,135 161,170 467,562 1,025,805 1,741,003 4,747,502 137,921 1,220,470- Sales 1,143,316 560,827 255,291 376,146 964,851 72 1,398,607 1,901,896 233,328 1,755,683- Currency against currency 905,556 905,556 425,350

2. Transactions withoutexchange of capital 62,842,478 341,106,164 4,486,177 24,607,914 2,030,521 288,978 206,089 67,617,633 367,950,688 30,462,515 371,650,973- Purchases 44,692,760 165,196,113 2,151,159 10,109,481 899,335 116,088 70,177 46,960,007 176,275,106 25,536,607 175,010,206- Sales 18,149,718 175,910,051 2,335,018 14,498,433 805,472 172,890 135,912 20,657,626 191,349,868 4,925,908 196,630,747- Currency against currency 325,714 325,714 10,020

B. Banking book 235,000 235,000 235,000B.1 Hedging 235,000 235,000 235,0001. Transactions with exchange of capital

- Purchases- Sales- Currency against currency

2. Transactions without exchange of capital 235,000 235,000 235,000- Purchases- Sales 235,000 235,000 235,000- Currency against currency

B.2 Other derivatives1. Transactions with exchange of capital

- Purchases- Sales- Currency against currency

2. Transactions without exchange of capital- Purchases- Sales- Currency against currency


222

A.4 “Over the counter” financial derivatives: positive fair value - counterparty risk

Debt securities Equity securitiesand interest rates and share indexes

Counterparties Gross Gross Future Gross Gross FutureUnderlying elements not offset offset exposure not offset offset exposure

A. Supervisory trading portfolioA.1 Governments and central banksA.2 Public bodiesA.3 Banks 130,565 6,431,129 50,983 6,416 376,589 650A.4 Finance companies 72,063 261,178 37,830 3,020 100,624 300A.5 Insurance companies 72 226 6 10,434 154A.6 Non-financial companies 58,947 8,328 1,650 581A.7 Other operators 358 38Total A 31 Dec. 2008 262,005 6,692,533 97,185 11,086 487,647 1,685Total A 31 Dec. 2007 142,052 3,387,983 103,086 4,848 700,999 1,498B. Banking bookA.1 Governments and central banksA.2 Public bodiesA.3 BanksA.4 Finance companiesA.5 Insurance companiesA.6 Non-financial companiesA.7 Other operatorsB.8 of which “incorporated derivatives”Total B 31 Dec. 2008Total B 31 Dec. 2007


223

A.4 “Over the counter” financial derivatives: positive fair value - counterparty risk (cont.)

Exchange rates and gold Other instruments Different underlyingelements

Counterparties Gross Gross Future Gross Gross Future Offset FutureUnderlying elements not offset offset exposure not offset offset exposure exposure

A. Supervisory trading portfolioA.1 Governments and central banksA.2 Public bodiesA.3 Banks 5,680 154,771 1,344 1,234,233 1,041,205A.4 Finance companies 632 136,940 92,344A.5 Insurance companies 10,660 25,151A.6 Non-financial companies 10,445 3,570A.7 Other operatorsTotal A 31 Dec. 2008 16,125 155,403 4,914 1,381,833 1,158,700Total A 31 Dec. 2007 1,690 172,513 620 1,208,429 1,379,754B. Banking bookA.1 Governments and central banksA.2 Public bodiesA.3 BanksA.4 Finance companiesA.5 Insurance companiesA.6 Non-financial companiesA.7 Other operatorsB.8 of which “incorporated derivatives”Total B 31 Dec. 2008Total B 31 Dec. 2007


224

A.5 “Over the counter” financial derivatives: negative fair value - financial risk

Debt securities Equity securitiesand interest rates and share indexes

Counterparties Gross Gross Future Gross Gross FutureUnderlying elements not offset offset exposure not offset offset exposure

A. Supervisory trading portfolioA.1 Governments and central banksA.2 Public bodiesA.3 Banks 939,490 5,792,296 318,843 539,880 2,939 1,059,948A.4 Finance companies 45,544 219,316 14,728 147,026 3,186 126,485A.5 Insurance companies 8A.6 Non-financial companies 1,550 7,588 581A.7 Other operators 57Total A 31 Dec. 2008 986,584 6,011,612 341,216 686,906 6,125 1,187,022Total A 31 Dec. 2007 541,579 2,985,227 337,382 976,163 5,820 1,088,938B. Banking bookA.1 Governments and central banksA.2 Public bodiesA.3 BanksA.4 Finance companiesA.5 Insurance companiesA.6 Non-financial companiesA.7 Other operatorsB.8 of which “incorporated derivatives”Total B 31 Dec. 2008 0Total B 31 Dec. 2007 4,526


225

A.5 “Over the counter” financial derivatives: negative fair value - financial risk (cont.)

Exchange rates and gold Other instruments Different underlyingelements

Counterparties Gross Gross Future Gross Gross Future Offset FutureUnderlying elements not offset offset exposure not offset offset exposure exposure

A. Supervisory trading portfolioA.1 Governments and central banksA.2 Public bodiesA.3 Banks 1,261 74,781 248 196,778 205,022A.4 Finance companies 2,991A.5 Insurance companiesA.6 Non-financial companies 3,531 3,723A.7 Other operatorsTotal A 31 Dec. 2008 4,792 77,772 3,971 196,778 205,022Total A 31 Dec. 2007 117,780 60,900 55,811B. Banking bookA.1 Governments and central banksA.2 Public bodiesA.3 BanksA.4 Finance companiesA.5 Insurance companiesA.6 Non-financial companiesA.7 Other operatorsTotal B 31 Dec. 2008Total B 31 Dec. 2007


226

A.6 Residual life of over the counter financial derivatives: notional amounts

Up to Between Beyond TotalUnderlying elements / Residual life 1 year 1 and 5 years

5 yearsA. Supervisory trading portfolio 85,600,822 207,645,674 97,376,761 390,623,257A1 Financial derivatives on debt

securities and interest rates 77,103,330 188,341,774 94,410,131 359,855,235A2 Financial derivatives on equity

securities and share indexes 5,222,370 17,860,374 2,552,384 25,635,128A3 Financial derivatives on

exchange rates and gold 3,154,619 1,357,868 414,246 4,926,733A4 Financial derivatives on other instruments 120,503 85,658 206,161B. Banking book 235,000 235,000B1 Financial derivatives on debt

securities and interest rates 235,000 235,000B2 Financial derivatives on equity

securities and share indexesB3 Financial derivatives on

exchange rates and goldB4 Financial derivatives on other instruments

Total 85,600,822 207,645,674 97,611,761 390,858,257


227

B. CREDIT DERIVATIVES

B.1 Credit derivatives: period-end and average notional values

For supervisory trading Other transactionsTransaction categories On one item On several items On one item On several items

(basket) (basket)1. Protection purchases 2,561,471 2,126,0851.1 With exchange of capital 2,561,471 2,076,085

- credit default swaps 2,561,471- credit indexes 1,888,917- synthetic CDO tranches 187,168

1.2 Without exchange of capital 50,000- credit default swaps 5,000- synthetic CDO tranches 45,000

Total 31 Dec. 2008 2,561,471 2,126,085Total 31 Dec. 2007 1,278,996 1,201,949Average value 31 Dec. 2008 nr Nr2. Protection sales 2,296,503 2,071,5052.1 With exchange of capital 2,296,503 2,026,505

- credit default swaps 2,296,503- credit indexes 1,847,912- synthetic CDO tranches 178,593

2.1 Without exchange of capital 45,000- credit default swaps- synthetic CDO tranches 45,000

Total 31 Dec. 2008 2,296,503 2,071,505Total 31 Dec. 2007 1,207,465 1,137,580Average value 31 Dec. 2008 nr nr


228

B.2 Credit derivatives: positive fair value - counterparty risk

Type of transaction / Balances Notional Positive Futurevalue fair value exposure

A. SUPERVISORY TRADING PORTFOLIO 4,698,326 295,057 117,636A.1 Protection purchases with counterparties: 3,750,346 274,182 91,816

1. Governments and Central Banks2. Other public entities3. Banks 3,335,913 252,271 81,4994. Finance companies 414,433 21,911 10,3175. Insurance companies6. Non-financial companies7. Other operators

A.2 Protection sales of protection with counterparties: 947,980 20,875 25,8201. Governments and Central Banks2. Other public entities3. Banks 697,924 12,620 20,4134. Finance companies 250,056 8,255 5,4075. Insurance companies6. Non-financial companies7. Other operators

B. BANKING BOOKB.1 Protection purchases with counterparties:

1. Governments and Central Banks2. Other public entities3. Banks4. Finance companies5. Insurance companies6. Non-financial companies7. Other operators

B.2 Protection sales with counterparties:1. Governments and Central Banks2. Other public entities3. Banks4. Finance companies5. Insurance companies6. Non-financial companies7. Other operators

Total 31 Dec. 2008 4,698,326 295,057 117,636Total 31 Dec. 2007 2,460,956 52,778 80,367


229

B.3 Credit derivatives: negative fair value - financial risk

Type of transaction / Balances Notional Negativevalue fair value

Supervisory trading transactions1. Protection purchases with counterparties1.1 Governments and Central Banks1.2 Other public entities1.3 Banks 713,529 13,2281.4 Finance companies 221,668 7,7731.5 Insurance companies1.6 Non-financial companies1.7 Other operatorsTotal 31 Dec. 2008 935,197 21,001Total 31 Dec. 2007 1,017,108 17,295

B.4 Residual life of credit derivative contracts: notional values

Up to Between Beyond TotalUnderlying elements / Residual life 1 year 1 and 5 years

5 yearsA. Supervisory trading portfolio 1,956,742 4,822,526 2,276,295 9,055,563A.1 Credit derivatives with "qualified"

"reference obligation" 1,212,099 3,704,554 1,730,495 6,647,148A.2 Credit derivatives with "unqualified"

"reference obligation" 744,643 1,117,972 545,800 2,408,415B. Banking BOOKB.1 Credit derivatives with "qualified"

"reference obligation"B.2 Credit derivatives with "unqualified"

"reference obligation”Total 31 Dec. 2008 1,956,742 4,822,526 2,276,295 9,055,563Total 31 Dec. 2007 268,123 2,271,182 2,286,686 4,825,991


230

SECTION 3 - LIQUIDITY RISK


A. Generals aspects, management procedures and gauging methods for liquidity risk

The MPS Group structurally deals with the issues regarding liquidity risk using a policy for the handling of this typeof risk, also for the purpose of compliance with the matters required by Basel 2 Pillar II, formalized by a “guiding”resolution acknowledged by the Bank on 14 November 2007. The organizational and operating framework envisages:- a liquidity policy which defines the perimeter and the governance model of the Group’s liquidity that is centralized

within the Cash and Capital Management Department, as well as the organizational model for the short andmedium/long-term, the construction of the net financial position (maturity ladder) and the limits for the short-termand the medium/long-term. The liquidity policy also contains a definition of the “stress test policy” which aims tosimulate the effects of stress conditions and to prepare the appropriate corrective action;

- a contingency plan which deals with the subject of handling the liquidity under anomalous conditions, definingthe risk indicators and organizational processes necessary for dealing with crisis situations.

The monitoring of the overall structural liquidity profile is carried out on the basis of the quantification of the imbal-ances, by settlement date, in the cash flows maturing. The optional items have representative models consistent withthose used for the exchange rate risk.Particular attention is paid to the planning of the funding policies at Group level (Funding Plan), co-ordinated and di-rected by the Cash and Capital Management Department (in collaboration with the Planning Department), which:- presents the plan of measures on the financial markets for the approval of the Finance and Liquidity Committee,

measures useful for achieving the objectives set by the business plan and the capital management requirements;- co-ordinates access to the capital markets, long and short-term, national and international, for all the Group banks,

as well as access to refinancing transactions with the Central European Bank and the centralized management ofthe compulsory reserves;

- develops forecasts of the future liquidity situation, simulating different market scenarios.


231


1 Breakdown by contractual residual maturity of financial assets and liabilities

On Between Between Between Between Between Between Between Between Unspeci-Items / Maturities demand 1 and 7 and 15 days 1 and 3 3 and 6 6 months 1 and 5 years fied

7 days 15 days and 1 month months months and 1 year 5 years durationCash assets 4,701,520 3,623,334 816,101 358,720 900,084 1,104,155 1,704,357 5,154,285 6,017,675 1,496,713A.1 Government securities 970 120,937 382,303 540,723 19,539 278,344A.2 Listed debt securities 61 339 1,675 7,061 7,907 34,460 72,743 305,411 276,749A.3 Other debt securities 29 4,854 1,610 15,491 82,000 84,633 252,803 827,352 313,470A.4 Listed collective

investment undertakings 21,853A.5 Loans 4,701,430 3,618,141 811,846 336,168 689,240 602,759 838,088 4,001,983 5,149,112 1,474,860

- banks 3,683,224 656,640 697,490 115,486 435,189 16 14,672 37,756 91,077 13,683- customers 1,018,206 2,961,501 114,356 220,682 254,051 602,743 823,416 3,964,227 5,058,035 1,461,177

Cash liabilities 1,284,471 8,713,274 732,906 1,185,068 646,554 249,047 251,852 6,156,222 5,595,291B.1 Deposits 302,514 2,203,488 9,827 525,278 318,909 127,678 10,539 824,442 571,090

- banks 299,347 2,203,488 9,827 525,278 318,909 127,678 10,539 824,442 571,090- customers 3,167

B.2 Debt securities 25 26,252 134,964 19,970B.3 Other liabilities 981,932 6,509,786 723,079 659,790 327,645 121,369 215,061 5,196,816 5,004,231Off-balance sheettransactionsC.1 Financial derivatives

with exchangeof capital- long positions 11,957 1,171,564 63,741 315,131 1,151,471 1,237,923 506,838 923,440 510,978- short positions 11,963 1,537,620 31,759 240,984 1,127,817 956,801 442,947 692,173 397,820

C.2 Deposits and loansto be received- long positions 642- short positions 642

C.3 Irrevocable commitmentsto grant finance- long positions 11,095 6,216 9,741 12,618 141,127 843,157 2,866,605 2,660,135- short positions 2,179,225 10,000 120,778 807,593 2,311,192 1,118,445 12,642


232

2. Sector breakdown of financial liabilities

Exposures / Counterparties Governments Other Finance Insurance Non Otherand central public companies companies financial operators

banks entities companies1 Due to customers 2,569 2,812 10,155,463 573,983 59,3292. Outstanding securities 181,2123. Financial liabilities

held for trading 1,792,372 12,364 7,314,550 284 80,368 8,417,9654. Financial liabilities

at fair valueTotal 31 Dec. 2008 1,794,941 15,176 17,470,013 284 654,351 8,658,506Total 31 Dec. 2007 2,374,743 10,116 8,056,227 3,621 689,662 10,265,853

3. Geographic breakdown of financial liabilities

Exposures / Counterparties Italy Other European America Asia Rest ofcountries world

1. Due to customers 586,761 10,155,463 48,452 3,4802. Due to banks 4,239,789 863,3603. Outstanding securities 181,2124. Financial liabilities

held for trading 11,278,722 5,813,578 516,640 3,533 5,4295. Financial liabilities

at fair valueTotal 31 Dec. 2008 16,286,484 16,832,401 565,092 7,013 5,429Total 31 Dec. 2007 21,994,989 11,380,329 303,387 10,093 686


233

SECTION 4 - OPERATING RISKS


A. General aspects, management procedures and gauging methods for operating risks

By means of administrative measures dated 12 June 2008, the MPS Group was authorized by the Bank of Italy to useinternal models for determining the capital requirements to cover credit and operating risks.The adoption of the advanced model (AMA) establishes an organizational and cultural revolution within banks, whichby way of necessity must:1. endow themselves with an internal organization which defines the roles of the bodies and the corporate

departments involved in the operating risks management process;2. endow themselves with a control department for the gathering and storage of data, the calculation of the

requirement, the assessment of the risk profile and the reporting;3. check on the quality of the management system and the adequacy of the legislative prescriptions an on-going basis;4. delegate the internal auditing body to make periodic checks on the Operating Risks management system;5. guarantee over time that the system is effectively used in the corporate operations (use tests).For such purposes, the MPS Group has endowed itself with an integrated system for the management of the operatingrisk, an internal framework built on a governance model which sees all the companies belonging to the scope of ap-plication of the AMA model involved, also MPS Capital Services. The approach defines the standards, methods and in-struments which make it possible to assess the exposure to risk and the effects of the mitigation for each business unit.The advanced approach is conceived in such a way as to combine all the main disclosure sources in a standardizedmanner (information or data), both qualitative and quantitative (mixed LDA -Scenario Model).The quantitative component, Loss Distribution Approach in type, is based on the gathering, analysis and statisticalmodelling of the historic figures on internal and external loss (provided by the DIPO Consortium - Italian Databaseof Operating Losses).The qualitative component is focused on the valuation of the risk profile of each company within the scope and isbased on the identification of relevant scenarios. The framework identifies the operating risk control department in the Parent Company’s Operational Risk Manage-ment (ORM) Division. This department, besides calculating the capital requirement for covering the operating risksof all the companies within the scope of AMA, by means of the use of various components of the model (internal data,external data, context and control factors, qualitative analysis) supports the decision making process of Top Man-agement with a view to creating value by means of retention, mitigation and transfer of the detected risks.The Company’s involvement in the various processes which make up the operating risk management system, takesplace both in the loss data gathering stage (quantitative source), and in the stage for the identification of the processesand risks to be assessed, in the valuation of said risks by the individuals responsible for the process (qualitative source),in the identification of possible mitigation plans, in the sharing during scenario roundtables with the Parent Company’scentral divisions of the priorities and the technical-economic feasibility of the mitigation measures. Monitoring on the implementation of the envisaged measures and the observance of the objectives and timescales isfollowed at central level with the collaboration of the internal department dedicated to operating risks. The Groupframework also envisages that, in order to ensure prompt information, specific reports be drawn up, to be presentedperiodically to both the Parent Company’s ORM and to Top Management; these reports will contain a summary andanalysis of the specific aspects of the Bank’s operating risk.At organizational level within the company, a local Operational Risk Department has been created which co-ordi-nates with the Parent Company’s ORM for the achievement of the various process activities.


234

% DISTRIBUTION OF EVENTS

Execution,delivery andhandling ofprocesses

70%

Customersand

products 30%

Employmentrelationships

0%


The percentage breakdown of the operating losses by type of event is presented below according to the classificationof the New Basle Agreement; the definition of these events is also presented:Internal fraud: losses due to unauthorised activities, fraud, undue appropriation or violation of laws, regulations orcompany directives which involve at least one internal resource of the bank;External fraud: losses due to fraud, undue appropriation or violation of laws by parties outside the bank;Employment relationships and Safety in the workplace: losses deriving from acts not compliant with laws or agree-ments regarding employment, health and safety in the workplace, from payment of compensation for personal injuryand episodes of discrimination or failure to apply equal opportunity conditions;Customers, products and operating procedures: losses deriving from breaches relating to professional obligations vis-à-vis customers or from the nature or features of the product or service provided;Damages to material assets: losses deriving from external events, such as natural catastrophes, acts of terrorism andvandalism;Interruption of operations and malfunctions of systems: losses due to interruptions to operations, malfunctions or un-availability of systems;Execution, delivery and handling of the process: losses due to shortfalls in the finalization of the transactions or thehandling of the processes, as well as losses due to relations with commercial counterparties, sellers and suppliers.

Analysis was carried out on the losses for 2008 amounting to more than €50.The operating risk events, recorded by the Bank in 2008, see 70% in the category “Execution, delivery and handlingof the process”.Losses deriving from interest claims and from errors in the arrangement of financial instruments stood out in partic-ular. With respect to 2007, there were no substantial changes in terms of amounts recorded.


235


Parte FInformation on Equity

SECTION 1 - THE BANK’S CAPITAL

A.QUALITATIVE INFORMATION

The Bank’s capital is made up of all those elements which do not fall under the definition of assets or liabilities ac-cording to the gauging and quantification methods established by the IAS.Its handling concerns all the policies and choices necessary for defining the extent of the capital, so as to ensure thatthe capital and ratios of MPS Capital Services are consistent with the risk profile adopted and observe the supervi-sory requirements.The Bank is subject to the capital adequacy requirements established by the Basle Committee according to the rulesdefined by the Bank of Italy. On the basis of these rules, at individual level the ratio between the capital and the riskweighted assets must be at least 8%: observance of this requirement is checked each quarter by the Bank of Italy.Checking of the observance of the capital ratios and the consequent adequacy of the capital is dynamic over time andin relation to the objectives fixed in the business plan.The first check takes place in the process for assigning the budget targets and related risks (credit, market, operating),assigning the individual risk centres the average absorbed capital on the basis of the outstanding risks, gauged ac-cording to the VaR approach; these risks are met with the period end book balance of the capital (excluding profit).Observance of the capital adequacy is obtained via several levers, such as the pay out policy, the definition of strate-gic financial transactions (share capital increases, subordinated bonds, etc.) and the handling of the loan policy in re-lation to the risky nature of the counterparty.During the year, activities are systematically performed to monitor the observance of the supervisory ratios interven-ing where necessary, with appropriate policy and control action on the capital aggregates. A last control phase islaunched when steps are taken to carry out extraordinary transactions (acquisitions), where steps are taken to estimatethe impact on the ratios and any necessary action is planned for observing the regulatory restrictions of the Supervi-sory Authorities.

236


B.QUANTITATIVE INFORMATION

The Bank’s capital: accounting figures

Items / Balances 31 Dec. 2008 31 Dec. 20071. Share capital 231,135 211,8742. Share premium reserve 189,210 108,5983. Reserves 509,219 423,0064. (Treasury shares)5. Valuation reserves (11,570) 37,0766. Equity instruments7. Profit (loss) for the year 38,086 86,213Total 956,080 866,767

237

SECTION 2 - SUPERVISORY CAPITAL AND RATIOS

2.1 SUPERVISORY CAPITAL

A. QUALITATIVE INFORMATION

1. Tier I capital

The paid-in capital, reserves and profit for the period allocated to reserves, represent the primary quality capital ele-ments. The total of these elements net of intangible fixed assets, the negative reserve on securities available for saleand the other elements to be deducted (including the excess of the estimated losses with respect to total value ad-justments) represents the Tier I capital.

Items / Balances 31 Dec. 2008 31 Dec. 2007Positive elementsShare capital 231,135 211,874Share premium reserve 189,210 108,598Reserves 509,219 423,006Profit for the period 38,086 86,213Prudent filters: increases in Tier I capitalTotal positive elements of Tier I capital 967,650 829,691Negative elementsOther intangible fixed assets (75) (200)Prudent filters: deductions from Tier I capitalNegative reserves on securities available for sale- Equity securities and units in collective investment undertakings (100)- Debt securities (49,134) (918)Total negative elements of Tier I capital (49,309) (1,118)Positive value gross of elements to be deducted 918,341 828,573Total elements to be deducted from Tier I capital (70,344) (753)Net positive value 847,997 827,820


238

2. Tier II capital

The Tier II capital includes the valuation reserves and the subordinated liabilities.

Items / Balances 31 Dec. 2008 31 Dec. 2007Positive elementsValuation reserves 31,727 31,727- Property, plant and equipment:- special revaluation laws 31,727 31,727- Property, plant and equipment for use in businessPositive reserves on securities available for sale 5,938 6,267- Equity securities and units in collective investment undertakings 5,938 6,267- Debt securitiesSubordinated liabilities 180,000 180,000Prudent filters: increases in Tier II capital 0 0Total positive elements of Tier II capital 217,665 217,994Negative elementsPrudent filters: deductions from Tier II capital (2,969) (3,133)Non-calculable portion of the reserve from valuationof property, plant and equipment for use in businessNon-calculable portion of the reserve from valuationof securities available for sale (2,969) (3,133)- Equity securities and units in collective investment undertakings (2,969) (3,133)- Debt securitiesTotal negative elements of Tier II capital (2,969) (3,133)TotalPositive value 214,696 214,861Excess with respect to Tier I capitalPositive value permitted gross of elements to be deducted 214,696 214,861Total elements to be deducted from Tier II capital (70,344) (753)Net positive value 144,352 214,108

3. Tier II capital

Items / Balances 31 Dec. 2008 31 Dec. 2007Positive elementsSubordinated loans issued 50,000Total positive elements 50,000


239

B. QUANTITATIVE INFORMATION

31 Dec. 2008 31 Dec. 2007A. Tier I capital before application of prudent filters 967,575 829,491B. Tier I capital prudent filters:B.1 Positive IAS/IFRS prudent filters (+)B.2 Negative IAS/IFRS prudent filters (-) (49,234) (918)C. Tier I capital gross of elements to be deducted (A+B) 918,341 828,573D. Elements to be deducted from Tier I capital (70,344) (753)E. Total Tier I capital (C-D) 847,997 827,820F. Tier II capital before application of prudent filters 217,665 217,994G. Tier II capital prudent filters: (2,969) (3,133)G.1 Positive IAS/IFRS prudent filtersG.2 Negative IAS/IFRS prudent filters (2,969) (3,133)H. Tier II capital gross of elements to be deducted (F+G) 214,696 214,861I. Elements to be deducted from Tier II capital (70,344) (753)L. Total Tier II capital (H-I) 144,352 214,108M. Elements to be deducted from Tier I and Tier II capitalN. Supervisory capital (E+L-M) 992,349 1,041,928O. Tier III capital 50,000P. Supervisory capital including Tier III capital (N+O) 992,349 1,091,928


240

2.2 CAPITAL ADEQUACY

A. QUALITATIVE INFORMATION

On 12 June 2008, the MPS Group obtained authorisation from the Bank of Italy for the use of internal methods forthe determination of the supervisory absorptions both with regard to the credit risk (Advanced Method) and in rela-tion to operating risks (AMA method). The recognised scope, relating to the credit risk, concerns the legal entities ofBanca Monte dei Paschi di Siena, Banca Toscana, Banca Agricola Mantovana (merged within Banca Monte dei Paschidi Siena in September 2008) and MPS Capital Services. In detail, the authorized supervisory portfolios are the “cor-porate” and “retail” portfolios, while the capital absorptions referring to all the other legal entities as well as the resid-ual loan portfolios are determined using the Standardized method, even though the MPS Group - in observance oflegislation - has scheduled the appropriate changeovers to more advanced methods according to the roll-out plan pre-sented to the Bank of Italy. With regard to operating risk, by contrast, the scope of application concerns all the Ital-ian banking and finance companies (with the exception of BAV and Biverbanca, both at the roll-out stage) and themain instrumental companies. The remaining types of risk envisaged by Pillar I of circular 263 published by the Bankof Italy are also subject to standardized supervisory gauging.

Within the sphere of Basel 2, compliant with the legislative regulations envisaged by the new provisions on capitaladequacy, the MPS Group completed the activities aimed at satisfying the requirements envisaged by Pillar II of theafore-mentioned circular 263, preparing and sending to the Supervisory Authorities - subject to approval by the Boardof Directors - the ICAAP Simplified Report with reference to the figures as of 30 June 2008 on a consolidated basis.The Report, drawn up according to the contents prepared by the MPS Group and in observance of the supervisoryregulations, summarized the business aspects and the related potential risks of the Group, the gauging metrics bothfor the purpose of supervisory capital and total internal capital, the methods for determining the capital adequacy,the self-assessment of the risk management processes, within a structured and systematic framework of representa-tion and analysis which characterizes the strong strategic importance of the ICAAP activities. The Group has plannedfurther projects aimed at streamlining the metrics and the contents of the ICAAP document, as well as ensuring thepreparation of the final Report on the figures as of 31 December 2008 by 30 April 2009.

****

As shown in the tables on the breakdown of the supervisory capital and ratios, as of 31 December 2008 the Bank pre-sented a ratio between Tier I capital and risk weighted assets of 7.25% (5.43 % gross of the envisaged abatement of25%) and a ratio between supervisory capital and risk weighted assets of 8.48%, (6.36% gross of the envisaged abate-ment of 25%).


241

B. QUANTITATIVE INFORMATION

Categories/Balances Unweighted amounts Weighted amounts/requirements

31 Dec. 2008 31 Dec. 2007 31 Dec. 2008 31 Dec. 2007A. RISK ASSETSA.1 Credit and counterparty risk 32,344,198 25,993,531 10,410,423 12,575,3851. Standardized method 19,807,822 25,993,531 5,305,254 12,575,3852. Methods based on internal ratings 12,488,919 5,094,479

2.1 Basic2.2 Advanced 12,488,919 5,094,479

3. Securitisations 47,457 10,690B. SUPERVISORY CAPITAL REQUIREMENTSB.1 Credit and counterparty risk 832,834 851,487B.2 Market risks 272,171 234,9981. Standard method 272,171 234,9982. Internal models3. Concentration riskB.3 Operating risk 33,9381. Basic method2. Standardized method3. Advanced method 33,938B.4 Other prudent requirements 109,3971. Integration for floor 109,397B.5 Total prudent requirements (B.1+B.2+B.3+B.4) 1,248,340 1,086,485B.6 Reduction in capital requirements for

banks belonging to banking groups (25%) (312,085)B.7 Total prudent requirements (B.5-B.6) 936,255 1,086,485C. RISK ASSETS AND SUPERVISORY RATIOSC.1 Risk-weighted assets 11,703,200 15,521,186C.2 Tier I capital/Risk-weighted assets

(Tier 1 capital ratio) 7.24 5.34C.3 Supervisory capital including TIER3/

Risk-weightd assets (Total capital ratio) 8.49 7.04


242

SECTION 1 - TRANSACTIONS CARRIED OUT DURING THE YEAR

During 2008, no business combination transactions were carried out regarding companies or business segments.

SECTION 2 - TRANSACTIONS CARRIED OUT AFTER THE END OF THE YEAR

No significant transactions were carried out after the end of 2008.

Parte GBusiness Combinations


243

Key Management Personnel (executives with strategic responsibilities) have been identified as follows: Directors,Statutory Auditors, General Managers, Assistant General Managers, Heads of Departments who are assigned au-

tonomous decision-making powers.

1. Information on remuneration of directors, statutory auditors and managers with strategic responsibilities

31 Dec. 2008 31 Dec. 2007Short-term benefits 2,537 2,666Benefits after the termination of the employment relationshipOther long-term benefitsIndemnity for the termination of the employment relationshipShare-based payments 11 14Other remunerationTotal 2,548 2,680

Fees paid to the independent auditing firm and the bodies belonging to its network (pursuant to Article 149 - duodecies of CONSOB Resolution No.15915 dated 3 May 2008)

Type of services Party providing service Subsidiary company FeesAccounts auditing Reconta Ernst & Young 262Certification services Reconta Ernst & Young 39Periodic "DRAGHI" assessments Reconta Ernst & Young 41Process analysis assistance Ernst & Young Financial-

Business Advisors S.p.A. 175Total 175 342

Note:the afore-mentioned amounts are gross of VAT and expenses.

Parte HTransactions with related parties


244

2. Information on transactions with related parties

2.a Transactions with shareholders

Parent Joint Parent IncidenceItems / Balances Company Companies/Bodies

which exerciseconsiderable

influenceTotal financial assets 2,670,221 - 7.66%Total financial liabilities 7,445,917 - 22.00%Total interest income 23,715 - 1.96%Total interest expense 464,271 - 44.81%Guarantees given - -Guarantees received - -

2.b Transactions with executives with strategic responsibilities and other related parties

Executives Other IncidenceItems / Balances with strategic related

responsibilities partiesTotal financial assets 1 27,597 0.08%Total financial liabilities 2 706 0.00%Guarantees received 24,087

2.c Transactions with other companies forming part of the Banking Group

Items / BalancesTotal financial assets 150,947Total financial liabilities 10,293,512Total interest income 2,789Total interest expense 259,576Guarantees given -Guarantees received -


245

GROUP PARENT COMPANY OR EU PARENT BANK

2.1 Name: BANCA MONTE DEI PASCHI DI SIENA SpA

2.2 Headquarters: Piazza Salimbeni, 3 - Siena, Italy

Other details: Share capital €4,486,786,372.26 fully paid-inSiena Companies’ Register No. 9782/11728Banking Register No. 325 Code No. 1030.6Register of Banking Groups Code No. 1030.6Member of the Interbank Guarantee Fund

FINANCIAL STATEMENTS OF THE PARENT COMPANY BANCA MONTE DEI PASCHI DI SIENAAS OF 31 DECEMBER 2007

Balance sheetAssets 121,390,225 Liabilities 113,728,765

Shareholders’ equity 7,661,460Total assets 121,390,225 Total liabilities 121,390,225

Income statementProfit /loss on current operations 769,895

Income taxes for the year 132,376Profit (Loss) on discontinued operations -

Profit for the period 637,519


246


The Bank has not entered into any transactions with share-based payments representing its own capital or that of an-other entity belonging to the MPS Group, either in the year under review or in previous periods, being transactionsin which the Bank itself purchases or receives goods or services, with the exception of allocations to employees (stockgranting).

STOCK GRANTING

One of the points qualifying the Supplementary In-house Employment Agreement dated 11 December 2007 for theProfessional Divisions and Middle Management, was the provision that a portion of the “company bonus”, linked tolevels of attainment of the budget targets, would be disbursed by means of the stock granting instrument, via thebonus allocation of ordinary BMPS S.p.A. shares. The aim of the instrument is to motivate the employees to pursue corporate targets, increasing the climate of partic-ipation.The liability corresponding to the value of the shares allocated to the employees is booked to the income statementin the period it accrues, under personnel expenses. With reference to 2008, the total cost provided for by the com-pany was estimated as €1,236 thousand.

Parte IShare-based Payments


247

ATTACHMENTS TOTHE EXPLANATORY

NOTES

PENSION FUND OFMPS Capital Services

Banca per le Imprese S.p.A.

STATEMENT OF ACCOUNT as of 31 December 2008

Attachment No. 1

EXPLANTORY NOTES TO THE STATEMENT OF ACCOUNT AS OF 31 December 2008(amounts in euros)

The “MPS Capital Services Banca per le Imprese S.p.A. Pension Fund”, enrolled in the Special Section of the CovipRegister, under No. 9134 is the result of the historic and legal continuation of the supplementary pension scheme setup on 1 January 1974.The “Fund” is made up of two separate segments with specific endowments aimed at guaranteeing the two benefitsystems, in detail:• the “defined benefit” segment of the “Fund” contains provisions, payable by the company, aimed at adapting the

assets of the segment to the actuarial reserve estimated annually by an independent actuary;• the “defined contribution” segment of the “Fund” contains separate and independent assets. This segment, which

does not have an independent legal status, contains:- the economic results deriving from the financial management of the assets, carried out by parties qualified to

perform collective management of savings;- contributions payable by the Bank and the fund Members;- the portion of the employee severance indemnity allocated by the members enrolled to increase the endowment.

The assets and liabilities referring to the operations of the segment are recorded in the related items of the Bank’sbalance sheet, despite maintaining separate asset autonomy with respect to the Bank.

The assets, liabilities, costs, revenues and commitments referring to the segment’s operations are not recorded in theBank’s financial statements.The “Fund” is managed by the Bank’s Board of Directors, which avails itself of advisory opinions and the support ofa Supervisory Committee; the management of the positions of the members and any other activities, necessary or use-ful for the “Fund”, are carried out by a Manager appointed by the Bank’s Board of Directors.

A) “DEFINED BENEFIT” SEGMENT

The value of the Actuarial reserve as of 31 December 2008 came to €7,057,823 and is recorded under liability item120a in the Bank’s balance sheet.It is the value estimated so as to guarantee the periodic disbursement of the supplementary benefits of the legal pen-sion to 44 members, all retired, of which 22 men and 14 women receiving a direct pension, along with 8 women re-ceiving an indirect and reversibility pension.The periodic benefits disbursed in 2008 amounted to €603,578.04.During the year, it was necessary to make provisions for €565,039.68 so as to adjust the actuarial reserve to the es-timate produced by the actuary.No other members may access the segment, due to the changes made to the Fund Regulations further to collectiveagreements, as well as the matters envisaged by current legal provisions.

B) “DEFINED CONTRIBUTION” SEGMENT

The total of the net assets as of 31 December 2008 amounted to €17,072,811.During 2008, the Bank paid over the contributions payable by the Company to the “Fund”, along with those payableby the employees to the chosen extent; the portions of employee severance indemnity were also paid over to the ex-tents indicated by said employees and envisaged by the Regulations, reviewed following the changed legislative sce-nario due to the enforcement of Italian Legislative No. 252/2005 - “Discipline of supplementary pension schemes”,agreed by the institutive sources and approved by the Board of Directors on 12 September 2007.

Pension fund of MPS Capital ServiceBanca per le Imprese S.p.A.


253


The segment disbursed capital to retired employees who made requests, as per Articles 12, 16, 17 of the Fund Reg-ulations, for a total amount of €1,669,839. The disbursements by way of advances on the total position accrued,concerned requests for a total of €617,775 in 2008.Furthermore during 2008, sums originating from other pension funds were transferred for a total amount of €574,441.The members of the “Fund” segment as of 31 December 2008 numbered 547, of which 538 employees in service(out of a total of 545 who have the right to the fund), plus 9 members no longer employees who to-date have notshown any desire to leave the Fund.

B.1) FINANCIAL MANAGEMENT INFORMATION

The resources of the “Fund” have been spread over nine different investment lines, of which one aimed at receivingthe severance indemnity conferred tacitly, in accordance with the provisions of Article 8.9 of Italian Legislative De-cree No. 252/2005 (hereinafter, for the sake of brevity, “Guaranteed Line”). The afore-mentioned investment lines correspond to an identical number of asset management schemes open withthe Parent Company and managed by the Asset Management Service. The contributions to said investment lines weremade on the basis of the individual choice expressed by each member.The features of the investment lines are as follows:

Descrizione Line Line Line Line Line Line Line Line GuaranteeC001 C002 C003 C004 C005 C010 C015 C020 Line

Time Horizon (years) 7-10 10-20 20-30 5 5 10 15 20 CollectivePolicy

- Risk free (monetary) 60% 42%- Bond component 73% 52% 35% 33% 44% 73% 52% 35%- Share component 27% 48% 65% 7% 14% 27% 48% 65%

The economic results for 2008 express the difficulties present within the current market context. Upon the expressrequest of the supervisory committee, the manager of the Fund assets carried out careful analysis with regard to theasset allocation and risk profiles of the portfolio, confirming that faced with the situation characterizing the global mar-ket, our position emerged as neutral with respect to the reference benchmarks, and the management approach remainsevidently prudent and in any event aimed at seizing any tactical opportunities offered by the market. The results were as follows:

LLine Line Line Line Line Line Line Line GuaranteC001 C002 C003 C004 C005 C010 C015 C020 Line

-7.91% -18.59% -25.94% 1.22% -2.28% -8.10% -18.85% -27.11% 2.02%

254


B.2) INFORMATION ON THE FINANCIAL STATEMENTS

The segment’s financial statements are represented by a statement of account comprising a balance sheet and in-come statement, supplemented by the information contained in these explanatory notes.The income statement not only registers the profit or loss, but also the changes which derive from the gathering ofthe contributions and from the conversion of the individual positions into benefits under the form of capital or a lifeannuity.The financial statements are drawn up by showing preference for the representation of substance over form; they areexpressed in euros.

B.2.1 Measurement of the investments and description of the portfolio

The securities have been valued at market value in observance of the accounting approach for financial instrumentsestablished by CONSOB.

As of 31 December 2008, there were no derivative contract transactions present in the portfolio.

B.2.2 Criteria for estimating the charges and income

The charges and income have been recorded on an accruals basis, irrespective of the date of collection or payment.Interest on benefits and redemptions is calculated at the performance index known as of the date of leaving the Fund,net of taxation.The tax regime of the defined contribution pension fund is disciplined by Article 17 of Italian Legislative Decree No.252/2005 and subsequent amendments and additions.

The Fund Manager

255

PENSION FUND OF MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.P.A.

"DEFINED CONTRIBUTION" BENEFITS SEGMENTSTATEMENT OF ACCOUNT AS OF 31 DECEMBER 2008

BALANCE SHEET(amounts in euros)

Assets 31 Dec. 2008 31 Dec. 2007Deposits 987,283 635,249Assets entrusted under management 15,785,161 17,767,947Collective policy (guaranteed line) 11,371 3,386Tax credits - 1,498Sundry receivables 398,014 379,688Total assets 17,181,829 18,787,768

Liabilities 31 Dec. 2008 31 Dec. 2007Tax liabilities 109,018 10,796Sundry payables 13,917Total liabilities 109,018 24,713

Net assets destined for benefits 31/12/2008 31/12/2007Fund endowment 20,504,573 18,687,825Result of financial operations (3,431,762) 75,230Total assets destined for benefits 17,072,811 18,763,055

INCOME STATEMENT

Welfare operations 31 Dec. 2008 31 Dec. 2007Endowments at start of year 18,763,055 17,532,345Contributions paid by employees 478,971 419,022Contributions paid by the company 852,061 620,634Portions of employee severance indemnity conferred 2,035,306 1,158,390Transfer from other pension funds 307,504 5,082Disbursement of benefits under the form of capital (216,656)Transfers and redemptions (1,614,548) (42,389)Disbursement of advances (617,775) (788,603)Result of welfare operations 20,204,574 18,687,825

Financial operations 31 Dec. 2008 31 Dec. 2007Income/ losses on assets entrusted under asset management (3,436,105) 87,322Interest income 15,878 10,517Other income 157 1,498Interest expense (68)Fee expense for asset management (11,080) (12,652)Substitute tax (17) (10,796)Other charges (595) (591)Result of financial operations (3,431,762) 75,230


256

STATEMENT OF ACCOUNT AS OF 31 DECEMBER 2008BREAKDOWN BY INVESTMENT LINE - 2008

(amounts in euros)

BALANCE SHEET

Description Line Line Line Line Line Line Line Line GuaranteedC001 C002 C003 C004 C005 C010 C015 C020 Line

Assets

Depositi 25.101 43.207 225.557 2.538 1.943 349.154 210.315 129.468Attività affidate in gestione 2.638.378 3.607.628 2.904.565 471.105 947.676 1.081.045 1.846.173 2.288.591Polizza Collettiva 11.371Crediti per imposteCrediti vari 77.637 116.311 113.640 5.974 9.675 11.603 27.226 35.948Totale attività 2.741.116 3.767.146 3.243.762 479.617 959.294 1.441.802 2.083.714 2.454.007 11.371Deposits 25,101 43,207 225,557 2,538 1,943 349,154 210,315 129,468Assets entrusted under management2,638,3783,607,6282,904,565 471,105 947,676 1,081,045 1,846,173 2,288,591Collective policy 11,371Tax creditsSundry receivables 77,637 116,311 113,640 5,974 9,675 11,603 27,226 35,948Total assets 2,741,116 3,767,146 3,243,762 479,617 959,294 1,441,802 2,083,714 2,454,007 11,371

Liabilities

Tax liabilities 22,347 6,543 53,434 - - - - 26,675 19Sundry payables - - - - - - - - -Total liabilities 22,347 6,543 53,434 0 0 0 0 26,675 19

Assets destined for benefits

Fund endowment 2,926,246 4,515,034 4,141,021 474,006 982,346 1,581,580 2,556,504 3,316,624 11,212Result of financial operations (207,477) (754,431) (950,693) 5,611 (23,052) (139,778) (472,790) (889,292) 140Total assets destined for benefits2,718,769 3,760,603 3,190,328 479,617 959,294 1,441,802 2,083,714 2,427,332 11,352


257

CONTO ECONOMICO

Description Line Line Line Line Line Line Line Line GuaranteedC001 C002 C003 C004 C005 C010 C015 C020 Line

Welfare operations

Endowments at start of year 2,492,431 3,584,847 3,174,060 679,873 1,314,743 1,923,162 2,389,883 3,200,671 3,385Contributions paidby employees 96,791 143,223 130,889 9,646 13,645 22,402 32,314 30,061Contributions paidby the company 176,733 240,095 229,548 12,179 18,862 24,542 69,247 80,855Portions of employeeseverance indemnity conferred 398,366 599,511 620,941 25,949 45,417 50,360 118,844 168,091 7,827Transfer from otherpension funds 99,838 191,293 316,372Disbursement of benefitsTransfers and redemptions (284,534) (117,999) (140,010) (244,996) (357,562) (379,131) (90,316)Disbursement of advances (87,606) (129,027) (153,461) (8,645) (59,755) (34,785) (144,496)Switches between lines 34,227 3,091 (37,318) (52,759) 71,317 (18,558)Result of welfare operations 2,926,246 4,515,034 4,141,021 474,006 982,346 1,581,580 2,556,504 3,316,624 11,212

Financial operations

Income/ losses on assetsentrusted underasset management (207,850) (757,214) (951,340) 5,190 (23,122) (140,937) (472,839) (887,993) -Interest income 1,823 5,146 2,924 715 673 2,174 1,582 841 -Fee income fordisbursementsand redemptions - - - - - - - - -Other income - - - - - - - 1,498 157Interest expense - - - - - - - - -Fee expense forasset management (1,375) (2,288) (2,202) (220) (529) (941) (1,459) (2,066)Substitute tax (17)Other charges (75) (75) (75) (74) (74) (74) (74) (74)Result of financialoperations (207,477) (754,431) (950,693) 5,611 (23,052) (139,778) (472,790) (887,794) 140


258

SUMMARY OF THE MAINRESOLUTIONS OF THE

SHAREHOLDERS’ MEETING

On 24 April 2009, the ordinary shareholders’ meeting of MPS Capital Services Banca per le Imprese S.p.A. washeld.

The shareholders’ meeting approved:

1. the 2008 financial statements, comprising the financial statement schedules (balance sheet, income statement,statement of changes in shareholders’ equity and the statement of cash flows), the explanatory notes and related at-tachments, along with the report on operations;

2. the following allocation of the net profit for 2008:

- to ordinary reserves (1/20) € 1,904,313,47- to reserves required by the Articles Association pursuant to Article 26 (1/20) € 1,904,313,47- to extraordinary reserves € 34,277,642,41


271

Printed: Nuova Grafica Fiorentina - October 2009

Documents

Coperta ING:Layout 1 · Corporate Name MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.p.A. “Monte dei Paschi di Siena” Banking Group Year of Incorporation 1954 as Mediocredito Regionale