This is a summary version of the 2010 Financial Statements (Bilancio di Esercizio 2010) whose complete version is avaible at www.centrobanca.it.
Annual Report 2010 • 1
2 • Annual Report 2010
CONTENTS
Centrobanca: profile and description of operationsGruppo UBI corporate structure and Centrobanca company structureNational networkDevelopment strategy of CentrobancaOperational support and organisational developmentOrganisational structure
Operational overviewLoansCorporate LendingCorporate FinanceInvestment BankingCorporate and Retail OTC derivativesFinance and MarketsPrivate equity
Capital structureLoans to customersLeveraged FinanceCredit qualityLoans to banksFinancial assetsInvestmentsFunding with chargesFinancial liabilitiesHedging derivatives
Economic trendInterest marginsOperating incomeOperating expensesPersonnel costsOther administravive expensesAdjustments to net values for impairment in loans and financial assets/liabilitiesProfits/loss from investmentsTaxes for the yearIncome Statement normalised for non-recurring items
Shareholders' fundsSharesAllocation of profit for the yearRegulatory capital and capital requirements
Fiancial StatementsBalance SheetIncome StatementStatement of comprehensive incomeStatement of changes in net equityCash Flow Statement - Indirect MethodReconciliation Key data and ratios
Company Officers 2010
445679
1010111212131314181920212222232425252626272929303131323234343435363637373840414142
Annual Report 2010 • 3
GRUPPO UBI CORPORATE STRUCTURE AND CENTROBANCA COMPANY STRUCTURE
Gruppo UBI Banca is characterised by a federal, multifunctional and integrated organisational model, which guarantees brand identity and local autonomy.
The federated Network Banks operate according to this model, focussed on geographical markets in which they possess a deeply rooted territorial presence and strong client relationships, and are assisted and supported by specialised Product Factories and a Parent Company with responsibilities for guidance and governance.
Within Gruppo UBI Centrobanca performs the role of the “corporate bank" engaged in the issuing of medium and long term loans, investment banking, private equity and in Assisted Finance, on behalf of corporate clients, both captive and external to the Group.
There were no changes in the shareholding structure of Centrobanca during 2010: Ubi Banca holds 97.82% of Centrobanca (5.47% of which is held through its subsidiary Banca Popolare di Ancona); the remainder of the share capital is subdivided among 30 banks, primarily “Popolari” (cooperative banks).
Centrobanca holds shareholdings in other companies of the Group with the sole aim of carrying out its own business activities and consistent with its objectives:
Centrobanca Sviluppo Impresa SGR - 100% owned. This subsidiary is engaged in private equity: it promotes, sets up, administers and manages closed-end property investment funds.
IW Bank SpA - 23.5% owned. This shareholding was acquired as part of the private equity business.
The company is specialised in on-line trading, banking and savings, it is a leader in on-line trading and is amongst the leading companies in e-banking and on-line financial services.
Group SRL - 13.5% owned. A shareholding that is instrumental to the investment banking operations of the Bank. The company was set up in 2005 with equal shareholdings attributed to Banca Aletti, Banca Akros and BIMER. Its aim is to gain more senior roles in public issues of securities.
UBI Sistemi e Servizi - shareholding 1.48%. The common technical and administrative service operations of the Banks and Companies of Gruppo UBI are centralised in this company.
In December the merger by incorporation of the 100% owned subsidiary CB Invest SpA in Centrobanca was completed and became effective from the beginning of January 2010.
4 • Annual Report 2010
Centrobanca has six branch offices located throughout Italy. These work to develop the client base in close cooperation with the Corporate Banking Offices of the Gruppo UBI banks, thus enabling extensive and effective national coverage. As part of an internal process of refocussing on core activities, the closure of the Bari branch office was approved on 4 October.
National network
Release at 31 december 2010
348 250 181 5 Lombardia (855 )
Veneto (45)
Liguria(58)
1 Toscana(9)
Emilia Romagna(46)
Marche(106)
Umbria(23)
22 1
Abruzzo(17)
15 2
Molise 6
Puglia(115)
114 1
Basilicata 36
Lazio (119)
64 29 6 1 Campania (100) 115Calabria
Milan
Bologna
Bari
Rome
Naples
104 1 1 Ancona
53 24 20 117 4
7 1
224 1 1 Piemonte(226)
Turin
2 2 1 1 1
64 Trentino Alto Adige
12Friuli Venezia Giulia
256
1 Sardegna
32 13 1
2
Branches in Italy 1.946
UBI Banca Scpa 2
Banca Popolare di Bergamo Spa 375
Banco di Brescia Spa 362
Banca Popolare Commercio e Industria Spa 214
Banca Regionale Europea Spa 293
Banca Popolare di Ancona Spa 256
Banca Carime Spa 295
Banca di Valle Camonica Spa 59
Banco di San Giorgio Spa 53
UBI Banca Private Investment Spa 36
Centrobanca Spa 7
B@nca 24-7 Spa 1
IW Bank Spa 2
Valle d’Aosta1
Iesi
Branches abroad 11Banco di Brescia SpaLussemburgoBanca Regionale Europea Spa (France)Nizza e MentoneBanque de Dépõts et de Gestion Sa (Svizzera)Losanna, Lugano, Neuchatel, Mendrisio,Yverdon, GinevraUBI Banca International Sa (Lussemburgo)Monaco (Germania) - Madrid (Spagna)International officesUBI Factor SpaCracovia (Polonia)Gestioni Lombarda (Suisse) SaLuganoUBI Management Co.SaLussemburgoLombarda China Fund Management Co. SaShenzhen (Cina)UBI Trustee LtdJerseyUBI Trust Co. LtdLussemburgoBDG Singapore Pte LtdSingaporeRappresentative officesHong Kong, San Paolo (Brasile), Mumbay, Shanghai, Mosca
Annual Report 2010 • 5
Centrobanca is specialised in the Corporate and Investment Banking services of Gruppo UBI in support of corporate clients with the objective of offering an integrated and specialised range of strategic finance products and services designed to support innovation, growth and the financial restructuring of businesses
In particular, the distinctive characteristics of Centrobanca’s business model are:
nComplete distribution platform. Centrobanca has access to a broad distribution platform which gives it a consolidated presence on the market, both in terms of its captive market, thanks to the distribution capacity of the Network Banks of Gruppo UBI, and as regards the non-captive market, taking advantage of its independent origination capability through its own Corporate Center network, the relationship with partnership banks with which it has agreements and its own network of relationships.nExhaustive range of products. Centrobanca offers a wide range of products which allow it
to take full advantage of cross-selling and up-selling opportunities, a result which has been achieved due to the strengthening of the offer and the acquisition in the market of highly qualified skills. Product synergies arise both within the credit area, where industrial credit acts as an “entry product” which allows cross-selling and high value added financial transactions to be carried out (e.g. structured finance), both in terms of financial relationships with clients and in carrying out extraordinary financial transactions.nSpecialisation. The concentration of highly specialised professional product responsibilities
in Centrobanca allows it to achieve: - innovation of the offer, taking advantage of the skills deriving from a supervised integrated
product range to propose financing dedicated to renewable energy, the development of loans incorporating step-up/step-down mechanisms, the offer of participating loans for innovation and, nell’ambito dell’investment banking, in the area of investment banking, the first intermediary in the Italian market to offer remedy shares;
- effective supervision of credit risk. The supervised integration of all strategic finance transactions allows Centrobanca effective control of medium-long term risks, as the quality of its portfolio demonstrates. This result derives from: (i) Centrobanca’s in-house specialised skills of business intelligence and understanding of the competitive positioning of sectors/companies; (ii) the possibility to concentrate in one unit a complete vision focussing on the medium termrequirements of its client base and to accompany it in all its extraordinary financial operations; iii) the efficiency of having unified, centralised internal control mechanisms, recently strengthened by significant investments aimed at enhancing the efficiency of internal controls, processes and the organisational structure.
- critical mass necessary to generate economies of scale and skills above all on productsof high value added and low frequency.
Development strategy of Centrobanca
6 • Annual Report 2010
Operational support and organisational
development
The principal organisational projects carried out by Centrobanca during 2010 were developed within the framework of the annual Project Plan.
The Project Plan identified and co-ordinated 36 development projects subdivided into the following categories:n23 “prescriptive” projects, involving initiatives to upgrade the company organisation to comply
with regulatory requirements or arising from analyses of plant/operations carried out by the company’s audit and control department;n10 business projects, aimed at strengthening commercial activities;n3 efficiency/effectiveness projects, aimed at restoring productivity or limiting operational risk.
A Work Plan was prepared for each project, and this was periodically monitored through the preparation of reports indicating stages of completion and delays/variances and the organisation of plenary meetings on the progress of projects attneded by:nSenior Management;nthe Organisation and Processes Service, in the capacity of project management;nthe various project managers;nthe personnel appointed by the Parent Company to co-ordinate the product companies;nthe main IT supplier (UBISS-DSSP);nthe Company control departments: Risk Management, Audit UBI and Compliance.
Following each meeting minutes were prepared indicating the subjects discussed and the actions proposed and this information was provided to the Board of Statutory Auditors.
The most important projects developed as part of the aforementioned Project Plan and the results achieved are listed below.
Basilea II - Adoption by Centrobanca of the Rating System for the Credit Risk SegmentThis project, part of the Group’s broader plan of operations, for the commencement in July 2011
of the Bank of Italy validation procedures of the internal rating models (AIRB), allows for pre-determined initiatives to be implemented by CB in 2010.
This initiative specifically involved, in accordance with Group guidelines, the revision/setting up of the following processes: nAttribution and Override Rating;nMonitoring and Revision Rating.Related procedure regulations were prepared for each of these procedures as well as specific
functions for the upgrade of the information system planned for the first half of 2011.
Annual Report 2010 • 7
Investment Services Regulations developmentThe objective of this project was to update company regulations in order to bring the model for
the provision of investment services up to date with the related regulations. This initiative involved the following specific activities: nDefinition of a single Company Policy for Investment Services; nDefinition of a Company policy for Client classification and upgrades to the existing procedure
regulations;nImplementation of IT initiatives and processes arising from application of the aforementioned
Policies.
Development of ProcessesThe objective of this project, a natural continuation of an initiative that began in 2009, is to
consolidate the integrated corporate procedures management model. This involved the implementation of the following principal activities:nUpdating and development of the Corporate Procedures Map;nConsolidation of the management model, by structuring and formalising mapping/procedure
development and the qualitative/quantitative procedure evaluation methodologies;nAugmenting the corporate repository;nStart-up, with regard to the methodology adopted, of three improvement initiatives regarding
Securities and Derivatives Middle Office procedures, Middle and Back Office Financing and Legal Inquiries, as a result of which several improvement initiatives were identified and collated for implementation in appropriate project initiatives for 2011.
8 • Annual Report 2010
The organisational structure of the Bank was approved by the Board of Directors on 7 October 2009, following the creation of a Commercial Office, with departments to co-ordinate the management of the Corporate Lending, Corporate Finance, Capital Markets, Advisory and M&A divisions and the Commercial Network Management and Marketing and Commercial Co-ordination functions.
The Bank’s organisational structure is composed of a stable nucleus and a flexible nucleus. The stable nucleus is composed of:
1. Director General Management2. Executive Committee staff members3. Director General Staff members
a. Areasb. Functions
4. Business Division Senior ManagementAnd governed at the Corporate General Regulation level, approved by the Board of Directors. The flexible nucleus is represented by the corporate structures Staff reporting by Area and Division
directly to the Director General and the Business Division Senior Management and governed by the Company Regulations.
Organisational structure
Planning and ControlRisk ManagementHuman ResourcesAccounting and Financial ReportingOrganisation and ProcessesSafety and General ServicesMiddle - Back office fin.tiPurchasing and Cost Management
Lending PoliciesValuations And Issuance
Monitoring and Checking Legal Departement
PredisputeInvestigation
Business analysisEquity research
Macro economics and credit research
CDACE
Managing Director
Internal auditingCo-ordination of investments
Lending autority
Business intelligence
Gov. e macch. operativa
Finance & Markets OTC Derivatives Non-perform. Loans Advisory e M&A Capital Markets Corp. Finance Corp. Lending
Cons Legal, Affairs, Comp.
Captive MarketDirect Market
ManagementComm.l Network
Marketing Coor. & Commercial
MarketingPlanning
Commercial
Affari societariComplianceConsulenza legale
Annual Report 2010 • 9
It should be noted that following the resignation of Valeriano d’Urbano as Director General in October 2010, the operating powers for Director General were granted on an interim basis to Marco Mandelli - Vice Director General and Commercial Manager of Centrobanca.
During the year, given an uncertain economic environment characterised by weak signs of recovery in the economic cycle, the bank experienced a significant recovery in medium/long term lending activity. In particular the Bank’s activity was greater than in the preceding year both with regard to loans approved (+2.1% compared with the figure at December 2009) and loans granted (+0.5% compared with the figure at December 2009).
Requests for financing totaling ¤ 3.391M were being processed at the end of the year (+20.3 % compared with the figure at 2009). Total outstanding loans for financing granted fell by -1.1% from ¤ 7.2 billion at December 2009 to ¤ 7.1 billion at December 2010.
Most of the financing issued was granted to non-financial counterparties (¤ 1,824.2 million granted, representing 84.5% of the total compared with 78.0% at december 2009) of which a notable feature was the increase in lending to the manufacturing sector (48.7% of the total compared with 34.4% at December 2009) and the reduction of the commercial and services sector (46.2% of the total compared with 60.7% at December 2009).
OPERATIONAL OVERVIEW
Loans
Banks and financial entities
Families and other
Non-financial entities:
- agricolture
- manufacturing
- building and construction
- services and commerce
TOTAL
-31.4%
40.5%
9.0%
0.5%
14.7%
0.8%
84.5%
1.8%
48.7%
3.4%
46.2%
100.0%
Economic sector
Value %
Change %
316,9
18.2
1,824,2
32.3
888.0
61.8
842.1
2,159.3
Net loans issued
Dec. 2010 Dec. 2009
21.4%
0.6%
78.0%
0.1%
34.4%
4.8%
60.7%
100%
Value %
460.2
13.0
1,674.8
1.9
575.6
80.9
1,016.5
2,148.0
Funding flows:
- Transactions approved
- Financing issued
Outstanding at period end:
- operations accepted and to be contract
- operations accepted and yet to be issued
TOTAL LOANS
- value of loans currently in issue (*)
+ 2.1%
+ 0.5%
+ 21.8%
+ 15.3%
+ 20.3%
- 1.1%
3,350.6
2,159.3
2,617.2
773.8
3,391.1
7,120.7
3,281.3
2,148.0
2,148.7
670.9
2,819.6
7,202.7
Dec. 2010 Change %
(*)residual net loans for existing financing to customers and banks
Dec. 2009
North West
North East
Centre
South
Islands
Non-Resident
TOTAL
-10.6%
69.1%
-9.9%
40.5%
458.6%
-51.4%
0.5%
39.5%
13.5%
22.4%
13.3%
5.3%
6.0%
100.0%
Geographical area
Value %
Change %
853.2
292.1
484.2
286.3
113.4
130.0
2,159.2
Net loans issued
Dec. 2010 Dec. 2009
44.2%
8.0%
24.9%
9.5%
0.9%
12.4%
100.0%
Value %
950.0
172.8
535.4
203.7
20.3
265.8
2,148.0
10 • Annual Report 2010
In terms of the geographical breakdown, the North-West (where the commercial network of Centrobanca and Gruppo UBI is largely concentrated) remains the area that accounted for the majority of lending activity (39.5% of the total) in absolute terms. There was also an increase in lending activity in the North East, representing 13.5% of the total amount granted and the South, in particular for project finance. However the decline in lending to non-resident counterparties continued to decline in line with the decrease in corporate finance transactions.
Lending activity was substantially balanced between Corporate Finance related lending and traditional loans. Within Structured Finance activities there was a contraction of Acquisition Finance related transactions (-21.5% compared with the amount granted in 2009) counterbalanced by an increase in Project Finance lending which rose by 134.6% and accounted for15.2% of total loans granted.
The activities of the Corporate Lending division mainly pursued three directions:
nFocussing the activity on higher value transactions reserved under the new rules for Centrobanca; n Development of synergies with the Commercial Banks of UBI and with primary institutions
such as Real Estate Investment Funds and with leading operators in the Solar energy sector with regard to the Mini Project;
n management of credit risk and loan positions showing the first indications of financial vulnerability.
With regard to the first two objectives, despite the unfavourable economic environment the validity of the model of integration with the Corporate Network of Gruppo UBI allowed the Group to achieve the volume and yield objectives set for 2010.
Risk management and monitoring of the entire Corporate Lending loan portfolio was stepped up in order to put in place the necessary precautions to safeguard the loans granted, agreeing with the Parent Company the extraordinary review of major positions with particular reference to real estate transactions financed on a “completion of work” basis.
Assisted Finance activity during the year primarily involved the management of the existing direct portfolio and that of its associates; preliminary assessments primarily related to some interventions on Competitiveness Development projects (Economic Development Ministry) and Industrial Research (Universities and Research Ministry)
The agreement with the Universities and Research Ministry expired on 31 December 2010 and the bank did not participate in the competitive bidding tender issued last August. The agreement with the Economic Development Ministry for the transactions governed by Law 46/82 will expire in July 2011 and the issue of a new competitive bidding tender is expected for the selection of new assisted finance managers.
45 new requests received under Law 46/82 are being considered involving a total investment of more than ¤ 90 million.
Corporate Lending
Acquisition & Project Finance
- acquisition finance
- project finance
Corporate Finance
Lending
TOTAL
Type of transaction
Value %
Change %Net loans issued
Dec. 2010 Dec. 2009
Value %
21.4%
-21.8%
134.5%
90.4%
-18.0%
0.5%
28.4%
13.2%
15.2%
15.6%
56.0%
100.0%
23.4%
16.9%
6.5%
8.2%
68.3%
100%
503.4
363.6
139.8
176.7
1,467.9
2,148.0
613.3
285.4
327.9
337.2
1,208.8
2,159.4
Annual Report 2010 • 11
The Corporate Finance division is dedicated to the medium sized corporate sector to which it is capable of providing a wide range of highly complex and innovative financial services, particularly in structuring ad hoc financial products to satisfy the client’s specific requirements of an extraordinary nature and to support the client in realising projects for growth.
Particular attention is dedicated to the core Corporate clients of the banks belonging to the Group, which work in close collaboration with the banks, as they represent a natural source of opportunity and development potential
During the financial year 2010, which continued to be characterised by a complex market scenario but one which also showed significant signs of recovery, there was a growing flow of transactions in the renewable energy sector (above all in solar and wind energy), typical of structures of project financing. The standing of the Bank and of the Group is now consolidated in this sector through the achievement of significant results further confirmed by the substantial pipeline of transactions expected in 2011.
Acquisition and LBO transactions in the mid-cap segment, in contrast with the opening months of the year which still reflected market uncertainty, showed important signals of recovery in the second half of the year and greater activity by specialised operators, which resulted in a greater number of transactions. However, operations continued to be selectively oriented towards transactions with a moderate risk profile and characterised by a high level of standing and profitability for the Bank.
This division’s activity, as a whole, continues to be characterised by constant attention to the preservation of high margins, increased procedural efficiency and the continual monitoring and containment of risk.
The Investment Banking division, dedicated to medium sized businesses, incorporates a series of highly specialised and innovative financial services which are capable of satisfying the requirements of corporate clients seeking to achieve growth involving extraordinary transactions (capital interventions) or corporate restructurings.
2010 provided confirmation of the consolidation of Centrobanca’s position in this sector with a strategy that is more focussed on mid-corporate rather than big deals and the consequent improvement in execution capacity in particular in support of the Group’s clients.
There was an improvement, compared with 2009, in the number of mandates received during the year (50 mandates compared to 40 in 2009); with an increase in the contribution of Advisory and M&A due to synergies with the Network Banks of the Group.
2010 was a particularly critical year for capital markets and the activity of the Capital Markets division was impacted by the negative economic climate. Despite this unfavourable environment the bank participated in the placing of ENEL Green Power, the only IPO transaction of significance during the year, with brilliant results in retail participation and was involved in placings and underwriter in several capital increases, notably including that of Terni Energia. In addition, for the first time, the bank participated, as manager, in some institutional EMTN (Euro Medium Term Note) bond issues, including those of Lottomatica and Sias.
Centrobanca continued to act as a specialist for a number of companies although rationalized its activities and it now operates as specialist for 12 companies listed on various markets.
Investment Banking
Corporate Finance
Mergers & Acquisition/Advisory
Capital Markets
- advisory
- specialist
TOTAL
+ 42.3%
- 7.1%
+ 80.0%
- 55.6%
+ 25.0%
N° mandates/transactions acquired during the year Change %
37
13
9
4
50
Dec. 2010 Dec. 2009
26
14
5
9
40
12 • Annual Report 2010
Advisory and Merger & Acquisition activities carried out in 2010 produced results in line with previous years, despite the fact that the M&A market remained weak during the year with some signs of recovery emerging only towards the end of the financial year.
Advisory activity therefore continued to contribute positively, both in the area of restructuring, in which 5 transactions were completed successfully, and with other products, notably including certification of renewable energy projects, in close synergy with the other areas of the bank involved in the growth experienced by this sector last year.
During 2010 the provision of derivative instruments to hedge risks deriving from the adverse trend of interest rates, foreign exchange rates or the cost of raw materials, rose significantly compared with the volumes reported during the previous year (the total notional amount trade rose +15.6% during 2010).
Thsi growth was made possible by the particular market conditions that allowed both corporate and retail Clients to put in place hedging transactions that, as a result of the crisis, produced attractive results. The growth of the Retail segment was particularly notable (notional amounts rose +106.2% compared with the previous year).
Despite the continuing crisis that weighed on equity investments by institutional clientts in Italy, the 2010 result for Equity Sales was better than in 2009, particularly due to the increase in counterparties and the change in depositary arrangements that resulted in savings in settlement and clearing costs. Within this market context, Equity Sales traded volumes rose to ca. ¤ 2.3 billion in 2010 compared to ¤ 1.7billion (+35%).
The activity of OTC pricing of interest and exchange rate derivatives by the Market Making desk, following a first half characterised by strong aversion to risk, reflected a reversal of the previous trend from September, with a trend that took rates to the levels of end-2009 in just three and a half months, with a consequent sharp increase in volatility.
These conditions of uncertainty generated higher demand for hedging with a positive effect on market making flows, favouring a trend of flows, and related revenues, that was more homogeneous and less volatile.
In addition, market making activity of bonds began in 2010, following a successful pilot period that confirmed the potential of this business segment in terms of profitability for Centrobanca.
In terms of asset financing 2010 opened with an initial reduction in the cost of bond issuance, a decline, however, that was reversed in the second half. Treasury fund raising activities concentrated on the issue of bond securities for a total of ¤ 2.8 billion, with average duration of 5-6 years, in line with the structural balance objectives of the bank and the ALM (asset and liability management) policies of the Parent Company. In addition, interbank financing activity, co-ordinated with the UBI Finance division, concentrated on the lengthening of expiry terms on interbank deposits.
Finance and Markets
Corporate and Retail
Otc Derivatives
Pair trades
Corporate clients
- Interest rates and other
- Exchange rates
Retail clients
TOTAL
+ 5.8%
- 20.7%
+ 61.0%
+ 106.2%
+ 15.6%
2,958
1,498
1,460
622
3,580
N° ops. Notional
value
Change 09-10 %
2,071
517
1,554
3,295
5,366
Dec. 2010 Dec. 2009
+ 49.9%
+ 29.6%
+ 58.1%
+ 135.5%
+ 93.0%
1,382
399
983
1399
2,781
2,795.3
1,888.2
907.1
301.7
3,097
N° ops. Notional
value
N° ops. Notional
value
(*) Activity in 2008 by the ex BL network alone(**) Figures for 2008 are the aggregate of activity by the ex BPU network and the ex BL network
Annual Report 2010 • 13
Private equity/merchant banking activity continued during 2010 with the management of the existing portfolio and with an increase in invested capital
IWBank - The shareholding in IWBank was originally acquired as part of the private equity activities and was then subsequently classified for IAS purposes in the balance sheet item “Shareholdings” to reflect the fact that it is jointly controlled by Gruppo UBI and Centrobanca. Centrobanca reduced its shareholding in IWBank to 23.5% in 2009.
The Group’s negative net result for the year ended 31 December 2010 was - ¤ 4.4 million, down from the result of ¤ 0,3 million reported for the year ended 31 December 2009. It should be noted that the result for the period includes costs from non-recurring events and the reorganisation of some business activities amounting to a total of ¤ 6.2 million which had a negative impact on the net profit of ¤ 5.8 million.
The trading margin in 2010 was ¤ 67.9 million, down by 11.9% compared to the ¤ 77.1 million reported for the year to 31 December 2009, mainly due to a lower contribution from the interest margin. Impairment charges on loans, equal to ¤ 1.0 million, were sharply down (-83.9%) compared to the ¤ 6.0 million at 31 December 2009.
Operating costs of ¤ 67.0 million were down 3.4% net of non-recurring items (¤ 65.9 million in the year to 31 December 2009).
Loans to clients, at 31 December 2010, amounted to ¤ 207.0 million representing an increase of more than 31% compared with ¤ 157.4 million at 31 December 2009. Indirect client deposits rose by 25.6% compared with the figure at end-2009, to ¤ 3.099 million (¤ 2.467 million at 31 December 2009).
At 31 December 2010, the Bank had about 105,842 active accounts, representing an increase of 7% compared with the position at December 2009.
Private equity
IW Bank Spa
Humanitas Spa*
Ecas (ex Techosp Clinical Serv.)*
Immobiliare Mirasole ord. (ex ACH IMM.)*
Immobiliare Mirasole priv. (ex ACH IMM.)*
Pellegrini Group Spa*
Pama Spa*
Frittelli Maritime Group
Biocell Center Spa
Other shareholdings
TOTAL INVESTMENTS
Private equity investments
/ Mechant Banking Value % holding
Change %2010 2009
Value % holding
* Investments managed with the assistance of the subsidiary Centrobanca Sviluppo Impresa Sgr
- 6%
+ 9%
+ 8%
+ 22%
- 83%
+ 5%
23%
9.1%
8.8%
37%
78%
7%
9%
11%
8%
2.2
24.2
2.3
24.1
13.6
12.1
5.5
1.6
1.0
0.1
86.7
23%
9.1%
8.8%
37%
78%
7%
9%
11%
2.2
25.7
2.3
22.2
12.6
9.9
5.5
1.6
-
0.6
82.5
14 • Annual Report 2010
Humanitas S.p.A. / E.C.A.S. S.p.A. - The Humanitas Group is one of the leading hospital companies in the Italian private healthcare sector which manages 6 clinics (all accredited with the SSN) located in Lombardy, Piedmont and Sicily. The Humanitas clinic in Milan also incorporates a University department
The draft results for 2010 reveal, in terms of management accounting, revenues of ¤ 445 million confirming the solidity of the aggregate Humanitas and ECAS business.
The net financial position is absolutely reassuring, even if slightly higher than the position at end-2009, entirely attributable to the trend of net working capital (ASL receivables are paid at year-end).
The robust financial position allows the Group to devote particular attention to the acquisition opportunities presented to it by the market, which the Group reviews very selectively.
Ecas, which only carries out private activity, reported further growth in both sales and margins, as anticipated in its budget plan.
IMMOBILIARE MIRASOLE S.p.A. (ex. ACH IMMOBILIARE S.p.A.) - This company’s main activity is the management of the real estate relating to the operation of the Humanitas and TCS clinics.
The result for the 2010 financial year, given the high degree of visibility available to management, is in line with the Budget for the period with sales of ¤ 25.5 million, representing growth compared to 2009 (¤ 21.4 million).
On 01.12.2010 a Merger agreement was signed according to which IMMOBILIARE MIRASOLE S.p.A. incorporated the subsidiary ICT IMMOBILIARE S.p.A., The merger became effective on 01.01.2010.
Taking account of the fact that ICT IMMOBILIARE was 97.016% owned by IMMOBILIARE MIRASOLE, the transaction involved an exchange of shares which resulted in non-controlling minority shareholders of ICT becoming owners of 0.734% of the share capital of IMMOBILIARE MIRASOLE S.p.A.
On 16 December 2010 the acquisition of land in Bergamo was completed involving a total investment of ¤ 3.3 million. It should be noted that this area is strategically important for the possibility of building a car park (capacity of about 300 vehicles) in the immediate vicinity of the owned buildings which host the Gavazzeni Clinics.
Further minor ordinary and extraordinary maintenance interventions on property were also approved, as well as updates on work in progress on some properties in the Rozzano and Turin complexes (Cellini Clinic).
The company’s Business Plan was reviewed last November in view of the aforementioned postponement of investments which necessitated a waiver request to the pool of banks (led by Centrobanca S.p.A.) for the extension of the remaining amount of Line D (about ¤ 16.5 million) of the total financing of ¤ 240 million.
The Exit process for this investment runs from 01.01.2014, from which date, till 30.06.2014, the HUMANITAS group holds a CALL option to purchase from Centrobanca and Aedes the shares held by them in Immobiliare Mirasole S.p.A.. In the event that the aforementioned CALL option is not exercised, Centrobanca S.p.A. will have the right to sell 100% of the company on the market.
2010 fcst.2009
RevenuesEbitdaNet Financial Position
445.0
56.1
-18.7
458.5
56.9
-11.3
Humanitas S.p.A./ECAS
Main economic and financial data
2010 fcst.2009
RevenuesEbitdaNet Financial Position
25.5
8.6
-210.9
21.4
16.5
-210.6
Immobiliare Mirasole S.p.A.
Main economic and financial data
Annual Report 2010 • 15
Pellegrini S.p.A. - This is the vehicle that was used to acquire 100% of the capital of PELLEGRINI S.p.A.. Centrobanca holds 7% of Pellegrini Group for a total investment of ¤ 6,667,500.
Revenues for the year were ¤ 414 million representing an increase of about 6% compared with the previous year, due to the notable growth of some divisions (Cleaning, Card) and the comprehensive containment of costs.
The Net Financial Position improved compared to 2009 due, on the one hand, to the increased revenue contribution of the Card division, which generates positive net cash flow, and on the other to lower investments following the stability of catering division revenues. The Net Financial Position at year-end was about ¤ 42 million following the ¤ 8.4 million repayment of the bond and repayment of ¤3.8 million of Senior Debt.
Pama S.p.A. - The investment in Pama S.p.A. was completed on 5 August 2009 for a total consideration of ¤ 5,525,000, with the acquisition from the company’s historical shareholders of no. 510 shares representing 8.5% of Pama’s capital.
This transaction is part of Gruppo UBI’s strategy of investment and support for medium sized companies characterised by high growth and industry leadership.
Pama S.p.A, based in Rovereto (TN) is amongst the world’s leading producers of horizontal spindle reaming/milling machines for processing large scale mechanical components used in the energy, earth moving and mechanical engineering industries.
2010 was a year of consolidation for PAMA following its excellent performance in previous years due to the less efficient management of industrial production following the postponement of some deliveries requested by some clients. The value of production for the year was ¤ 140 million, which was lower than the result for 2009 and lower than the budget for 2010.
However, the trend of the order portfolio, the real “barometer” of the company’s trend, revealed a better than expected result for 2010. At the end of 2010 the order backlog was about ¤ 201million, which should fully utilise production capacity in 2011.
Car Testing S.A. - This Luxembourg company controls the PROTOTIPO group, which provides highly specialised engineering services to the automobile industry. In particular it provides reliability and testing services to the world’s leading automobile producers. The parent company Prototipo S.p.A. operates in the region of Turin (Trofarello), while its 100% subsidiary Nardò Technical Center s.r.l. owns and operates the distinctive Nardò test circuit in the southern province of Lecce.
There were encouraging signs of recovery in 2010, revenues were ¤ 24.9 million and the final result revealed a profit of ¤ 0.4 million. The 2010 Budget objectives were achieved and surpassed, taking the full company back to its pre-crisis levels of profitability, even though the volume of business was still well below the revenues reported for 2008.
2010 fcst.2009
RevenuesEbitdaNet Financial Position
140.5
17.1
-25.5
155
24.9
-20.0
Pama S.p.A.
Main economic and financial data
2010 fcst.2009
RevenuesEbitdaNet Financial Position
414.0
31.9
-42.3
390.6
31.4
-55.2
Pellegrini Group S.p.A.
Main economic and financial data
16 • Annual Report 2010
The Budget for 2011 is for substantial stability in revenues, but with a different mix of activities, so that company margins expressed in terms of Ebitda are expected to be slightly lower than in 2010. In addition, investments are planned to improve the technical-industrial skills set offered to international clients in the core markets.
The company’s Net Financial Position declined due to the gradual exhaustion of the installment plan relating to prior years’ tax and social security arrears; this should take the NFP/EBITDA ratio to less than 4x, allowing a degree of self-financing to be dedicated in part to new investments.
2010 fcst.2009
RevenuesEbitdaNet Financial Position
24.9
4.2
-16.7
22.4
2.2
-18.3
Car Testing
Main economic and financial data
Annual Report 2010 • 17
The items shown in the reclassified balance sheet correspond to those in the draft balance sheet with the exception of the extrapolation of the bank debt of the subordinate deposit account.
CAPITAL STRUCTURE
Loans and Assets:
Loans to customer
- financing
- securities
- other credits
Loans to banks
- financing and deposits for pooled operations for customers
- securities
- current accounts, cds and other
Financial assets:
- assets for trading
- debt securities
- equity securities - shareholdings
- derivatives for trading
- embedded derivatives
- avaible for sale assets
- debt securities
- equity securities - shareholding
Shareholdings
- in being
Property and other tangible assets
Other intangibles
Funding with charges:
Securities in ussue
- bonds
- certificates of deposit (cds)
Due to banks
Due to customers
Subordinated liabilities
Financial liabilities for trading
- derivatives for trading
- embedded derivatives
Hedging:
- Hedging derivative assets
- Hedging derivative
- adjustment of asset value with general
cover -
customer financing
Dec. 10 vs Dec. 09Dec. 2010 Dec. 2009
+ 19.9%
- 1.1%
+ 362.4%
+ 8.2%
+ 11.9%
+ 5.4%
- 19.0%
- 1.3%
+ 20.7%
+ 33.1%
+ 7.1%
- 31.6%
+ 0.0%
+ 9.1%
+ 1485.7%
6,973.7
15.6
57.9
229.0
15.7
222.2
19.9
92.6
265.5
21.8
535.0
2.2
6.3
-3,994.2
-166.9
-247.5
-21.8
8,522.9
7,047.2
466.9
937.0
399.9
537.1
6.3
59.4
6.1
-7,886.3
-4,161.1
-3,244.1
-11.7
-200.0
-269.4
-2.1
112.1
-120.9
6.5
6,909.3
10.5
52.9
211.4
1,671.4
276.1
15.4
112.2
306.0
14.1
557.3
8.8
5.1
-5,411.7
-127.5
-279.9
-14.1
10,216.3
6,972.7
2,158.9
1,013.7
447.6
566.1
5.1
58.6
7.2
-9,514.9
-5,539.2
-3,473.7
-8.0
-200.0
-294.0
-33.4
135.6
-175.1
6.1
18 • Annual Report 2010
Customer Loans at 31 December 2010 totalled ¤ 6,972.7 million, slightly down (1.1%) compared to the position at the same date in 2009.
The composition of the stock of loans to customers in 2010 was similar to that at December 2009, with a slight reduction in Corporate Lending (-1.5%) and Corporate Finance (-1.1%) offset by an increase in Acquisition & Project Finance (+0.6%) supported by growth in Project Finance.
The breakdown by sector and economic activity reveals a decline in almost all sectors apart from the share represented by non-financial companies (+3.2% compared with December 2009). There was a sharp contraction in lending to the banking and financial sector (-29.1% compared with December 2009) which was related to the reduction in consumer lending.
The breakdown by geographical area confirms the results of the analysis of flows of lending: the North West continues to represent the highest share (+8.5% compared with December 2009), growth in the share represented by the North East (+16.1% compared with December 2009) and a decline in the share represented by non-residents (-34% compared with December 2009) as a result of the reduction in structured finance lending on the Euromarket.
Loans to customers
Acquisition & Project Finance
Corporate Finance
Lending
Other loans
TOTAL
Operation by type
Value %
Change %
Dec. 10 - Dec. 09
Value %
Outstanding loans
Dec. 2010 Dec. 2009
0.6%
-1.1%
-1.5%
-34.8%
-1.0%
29.1%
10.7%
59.8%
0.3%
100.0%
2,032.2
743.9
4,172.8
23.8
6,972.7
28.7%
10.7%
60.1%
0.5%
100.0%
2,020.6
752.3
4,237.8
36.5
7,047.2
States and public entities
Banks and financial entities
Families and other
Non financial entities:
- agricolture
- manufacturing
- building and costruction
- services and commerce
TOTAL
Economic sector
Value %
Change %
Dec. 10 - Dec. 09
Outstanding loans
Dec. 2010 Dec. 2009
Value %
-9.25%
-29.1%
-2.2%
3.2%
-1.1%
0.4%
8.8%
3.3%
87.4%
1.0%
31.8%
3.7%
38.1%
100.0%
29.4
615.8
231.8
6,095.7
68.4
2,214.6
256.4
2,660.0
6,972.7
0.5%
12.3%
3.4%
83.9%
0.6%
44.7%
3.0%
35.6%
100.0%
32.4
868.2
237.0
5,909.5
41.4
3,151.2
209.2
2,507.7
7,047.2
North West
North East
Centre
South
Islands
Non-Residents
TOTAL
Geographical area
Value %
Change %Outstanding loans
Dec. 2010 Dec. 2009
Value %
+ 8.5%
+ 16.1%
- 13.7%
+ 19.0%
+ 70.4%
- 34.0%
- 1.1%
45.3%
13.8%
15.7%
9.7%
2.6%
12.9%
100.0%
3,157.6
959.9
1,094.3
675.0
183.9
901.8
6,972.7
41.3%
11.7%
18.0%
8.1%
1.5%
19.4%
100.0%
2,911.5
826.5
1,268.2
567.3
107.9
1,365.7
7,047.2
Annual Report 2010 • 19
The “Acquisition and Project Finance” segment includes “leveraged finance” loans represented by financing for companies or initiatives that involve a level of debt greater than that considered usual by the market and which, therefore, carries greater risk. Such financing is usually utilised for specific acquisition objectives (e.g. acquisition of companies by other companies - directly or through vehicles/funds - led by internal management (buy in) or external managers (buy out) and characterised by “non investment grade” ratings (less than BB) and/or by repayments that are greater than normal market levels.
In accordance with the Group’s business model, structured finance activities are centralized in Centrobanca. In order to render this organisational model operative, a dedicated unit has been set up in Centrobanca and a specific policy has been adopted which is intended to combine the attainment of budgeted objectives for volumes and profitability with supervision of related risk. In summary, the activity is based on a complete platform definition which is reviewed annually, sub-divided on the basis of the class of rating of the transaction in accordance with pre-established maximum percentages
The system of limits is determined in such way as to seek greater diversification of the highest credit risk levels and particular attention is given to the concentration of individual nominated risks, both internal to Centrobanca and collectively within Gruppo UBI (the so-called “Group of the Group” concept). Adequate guidelines and suitable supervision are provided both with reference to sectoral concentration that must be consistent with the Group’s credit policy, as well as in relation to the duration/amortisation of the operations themselves.
At end December 2010, the exposure by cash and consent of leveraged finance (shown below together with “Acquisition e Project Finance”) led by Centrobanca, totaled ¤ 905 million, representing a reduction compared to the ¤1,285 million reported at December 2009.
The following charts illustrate the distribution of leveraged finance exposure by sector and by geographical area.
Leveraged Finance
Geographical breakdown Sector breakdown
4% USA and Messico 21% Europe
75% Italy
39% Service and Commerce
61% Manufacturing
Leveraged finance
impairmentutilised
Gross credit consent exposure
to clients
Gross cash credit exposure
to clients
utilised impairment
-6.0853.0 -7.7 51.9
20 • Annual Report 2010
At 31 December 2010 the net total of “doubtful debts” totalled ¤ 437.8 million, in line with the value reported at December 2009 (+1.4%).
The ratio of doubtful debts to total loans rose to 6.3% compared with 6.1% at December 2009.
Given these figures that are, in absolute and in percentage terms, in line with 2009, the following items illustrate the change in composition of the various stages of default:
nNet doubtful loans rose by 71.2% due, in particular, to the reclassification of positions previously included amongst watch-list loans such as those relating to Mariella Burani Family Holding and Mariella Burani Fashion Group and Eutelia Spa. The ratio of net doubtful loans to total net loans rose by 0.7% to 1.2%;nWatch-list loans declined significantly by -34% due to the aforementioned reclassification to
doubtful loans and restructured positions, which reduced the percentage of these loans on total loans by one percentage point; nThe restructured loans segment rose sharply to ¤ 168.4 million (+249.2%) following inclusion
of some performing (in bonis) loan positions. This trend increased the ratio of restructured loans to total doubtful debts to 2.4% compared with 0.7% at December 2009;nExpired positions were sharply down compared to December 2009 (-62.7%). It should be noted
that expired positions , as defined by the Bank of Italy circular no. 272/2008 applied from 30 December 2009, allows for the definition of exposure on the basis of the client and not by individual relationshipe and also the inclusion of the portion 90/180 days overdue.
The coverage ratio for doubtful debts was 48.0% compared with 44.3% at December 2009. The coverage ratio, at the level of doubtful loans, fell to 81.7% from 84.1% at December 2009.
With reference to the bankruptcy proceedings involving Mariella Burani Family Holding S.p.A. - MBFH, Burani Designer Holding N.V. - BDH, Burani Private Holding S.p.A. - BPH, Mariella Burani Fashion Group S.p.A. - MBFG, a definitive ruling has admitted Centrobanca’s claim, to the liability involving all procedures regarding the loan relating to financing granted in August 2008 to MBFH relating to the public tender offer (OPA) for shares in MBFG, as well as loans relating to other financing granted to MBFG between March 2004 and June 2007. It should also be noted that the exposure to Gruppo Burani was adjusted by ¤ 47 million, the charge being imputed to the financial statements for 2009.
The top 50 clients at 31 December accounted for 41.9% of loans, representing a stable but slight increase on the underlying trend (40.5% at 31 December 2009). The concentration of the top 10 clients at 31 December 2010 was 16.8% which also reflects a slight increase compared to December 2009.
Credit quality
(*) the percentage covered is equal to the ratio of adjustments to gross credits
Non performing
Watch-list
Restructured
Overdue
DOUBFUL LOANS
Loans in bonis
Countries at risk
LOANS IN BONIS
TOTAL IN LOANS
Gro
ss c
red
it
% o
f ne
t tot
al
Change % Dec. 10 - Dec. 092010 2009
% c
over (*
)
Net
cre
dit
Gro
ss c
red
it
% o
f ne
t tot
al
% c
over (*
)
Net
cre
dit
% o
f ne
t tot
al
% c
over (*
)
Net
cre
dit
Customer loans
81.2
144.2
168.4
44.0
437.8
6,521.3
13.6
6,534.9
6,972.7
443.9
175.6
178.6
44.2
842.3
6,550.2
13.9
6,564.1
7,406.4
1.2%
2.1%
2.4%
0.6%
6.3%
93.5%
0.2%
93.7%
100.0%
81.7%
17.9%
5.7%
0.4%
48.0%
0.4%
2.2%
0.5%
5.9%
299.2
305.2
53.1
118.5
776.0
6,644.9
1.8
6,646.6
7,422.6
47.4
218.3
48.2
117.9
431.9
6,613.8
1.5
6,615.3
7,047.2
0.7%
3.1%
0.7%
1.7%
6.1%
93.9%
0.0%
93.9%
100.0%
84.1%
28.5%
9.3%
0.5%
44.3%
0.5%
15.5%
0.5%
5.1%
71.2%
-34.0%
249.2%
-62.7%
1.4%
-1.4%
800.1%
-1.2%
-1.1%
0.5%
-1.0%
1.7%
-1.0%
0.2%
-0.3%
0.2%
-0.2%
0.0%
-2.4%
-10.6%
-3.6%
-0.1%
3.7%
0.0%
-13.3%
0.0%
0.8%
Annual Report 2010 • 21
At 31 December 2010, the balance of loans to banks was ¤ 2.159 million, sharply higher than at the same date in 2009.
The increase is most evident in the item, “Securities” following the purchase of Ubi bonds carried out as part of the bond raising activities conducted on behalf of the Parent Company.
The performance of financial assets, represented by securities and receivables and directly attributable to activity to service corporate clients, is illustrated below and classified by balance sheet category according to IAS criteria.
Equity securities - This category includes both the holdings acquired in the course of merchant banking operations, and the equity shareholdings attributable to Capital Market activity. The change relative to December 2009 is primarily attributable to the higher value of investments forming part of the merchant banking and investment banking activities, particularly the purchase of a shareholding in Vallourec (¤ 19.9 million), a position that was however liquidated at the start of 2011.
Derivatives for trading - The total market value of these is almost entirely attributable to hedging derivatives for clients of Gruppo UBI where Centrobanca acts as a specialised skills “product factory” between the market and the Network Banks. The amount and changes thereto are matched with a corresponding entry under tradeable financial liabilities.
Loans to banks
Financial assets
Loans to banks
- Client pooled financing and cds
- Securities
- current accounts deposit
accounts and other
TOTAL
Value %
Change %
Dec. 10 - Dec. 09
Outstanding loans
Dec. 2010 Dec. 2009
Value %
-7.7%
n.s.
-24.3%
362.4%
9.8%
77.4%
12.8%
100.0%
211.4
1,671.4
276.1
2,158.9
49.0%
3.4%
47.6%
100.0%
229.0
15.7
222.2
466.9
Debt securities
Equity securities
Derivatives for trading
Embedded derivatives
TOTAL
Change % Dec.10 - Dec. 09Financial assets for trading
(e million)
2010 2009
- 22.6%
+ 21.1%
+ 15.2%
- 35.3%
+ 11.9%
15.4
112.2
306.0
14.1
447.7
19.9
92.6
265.5
21.8
399.9
Humanitas
Ecas (ex Techosp Clinical Serv.)
Immobiliare Mirasole Ord. (ex Ach Imm.)
Immobiliare Mirasole Priv. (ex Ach Imm.)
Pellegrini Group Spa
Pama Spa
Frittelli Maritime Group
Biocell Center Spa
Cogeme Spa
Meridie Spa
Arkimedica
Vallourec SA
Other shareholdings
TOTAL
Financial assets held for trading Change %2010 2009
- 5.8%
+ 8.5%
+ 8.5%
+ 22.2%
- 38.1%
- 4.0%
- 15.4%
- 65.3%
+ 21.1%
24.2
2.3
24.1
13.6
12.1
5.5
1.6
1.0
2.6
2.4
1.1
19.9
1.7
112.1
25.7
2.3
22.2
12.6
9.9
5.5
1.6
-
4.2
2.5
1.3
-
4.9
92.6
22 • Annual Report 2010
Embedded derivatives - These are embedded options in structured financial instruments which are matched by corresponding amounts included under financial liabilities.
Available for sale financial assets
Debt securities - This item includes corporate bonds from activities related to the strategic role of the Bank in supporting businesses.
The investment policies of the Corporate Bonds Portfolio during 2010 - 72.5% composed of investment grade companies - were refocussed on the captive client base of the Group, with investments targeted on Italian corporate issuers and leading European companies with commercial operations and subsidiaries in Italy.
In addition, the dramatic slowdown in the deterioration of credit quality that occurred in 2010, primarily illustrated by a net reduction in the number of cases of default at a systemic level and the consequent tightening of credit spreads on corporate issues, resulted in a recovery in the value of the bonds.
Equity securities - This category includes shareholdings which are not controlling shareholdings and which are not held as part of the Private equity business.
The change compared to December 2009 relates to the merger by incorporation of 100% of the subsidiary CB Invest and the reduction in the shareholding in Group Srl from 20% to 14.3% representing an exit from shareholdings subject to significant influence.
Centrobanca Sviluppo Impresa SGR - The activities of the subsidiary, which reported a net profit for 2010 of ¤ 0.3 million, are focussed on:
1. managing the portfolio of investments of the Fondo Sviluppo Impresa (6 shareholdings at the start of the year subsequently reduced to 5 following the sale of the shareholding in Giugno 2008 Srl);
2. providing consultancy services to the parent Centrobanca S.p.A. for its Private Equity holdings (at year end it had 5 investments of which 2 were held jointly with the Fund and 3, relating to a single corporate group [Humanitas, Ecas and Immobiliare Mirasole], were held separately);
3. promotion of the new Closed End Investment Fund “SVILUPPO ENERGIA”, reserved for qualified investors. The objective being to raise funds of ¤ 30 million, for investment in companies engaged in the alternative energy sector.
Investments
(*) Control exercised by the Parent Company UBI
Debt securities
Equity securities
TOTAL
Change % Dec. 10 - Dec. 09Available for sale financial assets Dec. 2010 Dec. 2009
+ 4.2%
+ 300.0%
+ 5.4%
557.3
8.8
566.1
535.0
2.2
537.1
Exclusively controlled shareholdings
CENTROBANCA SVIL. IMPRESA SGR
Jointly controlled
UBI SISTEMI E SERVIZI
TOTAL
Shareholdings subject to significant influence
IW BANK SPA (*)
TOTAL
TOTAL SHAREHOLDING
N. shares ValueShareholding % holdingYear
acquired
100.0%
1.48%
23.5%
20.000
1.000.000
17.297.576
2,162.9
776.3
2,939.2
2,169.9
2,169.9
5,109.1
2002
2008
2003
Annual Report 2010 • 23
The following operations were carried out during 2010, as part of investment portfolio management on behalf of Fondo Sviluppo Impresa: n subscription to a capital increase by Gatto Astucci Spa aimed at financing expansion of of its
business operations through an acquisition, which increased its shareholding from 53.68% to 58.47%;n purchase of a further shareholding in Car Testing Spa for a symbolic value taking its shareholding
to 50%;n divestment of the shareholding in Giugno 2008 srl generating a capital gain of ¤ 1.2 million.
IW Bank SpA - The shareholding in IW Bank was originally acquired as part of the Group’s private equity activities and was subsequently classified for IAS purposes amongst “Shareholdings” to reflect the joint control exercised by Gruppo UBI and Centrobanca over this company. Centrobanca reduced its shareholding to 23.5% during 2009.
At 31 December 2010 the Group’s net result was - ¤4.4 million, down from the ¤ 0.3 million reported for the year to December 2009.
The main forms of Centrobanca funding are securities issues (bonds and certificates of deposit) and recourse to short term interbank lending made available by the Parent Company. Debt to other banks is almost entirely composed of certificates of deposit with guarantees closely linked to lending activity and derivatives trading on behalf of the clients of Gruppo UBI.
There was an increase in interest bearing funding with charges at the year end compared to December 2009 (+21.1%). This increase is partcularly attributable to:
n the financial requirement to rebalance the proportion of short term funding with medium and long term funding, within the parameters set by regulations in force and the limits established by Parent Company policy;n the development of funding activity conducted on behalf of the Parent Company carried out
by placing Centrobanca securities through third party networks and the simultaneous purchase of UBI bonds with the same characteristics.
During 2010, despite the expiry of a total of ¤ 570 million of its own securities, Centrobanca placed ¤ 2.8 billion of its own securities, primarily through third parties, to finance expansion of its assets, of which ¤ 1.66 billion was transferred to the Parent Company as part of the aforementioned service activities.
During 2010, in accordance with the Parent Company’s risk and liquidity management policies, Centrobanca gradually increased the term of its interbank funding from UBI underwriting deposits of 6/9 months which substitute very short term and demand deposits.
Funding with charges includes a subordinated loan of ¤200 million with expiry in 2014 from the Parent Company, recognised as part of Regulatory Tier 2 capital.
Funding with charges
Securities in issue:
- bonds
- certificates of deposit
Due to banks:
- to UBI
- to other banks
Subordinated liabilities (tier 2)
Due to clients
TOTAL
Value %
Change% Dec. 10 - Dec. 09
Value
Dec. 2010 Dec. 2009
Value %
Funding with charges
+ 35.5%
- 23.6%
+ 33.1%
+ 8.4%
- 48.6%
+ 7.1%
- 31.6%
+ 21.0%
54.6%
42.6%
2.6%
0.2%
100.0%
3.994.2
166.9
4.161.1
3.167.6
76.6
3.244.1
200.0
11.7
7.616.9
60.1%
37.7%
2.2%
0.1%
100.0%
5,411.7
127.5
5,539.2
3,434.3
39.4
3,473.7
200.0
8.0
9,220.9
24 • Annual Report 2010
As for the assets, available for sale financial liabilities are composed of the following:n the market value of derivatives which are the hedging derivatives for clients of Gruppo UBI
where Centrobanca acts a specialist skills centre between the market and the network banks of the Group. The amount of and changes in these items is substantially in line with the matching entry under tradeable financial assets. n embedded derivatives in structured financial instruments which are matched by corresponding
amounts included under financial assets.
Hedging transactions, part of ALM, are undertaken to minimise financial risk deriving from the varied composition of assets and liabilities in terms of expiry, indexation and currency. In particular, they cover three areas:
1) Coverage of structured and fixed rate loans to bring the cost into line with non-option levels and money market levels (essentially 3 or 6 month Euribor rates). Notional value of ¤ 4,641 million (+85% compared to 2009);
2) Coverage of structured or fixed rate corporate bonds to bring yields into line with the market and without option components. Notional value of ¤ 483 million (+7% compared to 2009).
3) Specific cover of the amount of fixed rate financing that exceeds an amount with similar characteristics through interest rate swaps. The remaining contracts have a notional value of ¤ 80.6 million (-6% compared to 2009) in aggregate and notional value of ¤ 133.2 million (+1% compared to 2009) for the specific microcover quota.
Financial liabilities
Hedging derivatives
Annual Report 2010 • 25
The income statement items included in the reclassified financial statements correspond to those in the draft income statement with the exception of the amount relating to tax rebates which is net of both administrative expenses and management income.
Centrobanca generated a gross operating margin of ¤ 108.2 million for the financial year ended 31.12.2010 (¤ 140.9 million for the year ended 31.12.2009) composed of operating income of ¤
163.2 million (down by 17.8% compared to the ¤ 198.5 million reported for the year ended 31.12.2009) and operating costs of ¤ 55.0 million (compared to ¤ 57.6 million in the year ended 31.12.2009).
The Pre-tax profit was ¤ 31.5 million compared to ¤ 44.5million reported for the year ended 31.12.2009; the net profit for the year was ¤ 16.2million compared to ¤ 28.04 million in the previous year (-42.4%).
The main features of the Income statement are described below:
During the year the Bank took action to counteract the pressure on interest margins from low interest rates by adopting selective growth in lending activity and a careful pricing policy
The interest margin in the year to 31 December was ¤ 100.2 million, down by 20.6% compared with the result for the year to December 2009. The ratio of interest margin to total income declined slightly from 62.8% last year to 61.4%.
The contraction in interest margins was the result of the decrease in margins on yield-bearing assets (¤ -41.4 million compared to December 2009) due to the following factors:n The contraction in loans to clients the average amount of which was 4.1% lower than at
December 2009;n The yield curve which was less favourable than the situation in the first six months of 2009
that was more positive on mark-up. The mark up on Euro denominated loans to clients fell to 1.98% compared with 2.48% in December 2009..
ECONOMIC TRENDS
Interest margins
Interest margin
Dividends
Net commission
Trading
Hedging
Profit/loss from sale/rep. of loans and fin. assets/liabs.
Trading, Hedging and other
Other operating
Operating
Personnel
Other administrative
Total other administrative
Impairment/value ad.to material
Operating expences
Operating result
Net adjustments to the value of loans
Net adjustments to other financial
Net provisions for risks and charges
Profit/loss from shareholdings
Pre-Tax profit/loss of continuing operations
Tax for the period on continuing
Profit/loss for the period
Income statement
(e ‘000)
2010 2009
Change %
reclassified
Accounting Reclassification Reclassified
2010 2009
Impostasostitutiva
2010 2009
100,212
1,532
42,102
14,270
6,956
(7,215)
14,011
8,721
166,579
(32,957)
(24,421)
(57,378)
(1,003)
(58,381)
108,198
(65,430)
(3,564)
(7,669)
(15)
31,520
(15,367)
16,153
100,212
1,532
42,102
14,270
6,956
(7,215)
14,011
5,349
163,207
(32,957)
(21,049)
(54,006)
(1,003)
(55,009)
108,198
(65,430)
(3,564)
(7,669)
(15)
31,520
(15,367)
16,153
126,192
3,686
40,890
21,950
3,515
(1,201)
24,264
3,543
198,575
(33,449)
(23,234)
(56,683)
(993)
(57,676)
140,899
(112,386)
(2,476)
679
17,798
44,513
(16,471)
28,042
-20.6%
-58.5%
3.0%
-35.0%
97.9%
n.s
-42.3%
51.0%
-17.8%
-1.5%
-9.4%
-4.7%
1.0%
-4.6%
-23.2%
-41.8%
43.9%
n.s
-100.1%
-29.2%
-6.7%
-42.4%
126,192
3,686
40,890
21,950
3,515
(1,201)
24,264
5,856
200,888
(33,449)
(25,548)
(58,997)
(993)
(59,990)
140,899
(112,386)
(2,476)
679
17,798
44,513
(16,471)
28,042
(3,372)
3,372
(2,314)
2,314
26 • Annual Report 2010
Despite this environment, the Bank succeeded in containing the aforementioned negative effects through careful attention to its loan pricing policy thanks to which it succeeded in keeping the all-in spread of new loans granted (180bp, which was 13bp higher than that of December 2009) and in increasing the supplementary components of margins such as commissions for “non-use” which supported the profitability of loans during the year.
The shape of the yield curve, in contrast to its effect on yield-bearing assets, had a beneficial effect on interest-bearing liabilities which, at December, revealed a mark-down that was 42 basis points lower than that in 2009, which in total generated benefits for the margin although these were insufficient to offset lower income from yield-bearing assets. The mark-down of interest bearing liabilities were also depressed by ALM initiatives implemented during the last quarter of the year aimed at re-balancing the structure of deposits from short to medium-long term, in particular by lengthening the term of interbank funding.
Finally, the components of interest margin include the receipt of late interest payments of about ¤ 5.9 million relating to the recovery of value in disputed transactions.
Compared to last year the results for 2010 reveal a reduction in operating income other than interest margin (-15.7% from ¤ 74.6 million to ¤ 62.9 million).
The decline in dividends (-58.5%) is primarily attributable to lower contributions from IW Bank and the investments forming part of the private equity division (Humanitas).
Operating income (other than
interest margin)
Euribor 1 mm (benchmark)
Loans to clients in euro
Loans to cients in other currencies
Securities (corporate bond)
Total int. baring assets
Total int. bearing assets
Securities in issue (po & cd)
Interbank funding in foreign currencies
Interbank funding
Total int. bearing liabs.
Free capital
Gross interest margins
Late payment interest and other
Net interest margin
Ave
rag
eva
lue
Change 2010/2009Balance Dec. 2010
Mar
gin
(e million)
Interest margins consuntivo 2009
mar
k up
/do
wn
Ave
rag
eva
lue
Mar
gin
mar
k up
/do
wn
Ave
rag
eva
lue
Mar
gin
mar
k up
/do
wn
-37,7
1,6
-2,9
-2,4
-41,4
20,4
0,0
12,3
32,7
-1,9
-10,6
-15,4
-26,0
0.57%
1.98%
1.41%
1.44%
0.00%
1.81%
-1.08%
0.79%
-0.14%
-0.62%
0.57%
1.22%
6.261,8
543,3
551,0
353,6
7.709,7
3.894,8
19,4
3.559,2
7.473,4
236,2
124,0
7,7
8,0
0,0
139,6
-42,0
0,2
-4,8
-46,7
1,4
94,3
5,9
100,2
6.529,4
654,3
513,3
307,2
8.004,2
3.833,9
144,3
3.670,5
7.648,7
355,5
0.93%
2.48%
0.93%
2.11%
0.77%
2.26%
-1.63%
0.09%
-0.47%
-1.04%
0.93%
1.31%
161,7
6,1
10,9
2,4
181,0
-62,4
0,1
-17,1
-79,3
3,3
104,9
21,3
126,2
-267,7
-111,0
37,7
46,5
-294,5
61,0
-124,9
-111,3
-175,2
-119,3
-0.35%
-0.50%
0.48%
-0.67%
-0.77%
-0.43%
0.55%
0.70%
0.33%
0.42%
-0.35%
-0.09%
(*) from shareholdings acquired as part of private equity and capital market operations
(**) profit net of sales of non-performing loans and securities that are not part of private equity
Dividends (*)
Net commissions
Net result from trading activities
Income from services/corporate asctivity
Other
Net result of hedging activity
Profit/loss on sale/repo of financial assets/liabs. (**)
Other operating income/expenses
Other income
Total operating income (other than interest margin)
Change %2010 2009
(e ‘000)
-58.5%
3.0%
-35.0%
-13.0%
97.9%
500.7%
51.0%
-13.4%
-12.6%
1,532
42,102
14,270
57,904
6,956
(7,215)
5,349
5,090
62,995
3,686
40,890
21,950
66,526
3,515
(1,201)
3,543
5,875
72,383
Annual Report 2010 • 27
Net Commissions in the year to 31 December totalled ¤ 42.1million, an increase of 3.1% compared to the previous year.
The component deriving from lending activity was the most profitable due to the contribution from commissions on financing driven by structured finance, and from project finance in particular which became the area generating the highest commission returns for the bank (31% of commissions on lending).
The component deriving from Investment Banking activity, which declined slightly compared to December 2009, is due to a) the underwriting contribution from Capital Markets, b) Advisory and M&A debt restructuring consultancy services and c) the recovery in Equity Sales trading activity with third parties which generated better results than last year.
The trading result of ¤ 14.2 million, was 35% lower than in 2009. This result is primarily attributable to:n The result of corporate and retail derivatives sales which was significantly higher than in
2009 (+46.2%) particularly due to hedging of Centrobanca direct flows originated as part of its structured finance operations;n Profits from OTC derivatives pricing provided by the market making desk (+22.5% compared
to December 2009);n Revaluations of investments in the private equity portfolio, totalling ¤ 0.9 million, of which ¤
+2.2 million relates to the investment in Pellegrini Spa and ¤ -1.5 million Humanitas;n Capital losses in the proprietary portfolio (¤ -6.4 million) attributable to both the equity
component of the portfolio (¤ -4.8 million, of which Cogeme ¤ -2.4 million and Meridie ¤ -1.1 million ) and the bond component (Eurinvest ¤ -1.0 million).n The result of rate transactions, equal to ¤ 1.8 million, is attributable to capital gains on ALM
transactions on interest rate and foreign exchange risk.
Hedging transactions generated a positive net result of ¤ 6.9 million, mainly relating to the unwinding of hedging positions relating to the repurchase of own seurities (¤ 7.4 million) which offset losses from the sale/repurchase of own securities recognised amongst sale/repurchase of financial assets/liabilities (¤ -3.7 million).
Hedging of AFS
Unwinding of liabilities
Hedging of financing and liabilities
NET HEDGING RESULT
Variazione %2010 2009
(e ‘000)
Income from OTC transactions
Result of market making
Income from Private equity
Income form the Investment banking portfolio
Result from interest rate transactions
NET TRADING RESULT
Change %2010 2009
(e ‘000)
Commission from lending activity
Commission from investment banking
Commission from other services
NET COMMISSION
Change %2010 2009
(e ‘000)
3.9%
-2.8%
1.2%
3.0%
35,113
5,454
324
40,891
36,474
5,300
328
42,102
46.2%
22.5%
-85.8%
n.s.
3.0%
-35.0%
11,547
6,475
869
(6,453)
1,832
14,270
7,898
5,284
6,137
853
1,779
21,950
-39.7%
121.9%
-109.5%
97.9%
(404)
7,440
(79)
6,957
(670)
3,353
832
3,515
Profit/loss from the sale/repo of financial
Sale of
Sale of
PROFIT/LOSS FROM THE SALE/REPURCHASE OF FIN.
n.s.
n.s.
n.s.
500.7%
Variazione %
(3,725)
(5,307)
1,817
(7,216)
2010 2009
0
(59)
(1,142)
(1,201)
(e ‘000)
28 • Annual Report 2010
The negative result relating to the item profit/loss from the sale/repurchase of financial assets/ liabilities, in addition to the aforementioned component, is composed of:n A profit of ¤ 1.8 million relating to the sale of corporate bonds classified as afs (available for
sale);n Losses on the sale of non-performing loans (totalling ¤ -5.3 million, of which OC Oerlikon for
¤ -1.8 million and Arketipo ¤ -3.5 million).
The item “other management income and expense” includes income relating to the recovery of legal expenses incurred by the bank totalling ¤ 2.1 million and income (¤ 2.3 million) relating to the income from the price adjustment relating to the sale of the investment in Radici Film, prudentially neutralised by the corresponding provision to the reserve for risks and charges.
Total Operating expenses in the period to 31 December were down by 4.6% compared to the 2009 financial year, particularly due to the reduction in Other Administrative Expenses which declined by 9.4% while Personnel costs fell by 1.5%.
Personnel costs in the period to December 2010 were down -1.5% compared to 2009 as the average number of employees was 13 less than in the previous year.
Costs were contained despite the impact of some extraordinary items as a result of a) lower bonuses and incentives b) a reduction of 9 employees who took advantage of early retirement schemes c) lower utilisation of temporary employees and external consultants and d) the efficient management of staff turnover and less expensive hirings.
The average unit cost per employee nevertheless rose from ¤ 95,000 in 2009 to ¤ 98,000 in 2010 as a consequence of the aforementioned extraordinary costs.
The average number of employees at end 2010 was 338 compared to 351 at end-2009. The main trends affecting employment levels in 2010 were:
(e ‘000)
Operating expenses
Personnel costs
Personnel costs
Other administrative costs
TOTAL ADMINISTRATIVE COSTS
Net adj. to the value of tangible and intangible assets
TOTAL OPERATING EXPENSES
Change %2010 2009
(e ‘000)
- 1.5%
- 9.4%
- 4.7%
+ 1.0%
- 4.6%
32,957
21,050
54,006
1,003
55,009
33,449
23,234
56,683
993
57,676
Personnel costs
Wages and salaries
National insurrance and vouchers
Training
Temporary staff and collaborators
Directors remuneration
Redundancy fund
Statutory auditors remuneration (*)
TOTAL
Change %2010 2009
(*) In 2008 statutory auditors’ remuneration was included in Other costs while in 2009 they are included in Personnel costs.
- 1.3%
- 3.2%
- 68.2%
- 100.0%
+15.7%
- 85.0%
- 2.8%
- 1.5%
30,073
1,510
49
-
1,147
4
173
32,947
30,477
1,560
154
63
991
27
178
33,449
Personnel costs
Total costs
Average number of employees
Average unit cost
Change %2010 2009
(e ‘000)
- 1.5%
- 3.8%
+ 3.1%
32,957
338
98
33,449
351
95
Annual Report 2010 • 29
n With regard to staff structure, the efficiency of the Governance structure and operating structure affected by the early retirement incentives; n With regard to the business, the rationalisation of the Corporate Lending structure, also
following the revision of the operating perimeter of traditional lending activity.
In total at 31 December 2010, the ratio of employees dedicated to business as a proportion of the entire work force was 56%.
The careful monitoring of the trend in direct costs and constant cost management measures put in place during the year, allowed the bank to reduce Other Administrative expenses which were down 9.4% compared with the previous year.
The operational breakdown of administrative expenses into indirect costs (managed by Group Companies) and direct costs (managed by Centrobanca), reveals a 4.9% reduction in indirect costs. This category also includes the containment of costs relating to outsourcing of Parent Company services and a reduction in Group IT services costs, which benefited from the deductability of IVA deriving from the establishment of the UBISS consortium in which Centrobanca and its partners participate.
Direct costs fell by -13% compared to 2009; and reflect: a) structural growth in operational IT costs, relating to access to the Stock Market and to trading platforms, and to project costs, which this year again focussed on the usual mandatory areas (compliance, Basle, Investment Services, tecnological innovation P&C) and b) a sharp reduction in business support costs, primarily legal and consultancy costs deriving from initiatives to optimise the input of the relevant professionals, despite the existence of disputes that have reached a critical stage.
Other administrative expenses
(e ‘000)
Change %2010 2009
General management
Compliance and Istitutional Affairs
Lending Authority
Governance and Operating structure
Commercial co-ordination
Business Intelligence
Corporate Finance
M&A
Capital Markets
Fianance and Markets
Derivatives
Corporate Lending
Non performing loans
TOTAL WORKFORCE
AVERAGE
4
10
43
86
18
10
29
13
10
20
14
54
14
325
338
6
9
44
91
19
10
29
13
12
20
13
71
14
351
351
- 2
+ 1
- 1
- 5
- 1
- 2
+ 1
- 17
- 26
- 13
Other administrative costs
Expenses for infragrup professional services
Expenses for infragup IT services
TOTAL indirect costs
IT operating expences
General services operating expenses
Business support expenses
Project completion expenses
TOTAL Centrobanca direct costs
TOTAL OTHER ADMINISTRATIVE COSTS
Change %2010 2009
- 29.2%
+ 1.3%
- 4.9%
+ 1.6%
- 9.8%
- 20.3%
+ 1.9%
- 13.0%
- 9.4%
1,476
8,288
9,764
1,684
3,519
5,250
834
11,287
21,050
2,086
8,181
10,267
1,657
3,901
6,591
818
12,968
23,234
30 • Annual Report 2010
Adjustments to net values for impairment in loans and financial
assets/liabilities
Impairment adjustments to the net value of loans to clients at 31 December totalled ¤-65.4 million compared to ¤ -112.4 million in 2009 (making a total improvement of 41.8%) and is made up of net analytical adjustments of ¤ -68.2 million (¤ -104.8 million at December 2009) and recovery of value on the collective cash component of ¤ 2.8 million (¤ -6.7 million at December 2009).
The cost of credit at 31 December fell to -0.94% compared to -1.58% at December 2009.
The analytical component of impairment adjustments to loans concentrated particularly on some positions of significant size: the top 5 positions represent about 40% of the total analytical adjustment (the top three positions relate to Gruppo Landi ¤ -10.4 million, Gruppo Mariella Burani ¤ -6.0 million and Gruppo Abm Merchant ¤ -4.7 million). The analytical recovery in value of cash loans amounted to ¤ 4.6 million, down from the ¤ 6.6 million reported in 2009.
The total amount of collective inpairment in 2010 shows a declining trend. The reserve declined from ¤ 36.8 million at December 2009 to ¤ 32.5 million at end-2010, giving a ratio of reserve to carrying amount (utilised for signed and guaranteed, as well as loans to be granted) which fell from 0.46% at end-2009 to 0.40% at end-2010, symptomatic of a gradual improvement in the quality of performing (in bonis) loans. This trend allowed the bank to recognise recovery in value of cash loans in its income statement totalling ¤ +2.8 million compared to charges of ¤ -6.7 million last year.
Net provisions to reserves for risks and charges at end-2010 were ¤ -7.6 million, of which ¤ 2 million relates to risk positions regarding Mariella Burani and ¤ 2.7 million relates to risk positions regarding TD Group. A further ¤ 2.3 million of provisions were also inserted prudentially relating to the receipt of the price adjustment relating to the sale of the investment in Radici Film.
The loss from investments relates to the liquidation of the company H&G, an investment belonging to Medinvest SpA incorporated in Centrobanca during 2010. The figure for 2009, equal to ¤17.8 million, was entirely attributable to profits from the sale to Webstar S.A. of 7.7 million shares in IW Bank (representing 10.5% of the capital) which were acquired as part of the private equity portfolio and subsequently classified under “Investments” in accordance with IAS criteria.
Profits/lossfrom investments
Analytical write-downs
Analytical write-backs
Net Analytical adjustments
Analytical adjustments to L&R securities
Collective adjustments to cash credits
Adjustments to net value of loans
Other value adjustments
TOTAL value adjustments
Change %2010 2009
(e ‘000)
-34.6%
-29.5%
-34.9%
-91.2%
n.s.
-41.8%
+43.9%
-39.9%
-72,876
4,657
-68,219
-76
2,866
-65,429
-3,564
-68,993
-111,391
6,609
-104,782
-866
-6,738
-112,386
-2,476
-114,862
Annual Report 2010 • 31
Taxes amounting to 51.5% of gross pre-tax profit was higher than last year (37%), and reflects the different and broader taxable base for IRES corporate income tax which in 2009 benefited from the realisation of significant “pex” (participation exemption) capital gains on the sale of investment assets (IW Bank SpA). The difference between the theoretical income tax rate (32.32%) and the effective tax rate is due particularly to the non-deductability for IRAP purposes of adjustments to the value of loans which again remained at a significant level in 2010.
In order to facilitate the analysis of the economic trend of the Bank, in accordance with Consob Communication no. DEM/6064293 of 28 July 2006, a normalised schedule has been included to illustrate only the economomic impact of the main non-recurring items. The normalisation for 2010 concerns the costs relating to early retirement schemes that affected the Bank (and the Group) during the year. Figures for 2009 have been normalised from the impact of the capital gain relating to the sale of IW Bank, an investment that was originally acquired as part of the Private Equity portfolio (and subsequently reclassified amongst “Investments” in view of the control held by Gruppo Ubi), as well as the tax factors (deductability of Irap and the tax effect of non-recurring items).
The 2009-2010 income statements have been reclassified with the elimination of non-recurring items and those that are not part of the bank’s normal operations in order to show comparable figures.
Taxes for the year
Income Statement normalised for non-recurring items
Early retirement
Profit/loss from investments
Taxes for the period
TOTAL INCLUDING TAXES
20092010Item affected
Integration costs
Profit from sale of IW Bank
Deductability of 10% IRAP
Tax effect on non-recurring component
Non-recurring
(e ‘000)
-
(17.798)
(813)
270
(18.341)
611
-
-
(168)
443
32 • Annual Report 2010
On a normalised basis, the operating costs were ¤ 54.4 million (-5.7% compared to 2009) and the bank’s Net profit was ¤16.5 million compared to ¤ 9.7 million at December 2009 (+71.1%).
Interest margin
Dividends
Net
Net trading result
Net hedging resut
Profit/loss on sale/repo of loans and financial assets and liabil.
Hedging, trading and other
Other operating income/expense
Operating income
Personnel costs
Other administrative costs
TOTAL ADMINISTRATIVE COSTS
Net adjustments to the value of tangible and intangible fixed assets
Operating expenses
Operating result
Impairment charges to
Impairment charges to other financial
Net provisions for risks and
Profit/loss from shareholdings
PRE-TAX PROFIT/LOSS FROM CONTINUING OPERAT.
Tax for the period on continuing operations
PROFIT/LOSS FOR THE PERIOD
Cost/Incom
Cost of
ROE (annual)
Variazione %2010 2009Reclassified normalised income statement
(e ‘000)
126,192
3,686
40,890
21,950
3,515
(1,201)
24,264
3,543
198,575
(33,449)
(23,234)
(56,683)
(993)
(57,676)
140,899
(112,386)
(2,476)
679
0
26,715
(17,014)
9,701
29.0%
-1.6%
1.7%
-20.6%
-58.5%
3.0%
-35.0%
97.9%
n.s
-42.3%
51.0%
-17.8%
-3.3%
-9.4%
-5.8%
1.0%
-5.7%
-22.8%
-41.8%
43.9%
n.s
n.s
20.3%
-8.7%
71.1%
4.3%
0.7%
1.2%
100,212
1,532
42,102
14,270
6,956
(7,215)
14,011
5,349
163,206
(32,346)
(21,050)
(53,396)
(1,003)
(54,398)
108,809
(65,430)
(3,564)
(7,669)
(15)
32,131
(15,535)
16,596
33.3%
-0.9%
2.9%
Annual Report 2010 • 33
SHAREHOLDERS' FUNDS Total Shareholders’ Funds at year-end were 1.5% lower than those reported at end-2008.
The change is attributable in particular to the reduction of net negative differences in the reserve of valuations in previous years, due to the recovery in market value of the corporate bond portfolio calssified amongst available for sale financial assets.
The share capital is composed of 336,000,000 shares.
It has been decided to propose that the net profit for the period of ¤ 16,152,939 be allocated as follows:
Shares
Allocation of profit for the year
5% to Legal reserve 807,646.97Eur 0.046 dividend payable to 336,000,000 shares in circulation 15,456,000.00Remainder to the “Retained profits” Reserve -110,707.53
16,152,939.44
Capital
Reserves
Revalutation reserve
Profit (Loss) for the period
TOTAL
NET EQUITY NET OF RESULT FOR THE
369,600
234,258
-29,305
28,042
602,595
574,553
Change %
369,600
235,756
-28,233
16,153
593,276
577,123
2010Item
(importi in migliaia di euro)
+ 0.0%
+ 0.6%
- 3.7%
- 42.4%
- 1.5%
+ 0.4%
2009
(*) The “Retained profits” reserve would be reduced from e 464,073 to e 353,365.
34 • Annual Report 2010
Given the proposed allocation of profit for the year, the regulatory capital is as follows:
The Regulatory capital at 31 December 2010 was ¤ 731.1 million, down by 5% compared to the previous year (¤ 769.8 million at December 2009). Given the susbstantial stability of basic capital, the decline compared to the figure reported at December 2009 is attributable in particular to the 20% reduction (equal to ¤ 40 million) in the contribution to regulatory capital of the subordinated deposit underwritten by the Parent Company with expiry in 2014.
Excess capital declined compared to 31 December 2009, (from ¤ 261.5 million to ¤ 208.4 million) as a result of:n The aforementioned reduction in regulatory capital;n An increase of 2.6% in total prudential requirements as a result of the increase in market risk
(+46%), prevalentemente concentrato sui titoli di debito.
The ratio calculated on basic capital (core tier 1) was 6.54% (vs 6.71% at December 2009), while the total ratio calculated on regulatory capital (Total capital ratio) was 8.40% (vs 9.08% at December 2009), which nevertheless remains above the minimum level required by banks belonging to a banking group (6,0%).
Regulatory capital and capital requirements
Base Capital (narrow definition)
Intangible fixed assets
Negative reserve for AFS securities
Shareholdings in banks & financial companies to be deducted
Base Capital (a)
Revalutation reserve
Reserves for computable AFS securities
Subordinated liabilities
Other
Shareholdings in banks & financial companies to be deducted
Supplementary Capital (b)
Regualatory Capital (c) = (a+b)
Total risk requirements (**)
- Credit risk
- Market risk
risk on debt securities held
risk on equity securities held
exchange rate risk
other market risk
- Other risk requirements
- Operating risk
- Reduction for banks belonging to groups
Free capital
Risk weighted assets (RWA) (d) (Total requirement/6%)
Base capital / RWA (a/d)
Regulatory capital / RWA (c/d)
+ 0.1%
+ 18.3%
- 3.7%
+ 0.1%
- 20.0%
- 19.6%
- 5.0%
+ 2.6%
+ 0.8%
+ 46.0%
- 0.2%
+ 2.6%
- 20.2%
+ 2.6%
- 0.2%
- 0.7%
Change %
606.1
(7.2)
(29.3)
569.6
1.7
160.0
(0.1)
161.6
731.1
522.2
627.5
42.0
23.4
12.8
5.8
26.8
(174.1)
208.4
8,703.1
6.54%
8.40%
2010 2009
(**) main amendments introduced in March 08 by Basel 2 for banks belonging to groups:
- credit risk calculated as 8% (previously 7%); subsequent reduction to 6%
- introduced operating risk (% intermediation margin differentiated by line of business)
605.4
(6.1)
(30.5)
568.8
1.7
0.3
200.0
0.1
(1.1)
201.0
769.8
508.8
622.8
28.8
16.0
11.0
1.8
26.8
(169.6)
261.0
8,480.0
6.71%
9.08%
Annual Report 2010 • 35
At 31.12.2010 compared with that at 31.12.2009
FINANCIAL STATEMENTS
BALANCE SHEET
(46.3%)
11.9%
5.4%
362.4%
(1.1%)
21.0%
(9.6%)
(18.7%)
(1.3%)
18.3%
18.3%
3.4%
(24.6%)
10.3%
(16.7%)
19.4%
%
6.7%
(32.0%)
33.1%
9.1%
44.7%
(28.7%)
(17.8%)
(57.6%)
19.7%
(6.1%)
35.0%
(9.2%)
37.1%
3.7%
0.6%
-
(42.4%)
19.4%
10.
20.
40.
60.
70.
80.
90.
100.
110.
120.
130.
150.
10.
20.
30.
40.
60.
80.
100.
110.
120.
130.
160.
180.
200.
39,649
399,861,106
537,143,243
466,930,537
7,047,209,624
112,074,333
6,768,812
6,286,235
59,395,404
6,079,462
6,079,462
87,225,415
17,164,109
70,061,306
77,060,559
8,806,074,379
3,444,132,996
11,706,395
4,161,059,207
269,370,585
120,944,027
15,743,423
11,409,727
4,333,696
152,797,673
5,722,878
22,002,537
1,001,176
21,001,361
(29,304,852)
234,257,693
369,600,000
28,041,817
8,806,074,379
Cash and cash equivalents
Financial assets held for trading
Financial assets available for sale
Loans to banks
Loans to customers
Hedging derivatives
Value adjustments to generically hedged financial
assets (+/-)
Shareholdings
Tangible assets
Intangible assets
of which:
- goodwill
Tax assets
a) current
b) prepaid
Other assets
TOTAL ASSETS
Due to banks
Due to customers
Debt securities in issue
Tradeable financial liabilities
Hedging derivatives
Tax liabilities
a) current
b) deferred
Other liabilities
Employment termination fund (TFR)
Provisions for risks and charges
a) retirement provisions
b) other provisions
Revaluation reserve
Reserves
Share capital
Profit/ Loss for the period (+/-)
TOTAL LIABILITIES AND NET EQUITY
(18,348)
47,771,875
28,991,936
1,692,016,246
(74,531,274)
23,535,147
(649,763)
(1,177,098)
(778,526)
1,113,139
1,111,809
2,988,113
(4,214,506)
7,202,619
(12,901,023)
1,706,360,424
-
229,590,600
(3,744,291)
1,378,139,468
24,639,232
54,110,445
(4,524,432)
(2,026,554)
(2,497,878)
30,123,002
(349,653)
7,694,840
(92,254)
7,787,094
1,072,274
1,497,817
-
(11,888,878)
1,706,360,424
Change 31.12.10 versus 31.12.09
Assets 31.12.2010 31.12.2009Absolute change % change
Change 31.12.10 versus 31.12.09
21,301
447,632,981
566,135,179
2,158,946,783
6,972,678,350
135,609,480
6,119,049
5,109,137
58,616,878
7,192,601
7,191,271
90,213,528
12,949,603
77,263,925
64,159,536
10,512,434,803
3,673,723,596
7,962,104
5,539,198,675
294,009,817
175,054,472
11,218,991
9,383,173
1,835,818
182,920,675
5,373,225
29,697,377
908,922
28,788,455
(28,232,578)
235,755,510
369,600,000
16,152,939
10,512,434,803
31.12.2010 31.12.2009Absolute change % change
Liabilities and Net Equity
36 • Annual Report 2010
Income statement for the year to 31.12.2010 compared with that to 31.12.2009 INCOME STATEMENT
STATEMENT OF COMPREHENSIVE
INCOME
10.
20.
30.
40.
50.
60.
70.
80.
90.
100.
120.
130.
140.
150.
160.
170.
180.
190.
200.
210.
240.
250.
260.
270.
290.
Voci 31.12.2010 31.12.2009
Interest income and similar income
Interest costs and similar expenses
Interest margin
Commission income
Commission expenses
Net commissions
Dividends and similar income
Net result of trading activities
Net result of hedging activities
Prof/loss from sale or repurchase of:
a) loans
b) available for sale financial assets
Net trading result
Adjustments to net values for deterioration in:
a) loans
b) available for sale financial assets
c) other financial operations
Net result of financial operations
Administrative expenses:
a) personnel expenses
b) other administrative expenses
Net provisions for risks and charges
Adjustments to net values of tangible assets
Adjustments to net values of intangible assets
Other operating expenses/ income
Operating expenses
Profit/loss on shareholdings
Profit/loss on disposal of investments
Profit/loss from continuing operations before taxes
Income taxes for the period on continuing operations
Profit/loss from continuing operations net of taxes
Net profit/loss for the period
Absolute change % change
Change 31.12.10 versus 31.12.09
Profit (loss) for the period
Other components of income net of taxes
Available for sale financial assets
Tangible assets
Intangible assets
Hedging of foreign investments
Hedging of financial flows
Exchange rate differences
Non-current assets in process of sale
Actuarial profit (loss) on defined benefit plans
Share of the investment valuation reserve valued at net equity
Total other components of income net of taxes
Comprehensive income (items 10 + 110)
28,041,817
57,327,824
-
-
-
(925,518)
-
-
72,097
-
56,474,403
84,516,220
31.12.2010 31.12.200910.
20.
30.
40.
50.
60.
70.
80.
90.
100.
110.
120.
16,152,939
321,759
-
-
-
892,046
-
-
(141,531)
-
1,072,274
17,225,213
(14.5%)
(9.7%)
(20.6%)
3.2%
6.2%
3.0%
(58.5%)
(35.0%)
97.9%
500.7%
n.s.
n.s.
n.s.
(19.1%)
(39.9%)
(41.8%)
n.s
57.4%
10.8%
(2.7%)
(1.5%)
(4.4%)
n.s
1.0%
48.9%
7.2%
n.s
n.s.
(29.2%)
(6.7%)
(42.4%)
(42.4%)
288,277,337
(162,085,281)
126,192,056
43,522,711
(2,632,629)
40,890,082
3,686,435
21,949,633
3,515,181
(1,201,140)
(59,000)
(1,142,140)
-
195,032,247
(114,862,297)
(112,385,974)
(361,807)
(2,114,516)
80,169,950
(58,996,580)
(33,449,077)
(25,547,503)
678,791
(993,296)
5,856,224
(53,454,861)
17,797,657
150
44,512,896
(16,471,079)
28,041,817
28,041,817
246,561,657
(146,349,608)
100,212,049
44,896,915
(2,794,673)
42,102,242
1,531,546
14,270,499
6,956,212
(7,215,220)
(5,306,793)
1,817,105
(3,725,532)
157,857,328
(68,993,468)
(65,429,564)
(234,710)
(3,329,194)
88,863,860
(57,378,053)
(32,956,613)
(24,421,440)
(7,669,047)
(1,002,950)
8,721,310
(57,328,740)
(14,899)
-
31,520,220
(15,367,281)
16,152,939
16,152,939
(41,715,680)
15,735,673
(25,980,007)
1,374,204
(162,044)
1,212,160
(2,154,890)
(7,679,134)
3,441,031
(6,014,080)
(5,247,793)
2,959,245
(3,725,532)
(37,174,920)
45,868,829
46,956,410
127,097
(1,214,678)
8,693,909
1,618,527
492,464
1,126,063
(8,347,838)
(9,654)
2,865,086
(3,873,879)
(17,812,556)
(150)
(12,992,676)
1,103,798
(11,888,878)
(11,888,878)
Annual Report 2010 • 37
STATEMENT OF CHANGES IN NET EQUITYAT 31 DECEMBER 2010
Reserves
Share Capital:
a) ordinary shares
b) other shares
Share price premium
Reserves:
a) retained profits
b) other shares
Revaluation reserve:
Equity securities
Treasury shares
Profit for the period
Net Equity
369,600,000
369,600,000
-
-
234,257,693
124,215,166
110,042,527
(29,304,852)
-
-
28,041,817
602,594,658
Allocation
of previous year profits
-
-
1,497,817
1,497,817
-
(1,497,817)
-
Balance at
all’1.1.2010
Dividends and
other distributions
Changes
in reserves
(26,544,000)
(26,544,000)
369,600,000
369,600,000
-
-
234,257,693
124,215,166
110,042,527
(29,304,852)
-
-
28,041,817
602,594,658
Balance at
al 31.12.2009
Change
in opening
balance
-
-
-
-
-
-
-
- -
38 • Annual Report 2010
New
shares issued
Purchase
of own shares
Derivatives
on own
shares
Distribution of
Extraordinary
Dividends
Changes
in Equity
securities
Stock
options
Net Equity Operations Changes in the period
Comprehensive
income
for the period
Net Equity at
al 31.12.2010
1,072,274
16,152,939
17,225,213
369,600,000
369,600,000
-
-
234,755,510
125,712,983
110,042,527
(28,232,578)
-
-
16,152,939
593,275,871 - - - - - -
Annual Report 2010 • 39
CASH FLOW STATEMENTINDIRECT METHOD
106,563,814
28,041,817
(46,372,607)
(3,515,181)
111,395,390
993,297
(449,981)
16,471,079
-
-
463,837,705
(1,512,801)
-
(20,784,797)
107,526,883
(10,606)
329,715,464
48,903,562
(538,812,948)
718,232,591
(1,908,555,215)
(624,871)
747,139,354
26,776,511
-
(121,781,318)
31,588,571
22,440,773
18,754,188
3,686,435
-
150
-
-
(11,017,841)
(1,546,045)
-
(84,594)
(1,424,960)
(7,962,242)
11,422,932
-
-
(43,008,000)
(43,008,000)
3,503
A. Operating activity 31.12.2009
1. Operations
- result for the period (+/-)
- capital gains/losses on financial assets held for trading and on financial assets/ liabilities
valued at fair value (-/+)
- gains/losses on hedging transactions (-/+)
- write-downs/write-backs of net values for impairment (-/+)
- write-downs/write-backs of net values of tangible and intangible fixed assets (+/-)
- net provisions for risks and charges and other expenses/ income (-/+)
- unpaid taxes (+/-)
- write-downs/write-backs of net values, net of any tax effect, of assets in course of divestment (+/-)
- other adjustments
2. Cash generated/absorbed by financial assets
- financial assets held for trading
- financial assets valued at fair value
- available for sale financial assets
- loans to banks: current
- loans to banks: other
- loans to customers
- other assets
3. Cash generated/absorbed by financial liabilities
- due to banks: current
- due to banks: other
- due to customers
- debt securities in issue
- tradeable financial liabilities
- financial liabilities valued at fair value
- other liabilities
NET CASH GENERATED/ ABSORBED BY OPERATIONS
B. INVESTMENT ACTIVITY
1. Cash generated by
- sales of shareholdings
- dividends received from shareholdings
- sales of financial assets held to maturity
- sales of tangible assets
- sales of intangible assets
- sales of business units
2. Cash absorbed by
- purchase of shareholdings
- purchase of financial assets held to maturity
- purchase of tangible assets
- purchase of intangible assets
- purchase of business units
NET CASH GENERATED/ ABSORBED BY INVESTMENTS
C. FUNDING ACTIVITY
- issue/purchase of own shares
- issue/purchase of equity instruments
- dividend distribution and other allocations
Net cash generated/ absorbed by funding activity
NET LIQUIDITY GENERATED/ABSORBED IN THE PERIOD (D = A+/-B+/-C)
LEGEND: (+) generated; (-) absorbed
77,470,905
16,152,939
(27,088,175)
(6,956,212)
71,411,099
1,002,950
7,581,022
15,367,282
-
-
(1,764,727,202)
(4,794,190)
-
(12,289,045)
905,431
(1,692,898,174)
6,696,354
(62,347,578)
1,712,468,120
528,266,690
(298,676,090)
(3,744,292)
1,441,057,582
8,749,722
-
36,814,508
25,211,823
1,531,546
-
1,531,546
-
-
-
-
(217,717)
-
-
(217,717)
-
-
1,313,829
-
-
(26,544,000)
(26,544,000)
(18,348)
31.12.2010
40 • Annual Report 2010
RECONCILIATION
KEY DATAAND RATIOS
Cash and cash equivalents at the start of the period (E)
Total cash generated/absorbed in the period (D)
Cash and cash equivalents : exchange rate effect (F)
Cash and cash equivalents at the end of the period (G = E+/-D+/-F)
36.146
3.503
-
39.649
39.649
(18.348)
-
21.301
Items 31.12.2010 31.12.2009
STRUCTURAL INDICES AND DATA
Net customer loans / total assets
Customer deposits / interbank deposits
Bonds and subordinated loans / mortgages and loans
Net equity (excluding profit for the period) / total liabilities
Average number of employees
Number of branches
VALUE CREATION INDICES
ROE (profit/net equity excluding profit for period)
Rorac
PROFITABILITY INDICES AND DATA
Net profit for the period (e '000)
ROA (profit for the period/total assets)
COST / INCOME (expenses/operating income)
Interest margin / operating income
Personnel expenses / operating income
RISK INDICES
Net non-performing loans / loans to customers
% non-performing loan cover (write-downs / gross non-performing loans)
Net non-performing loans / Regulatory capital
Net non-performing and watch-list loans / loans to customers
% cover of non performing loans + watch-list
CAPITAL RATIOS
Tier 1 (base assets/total weighted assets)
Solvency ratio (Regulatory capital / total weighted capital)
PRODUCTIVITY INDICATORS (e '000)
Total assets / average number of employees
Operating income / average number of employees
Personnel costs / average number of employees
CAPITAL DATA
Net loans to customers
of which: net non-performing loans
Net Equity (excluding profit for the period)
Regulatory Capital
December 2008 Change %December 2009
Reclassified
- 13.70%
+ 29.84%
+ 20.97%
- 1.03%
- 7.4%
- 14.3%
- 2.08%
- 2.41%
- 42.4%
- 0.16%
+ 4.66%
- 2.15%
+ 3.35%
+ 0.49%
- 2.44%
+ 4.94%
- 0.54%
+ 7.59%
- 0.13%
- 0.63%
+ 28.9%
- 11.2%
+ 6.4%
- 1.1%
+ 71.2%
+ 0.4%
- 5.0%
66.33%
151.00%
80.48%
5.49%
325
6
2.80%
3.09%
16.153
0.15%
33.71%
61.40%
20.19%
1.16%
81.71%
11.11%
3.23%
63.62%
6.54%
8.40%
32,346
502
101
6,972,678
81,204
577,123
731,113
80.03%
121.16%
59.52%
6.52%
351
7
4.88%
5.50%
28.042
0.32%
29.05%
63.55%
16.84%
0.67%
84.14%
6.16%
3.77%
56.03%
6.67%
9.03%
25,089
566
95
7,047,210
47,439
574,553
769,812
Annual Report 2010 • 41
Board of Directors
Chairman Andrea Moltrasio
Vice Chairman Giorgio Frigeri, Piero Bertolotto
Directors Adolfo Beneduci (*),Adolfo Beneduci, Argante Del Monte, Massimo Capuano, Luciano Goffi, Victor Massiah,Giuseppe Masnaga, Andrea Pisani Massamormile, Giorgio Ricchebuono, Enrico Minelli(*), Costantino Vitali.
Secretary Marco Trabattoni
Stautory Auditors:
Chairman Luigi Guatri
Acting Auditors Giovanni Frezzotti, Pecuvio Rondini
Supplementary Auditors Alberto Carrara, Marco Confalonieri
Chief Executive Officer Massimo Capuano
Management:
Vice Director General Marco Mandelli
Vice Director General Leonardo Siccoli
Manager responsible for preparing the Company accounts Doriano Cartabia
Independent Auditors: KPMG S.p.A.
(*) Independent Director(**) As of 4th May 2011
COMPANY OFFICERS 2011(**)
42 • Annual Report 2010