Monte Paschi Group

MONTE PASCHI GROUP

Annual Report as at 31 December 2008

Banca Monte dei Paschi di Siena SpA Paid in Capital € 4.486.786.372,26 Tax Code, VAT & Register of Companies of Siena No. 00884060526 Member of the Italian Interbank Deposit Protection Fund. Register of Bank No. 5274 Monte dei Paschi di Siena Banking Group, Register of Banking Groups 1

TABLE OF CONTENTS

CORPORATE OFFICERS, SENIOR MANAGEMENT AND AUDITORS

ANNUAL REPORT AS AT 31 DECEMBER 2008

REPORT ON OPERATIONS

CHAPTER 1 - THE GUIDELINES OF THE 2008-2011 BUSINESS PLAN AND THE START OF THE IMPLEMENTATION STAGE

CHAPTER 2 - A SUMMARY OF THE TRENDS FOR 2008

CHAPTER 3 – THE MPS GROUP PRINCIPLES OF RECLASSIFICATION FOR OPERATING PURPOSES

RECLASSIFIED INCOME STATEMENT AND RECLASSIFIED BALANCE-SHEET

3.1 The Montepaschi Group principles of reclassification as at 31 December 2008

3.2 Reclassified income statement and balance-sheet

CHAPTER 4 - OVERVIEW OF GROUP OPERATIONS

4.1 – The operating scenario

4.2 - Domestic sales and marketing activity, customer portfolio

4.3 - Capital aggregates

4.4 - Income aggregates - Comparative statement of consolidated net assets and profit for the period with the Parent Company’s net assets and profit for the period

4.5 - Segment Reporting, Sales and Marketing Policy and Research and Development

4.6 - Integrated risk and capital management

4.7 - Capital for regulatory purposes and capital requirements

4.8 - The Operating Structure and other information

4.9 – Corporate Governance and other information

4.10 - The MPS Group’s commitment to social responsibility

3 4.11 - EventsMajor EventsSubsequent Subsequent to 31 Decemberto 31 December 2008 2008

4.12 - Future Outlook

REPORT ON THE OPERATIONS OF THE PARENT BANK

CHAPTER 5: OVERVIEW OF THE PARENT BANK’S OPERATIONS

5.1 - The principles of reclassification as at 31 December 2008 – Parent Bank - Banca MPS

5.2 - Reclassified income statement and balance-sheet

5.3 – The Parent Bank’s trends of operations

PROPOSED DISTRIBUTION OF PROFITS FOR 2008

ANNEXES: Comparative statements of reclassified financial statements and accounting documents – MPS Group

Comparative statement of reclassified consolidated income statement as at 31 December 2008 and accounting statements – MONTEPASCHI Group

Comparative statement of reclassified consolidated balance-sheet and accounting statements as at 31 December 2008 and 31 December 2007

ANNEXES: Comparative statements of reclassified financial statements and accounting documents – BMPS Parent Bank

Comparative statement of reclassified income statement as at 31 December 2008 and accounting statements – BMPS Parent Bank

Comparative statement of reclassified balance-sheet as at 31 December 2008 and 31 December 2007 – BMPS Parent Bank

Comparative statement of Primary Segment Reporting as included in the Report on Operations and the Segment Reporting included in Part D of the Notes to the Financial Statement

4 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

Consolidated financial statements

Balance sheet

Income statement

Consolidated cash flow – indirect method

Statement of changes in net equity

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

PART A – ACCOUNTING POLICIES

A1- Generalities

A2-Major accounts of the balance sheet

PART B – INFORMATION ON THE CONSOLIDATED BALANCE SHEET

APPENDIX TO PART B – Estimated fair value of the financial instruments

PART C – INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

APPENDIX TO PART C – Income and charges posted to the consolidated financial statements

PART D – SEGMENT REPORTING

PART E – INFORMATION ON RISKS AND RELATED HEDGING POLICIES

PART F – INFORMATION ON CONSOLIDATED NET EQUITY

PART G – BUSINESS COMBINATIONS

PART H – TRANSACTIONS WITH RELATED PARTIES

AUDITORS’ REPORT

CORPORATE OFFICERS, SENIOR MANAGEMENT, AND AUDITORS

Board of Directors Giuseppe Mussari, Chairman Francesco Gaetano Caltagirone, Deputy Chairman Ernesto Rabizzi, Deputy Chairman Fabio Borghi, Director Turiddo Campaini, Director Lucia Coccheri, Director Lorenzo Gorgoni, Director Andrea Pisaneschi, Director Carlo Querci, Director Pierluigi Stefanini, Director

Board of Statutory Auditors Tommaso Di Tanno, Chairman Pietro Fabretti, Acting Auditor Leonardo Pizzichi, Acting Auditor Carlo Schiavone, Substitute Auditor Marco Turillazzi, Substitute Auditor

Senior Management:

Chief Executive Officer Antonio Vigni Senior Deputy Chief Executive Officer Fabrizio Rossi Deputy Chief Executive Officer Giuseppe Menzi Deputy Chief Executive Officer Marco Morelli Deputy Chief Executive Officer Nicolino Romito Deputy Chief Executive Officer Antonio Marino

Independent Auditors KPMG S.p.A.

REPORT ON OPERATIONS CHAPTER 1: THE GUIDELINES OF THE 2008-2011 BUSINESS PLAN AND THE START OF THE STAGE OF IMPLEMENTATION

1.1 THE GUIDELINES OF THE NEW 2008-2011 BUSINESS PLAN

On 10 March 2008 the Board of Directors of Banca Monte dei Paschi di Siena SpA approved a new Group Business Plan for the period from 2008 to 2011. The new Business Plan aims at enhancing the value of the acquisition of Banca Antonveneta as much as possible, and carrying out an in-depth reorganization within the whole MONTEPASCHI Group. In compliance with the Plan, the Group - although exploiting the results of the business actions contemplated in the 2006-2009 business plan and executed so far - intends to carry out strategic and organization actions breaking with the past, for the purpose of meeting the new market challenges with innovative proposals from the viewpoint of commercial effectiveness and operational efficiency. This is possible as a result of the reorganization introduced by the integration of Antonveneta.

Within this framework, there follows a description of the instruments for achieving the objectives set out by the Plan:

OPTIMIZATION OF DISTRIBUTION

In order to increase commercial effectiveness in the areas with a high natural “franchise”, the Group distribution network is re-designed in accordance with the principle of territorial exclusivity, through the integration of Banca Toscana, Banca Agricola Mantovana and Banca Antonveneta into Banca MPS and the re-design of the organization and distribution structure. Upon completion of this process, which is almost finalized, the Group commercial banks shall be organized as follows:

BMPS, with approximately 2,500 branches resulting from the integration of Banca Agricola Mantovana and Banca Toscana, and the contribution of the branches of Banca Antonveneta not located in north-eastern Italy (Veneto, Friuli Venezia Giulia and Trentino) will be a market leader (market share over 10%) in central Italy and most of southern Italy. Banca Antonveneta, established in Veneto, Friuli Venezia Giulia and Trentino, with abt. 400 branches. Biverbanca, a local bank with 105 branches, the market leader in the provinces of Biella and Vercelli.

THE ENHANCEMENT OF THE VALUE OF THE NEW PRODUCTION STRUCTURE

9 MPS increasingly focuses on the governance of the commercial network. The new production structure pursues the policies started in accordance with the previous Business Plan and in particular:

A clear strategic focus on the Group product companies (i.e. MPS Capital Services, Consum.it, MPS Leasing & Factoring) and the joint ventures (i.e. AXA-MPS Assicurazioni Vita), in a logic of centres of excellence and specialist assistance for the purpose of better meeting the customers’ requirements. The identification of the best products at an international level in an open architecture, through (i) the optimized selection and management of third party suppliers, in particular in the area of Wealth Management, and (ii) the maintenance of the Product Companies, in sole ownership or in partnership with market leaders only.

FURTHER SPECIALIZATION IN THE SUPPLY OF PRODUCTS/SERVICES TO THE CUSTOMERS

Additional specialization of customers’ service shall be achieved through:

The consolidation of product specialists who are complementary to the general network sales force, providing their specialist’s skills and improving the quality and degree of customization of the services rendered to the customers; Specialized assistance to “high ranking” customers (corporates and individuals) having specific service requirements.

STRUCTURAL IMPROVEMENT OF OPERATIONAL EFFICIENCY

Operating costs (actions in relation to human resources and administrative expenses) shall be reduced through:

The corporate and organization integration of Banca Agricola Mantovana, Banca Toscana and Banca Antonveneta into Banca Monte dei Paschi, except for the branches of Banca Antonveneta located in north-eastern Italy (Veneto, Friuli Venezia Giulia and Trentino) and Biverbanca; The reorganization of the whole MONTEPASCHI Group resulting from said integrations, for the purpose of further streamlining the distribution structure and focusing it on commercial operations and sales; The organization centralization of back office, ICT and loan administration activities.

CAPITAL OPTIMIZATION

The Plan is based on the pursuit of a rigorous policy of optimization of the ratio of expected return to the risk taken. This objective shall be pursued through the adoption of a programme to be shared by all

10 corporate units, with the objective of consolidating virtuous commercial policies which can reduce capital absorption at a parity of return. This streamlining policy will result into a less-than-proportional growth of weighted risk assets with respect to the overall growth of the assets and, consequently, into the optimization of allocated capital, thereby encouraging the process of value creation.

BUSINESS REORGANIZATION

In line of continuity with the guidelines of the 2006-2009 Plan, the Group prepared a programme of business reorganization and disposal, which was already implemented partly, with the objective of optimizing capital. In this logic, after the disposal of the investment held in Banca Monte Parma, the Group is partially selling MPS Asset Management SGR and other shareholdings. The programme of disposal shall be completed by the expected sale of 150 branches, in compliance with the requirements of the Antitrust Authority (the Guarantor of Market Competitiveness) after the acquisition of Banca Antonveneta.

1.2 THE PROGRESS OF THE IMPLEMENTATION STAGE

Effective the second quarter of 2008, the Group started a string of strategic projects for the purpose of implementing the Plan in compliance with the guidelines therein indicated. First of all, the process of corporate reorganization started represents the first step in the direction of the alignment of the new structure with the Group strategic vision, by simplifying the terms of governance and optimizing available capital. Therefore, the global Master Plan of the Business Plan which has been defined incorporates all projects to be completed in the next three years, divided into four macro areas of projects:

Network integration: corporate reorganization, integration of the commercial networks and sale of branches Market integration: initiatives of commercial re-launch and credit strategies Efficiency: adoption of the new organization model, initiatives for boosting efficiency in relation to administrative expenses and actions concerning human resources Group capital optimization: funding of the Antonveneta transaction, asset disposals and efficiency- boosting actions for the Group RWA

Following are the major initiatives contemplated:

NETWORK INTEGRATION

11 The integration of Banca Agricola Mantovana into BMPS and the simultaneous transfer of the BAM branches located in north-eastern Italy to Banca Antonveneta were completed at the end of the third quarter of 2008.

Once the purchase of Antonveneta was officially finalized at the end of May, the first step of its integration into Banca Monte dei Paschi was completed in June, with the migration of the IT system, the integration of Finance, IT, Back Office and the Call Center. Banca Antonveneta merged into Banca Monte dei Paschi in December 2008. The following spin-off of “Nuova Banca del Triveneto” completed the process of integration within the MONTEPASCHI Group.

In December 2008, the Group started to work on the integration of Banca Toscana into Banca Monte dei Paschi, expected to occur at the end of the first quarter of 2009. The IT system of Biverbanca will be migrated to the Group IT system in the following months.

MARKET INTEGRATION

In view of a co-ordinated system of initiatives oriented to the full operational and commercial integration of the branches and, more generally, the distribution networks of the integrated Banks (i.e. Banca Agricola Mantovana, Banca Antonveneta and Banca Toscana), the Group has identified a string of specific initiatives by commercial segment for the purpose of re-launching business:

“Retail” re-launch: The Group (i) has defined the new structure of the Group Geographical Areas; (ii) has approved the new Business Plan of Consum.it – which is now being implemented – and the reorganization of the Group Monetics; (iii) is designing and implementing several actions for the improvement of the Affluent and Small Business service models, including the introduction of highly qualified specialists - in charge of supporting the branch operations in relation to products and commercial campaigns and optimizing the coverage of the service models in the territory - and the start of a pilot project involving marketing specialists. The geographical distribution of the branches is being optimized in coordination with the project of network integration. The Group completed the launch of “Infinita”, with the objective of maximizing the profitability of innovative channels by encouraging the migration of the customers toward lower-cost alternative channels and ensuring a high service quality. “Private” re-launch: The Group is creating a new unit dedicated to the management of (U)HNWI (Upper High Net Worth Individuals) customers through a specialist model which meets the requirement of an integrated management of financial supply and top-level advisory services. The Group shall re-launch the Private Banking service model through actions oriented to maximizing the Group’s commercial efficiency. Group specialist advisory units were set up with the introduction of special advisors and product specialists. Banca Personale shall be reorganized so as to ensure full efficiency and commercial effectiveness. The newly-created Asset Management Area was transferred the business unit of AAA Sgr in relation to Individual

12 Portfolios under Management, for the purpose of creating one Group specialist unit centralizing the asset management business. “Corporate” relaunch: The Group already approved - and is now implementing - the new Business Plan of MPS Capital Services. Preliminary work for the development of the SME service model is underway, with the objective of maximizing the commercial effectiveness of the managers. The extension of the Key Clients service model has been started on the basis of selective criteria, through the creation of dedicated teams and geographical units in selected high-potential areas. Lending strategy: The Group is fine-tuning the reorganization of its lending operations by establishing “multi-bank” units of loan labs within the Major Branches, organized by geographical “hubs”. An effective loan management model was approved for the introduction of advanced lending policies.

EFFICIENCY

As a result of the integration of Antonveneta and the Group reorganization, the Group shall achieve a high level of efficiency, through:

The adoption of a new organization model: the new organization structure of the Parent Bank was designed and became operational in compliance with the centralization of the activities following corporate integrations. As a whole, the Group achieved the objectives of efficiency resulting from the integration of BAM and Banca Antonveneta into BMPS. The projects for achieving the objectives of efficiency resulting from the integration of Banca Toscana have been started. The efficiency of administrative expenses: The Business Plan objectives expected for 2008 have been achieved in terms of synergies (due to the new Group structure and the new organization) and cost management initiatives (optimization and control of purchasing and expense processes). Actions in relation to human resources: the workforce dynamics is ahead of the Plan estimates and confirms the general objectives (global staff reduction and improvement of the Group front to back ratio), as a result of the joint effect of corporate integration under way and the use of technical measures (early retirement plans and solidarity fund).

GROUP CAPITAL OPTIMIZATION

After successfully completing the capital increase required to raise funds for the acquisition of Antonveneta with the total subscription of ordinary shares offered, the Group sold the equity investments held in Finsoe, MPS Finance (after concentrating the activity of Depositary Bank on this company), Banca Monte Parma, Fontanafredda, Marinella, Cerved, Quadrifoglio Vita.

13 REPORT ON OPERATIONS

CHAPTER 2: A SUMMARY OF THE TRENDS OF FY 2008

The financial year of 2008 was characterized by the sharp decline of real economy, an unprecedented decrease in stock quotations and interest rates, an increasingly deeper crisis of asset management and growing corporate default rates which intensified during the year. As usual, the MONTEPASCHI Group focused on the quality of customers’ relations and adjusted the services and products supplied to the customers’ requirements, partly as a result of the major initiatives of reorganization and commercial restructuring implemented in compliance with the 2008-2011 Business Plan, which contributed – inter alia - to the merger by incorporation of Banca Antonveneta and Banca Agricola Mantovana with the Parent Bank (BMPS). The effectiveness of the organization and commercial strategies started in the past years was also proved in Q4 2008 - the most critical quarter of last year - by the positive results achieved in terms of development of the commercial “core business” (growth of fiduciary assets and market shares, increasing customers’ satisfaction ratios and core operating income) and sound financial position (limited interbank deficit, huge counterbalancing capacity and appropriate capital and leverage ratios).

In particular:

- the Group customers’ portfolio numbered about 6.4 million customers, with the direct contribution of Consum.it customers at about 380,000.

- with reference to asset management1, the Group commercial networks recorded asset flows in an amount of roughly EUR 11 billion, mainly due to the positive contribution of bonds, which advanced strongly year on year and absorbed the criticalities emerging in the area of collective and individual funds under management, which experienced huge redemptions at the level of the Banking Industry. Total funding (EUR 272 bn) was indicative of the huge decline in the prices of financial assets managed or administered on behalf of the customers resulting from the adverse trends of the financial markets, (estimated at EUR 9 bn since the beginning of 2008). Excluding such effect, the aggregate would stand at EUR 281 bn (+ abt. 3% in comparison with December 2007).

- with reference to loan management, the Group commercial policy – in line of continuity with prior years – tried to balance the supply of an appropriate financial support to entrepreneurial initiatives with the utmost rigor and selectivity in risk assessment, and further enhanced the Group specialists’ skills in the area of consumer credit and Retail mortgage loans. Loan flows channelled to the special credit companies (roughly EUR 14 billion) boomed with respect to 2007, mostly driven by the good performances recorded by factoring turnover and the disbursements of loans by MPS Capital Services. This produced increasing loans at about 145 bn. With reference to credit quality, the Montepaschi Group closed the year with a net exposure in terms of impaired loans of about 7 bn. The weight of impaired loans to total customers’ loans was about 5% and the weight of

1 The flows of placement of 2008 include the production of Biverbanca but not Banca Antonveneta. The data of 2007 are attributable to the MONTEPASCHI Group before the acquisition of Biverbanca and Banca Antonveneta.

14 NPLs+watchlist credits, net of value adjustments, to customers’ loans was about 4%. The policies of streamlining and harmonization of risk management implemented during the year, in addition to the rigorous writedown policy of impaired assets determined a level of risk provisions of abt.43%.

With regard to profitability, the negative repercussions mainly linked with the exceptional drop in the financial markets influenced fees and commissions and, above all, the valuation of the financial assets, also due to rigorous risk assessment policies, for the purpose of covering the risks emerging during the year.

Against this backdrop, the structural income (core operating profit) of the Montepaschi Group as at 31 December 2008 came to about EUR 6,055 million with a y-o-y progress of 2.5%.

Following are the trends of the major income aggregates reclassified for operating purposes (see Chap.3) and reconciled with accounting data (additional details are provided in the comparative statements under the “Annexes” section):

- interest income (abt. EUR 4,269 million), restated on a comparative basis, increased by 8.2% y-o- y; - net commissions (EUR 1,787 million approx.) show a decline of 9% on a comparative basis, resulting from the negative trend of income associated with asset management, due to decreasing assets under management, compromised both by the negative performance of the markets and redemptions at the Industry level; - the adverse balance of “other financial income”, at - EUR 103 million, (positive balance of about EUR 607 million as at 31 December 2007, restated on a comparative basis) was adversely affected by the market crisis, which compromised the Parent Bank’s trading activities, and the negative contribution from the insurance subsidiaries.

In addition to income from lending operations, in the period under exam the Group recorded net valuation adjustments for loan impairment in the amount of roughly EUR 1,065 million (abt.885 million as at 31 December 2007 restated on a comparative basis). Such values are indicative of the writedown in relation to the settlement of the well-known Hopa Group/Fingruppo issue (about 54 million) and the effects of the critical economic situation. Said amount reflects a provisioning rate of about 73 bp.

The balance of net valuation adjustments for impairment of financial assets was about EUR 5 million.

Operating charges (at abt. EUR 3,932 million) declined by 0.8% with respect to 31 December 2007 restated on a comparative basis, thus reflecting the structural benefits of the actions of staff reduction and remix, and the steady and effective monitoring of expenses, although in light of a massive plan of IT investments and despite increasing inflation.

Consolidated Net Operating Profit for the period came to EUR 961 million (abt. EUR 1,672 million as at 31 December 2007 restated on a comparative basis). As shown, this amount incorporates the effects of the exceptional crisis of the financial markets, which implied overall valuation adjustments to securities (held in the trading portfolio) and equity investments in the amount of about EUR 300 million. Excluding such effects and the non-recurrent income posted in 2007, the structural operating income would be virtually steady y-o-y.

“Impairment of goodwill and financial assets” came to –EUR 542 million approx. (about – 58 million as at 31 December 2007 restated on a comparative basis), with (i) roughly – EUR 151 million attributable to the “IAS 36 impairment test” on the value of the Corporate CGUs. Despite a globally steady situation, it was decided to adjust this value in order to take account, with reference to the “Capital Markets” component, of the considerable changes in the scenario caused by the current economic-financial crisis (see Notes to the Financial Statements Section 12 – Intangible Assets); and (ii) abt. –391 million (about – EUR 54 million as at 31 December 2007 restated on a comparative basis), attributable to the lasting losses of value in relation to equities, bonds, units of investment funds and hedge funds (see Notes to the Financial Statements) in accordance with the strict rules of valuation set by the Group on the basis of a conservative and prudential approach. This aggregate includes adjustments in the amount of EUR 123 million to the book value of Hopa in the past quarters.

Consolidated Net Profit for the year “for operating purposes” before the effects of the Purchase Price Allocation (PPA) stood at abt. EUR 1,020 million (abt. EUR 1,373 as at 31 December 2007 restated on a comparative basis), including charges in the amount of EUR 1,350 million as value adjustments in relation to the exceptional crisis of the financial markets, provisions for risks/charges and non-recurrent integration expenses; and the positive effect (abt. EUR 1,190 million) mainly due to the redemption of goodwill (pursuant to art.15 of Law Decree 185/08).

The net profit for operating purposes stood at abt. EUR 953 million (abt. EUR 1,373 million as at 31 December 2007). The net profit as per the accounting statements including the results of Banca Antonveneta for 7 seven months amounted to EUR 923 million approx. (abt. 1,438 million in 2007).

The ROE2 was 11.9% (return on average shareholder’s equity: 8.1%). With reference to the regulatory ratios as at 31 December 2008, TIERI BIS II and the BIS II solvency ratio came to 5.13% (6.1% at the end of 2007) and 9.32% (8.9% as at 31 December 2007), respectively.

2 R.O.E. on average shareholder’s equity: the ratio of Net Profit for the period to the average of Net Shareholders’ Equity (inclusive of Profit) as of 31 December 2007 and Net Shareholders’ Equity for the current year.

ROE on end-of-period shareholders’ equity: the ratio of Net Profit for the period to Net Shareholders’ Equity as of 31 December 2007 less the profits to be distributed to the shareholders. 16 REPORT ON OPERATIONS CHAPTER 3: MPS GROUP – RECLASSIFICATION PRINCIPLES FOR OPERATING PURPOSES AND RECLASSIFIED BALANCE-SHEET AND INCOME STATEMENT

3.1 MPS GROUP – RECLASSIFICATION PRINCIPLES FOR OPERATING PURPOSES AS AT 31 DECEMBER 2008

As shown in the preceding chapters, in 2008 the MONTEPASCHI Group conducted a deep corporate reorganization which reached its peak at the end of December with the merger by incorporation of Banca Antonveneta. Therefore, for the purpose of properly illustrating the Group trends, the following analysis of the Group results as at 31 December 2008 shall refer to the accounts restated on the basis of Banca Antonveneta joining the Group since the beginning of the year3.

The following balance-sheet and profit-and-loss accounts have been reclassified, with respect to accounting statements, on the basis of operating criteria and integrated item by item with the values in relation to the first 5 months of 2008 of Banca Antonveneta (additional details are provided in the “Annexes” section which includes the comparative statements with respect to accounting statements).

In particular, the major changes introduced to the income statement of the two financial years involve aggregations and reclassifications of accounts for the purpose of giving a clearer view of the trends of the Group’s operations. Following are the major changes as at 31 December 2008:

a) “Net profits/losses from trading/valuation of financial assets”, in the reclassified income statement, includes the items under Account 80 (Net profit/loss from trading), Account 100 (Profit/loss from the sale or repurchase of loans, financial assets available for sale and held upon maturity and financial liabilities) and Account 110 (Net profit/loss from financial assets and liabilities designated at fair value), integrated with the dividends from some “sophisticated” securities transactions closely associated with the trading component (abt. EUR 586 million as at 31/12/08) and adjusted with the “cost of funding” of said transactions (abt.EUR 23 million), once eliminated from “interest expense and similar charges”. In addition, the profits in relation to credit assignment in the amount of about EUR 4.5 million were eliminated from the aggregate and reclassified under “Net value adjustments/writeback for impairment of loans”, since they can be compared to loan writeback from the operational viewpoint; b) “Dividends, similar income and Profits (losses) from equity investments” in the reclassified income statement incorporates account 70 “Dividends and similar income” and a portion of account 240 “Profits (losses) from equity investments” (- abt. EUR 30 million as at 31 December 2008). Dividends from some sophisticated transactions, as outlined under a), have been eliminated from the aggregate; c) “Net valuation adjustments to impaired loans” in the reclassified income statement were determined by the reclassification charges in the amount of about EUR 49 million (value adjustments to junior securities: abt. 43.5 million; charges in relation to financial plans: abt. 8 million), which are more properly classified under “Net provisions for risks and charges and other operating income/charges”. In addition, profits from credit assignment in the amount of abt. EUR 4.5 million were reallocated after their elimination from “profits from loan assignment” (see a) );

3 The data as at 31 December 2008 were integrated with the values in relation to Banca Antonveneta for the first 5 months. The data for FY 2007 were classified in accordance with principles similar to the principles adopted for 2008 data and integrated with the data of Banca Antonveneta and Biverbanca for 12 months.

17 d) The components in relation to value adjustments (abt. 391 million) attributable to “Impairment of goodwill and financial assets” were eliminated from “Net valuation adjustments for impairment of financial assets” in the reclassified income statement; e) “Integration charges” (153 million) were eliminated from “Personnel expenses” in the reclassified income statement, as the portion of charges for 2008 in relation to the integration of Banca Antonveneta into the Group and the pertaining initiatives of reorganization as approved in the 2008-2011 Business Plan; f) “Other administrative expenses” in the reclassified income statement was integrated with the portion concerning the recovery of stamp duty and expense recovery from customers (abt. EUR 262 million), posted under Account 220 (Other operating charges/income) in the balance-sheet. Integration charges” (roughly 85 million) were also eliminated from the aggregate; g) “Net provisions for risks and charges and other operating income/charges” in the reclassified income statement result from the difference of Account 220 “Other operating charges/income” and Account 190 “Net provisions for risks and charges”, once eliminated further items as described under the previous paragraphs; h) “Integration charges” (abt. 2 million) were eliminated from “Net valuation adjustments to tangible and intangible assets” in the reclassified income statement;

i) “Integration charges” in the reclassified income statement include the amounts eliminated from personnel expenses (about 153 million), other administrative expenses (abt. 85 million) and depreciation/amortization in relation to Antonveneta, as the portion of charges which can be quantified as of today. The total aggregate reclassified also includes the integration charges in relation to the first 5 months of Bav with reference to personnel expenses (abt. 32 million), other administrative expenses (abt.6 million) and depreciation/amortization (abt. 43 million) as shown in a separate section (additional details are provided in the comparative statements in the “Annexes” section); j) “Profits and losses from equity investments” include the portion (abt. EUR 176 million) of Account 240 “Profits(losses) from equity investments” in relation to asset disposals (mostly MPS Finance and Banca Monte Parma). The portion in relation to the insurance business is included under “Dividends”; k) “Impairment of goodwill and financial assets” includes Account 260 “Valuation adjustments to goodwill” in the income statement (abt. 151 million), as integrated with valuation adjustments to impaired financial assets (abt. 391 million); l) The effects of the temporary PPA (Purchase Price Allocation4) of Banca Antonveneta and Biverbanca (in particular, “Interest income” in the amount of EUR 72 million approx. and depreciation/amortization abt.EUR 49 million) were eliminated from the accounts of the income statement concerned by such effects; and the related amounts have been reclassified under one account - “Net effects of the Purchase Price Allocation”.

In addition to these reclassifications, to facilitate the interpretation Group trends, as a result of the expected loss of control of the Asset Management companies, it was necessary to integrate the amount of net commissions in relation to the sale under IFRS 5 (abt. EUR 127 million). This amount will be considered as income from third parties rather than an intragroup P&L component (“accounts being eliminated”), after the execution of the sale. In line of continuity with past quarters, due to the sale of Banca Monte Parma, the contribution of BMP was eliminated from any aggregate. Said initiatives had an impact on the account

4 PPA: fair value valuation of the main potential assets and liabilities purchased.

18 of the reclassified income statement – “Profit (loss) from discontinued operations after taxes” (additional details are provided in the comparative statements in the “Annexes” section).

Following are the major changes in the reclassification of the consolidated balance-sheet: m) “Negotiable Financial assets” on the assets side of the reclassified balance-sheet include Account 20 (Financial assets held for trading purposes), Account 30 (Financial assets designated at fair value) and Account 40 (Financial assets available for sale); n) “Other assets” on the assets side of the reclassified balance-sheet incorporate Account 80 (Hedging derivatives), Account 90 (Valuation adjustments to financial assets subject to general hedging), Account 140 (Fiscal assets), Account 150 (Non-current assets and discontinued operations) and Account 160 (Other assets); o) “Due to customers and securities” on the liabilities side of the reclassified balance-sheet include Account 20 (Due to customers - Customers deposits), Account 30 (Outstanding securities) and Account 50 (Financial liabilities designated at fair value); p) “Other liabilities” on the liabilities side of the reclassified balance-sheet include Account 60 (Hedging derivatives), Account 70 (Valuation adjustments to assets of financial liabilities subject to general hedging), Account 80 (Fiscal liabilities), Account 90 (Liabilities linked with discontinued operations) and Account 100 (Other liabilities).

The comparative statements of the reclassified consolidated income statement and balance-sheet and the accounting statements are enclosed with the “Annexes” section.

19 3.2 CONSOLIDATED REPORT ON OPERATIONS Highlights at 31/12/2008

INCOME STATEMENT AND BALANCE SHEET FIGURES AND KEY INDICATORS MONTEPASCHI GROUP (Including Antonveneta from the start of the year) INCOME STATEMENT FIGURES (in € millions) 12/31/2008 12/31/2007 % change Restated Income from banking activities 6.055,3 5.909,2 2,5

Financial and insurance income (loss) 5.952,5 6.515,9 -8,6

Net operating income 960,9 1.671,7 -42,5

Net profit (loss) for the period 953,0 1.372,9 -30,6

BALANCE SHEET FIGURES AND INDICATORS (in € millions) 12/31/2008 12/31/2007 % change Restated Direct funding 142.466 137.484 3,6 Indirect funding 129.518 135.268 -4,3 of which: assets under management 46.362 58.506 -20,8 of which: assets under custody 83.156 76.763 8,3 Customer loans 145.353 136.022 6,9 Group net equity 14.824 8.649 <---Published Published KEY LOAN QUALITY RATIOS (%) 12/31/2008 12/31/2007 Net non-performing loans/Customer loans 2,49 1,88 Net w atchlist loans/Customer loans 1,77 1,13

PROFITABILITY RATIOS (%) 12/31/2008 12/31/2007 Cost/Income ratio 66,1 60,8 <---Restated R.O.E. (on average equity) 8,1 17,5 <---Published R.O.E. (on year-end equity) 11,9 19,8 <---Published Net adjustments to loans / Year-end investments 0,73 0,52 <---Published

Published CAPITAL RATIOS (%) 12/31/2008 12/31/2007 (a) Solvency ratio 9,3 8,9 Tier 1 ratio 5,1 6,1 (a) determined using the Bank of Italy's prudential filters. INFORMATION ON BMPS STOCK 12/31/2008 Published 12/31/07 Number of ordinary shares outstanding 5.545.952.280 2.457.264.636 Number of preference shares outstanding 1.131.879.458 565.939.729 Number of savings shares outstanding 18.864.340 9.432.170 Price per ordinary share: average 1,97 4,65 low 1,22 3,61 high 2,98 5,34 OPERATING STRUCTURE 12/31/2008 Published 12/31/07 Abs. change Total head count - year-end 32.867 24.863 8.004 Number of branches in Italy 3.104 2.094 1.010 Financial advisor branches 167 139 28 Number of branches & rep. offices abroad 39 35 4

RestartedRestated data of direct funding and customer loans at 31 12 2007 has been stipulated by integrating balance sheet data with Bav value (direct funding 25,140 million, customer loans 30,573) and eliminating those of Banca monte Parma (direct funding 996 million, customer loans 940 million).

R.O.E. on average net equity: net income for the period / average between net equity at the end of the previous year (inclusive of net income) and net equity for the current year.

R.O.E. on end-of-period equity: net income for the period / net equity at the end of the previous year, purged of any shareholders' income.

INCOME STATEMENT RESTATED ACCORDING TO OPERATING CRITERIA (€ mln)

12/31/2008 12/31/2007Pro forma change 12/31/2007 MONTEPASCHI Group (including Antonveneta) (°) (°) Abs. % Historical Data Net interest income 4.268,7 3.945,0 323,7 8,2% 2.944,5 Net commissions 1.786,6 1.964,2 -177,6 -9,0% 1.515,3 Income from banking activities 6.055,3 5.909,2 146,1 2,5% 4.459,8 Dividends, similar income and profits (losses) from equity 14,9 151,3 -136,4 -90,2% 156,3 investments Net result from realisation/valuation of financial assets -113,4 456,0 -569,4 n.s. 354,7 Net gain (loss) from hedging -4,3 -0,6 -3,7 n.s. -2,7 Financial and insurance income (loss) 5.952,5 6.515,9 -563,4 -8,6% 4.968,2 Net adjustments for impairment of: 0,0 0,0 0,0 0,0 a) loans -1.065,2 -884,6 180,7 20,4% -552,0 b) financial assets 5,3 3,6 -1,7 46,4% -37,7 Net financial and insurance income (loss) 4.892,6 5.635,0 -742,4 -13,2% 4.378,5 Administrative expenses: -3.775,1 -3.800,0 -24,9 -0,7% -2.785,8 a) personnel expenses -2.449,2 -2.464,4 -15,2 -0,6% -1.848,9 b) other administrative expenses -1.325,9 -1.335,6 -9,7 -0,7% -936,9 0,0 0,0 0,0 Net adjustments to the value of tangible and intangible fixed -156,5 -163,3 -6,7 -4,1% -115,0 assets 0,0 0,0 0,0 0,0 Operating expenses -3.931,6 -3.963,3 -31,7 -0,8% -2.900,8 Net operating income 960,9 1.671,7 -710,7 -42,5% 1.477,6 Net provisions for risks and liabilities and Other operating -186,7 -198,4 11,8 -5,9% -207,5 income/costs Income on equity investments 175,8 26,4 149,4 n.s. Integration costs -321,9 -114,0 -207,9 n.s. Impairment on goodwill and financial assets -542,3 -58,0 -484,3 n.s. -0,7 Gains (losses) from disposal of investments 27,9 2,4 25,6 n.s. 0,2 Gain (loss) from current operations before taxes 113,9 1.330,0 -1.216,1 -91,4% 1.269,6 Taxes on income for the year from current operations 844,7 -713,0 -1.557,7 n.s. -551,6 Gain (loss) from current operations after taxes 958,6 617,0 341,6 55,4% 718,0 Gain (loss) on fixed assets due for disposal, net of taxes 70,9 785,2 -714,3 -91,0% 735,2 Minority interests in profit (loss) for the year -9,6 -29,3 -19,7 -67,1% -15,6 Net profit (loss) for the year ante PPA 1.019,8 1.372,9 -353,1 -25,7% 1.437,6 Purchase Price Allocation -66,8 0,0 66,8 n.s. Net profit (loss) for the year 953,0 1.372,9 -419,9 n.s. 1.437,6 Net profit (loss) for the year 922,8 1.437,6 -514,8 n.s. 1.437,6 (°) 2008 data restatements also include Antonveneta's first five months results. With respect to the economic impact of the acquisition, the actually posted data w ere preserved (7 months only). Data at 31/12/07 include Antonveneta values, re aggregated according to the Montepaschi Group's operational criteria, and take into account any changes to the consolidation perimeter. With respect to the financial impact of the acquisition, the same values posted for the 7-month period of 2008 w ere preserved at 12/31/07.

QUARTERLY TREND IN INCOME STATEMENT FIGURES RECLASSIFIED ACCORDING TO OPERATING CRITERIA (in millions of euros)

2008 2007 Quarterly Avg. Quarterly Avg. MONTEPASCHI Group (including Antonveneta) 4th quarter 3rd quarter 2nd quarter 1st quarter 4th quarter 3rd quarter 2nd quarter 1st quarter 2008 2007 Net interest income 1,069.9 1,031.0 1,097.9 1,069.8 1,029.3 956.0 970.1 989.6 1,067.2 986.2 Net commissions 397.4 443.5 471.8 473.8 490.8 487.3 484.0 502.1 446.6 491.0 Income from banking activities 1,467.4 1,474.5 1,569.8 1,543.6 1,520.0 1,443.3 1,454.1 1,491.8 1,513.8 1,477.3 Dividends, similar income and profits (losses) from equity investments -39.3 20.2 21.2 12.7 45.8 29.3 37.4 38.9 3.7 37.8 Net result from realisation/valuation of financial assets -167.5 -1.6 80.6 -24.9 150.2 31.1 142.7 132.0 -28.3 114.0 Net gain (loss) from hedging 3.3 0.0 -0.4 -7.2 -0.6 -2.7 2.3 0.4 -1.1 -0.1 Financial and insurance income (loss) 1,264.0 1,493.1 1,671.2 1,524.2 1,715.4 1,501.0 1,636.4 1,663.1 1,488.1 1,629.0 Net adjustments for impairment of: a) loans -424.0 -189.6 -235.5 -216.1 -383.3 -157.3 -178.4 -165.6 -266.3 -221.1 b) financial assets -3.2 0.3 12.0 -3.9 -1.1 1.3 4.0 -0.5 1.3 0.9 Net financial and insurance income (loss) 836.8 1,303.8 1,447.7 1,304.2 1,331.0 1,345.0 1,461.9 1,497.0 1,223.1 1,408.7 Administrative expenses: -1,018.2 -920.8 -928.7 -907.4 -974.9 -947.4 -967.1 -910.7 -943.8 -950.0 a) personnel expenses -652.4 -595.4 -599.4 -602.0 -634.3 -616.4 -618.7 -595.0 -612.3 -616.1 b) other administrative expenses -365.8 -325.4 -329.3 -305.5 -340.5 -331.0 -348.5 -315.6 -331.5 -333.9

Net adjustments to the value of tangible and intangible fixed assets -36.8 -40.7 -39.5 -39.7 -46.4 -39.8 -36.7 -40.4 -39.1 -40.8

Operating expenses -1,054.9 -961.4 -968.2 -947.1 -1,021.3 -987.1 -1,003.8 -951.1 -982.9 -990.8 Net operating income -218.1 342.4 479.5 357.1 309.7 357.9 458.1 545.9 240.2 417.9 Net provisions for risks and liabilities and Other operating income/costs -153.8 -12.7 -39.4 19.2 -212.7 -2.3 21.6 -4.9 -46.7 -49.6

Income on equity investments -0.9 -23.5 200.3 0.0 0.0 0.0 0.0 26.4 44.0 6.6

Integration costs -162.2 -21.4 -138.3 0.0 -114.0 0.0 0.0 0.0 -80.5 -28.5

Impairment on goodwill and financial assets -399.6 -4.5 -41.5 -96.6 -46.7 -8.7 1.3 -3.9 -135.6 -14.5

Gains (losses) from disposal of investments 0.1 0.0 20.2 7.7 0.2 -0.2 0.7 1.7 7.0 0.6 Gain (loss) from current operations before taxes -934.5 280.3 480.7 287.4 -63.6 346.7 481.7 565.2 28.5 332.5 Taxes on income for the year from current operations 1,245.8 -126.4 -158.9 -115.8 -156.9 -142.1 -182.0 -232.1 211.2 -178.2 Utile (Perdita) della operatività corrente al netto delle imposte 311.2 153.9 321.8 171.6 -220.5 204.6 299.8 333.1 239.6 154.3 Gain (loss) on fixed assets due for disposal, net of taxes 5.0 -15.6 76.2 5.4 752.7 12.4 8.3 12.0 17.7 196.3 Minority interests in profit (loss) for the year 1.3 1.4 -7.1 -5.3 -3.1 -7.9 -10.6 -7.7 -2.4 -7.3 Net profit (loss) for the year ante PPA 317.5 139.7 390.9 171.7 529.0 209.1 297.5 337.4 255.0 343.2 Purchase Price Allocation -35.7 -21.0 -10.2 -16.7 Net profit (loss) for the year 281.9 118.7 380.8 171.7 529.0 209.1 297.5 337.4 238.3 343.2 (°)The 2008 data w ere restated also aggregating the results of the first five months of Antonveneta, as to the income statement effect of the purchase, the values w hich w ere actually recorded (7th month) w ere kept. The data at 12/31/2007 include the values of Antonveneta w hich are re-aggregated according to the management criteria of the MPS Group and take into account the changes occured in the consolidation area. As to the financial effects of the acquisition as of 12/31/2007, the same values recorded in 2008 w ere kept.

22 Equity

24 REPORT ON GROUP OPERATIONS

CHAPTER 4: THE GROUP OPERATIONS

4.1 THE OPERATING SCENARIO

THE MACROECONOMIC SCENARIO

The crisis which has affected the financial markets since 2007 exacerbated in 2008, involved a growing number of economic players and required the Government bailout of some important US and European financial institutions. The Governments and the central banks reacted by introducing extraordinary measures in accordance with the guidelines of the G7 and the European Council. They ensured continuity of financial flows, expanded the guarantees on bank liabilities, consolidated the capital position of the financial players facing difficulties. Mounting tensions in real economy adversely affected the strategies of consumption, investment and production and caused a general and deep recession.

After reaching the price of USD 143 per barrel in the summer, late in December oil prices fell to USD 35. The remaining raw materials, with a few exceptions, showed a similar trend, with a peak in August and a decrease in the final months of the year. Receding inflation and the deterioration of the economic situation were later flanked by the dramatic reduction of official interest rates.

25 In the USA, just like in most countries, the crisis spread to the real economy through the decrease in financial and real estate wealth, and the cut or postponement of expense and investment decisions. The GDP has fallen since Q3 due to a drop in private consumption, continuously falling investments and the slowdown of exports. The unemployment rate rose to 7.2% with inflation

standing at around 1% after reaching an annual peak of 4.4% in August. After the bailout of Fannie Mae and Freddie Mac and the bankruptcy of Lehman, the Congress allocated half of the TARP fund (350 bn) to the recapitalization of the banking industry. The FED cut the Fed funds rate from 4.25% to 1% gradually, and set a target in the range of 0-0.25% at mid-December. In addition, it multiplied the ways of injecting liquidity into the industry. The benchmark yield curve is indicative of monetary term easing and the remix of private portfolios to include Treasury bonds.

In Japan the GDP has continuously decreased since Q2 as a result of falling private investments and the negative net contribution of foreign trade. In the final months of the year, industrial production data (around -9% on a yearly basis) and unemployment (over 4%) prove the deterioration of the economic situation. The Central Bank cut the official rate in two stages from 0.5% to 0.1%. In China growth slowed down to 9%, and progressively fell to 6.8% on an annual basis in Q4, which is barely adequate to ensure balance in the labour market. Other Emerging Countries and Areas also showed a considerable slowdown of annual growth and falling production in Q2.

A recessionary period also started in the Eurozone, with the GDP gradually decreasing (-1.2% on a yearly basis in Q4). The decrease was determined above all by curbed international demand and postponed investment decisions. The key economic indicators (sales, production) clearly dropped and consumer inflation fell to 1.6% at year-end. The confidence of businesses and

households reached a minimum and negative data also emerged from the labour market, especially in Germany and Spain. The Governments launched supporting measures, such as guarantees on deposits and bank bonds, loans to infrastructure, energy and the SMEs, in co-ordination with the EIB and the EBRD. After increasing the reference rate to 4.25% in July, in a period characterized by feared inflationary pressure, the European Central Bank cut the rate again to 2.5% (and 1.5% in March) and indicated that the major alarming signs are in relation to employment and corporate bankruptcies. The Central Bank also consolidated its commitment to supporting liquidity and, as of October 2008, carried out refinancing transactions at a fixed rate and in the total amounts required. The yield curve was negative in the short-term at year-end, thus reflecting other expansive monetary policy measures – and was positive in relation to the maturities between 2 and 10 years, with a wide spread of 104 bp.

26 In Italy, as of Q2, the GDP fell and closed the year with a 0.9% decrease. This is indicative of declining investments, falling exports and stagnating households’ consumption. Industrial production decreased by 10% y-o-y in Q4 2008 and by 4.3% as a whole on an annual basis. Employment came to a standstill and the use of the unemployment benefits fund (Cassa Integrazione) became increasingly widespread. The consumers and manufacturing companies confidence ratio (Isae) fell to the minimum in the last 15 years. The opinions on the level of demand and purchase orders were oriented to a decline. Consumer inflation first rose to 4.2% on an annual basis in August and later decreased to 2.3% at year-end as a result of decreasing oil prices and slack demand. Italy was virtually aligned to the Eurozone with reference to the kind of measures supporting the financial and real industry, but – as a whole – the support of the budgetary policy is subject to the restraints due to the high public deficit, also shown by the spread between the German Bund and ten-year BTP which rose to abt. 140 bp at year-end.

Stock quotations in general decreased remarkably, thus reflecting uncertain expectations about the current recession and the measures adopted to overcome it. In comparison with December 2007, the decline of Stock indices topped 40% in the USA, the Eurozone and Japan and almost reached 50% in Italy, with a 57% decrease in relation to bank equities.

The prices of Treasury bonds rose sharply (more than 10% during the year, both in the USA and the Eurozone), especially in the second half of the year, in a “flight to quality” scenario. The yield difference between the sovereign bonds of the Emerging Countries and Treasury bonds rose to abt. 700 bp at year- end (+ abt. 400 bp with respect to the beginning of June). Risk premiums on corporate bonds expanded with reference to all the main risk classes, with BBB-rated bonds almost reaching 600 bp (200 bp in December 2007) both in the USA and the Eurozone.

The Euro appreciated in the first half of the year with respect to the US dollar to 1.6 (1.46 as at December 2007). Later on, in a scenario of high risk perception, the capital previously invested in high-yield currencies flowed to the US dollar and the yen in particular, thus determining a depreciation of the euro to USD 1.41 and yen 127.7 as at 31 December 2008 (163.6 in December 2007).

THE BANKING BUSINESS

The Italian banks coped with the crisis affecting the international financial industry as a result of their basically sound business model (mostly oriented to lending and retail funding) and efficiency recovered in the past few years. So far, they proved to be able to stand the shock better than the banks of other advanced countries, although the deteriorating situation caused strong tensions and reducing profitability.

27 As a result of the deteriorating situation and the international financial crisis, the investors became very cautious and chose simple and guaranteed investments and products, in particular Treasury bills and bank bonds. Bank direct funding rose sharply, with annual growth at around 13% in the

second half of the year (+7.7% as at December 2007). In particular, bond volumes increased by almost 18% on average on an annual basis (about EUR 126 bn in 2008). Current accounts recorded an annual increase of 5% (+1% y-o-y), driven by the customers’ preference going to liquidity. The trend of payable repurchase agreements was very buoyant (+ 17% on an annual basis) for the same reason.

The market situation and the investors’ strategies still have a negative impact on assets under management. Net redemptions of funds in 2008 topped 140 bn (about 25% of volumes at the end of 2007) and the weight of net assets to total private financial assets was estimated below 7% (9.2% in 2007). This product is also compromised by regulation mismatch, limited independence of the asset management companies (Sgr) and fiscal regulations (+19%). Net funding from portfolios under management was considerably negative (almost 47 bn, or 29% of volumes).

The production of life bancassurance decreased by 23% due to declining placements of index linked and unit linked policies and growing traditional products. The negative net funding of the whole life insurance segment was estimated at almost – 16 bn (-6 bn in 2007).

The annual average growth of bank outstanding loans came to 7.5% (+10.6% in 2007). The trend of the aggregate slowed down during the year from +9% to 5.4% in December. This trend is mostly due to retail loans which showed a very limited yearly increase in Q4 (around +1% with respect to +8% as at December 2007). The slowdown is partly attributable to the securitization transactions, but above all to the decreasing disbursements of mortgage loans (-6.9% in the first three quarters of the year) resulting from decreasing purchases and sales. The growth of loans to non financial companies also slowed down (from +13% as at December 2007 to + 6.6%), in line with the trend of the real economic situation and minor demand for credit.

28 The ratio of net NPLs to loans was slightly over 1% . Available data in relation to the first three quarters with reference to the rate of cancellation show that the indicator of consumer households is virtually steady (slightly above 0.8%), with non financial companies slowly growing from 1.2% in 2007 to 1.3%. Consumer credit disbursements closed the year with a very moderate progress (+1.4%) which is indicative of decreasing purchases of

durable goods. Leasing contracts executed declined (abt.-21%) due to the negative impact of the real estate market. The factoring business rose by about 6%. Interest rates on loans fell by 10 bp over the year. Interest rates on new transactions dropped remarkably (almost 1% with reference to corporate interest rates). Interest rates on direct funding increased by 11 bp from the end of 2007 to December 2008. The average annual (lending-funding) spread was around 3.2%. The mark-up (as measured with reference to short-term loans and 1-month Euribor) rose by about 30 bp on average on an annual basis, thus reflecting financial tension, with the mark-down declining from 2.28% on average in 2007 to 2.09%.

The impact of the financial crisis and the recession on the banks’ income statements is considerable, despite steady interest rates. Declining income from services and the cancellation of income from trading were flanked by a huge increase in value adjustments and provisions.

REGULATORY ISSUES

The new regulations on capital ratios (BASEL 2) was enforced on 1 January 2008. In June 2008, the Montepaschi Group was authorized by the Bank of Italy to use advanced internal systems for the purpose of determining capital requirements with respect to credit and operational risks. As a result of the financial crisis and in compliance with the recommendations of the Financial Stability Forum, the BASEL Committee announced a string of proposals supplementing the regulations, including a) the increase in capital requirements in relation to trading, in particular with respect to derivatives and off balance-sheet vehicles; b) new guidelines for liquidity management and supervision; c) the consolidation of the second pillar, with reference to the assessment of the exposures and ratings assigned.

As of January 2008, the Italian banking industry adopted the IBAN code (the 27-digit code which replaces bank details) as the single and exclusive European standard for the identification of current accounts, to be used for executing payments. In addition, almost all the banks can receive and send SEPA (Single Euro Payment Area) transfers.

29 In March 2008 the Bank of Italy issued the new supervisory rules in terms of corporate organization and governance. In accordance with the provisions, corporate governance plays a key role in the definition of risk management and control strategies and policies. The responsibilities of strategic, management and control supervision shall be distributed among the corporate bodies so as to clearly define the respective duties and to start a constructive dialogue and an appropriate control system.

Several measures were taken during the year in relation to mortgage loans. The Ministry of Economics and the Italian Bankers’ Association entered into an agreement whereby the customers will be entitled to re-negotiate a floating rate mortgage loan executed before 29 May 2008 for the purchase of the first home, thus obtaining a fixed instalment corresponding to the amount they would have paid on average in 2006. The renegotiation implies the reduction of the amount of the mortgage loan instalments (starting from the first instalment due in 2009) and an extension of maturity (if any), in accordance with the future trend of interest rates. With reference to the transferability of mortgage loans (Law 40/2007), as of 31 May 2008 the banking industry activated a transferability procedure, free of charges for the customers. Law 2/2009 stated that the amount of the instalments of floating rate mortgage loans for the purchase of the first home (executed or renegotiated by individuals no later than 31 October 2008) should be the lower of the amount calculated by applying a 4% rate and the amount obtained on the basis of the rate shown in the loan agreement upon execution. Any excess shall be at the charge of the Government as a bank tax credit. In addition, new mortgage loans executed after 1 January 2009 shall be indexed to the ECB main refinancing rate.

Law Decree no.112/2008, among the measures having an impact on the banks, incorporates the introduction of a percentage of non-deductible interest payable (3% in 2008, 4% in 2009) for the purpose of IRES and IRAP taxes. The provision implies a higher cost of funding of almost 10 bp (Bank of Italy estimate). The decrease (from 0.4% to 0.3%) in the percentage of deductible write- off of loans and loan loss provisions is also of importance. In addition, the current tax system in relation to stock options was abolished, with the ensuing effect that the relevant income shall be subject to graduated taxation. The decree also amended Legislative Decree no.231/2007 indicating, inter alia, EUR 12,500 as the maximum threshold for cash transfers and non transferable cheques.

On 29 July 2008 the Credit and Savings Interdepartmental Committee (CICR) adopted a resolution concerning bank/corporate shareholding relations, including a general expansion of shareholding limits. In particular, bank equity investments in companies shall not exceed 15% of the capital for regulatory purposes by equity investment. The sum of such equity investments shall not exceed 60% of capital for regulatory purposes. The reform of the Bank Ombudsman shall contribute to the out-of-court settlement of the disputes with the customers. This is applicable to the disputes with a value below EUR 100,000 and identifies the principles for fast and cheap proceedings for an effective protection of the customers.

30 On 3 December 2008 the Government approved Law no.190/2008 which converted law decrees no.155 and 157 dated October 2008 and incorporated urgent measures in support of banks, corporates and consumers. As a result, the Ministry of Economics is authorized to subscribe to or guarantee the capital increase of the banks showing capital inadequacy as ascertained by the Bank of Italy, in view of a programme of stabilization and consolidation of the bank and a related dividend policy. Any shares held by the Ministry are preferred stock with no voting rights. In addition, the Government has guaranteed the bank liabilities (issued after 13 October 2008) with a residual maturity in the range of 3 months and 5 years. The Ministry shall also be entitled to temporarily swap Treasury bills and the financial instruments held by the banks with maturities up to 5 years. The maximum amount of the transactions, with maturities not over 6 months and renewable until 31 December 2009, shall not exceed the capital for regulatory purposes of each bank, including Tier 3 capital. A 36-month Government guarantee on bank deposits is also contemplated and is flanked by a same-amount guarantee of the Interbank Deposit Protection Fund which covers EUR 103,000 by saver.

In compliance with Law Decree 185/2008 converted into Law 2/2009, the Government can subscribe financial instruments, until 31 December 2009, (the so-called Tremonti bonds) with no voting rights, issued by banks, convertible into ordinary shares and callable at any time by the issuer, prior demand from the issuing bank and authorization from the Bank of Italy. There are three types of bonds: a) with an initial coupon of 7.5%; b) with an initial coupon of 8.5%; c) with private investors subscribing at least 30% of the issue. The bonds cannot exceed 2% of the value of RWA. In addition, the issuer shall be committed to granting loans to the SMEs and households at specific terms and conditions, and shall ensure a dividend policy in compliance with the requirement of maintaining appropriate levels of capitalization. In addition, the Bank shall adopt an ethical code governing the remuneration of corporate officers.

Law 2/2009 authorized the companies preparing the financial statements in compliance with the international accounting principles (IAS/IFRS) to align the tax values of some equity assets including goodwill – subject to the payment of a substitute tax at a reduced rate - with the book values. On the basis of this option, the companies concerned, the banks, the parent companies of banking groups, equity dealers and financial intermediaries shall be entitled to deduct goodwill, from the fiscal viewpoint, over 9 years with an ensuing increase in the deductible portion, both for the purpose of income tax and IRAP tax (regional tax on productive activities). The above can be posted in accordance with three accounting approaches. In particular, in the case of a prompt posting to the income statement of the cost in relation to the substitute tax and the expected tax benefits, the Banks shall apply a specific prudential filter to the calculation of capital for regulatory purposes, starting from the financial statements adopting the effects of such accounting approach.

An amendment introduced during the Parliamentary approval path of Law Decree 185/08 abolished the maximum overdraft bank charges to be paid if the balance of a bank current account has been to the customer’s debit for less than 30 days in a row or in relation to any drawings made failing a credit limit. Any pre-existing current account agreements shall be updated no later than 150 days from the date of enforcement of the law (29 January 2009).

31 4.2 THE MPS GROUP DOMESTIC SALES AND MARKETING ACTIVITY, CUSTOMER PORTFOLIO AND CRM

4.2.1. THE MPS GROUP DOMESTIC SALES AND MARKETING ACTIVITY

In 2008, the Montepaschi Group tried to enhance the value of the commercial reorganization carried out in compliance with the 2008-2011 Business Plan for the purpose of consolidating and stabilizing the customers’ confidence. This was done against an increasingly critical operating backdrop, characterized by the sharp decline of real economy and an unprecedented deterioration of the international financial markets which, as a result of the latest events, is heavily compromising the conduct of all players. Following are the main elements which characterized the domestic sales and marketing activity5.

FUNDS MANAGEMENT

Funds management recorded flows of placement in the amount of about 11 billion which, despite the negative trends of the financial industry, decreased only slightly with respect to 2007 on a like for like basis. The positive contribution of bonds, which progressed considerably y-o-y, proves customers’ confidence and the compliance of the commercial policies with the new operational scenario. The placements of insurance products also advanced. Following is a breakdown of the flows of placement of the main products placed by the MONTEPASCHI Group:

5 The flows of placement of 2008 include the production of Biverbanca, and Banca Antonveneta. The historical data of 2007 are attributable to the MONTEPASCHI Group before the acquisition of Biverbanca and Banca Antonveneta.

In particular:

Redemptions of collective and individual funds under management amounted to EUR 8.9 billion approx., which on a comparative basis is better than the Industry level (the first 2009 data confirm that the Group flows decreased to a lower extent than the competitors’). In particular:

Redemptions of mutual funds/SICAVs came to roughly EUR 6 billion (+461 million as at 31 December 2007), with trends shared by all investment lines, including the Group Hedge Funds/Sicav, which recorded a positive trend in the first three quarters of 2008;

Net redemptions of portfolios under management totalled about EUR 2.8 bn (-1.8 billion as at 31 December 2007), attributable to both individual securities portfolios (GPM)/individual equities portfolios (GPA) (abt. -1.6 billion) and SICAV/fund portfolios (GPS/GPF) under management (abt. - 1.1 billion);

Life insurance premiums underwritten totalled abt. EUR 3.3 billion, with a modest progress with respect to last year’s volumes, despite the downward trend of the Industry. As a result, the MPS Group market share in relation to the products placed in the period went from 6.4% in 2007 to 8%. The breakdown of premiums proves that the weight of Unit-linked policies boomed because it took advantage of the renewed range of products launched by the joint venture with the French Group AXA, with placements more than offsetting the decline recorded in relation to traditional and index linked policies.

Bond volumes totalled about EUR 16.5 bn, concentrated on non-structured products (i.e. plain bonds and a subordinated loan in the amount of EUR 14.6 billion approx.), advancing considerably year-on-year.

LENDING

In 2008, despite the criticalities which gradually emerged, the MONTEPASCHI Group maintained its traditional conservative attitude in risk assessment but continued to ensure an appropriate credit support to its customers, as a token of its proximity to the territory and its requirements. The flows of loans channelled to the special credit companies accelerated y-o-y, mostly driven by the good performance achieved by factoring and corporate loan disbursements. The disbursements channelled through Consumit were hefty, with the market share increasing from roughly 4.6% in December 2007 to about 4.9%. Leasing contracts executed also progressed, despite the decline of the segment, with the market share going from roughly 3% in December 2007 to about 4.6%, although Q4 2008 was characterized by the gradual loss of vigour of the flows, mostly due to cool demand and highly uncertain economic expectations.

Specialised credit and corporate financial products

(€ mln)

31/12/08 31/12/07

MPS Capital Services Banca per le Imprese

disbursements 3,616 3,097

MPS Leasing & Factoring incl.: new leases executed 1,792 1,516

factoring turnover 5,826 5,153

Consumit

disbursements 2,948 2,774

(1) figures also include products issued by the Networks directly

4.2.2 CUSTOMER PORTFOLIO

As at 31 December 2008, the customers of the Group numbered about 6,400,000 including the customers of Biverbanca (which is part of the Corporate Center pending its divisionalization). Consum.it directly contributed with about 380,000 customers.

A review of the Group customers shows the Group retail vocation, which was consolidated by the acquisition of Banca Antonveneta. The weight of the Family segment within Retail Customers (5,782,600 customers) accounts for 67.8% of total customers, representing the majority of customers, followed by the Lower Affluent segment (18.2%), Small Business segment (7.7%) and Upper Affluent customers (6.3%).

The geographical breakdown of retail customers indicates that the Group operations are mostly concentrated in central and southern Italy. However, after the acquisition of Banca Antonveneta, the Group networks expanded in the north-eastern and north-western regions of the country.

The Corporate clientele (85,930 clients) mostly includes SMEs (87%) and Local Authorities (13%).

Following is a breakdown of companies by business sector:

The following table includes the data concerning the number of customers by bank seniority and shows that the Group customers’ loyalty is extremely high:

Group segmentation % by bank seniority at 31/12/08

Bank Seniority % Customers

1-3 years 15.5

4-5 years 7.2

6-10 years 23.6

11-20 years 34.8

Over 20 years 18.9

Despite the intensive Group reorganization, excellent results emerge from the following analysis6 in terms of Customers’ Retention. The acquisition rate of Retail and Corporate customers slightly slowed down, with a steady Private customers acquisition rate. The Retention rate increased by 0.3% and 0.2% in relation to the Retail and Private segment, respectively. The retention rate of Corporate customers declined somewhat.

6 The analysis does not include the data in relation to Banca Antonveneta, Biverbanca and Consum.it.

4.2.3. CRM

As far as Customer Satisfaction is concerned, in 2008 the Group conducted the fourth annual survey in relation to the Group Retail Customers, which is part of a wider model of measurement of quality supplied and perceived (“CareScore”). More than 20,000 telephone interviews were targeted at measuring the degree of customers’ knowledge and satisfaction in relation to the Group participation in “Patti Chiari”, a Bank Industry initiative. The Group also continued to conduct “Exit Interviews” in order to understand the reasons underlying the decisions of part of the customers to break off their business relations with the Bank. In addition, the Group tested customers’ satisfaction in relation to the Group strategies with reference to an event which directly concerned them (i.e. the integration of Banca Agricola Mantovana), in accordance with the method of the so-called “Moments of truth”.

The “2008 Care Score” survey showed that the Group Customers’ perception was steady also immediately after the summer, with the deterioration of the financial crisis and the associated general loss of confidence in the financial and banking industries. The interviews to the customers conducted after September 2008 show that the perception improved with respect to the months before the crisis. In general, this is an important sign of the quality of customers’ management and, in particular, of the quality of the investment strategies suggested by our networks. The Care Score model shall be further fine-tuned in 2009, through the integration of the results of the crucial stages of bank-customer relations (so-called “Moments of Truth”), thus increasing the information available for analysis.

The major initiatives undertaken in 2008 incorporate the CRM 2.0 Project which represents a decisive investment in innovation for steadily improving interaction with the customers. In 2008 the various initiatives of the Consumer Lab Project - the permanent working group set up by the Monte dei Paschi Group and 15 of the major Italian Consumers’ Associations - achieved positive results in light of the future development which has been already planned. The activities completed include two new guidebooks in relation to the statement of account of securities and financial instruments which shall be of assistance to the consumers, and the frequently asked questions (FAQ) service on the products distributed. In addition, the guidebook to renewable sources and energy saving provides information to individuals and small businesses about the opportunities of using public incentives to make investments for the reduction of energy consumption and the installation of energy production plants from renewable sources, for the purpose of making economies on utility bills and contributing to the improvement of environmental quality.

39 4.3 CAPITAL AGGREGATES

Commercial operations in terms of funds and lending management and the foreign network operations contributed to the appreciable development of the main capital aggregates, as described hereunder.

1) FUNDING AGGREGATES

The total volumes of funding aggregates stood at about 272 bn, thus absorbing declining prices of financial assets due to market crisis, which had a negative impact for the FY on the indirect component in the amount of about 9 bn. Excluding this effect, the aggregate would grow by about 8 bn (or + 3% approx.), with a clear remix toward direct funding and funds under administration:

Direct funding amounted to roughly EUR 142.5 bn (+3.6% with respect to 31 December 2007; + 0.03% with respect to Q3 2008), mainly driven by “Core Customers” deposits7 (bonds placed and short-term deposits) which advanced by more than 9% in comparison with December 2007. Following is a breakdown of the aggregate by business segment:

7 “Core Customers”: Retail Area, Corporate Area, Private Area, Banca Personale and Biverbanca.

40 Indirect funding amounted to EUR 130 billion approx. as at 31.12.2008:

The balance of funds managed totalled about EUR 46 bn, thus reflecting the negative trends which characterized the market of funds and portfolio management, due to the customers’ preference going to liquid and fixed-income forms of investment. In this framework, investment lines and firms (Group firms or third parties) were chosen on the basis of an approach targeted at selecting the best solutions for the customers in a MIFID logic. The weight of “Investment Funds” within the aggregate accounts for 36.9%.

With reference to life insurance policies, the technical reserves concerning the Group commercial networks reached abt. EUR 22 bn, with the increasing contribution of index- and unit-linked policies with respect to December 2007;

The balance of the Group mutual funds/SICAVs amounted to EUR 17 bn approx., with the market share progressing from 3.84% in December 2007 to 3.88% as at December 2008.

The chart below illustrates the mix of investment funds by type, evidencing a significant growth with respect to 31 December 2007 of the portion of bond and monetary funds (from 58.7% as at December 2007 to 64%) and hedge funds (from 8.2% to 10.1%).

41 The balance of portfolios under management stood at EUR 7.4 bn approx., with the market share advancing from 4.43% in December 2007 to 4.41% in December 2008.

The total balance of funds under administration amounted to EUR 83 bn approx.

2) LENDING AGGREGATES

A) THE MPS GROUP COMMERCIAL OPERATIONS

With reference to lending operations, in line of continuity with past years, the Group commercial policies tried to balance the supply of an appropriate financial support to entrepreneurial initiatives and the utmost rigour and selectivity in risk assessment, and to enhance, at the same time, the value of the specialists’ skills achieved by the Group in the area of consumer credit and retail mortgage loans. As a result of the above-mentioned hefty flows of disbursements, customers’ loans totalled about EUR 145 billion (abt. + 7% with respect to 31 December 2007 on a restated basis; about + 5% excluding the effects of the reclassifications made during Q 3 as a result of the recent IASB amendment to IAS 39 and IFRS 7; additional details are provided in the Notes to the Financial Statements), with a 1 bn increase over Q3. Following is a breakdown of consolidated loans by type:

Breakdown of loans by business segment

B) CREDIT QUALITY

42 The Montepaschi Group closed the FY of 2008 with net impaired loans amounting to 7.3 bn. The weight of NPLs and watchlist credit to total customers’ loans was about 5% and about 4%, respectively. The comparison with 2007 data is not homogeneous since it is not inclusive of the data of Banca Antonveneta.

The provisions covering impaired loans progressed y-o-y, with the weight of provisions to gross total loans standing at 43% (see following table). In particular, the percentage of provisions covering only gross NPLs was 56.8% (51.6% as at 31 December 2007), with a percentage of provisions at the level of the commercial Banks averaging about 60%. Said increase in the provisions to gross NPLs is linked with the increase in risk provisions and, above all, the addition of Banca Antonveneta with a provisions/gross NPLs ratio of about 69%, also due to a different write-off policy.

Portfolio valuation adjustments to performing loans were about 0.6% of the aggregate of reference.

Following is a breakdown of some credit quality indicators for the Group’s major business units:

As a result of the positive management of the NPL portfolio mandated to MPS Gestione Crediti Banca, the MONTEPASCHI Group collected sums due in a total amount of roughly 509 million (40% from Small Businesses, abt. 18% from MPS Capital Services positions, abt. 15% from SMEs).

C) THE OPTIMIZATION OF THE LENDING PROCESS

The fourth quarter of 2008 was characterized by the updating of the processes of disbursement and customer monitoring and the extension of the processes of credit risk management to Banca Antonveneta, in view of the spin-off carried out at year-end.

The Group also started to fine-tune the processes required by the Regulatory Authorities for the purpose of AIRB validation, with specific reference to the review of the process rating in light of events of operational management which are deemed to be significant for the assessment of the counterparts’ creditworthiness. In July 2008 the Group started a new process for the consolidation of the credit policies in relation to the Retail and Corporate segments of the commercial banks and product factories. The project shall better identify the configuration of the target loan portfolio in compliance with the risk levels which can be taken, and the commercial and credit guidelines useful for orienting the achievement of the objectives set.

In addition, the Group set the operational terms for the early review of the process ratings assigned, in light of any signs of possible deterioration of the customers’ risk profile upon the occurrence of abnormal events, which might determine high values in the Concise Indicator of Anomaly, fuelled by the Operational Management application.

44 4.4 INCOME AGGREGATES – COMPARATIVE STATEMENTS OF THE PARENT BANK’S NET EQUITY AND PROFIT FOR THE PERIOD AND CONSOLIDATED NET EQUITY AND PROFIT

An analysis of the results as at 31 December 2008 should take account of the operational trends restated on the basis of Banca Antonveneta joining the Group since January 20088.

1) OPERATING PROFITABILITY

In 2008 the Net Operating Income of the MONTEPASCHI Group totalled about 961 million (abt. 1,672 million as at 31 December 2007 restated on a comparative basis), incorporating the positive increasing contribution of the commercial core business and the impact of the valuations of financial and credit assets resulting from the intensifying economic and financial crisis, which is unprecedented as to the intensity of the levels of volatility/correlation of different asset classes. The core operating income included structural income in the amount of about 6,055 million (or +2.5% y-o-y).

THE DEVELOPMENT OF OPERATING INCOME: THE COMPOSITION OF FINANCIAL AND INSURANCE INCOME

Total revenues: quarterly trend With reference to the development of total income from financial and service business, as at 31 December 2008 financial and insurance income stood at EUR 5,952 million approx. (abt. EUR 6,516 million as at 31.12.2007 restated on a comparative basis), which is indicative of the exceptionally negative performance registered by the financial markets

in 2008. The quarterly trend shows that income from financial and insurance business of Q4 2008 came to EUR 1,264 million (about 1,715.4 million in Q4 2007 on a restated basis and 1,493.1 million in Q3 2008), influenced by the exceptionally adverse economic and financial scenario in the last months of the year. Structural Income (Core Operating Income) was steady with respect to Q3 2008.

The main aggregates developed as follows:

8 See Chapter 3.1 – The principles of reclassification for operating purposes.

45 Interest income in the amount of EUR 4,269 million rose by 8.2% y-o-y restated on a comparative basis, with a 3.8% increase with respect to Q3 2008 and 3.9% growth in comparison with Q4 2007. Growth in Q4 was mainly driven by the positive contribution of the Commercial Networks – due to the development of traded volumes, the half-yearly collection of the coupons (about 25 million) of some junior notes and Treasury activity, although partly offset by decreasing market rates which compromised the profitability of direct funding with no prompt recovery opportunity; Net commissions (EUR 1,787 million) declined by 9% on a comparative basis, due to the decreasing income associated with funds management, compromised by the negative performance of the markets and redemptions involving the whole Industry; Dividends, similar income and Profits (Losses) from equity investments amounted to about EUR 15 million (EUR 151 million as at 31.12.2007), restated on a comparative basis. This result is influenced by the negative contribution (abt. – 30 million) of the insurance companies, which had contributed positively in 2007 (about 98 million); Net income from trading/valuation of financial assets registered an adverse balance of about -EUR 113 million (EUR 456 million approx. as at 31.12.2007 restated on a comparative basis), with a negative amount of about – 167 million in Q408, due to the adjustment of the valuations of the securities and derivatives portfolios to current market values, which had been strongly compromised by the exacerbating crisis in the last months of the year. To this end, the Monte Paschi Group took advantage of the amendment issued on 13 October 2008 by the IASB in relation to IAS 39 and IFRS 7 which provides, under specific circumstances, for the reclassification of some financial assets other than derivatives from “fair value” accounting categories to other categories. In case of non-use of said amendment, the Group would have realized capital losses in the amount of EUR 71 million approx. (for the transfer from HFT to Loans) in addition to about EUR 41 million (for the transfer from HFT to AFS) posted to a specific net equity reserve rather than to the income statement.

Net result from trading/valutation of financial assets (in millions of euros) Res tated 31/12/2008 31/12/2007

Net Profit from trading -265,2 207,4 Profit/loss from loans, available for sale financial assets and financial liabilities 78,7 245,7 Fair Value financial assets and liabilities 73,2 2,9

Net result from trading/valuation of financial assets -113,4 456,0

46 THE COST OF CREDIT: NET VALUATION ADJUSTMENTS TO IMPAIRED LOANS AND FINANCIAL ASSETS

With reference to the income resulting from loan disbursements, the Group recorded net valuation adjustments to impaired loans in the amount of roughly EUR 1,065 million (abt. EUR 885 million as at 31.12.2007 restated on a comparative basis). Such amounts include writedowns (abt.54 million) in relation to the settlement of the Hopa Group/Fingruppo

issue, in addition to the effects of a complicated economic situation, which gradually deteriorated during Q4. As a result, the valuations incorporated the defaults of major companies and some international banks. Said amount is indicative of a provisioning rate of about 73 bp with respect to year-end loans.

Net valuation adjustments for impairment of financial assets recorded a positive balance of about EUR 5 million.

As a result, income from financial and insurance business totalled EUR 4,893 million approx. (abt.EUR 5,635 million as at 31 December 2007 restated on a comparative basis).

OPERATING EXPENSES: OPERATING CHARGES

In view of the critical operating scenario which increasingly deteriorated during the year, in line of continuity with prior years, the MPS Group continued to curtail costs. Although in light of an outstanding plan of investments in technologies, and despite increasing inflation, operating charges decreased by 0.8% on a comparative basis.

In particular:

47 A)Administrative expenses declined by 0.7% with respect to 31 December 2007, on a comparative basis, as a result of:

Personnel expenses in the amount of EUR 2,449 million approx., which incorporate the expected increase due to the renewal of the labour contract (application of new salary scales as at 1 January 2008), with a decrease of about 15 million (-0.6%), in comparison with 2007, mostly attributable to the structural benefits resulting from the actions of staff reduction and remix implemented in the second half of 2007 and in 2008 (huge outflow of personnel with high seniority and rank);

Other administrative expenses (net of recoveries of stamp duty and expenses from the customers), at EUR 1,326 million approx., declined by 0.7% with respect to 31.12.2007, restated on a comparative basis, due to the steady control of expenses and cost management actions undertaken.

B) Net adjustments to the value of tangible and intangible assets amounted to roughly EUR 157 million (EUR 163 million as at 31 December 2007 restated on a comparative basis).

Accordingly, the Net Operating Profit stood at EUR 961 million (abt.EUR 1,672 million as at 31 December 2007 restated on a comparative basis). As shown, this amount is indicative of the effects of the extraordinary crisis of the financial markets, which had repercussions on overall valuation adjustments to securities (held in the trading portfolio) and equity investments in the amount of about 300 million. Excluding said effects and the non-recurrent income registered in 2007 (mainly Borsa Italiana in the amount of about EUR 160 million), the “structural” operating profit would be virtually steady year on year.

The cost/income ratio was 66.1% (60.8% as at 31 December 2007 restated on a comparative basis). The “structural” cost/income ratio (i.e. the ratio of operating charges to core operating income) came to 64.9% (abt. 67.1% as at 31 December 2007).

2)EXTRAORDINARY ITEMS, TAXES AND NET PROFIT FOR THE PERIOD

Rounding out the picture of Net profit for the period are the following elements:

- Net provisions for risks and charges and other operating income/charges recorded an adverse balance of roughly -EUR 187 million (abt.-198 million as at 31 December 2007 restated on a comparative basis), including income in the amount of 74 million and charges in the amount of -261 million, mostly attributable to legal disputes, actions for revocation and writedowns of junior note coupons (abt. – 43.5 million); - The balance of Profits from Equity Investments stood at about 176 million, mainly in relation to the sale of the Depositary Bank to the IntesaSanPaolo SpA Group on 14 May 2008 (capital gain: EUR 198 million approx.) and the disposal of Fontanafredda (capital gain: abt. EUR 30 million) and Finsoe (capital loss: abt.EUR 35 million); - “Impairment of goodwill and financial assets” came to –EUR 542 million approx. (about – 58 million as at 31 December 2007 restated on a comparative basis), with (i) roughly – EUR 151 million attributable to the “IAS 36 impairment test”. Despite a globally steady test at the Group level, it was decided to adjust the value of the Corporate CGU in order to take account, with reference to the “Capital Markets” component, of the considerable changes in the operating scenario caused by the current economic-financial crisis (see Notes to the Financial Statements Section – Intangible Assets); and (ii) abt. –391 million (about – EUR 54 million as at 31 December 2007 restated on a comparative basis), attributable to the lasting losses of value in relation to equities, bonds, units of investment funds and hedge funds (see Notes to the Financial Statements) in accordance with the strict rules of valuation set by the Group on the basis of a conservative and prudential approach. This aggregate includes adjustments in the amount of EUR 123 million to the book value of Hopa in the past quarters. - Non-recurrent charges totalled about EUR 322 million, in relation to the integration of Banca Antonveneta into the MONTEPASCHI Group and the related restructuring measures approved within the 2008-2011 Business Plan: IT costs and sundry costs in the amount of abt.92 million, depreciation in the amount of about 45 million and personnel charges in the amount of 185 million resulting from extraordinary (non recurrent) costs incurred in relation to the Early Retirement Fund and Solidarity Fund in the amount of about 178 million involving 1,426 human resources (including 1,119 who already left during the year and 307 units expected to leave in 2009 on the basis of the retirement applications received), and task force expenses for personnel travelling for business purposes (abt. EUR 7 million), incurred with the objective of implementing the IT and organization integration of Banca Antonveneta into the Group ; - Profits from the sale of investments amounted to abt. EUR 28 million in relation to the sales of buildings by Banca Toscana (profit: EUR 20 million) and MP Banque (profit: abt.EUR 8 million).

Given the effect of the foregoing, profits from current operations before taxes came to EUR 114 million approx. (EUR 1,330 million as at 31 December 2007 restated on a comparative basis). This amount is indicative of charges in a total amount of EUR 1,350 million as valuation adjustments in relation to the exceptional crisis of the financial markets, provisions for risks and charges and non-recurrent integration expenses.

Rounding out the picture of profitability are:

Income tax on current operations for the period in the amount of EUR 845 million approx. (-EUR 713 million as at 31 December 2007 restated on a comparative basis), as the balance of the positive effect (about EUR 1,190 million) attributable to the redemption of goodwill (pursuant to art.15 of Legislative Decree 185/08) and a negative amount of income taxes for the year (about 345 million), incorporating about 112 million in relation to non-deductible interest expense recently introduced by the so-called “Robin tax”; Profits (losses) from discontinued operations, after taxes in the amount of EUR 71 million, mostly attributable to MPS Asset Management Sgr SpA and its subsidiaries, Banca Monte Parma and Quadrifoglio Vita.

Therefore, consolidated net profit before the effects of the Purchase Price Allocation (PPA) stood at EUR 1,020 million (abt.EUR 1,373 as at 31 December 2007 restated on a comparative basis). In view of the net impact of the PPA, net profit for the year (including BAV for 12 months) came to EUR 953 million (about 1,373 million as at 31 December 2007). The ROE9 was 11.9% (ROE calculated on average shareholders’ equity: 8.1%).

Such results benefit from the positive contribution from the Parent Company (net profit of Banca MPS: EUR 1,223 million), all the Group Business Units (as outlined in the following section covering Segment Reporting) and in particular Banca Toscana (net profit: EUR 145 million).

* *

9 R.O.E. on average shareholder’s equity: the ratio of Net Profit for the period to the average of Net Shareholders’ Equity (inclusive of Profit) as of 31 December 2007 and Net Shareholders’ Equity for the current year.

ROE on end-of-period shareholders’ equity: the ratio of Net Profit for the period to Net Shareholders’ Equity less the profits for distribution to the shareholders.

50 Following is the comparative breakdown of the Parent Company’s net equity and profit for the period and consolidated net equity and profit for the period, in compliance with Consob instructions.

51 4.5 SEGMENT REPORTING, SALES AND MARKETING POLICY, RESEARCH AND DEVELOPMENT

4.5.1)PRIMARY SEGMENT REPORTING

With reference to Segment Reporting contemplated by the IAS 14 regulations, the MONTEPASCHI Group adopted the business approach and chose, for the purpose of primary reporting of income/capital data, a breakdown of results in accordance with the business sectors committed to carrying out consolidated operations.

On the basis of said approach, following is a breakdown of the results achieved as at 31 December 2008 by the business areas of the MONTEPASCHI Group, aggregated in compliance with the current organization structure. To this end, the data in relation to the Business Areas (Commercial Banking/Network Distribution, Private Banking/Wealth Management, Corporate Banking/Capital Markets and Corporate Center) as at 31 December 2007 have been restated on the basis of the criteria adopted as at 31 December 2008, taking account of:

a) the sale of Banca Monte Parma late in October, the disposal of the majority stake held in Intermonte and the sale underway of the asset management companies, with the following elimination of their margins from Commercial Banking, Corporate Banking and Private Banking, respectively, and their simultaneous attribution to the Corporate Center for reconciliation of the data shown under “reclassified Group total”; b) the incorporation of Banca Antonveneta into Banca MontePaschi, with the ensuing divisionalization of the Network reporting to the Retail, Private and Corporate business sectors (effective as of 1 January 2008 in compliance with the reclassified income statements) and the attribution of the other non-commercial activities to the Corporate Center.

In addition, the Group took account of the migration of customers between segments and the adoption of new criteria of calculation of expected loss10, on the basis of which loan adjustments are allotted. With reference to the attribution of the new Group Companies to the Business Areas, MPS Banca Personale (included in the Private Business Area) incorporated the activities of the Financial Promoter network of MPS Sim and Biverbanca was assigned to the Corporate Center, since it has not been divisionalized yet. As usual, following are the major aspects which characterized the activity of each business area in the fourth quarter of 2008:

10 The new approach, as outlined in the section covering “The integrated management of risks and capital”, determined a change in the distribution of expected loss to the business sectors with respect to the past quarters. As a result, the historical series of Raroc cannot be compared with the series issued as of today.

SALES AND MARKETING ACTIVITY IN THE CURRENT OPERATING SCENARIO The critical operating scenario of 2008 had repercussions not only on the Group’s activity but also on the activities of our retail and corporate customers who had to cope with the gradual slowdown of the economic situation and the huge decline in the prices of the financial assets resulting, in some cases, in real defaults. The Group proved to be very sensitive to these issues and implemented material initiatives in support of the productive fabric and savings. Therefore, before outlining the initiatives conducted by each Business Area in the following sections, following is a summary of the major measures taken in support of the economy and for protecting the customers (see the section covering “The Social Responsibility of the Montepaschi Group”).

CUSTOMER PROTECTION

In light of the difficult operating scenario, the Group action was based on:

the management of the impact on the customers caused by the default of important financial institutions the support to the households facing difficulties in the repayment of their mortgage loans and loan management in general measures protecting the investors and securing their investments the responsible management of corporate loans.

Lehman Brothers Default. After the bankruptcy of the US investment bank Lehman Brothers in September 2008, a few customers were subject to unexpected risks in relation to their investments. 270 claims were submitted so far. However, the bond exposure at year-end concerned less than 0.1% of the Group customers. A Market Emergency Committee was immediately set up to cope with this unexpected situation, with the objective of promptly finding appropriate solutions to help the customers, giving clear conduct instructions to the commercial Network, preserving the reliability and soundness of supply and defending the Bank’s reputation.

Aid plan to the households. The Bank supported its borrowers in order to mitigate the weight of mortgage loan instalments on the family budget:

Bank mobility/transferability: The package in relation to mortgage loan transferability as contemplated by the Bersani decree was specifically applied with Sostimutuo, which can replace a mortgage loan executed with other banks, free of charge for the customer. Mortgage loan renegotiation: The terms of about 6,000 mortgage loans have been renegotiated since November 2007, with more than half renegotiations contemplating the extension of the repayment schedule and the ensuing reduction of the instalment. Management of debt. In co-operation with the Consumers’ Associations participating in the Consumer Lab (http://www.mps.it/Consumer+lab/), the Group prepared “Combatti la Crisi” (Fight the Crisis), an organic programme of action for 2009.

FIGHT THE CRISIS

Three material anti-crisis instruments which can be of interest to about 100,000 households, and a practical guidebook for the consumers-customers:

The customers facing difficulties (with an instalment/income ratio of more than 60%) can stop the payment of the instalments for 6-12 months, at no charges or increase in interest. The customers with unpaid instalments can repay them at some future date. A specific insurance policy associated with the mortgage loan (Mutuo MPS Protezione) shall protect the customers from any fluctuations of interest rates. In addition, the customers shall benefit from Euribor indexation, and the estimated Cap shall indicate the maximum instalment of the loan in advance. The customers provided with “Mutuo Sicuro Plus” – an insurance policy - shall obtain the repayment of unpaid mortgage loan instalments up to 12 months in a row, in case of extraordinary difficulties. On the front of consumer credit, effective May 2009 the customers who kept uptodate with their payments can have the “Fuoriclasse” option, an opportunity for reducing the repayment instalment up to 2% of the residual capital or stopping the payment up to 6 months. The Group shall adopt the guidelines of the European Directive on consumer credit (2008/48/CE) in advance and with some positive extensions, including the consumer’s opportunity of exercising the right of withdrawal from a loan already disbursed and the reduction from 1 to 0.5% of the early redemption fee when the residual amount to be paid is equal to or lower than 12 months. In addition, the Group shall issue a consumers’ handbook, as a contribution to promote a more responsible approach to credit and prevent the risk of households’ over-indebtedness.

Measures securing the investors

54 The Group promptly complied with the new rules introduced by the MIFID European Directive. Together with 870,000 customers we checked the consistency of the investment products with their requirements, financial culture and risk propensity.

The Group also activated a specific Advisory Platform – inclusive of an Intranet newsletter for the Account Managers – and a Unit for the control of the risks and returns in relation to our investment services. Each financial instrument of the range supplied and the financial instruments directly purchased by the customers are matched with a Synthetic Risk Indicator which is shown in the specific information sheets.

The Asset Management area was fully reorganized, with the objective of increasing independence of production from distribution, the transparency of the commercial initiatives and avoiding any possible conflicts of interest in the proprietary structure. To this end, the Group entered into an Agreement with Fondo Clessidra for the sale of 66% of the Group Asset Management Company in response to the request of the Governor of the Bank of Italy and the renewal required by the market.

Responsible corporate credit

In the current economic-financial scenario which is causing trouble to many businesses, the Group is committed to continuing to disburse loans with increasing focus on quality.

This shall be done by applying a rating system in accordance with the provisions of BASEL2, with a rigorous approach to risk management and the usual customer’s centrality. The guidelines of our lending policies have been collected in a specific Manual.

However, despite the crisis, the Group shall make its liquidity available to support the economy (with a 7% increase in lending volumes in 2008) by investing in sound companies and assisting the businesses in trouble with the objective of ensuring the proper and sound use of investments for useful and sustainable purposes.

COMMERCIAL BANKING AND NETWORK DISTRIBUTION

As usual, following are the major aspects which characterized the activity of each business area in 2008:

COMMERCIAL BANKING AND NETWORK DISTRIBUTION

55 Product and service innovation and the sales and marketing policy

The FY of 2008 was characterized by a focus on the improvement of service levels and the customer’s centrality, hinged on essential factors – such as post-sale advisory services in relation to loans and the application, in a Mifid logic, of the new instruments of financial investment planning. The plan of development was based on a programme streamlining the product catalogue, in response to the requests from the Networks and the Customers and the current trends in the domestic and international banking industry, oriented to simplifying the products supplied to the households.

The Group activity focused on the identification of solutions suitable for the migration of the customers of BAM and Banca Antonveneta to the Parent Bank, with the objective of ensuring the continuity of customers’ service, preserving tradition and the specific economic ties with the geographical area of origin. This implied a critical review of the product catalogue for the purpose of avoiding any overlap and integrating the Group supply.

With reference to product innovation in relation to the retail market segments, the Group started streamlining the current accounts catalogue, with different functional and management aspects (i.e. prices, range, product structure). In this framework, the new

accounts Contomolto e Costomeno prove that the RETAIL MORTGAGE LOANS customers are very loyal, due to the customization of the supply, and a pricing The Group also streamlined the range of its mortgage loans, with the objective model changing in of preparing an effective and limited catalogue of the most sought-after accordance with the products, which are also easier and more transparent in relation to the customer’s characteristics calculation of redemption. Specific emphasis was placed on the post sale stage, and behaviour. in line with the new regulations. In 2008 the Group disbursed mortgage loans for In December 2008, the the purpose of replacement by subrogation of the original creditor in a total Board of Directors amount of about EUR 250 million, and renegotiated about 5,700 loans which authorized the Group participation in the “Patti increased in the second half of the year. In particular, the Customers requested a Chiari” Consortium, on the lower mortgage loan instalment by renegotiating the term of redemption. The basis of the new structure average extension required was 5.4 years. and updated governance redesigned by the Executive Committee of the Italian Bankers’ Association. The top four “Commitments to Quality” (Comparative Search Engine and Synthetic Price Indicator in relation to ordinary current accounts and package accounts) have been enforced since 15 January 2009.

The whole range of consumer loans supplied was subject to renewal. Specialized personal loans such as “PRS Una” and “PRS Casa” gained strong momentum and increased their weight in the loan portfolio. Loan disbursements associated with an optional insurance policy also expanded.

56 Moreover, the Group renamed the whole PRS range as “Tuttofare” with the brand extended to the whole product portfolio.

The process of development of the bancassurance partnership with Axa was consolidated through the steady expansion and renewal of the product portfolio (see the chapter covering “Private Banking and Wealth Management”). In particular, in 2008 the Group started concentrating its efforts on the damage insurance products. The products released during the year were mostly oriented to meeting the requirements of the Family and Small Business segments. The Group designed simple products, with competitive premiums, for the purpose of covering the main categories of risks linked with the conduct of the households’ everyday life.

More in detail, with specific reference to the Affluent segment, the FY of 2008 was characterized by the large-scale application of the advisory approach required by the MIFID European regulation and the gradual circulation in the network of the new investment planning instrument (Advice Platform). The efforts made for the procurement of the Mifid questionnaries (about 400,000 questionnaires, or 68% of Affluent Customers) secured important information in relation to the customers’ base. As a result, the products supplied became more consistent and effective, taking account of the awareness, experience and objectives of risk stated by the Customers in full compliance with the regulations.

However, the major innovation for 2008 was the introduction of the Advice platform, as a new investment planning instrument for Affluent Customers. Training activities involved about 3,000 human resources (i.e. account managers, segment managers, branch managers), with about 10,000 advanced portfolio advice proposals defined at the end of 2008. Portfolio advice, within a specific contractual and pricing model, contemplates further developments in terms of additional services and is flanked by the already existing basic advice. In the second half of the year, the Group started extending the Affluent service model to the network of Banca Antonveneta, and in particular the Advice Platform and Metodo, with the beginning of the first commercial campaign in October 2008.

The commercial policy in relation to the family segment was mostly hinged on the development of one of the business areas typical of this market, that is consumer finance. At the same time, the Group launched specific commercial initiatives targeted at the bracket

of Customers with a greater volume of PROMOTIONAL INITIATIVES assets or a propensity to increase their share of wallet, who might support Specific attention was given to promotional initiatives. Two major initiatives were carried out during the year: the asset under management and real bank business. Of course, due to the “Made in Italy” matched marketing actions and the promotion of economic crisis which hit households some recently marketed bank products with “made in Italy” products mainly in the second half of the year, (tasting of quality products from different regions of Italy); the Group put increasing emphasis on relations and met the requirements of “l’Unione che ti premia” was targeted at promoting the customers from the viewpoint of the range of insurance products dedicated to the indebtedness, in particular by re- households, which were made available by the joint defining the plans of repayment of venture with the Axa Group. The Group successfully mortgage loans.

completed the pilot project in relation to “Patto con il Cliente”, an innovative service which secures a

pecuniary repayment to the customers who were victims of bank inefficiency.

It is also worthwhile mentioning the pursuit of the commercial policy targeted at foreign nationals, which proves the Group awareness of and responsiveness to financial inclusion. As a result of the relation model developed, the migrant cluster continued to increase within the Group.

With reference to the Small Business segment, new customized products were added to the specific range of supply, including Conto Commercio Light, a package account for small shops. The Group released Qualità e Innovazione, a specific financing product, dedicated to research and innovative development, which is appropriate to meet the requirements of small companies or start-ups for the purpose of increasing their level of technological innovation, development of production

processes and quality products “Pacchetto Agricoltura” (including the certification), and socio- The products supplied to the small businesses were integrated with new environmental protection and security. specific packages such as “Pacchetto Agricoltura” for the purpose of The loan is flanked by Qualità regenerating supply with innovative issues including renewable energy Agricoltura, a loan based on the and “quality” food-processing. The package was presented to the market specific requirements of agriculture on the occasion of the signing of the regional agreements with the and included in newly-created Farmers’ Federation, which make reference to the new National “Pacchetto Agricoltura” (see box). Agreement entered into by the Italian Farmers’ Federation and the Montepaschi Group, which represents an essential framework for the Within the process of integration of regional agreements. The range of products also includes two new BAM and, later on, most of the unsecured loans targeted at the wine-growers for the purpose of wine- branches of Banca Antonveneta into ageing and vineyard/tree planting. These loans contemplate periods of the Parent Company, BMPS, for the pre-payment in relation to the time of ageing provided for by the purpose of ensuring continuity in respective wine specifications, and the first production of the new trees, customers’ relations, the Group with priority given to investments in organic production, the recovery of imported two kinds of loans, being old vegetable breeds and the enhancement of the value of typical and marketed by BAM, in relation to dairies local quality crops. and the production of Parmesan cheese (Conto Latte and Finanziamento con pegno Grana – Loan on pledge of Grana cheese).

In July the Group released Scalarating, a new financial package which has the objective of supporting and encouraging small businesses to improve their financial structure and balance in view of BASEL 2. Small companies having specific economic/financial qualifications are entitled to start any actions for the improvement of their financial structure and rating.

In addition, as a result of the crisis of the fishing industry, the Group decided to promptly support the socio-economic emergency by fine-tuning two dedicated products. Qualimare and Pescaturismo support the conversion from the fishing industry to eco-friendly tourism or quality fish farm, with the objective of regenerating the companies in trouble and reducing environmental impact. The Group is currently designing specific products targeted at the Tourism and Building Industries, and revising the Package account for Small Businesses. In view of the process of integration of the MPS Group, the design of new dedicated products was flanked by a simultaneous process of streamlining and simplification of the range of products by introducing one commercial Catalogue for the MPS Group.

Specific emphasis was placed on the planning and commercial assistance to the Network. With reference to the operations of Isola della Rete - the Unit which is in charge of commercial advisory services to the distribution network at a centralized level - the volume of advisory services provided topped 45,400 in the first year of operations, thus confirming the validity of the strategy implemented, with more than 1,600 class training man-hours for the purpose of increasing the quality of the services rendered to the customers. 58 OPERATING RESULTS

With regard to commercial results, the Group continued to expand its customer base in Q4 2008, with a good pace of placement of Wealth Management products, mostly driven by bonds which offset the redemptions from the area of asset under management, above all during the peak of the financial crisis. The placement of loan products is indicative, also in Q4, of a slowdown in credit demand (consumer loans and mortgage loans). As a result of these trends and the growth of short- term loans, direct funding progressed by a hefty 9.8% in terms of average balance y-o-y. Indirect funding was adversely affected by the declining prices of the financial assets held by the Customers, in addition to the difficulties experienced with asset management products. Loan volumes advanced with respect to 31 December 2007 (+11.2% in terms of average balance), but their gradual slowdown is mostly attributable to sight loans and medium-/long-term loans.

Total income (EUR 3.7 billion) dropped by 2.2% y-o-y. The most dynamic component of the aggregate is interest income (+2.3%), driven by increasing traded volumes (both lending and direct funding). Net commissions fell by 9.7% due to income from the placement of financial products and continuing fees. Net Operating Income stood at about EUR 860 million with a y-o-y decrease of 11.6%, mostly due to loan adjustments. The cost/income ratio for Commercial Banking & Network Distribution was 65% (64.2% in December 2007).

The banks and product companies contributing to the Commercial Banking & Network Distribution Area include:

- Consum.it posted a net profit for the year of EUR 5.5 million (EUR 14.6 million as at 31 December 2007), which is indicative of higher loan adjustments (in relation to the difficult economic situation and growing operations) and the negative effects of the unwinding of some hedging derivatives as a result of the new Group funding policies introduced in 2008;

- Banca Popolare di Spoleto (equity investment consolidated with the proportional method: 25.9%) realized a net profit of EUR 10.62 million (10.43 million as at 31 December 2007).

PRIVATE BANKING banking & & Wealth WEALTH management MANAGEMENT PRODUCT/SERVICE INNOVATION AND THE SALES AND MARKETING POLICY

In 2008, the activity of Private Banking & Wealth Management was oriented to the pursuit of the commercial objectives in relation to Private Customers and the development of investment products and services for the Group customers, thus seizing the opportunities offered by the Mifid regulations. In compliance with the new business plan, effective September 2008, the Group started a process of consolidation of the specialist advisory services to the network, with the introduction of new skilled staff in support of the commercial dies for business development in the Affluent and Private markets.

THE INSURANCE BUSINESS

In compliance with the guidelines of the joint venture, business with AXA MPS was very profitable:

The supply of retail products focused on the launch of traditional products, in particular “AXA MPS Investimento Sicuro”, a revaluable single-premium Branch I insurance policy targeted at the households, which offers a very high minimum return. “AXA MPS Double Protection” is targeted at Affluent Customers. The product is characterized by a wide range of options which can be activated by the customer upon execution, during its validity or upon maturity. The Accumulator range was upgraded with “Accumulator Rendimento Top” which on the tenth year guarantees the repayment of the higher of the premium paid and the highest insurance policy counter-value recorded on each annuity. The Group launched “Double Prestige” targeted at Private Customers. This Branch I revaluable insurance policy is particularly innovative since it gives the customers the opportunity of choosing the annual payment of interest or their capitalization.

60 The Group designed “AXA MPS Investimento Più”, a capitalization product characterized by simple management and low cost, for the Corporate segment.

The Group completed the design and implementation of a new line of Individual Pension Plans (“AXA MPS Previdenza Attiva”), to be launched in 2009 once authorized by Covip.

On the front of research and development in relation to investment products, the Group introduced the new “GP Alta Gamma personalizzabili” in the area of individual portfolios under management, in addition to the products revised early in 2008. Such lines, targeted at the Private and Corporate segments, are designed for high-income customers and customize a few aspects of a line of management, in compliance with the risk profile assigned to the product.

The segment of Mutual Funds and SICAVs was expanded with the placement of the Funds/Sicavs of AAA Sgr, in view of the continuous improvement and enhancement of Retail and Private products. In the first part of 2008, the Group launched Bright Oak Secure World Fund, the first guaranteed- capital Fund of the Group, which participates in the performance of a basket of world indices and guarantees invested capital upon maturity.

With reference to third parties’ funds, in a logic of continuous improvement of the global quality of the range of Banca Personale, the Group selected two new prestigious international investment firms (Crédit Agricole and ING), to be activated in 2009.

With reference to the development of the professional advisory model, the MPS Group completed the release of the new Advisory Platform to the Affluent and Private markets. The new platform develops the different advisory models previously used in different market segments, and provides “advanced” advisory services in relation to remunerative contract-based investments, in compliance with the Mifid provisions. The “advanced” advisory service, based on a portfolio logic, is flanked by the already existing “basic” advisory service, based on a one-product logic, and expands the range of the MPS Group advisory services, with specific reference to the market of financially sophisticated Customers.

The Wealth Risk Management Unit contributes valuably to the smooth operations of the Group Wealth Management platform. The Unit is in charge of the measurement, monitoring and control of the risks and return in relation to the investment services provided to the Customers. The main objective is to ensure overall compliance of the customers’ risk/return profile with the risk inherent in the portfolios held, and minimize reputational risks, i.e. the risk of deterioration of the customers’ confidence.

61 COMMUNICATIONS: THE PARTNERSHIP PROGRAMME From the viewpoint of organization, in the area of asset The programme is funded by the investment firms representing the Main management in Partners of the range of products in open architecture which characterizes the general and Group Private Banking. Following are the major initiatives undertaken: portfolios under management in particular, the Group a cycle of economic-financial meetings covering “The financial world: started operating a scenarios and expectations for 2008” - which were held in 12 main Group center of Italian cities; competence (Fund Management Area), a cycle of local meetings, with the participation of the Private Area, with the objective of creating a centralized the Private Units of each Group Bank with the respective Heads and Area, based on a Account Managers of the Private Centres; single operational model, for the three “Private Days” held for the purpose of presenting the results management of the funds of Retail and achieved in 2008 and outlining the guidelines for 2009 development, Private with the participation of the Managers of the Private Networks, the Geographical Private Units and the Heads of the Private Centres.

Customers, MPS Banca Personale and institutional management by the Group Banks.

With reference to the Main Partners Project, in 2008 the Group worked out a programme (the Partnership Programme, see box) in relation to communications/training initiatives, with the objective of training the staff of the private commercial networks of the Banks, and special events targeted at the Private customers.

In addition, during the first half of 2008, the Group conducted a communication (advertising and media relation) campaign in support of “Sviluppo in Rete”, an initiative oriented to the acquisition of new market shares through brand consolidation in the area of private banking. In support of this initiative, the Group orchestrated two specific events in Florence and Bologna covering specific topical issues, such as the protection trust and the real estate investment policy.

OPERATING RESULTS

The Private Banking and Wealth Management Area faced the critical situation of the markets and increasing customers’ preference to liquidity, by orienting the commercial placements toward bonds, asset management products and insurance products. As a result, direct funding progressed considerably year on year (+21.6% in terms of average volumes), with indirect funding dropping by 9.8%, adversely affected by the remix of the portfolios and declining stock quotations, which

62 considerably depreciated the value of the assets administered or managed on behalf of the Customers.

Total income of Private Banking & Wealth Management came to roughly EUR 196 million, dropping by 17.6% y-o-y, due to the effects of the market crisis which compromised continuing and brokerage commissions (decreasing volumes managed/shift to bond and monetary lines/reduction of portfolio turnover). Interest income increased by 2.7%, benefitting from the hefty development of direct funding. The Net Operating Income stood at about EUR 37 million with a y-o-y decrease of 54.5%. The cost/income ratio was 77.4% (63% as at December 2007).

The companies contributing to Private Banking & Wealth Management include:

- MPS Banca Personale purchased Axa Sim in April 2008 and posted a loss of EUR 15.8, with a clear 12% y-o-y improvement (loss of EUR 17.9 million in 2007). - Monte Paschi Monaco S.A.M., a newly established Monaco-law company, resulting from the acquisition – early in October 2007 – of the business of the Monaco branch of Monte Paschi Banque, a subsidiary specialized in the management of Private customers, posted a profit from financial business of about EUR 10 million.

63 CORPORATE BANKING Banking THE SALES AND MARKETING POLICY AND PRODUCT/SERVICE INNOVATION

In 2008, research and development and marketing initiatives were oriented to consolidating the role of the MPS Group as the banking partner of reference, by focusing on the development of products and services in support of different stages in the corporate lifecycle, in accordance with the consolidated principles of: (i) transparency of contracts and documents, (ii) consistency with the macro-economic scenarios, (iii) compliance with the requirements of target companies through the creation of real opportunities both in relation to corporate assets and liabilities. From the viewpoint of organization, during the year the Group started and completed the integration of the branches of Banca Antonveneta located outside north-eastern Italy and Banca Agricola Mantovana. In addition, the integration of Banca Toscana was started.

On the front of commercial development, the initiatives undertaken in 2008 incorporate the release of a specific marketing application in support of the Geographical Areas, which is useful for focusing on the potential and structure profiles of the areas monitored by the respective SME/Local Authorities Centres. In 2008, the Group consolidated three strategic initiatives which are part of the commercial plans for SME Customers: Progetto Distretti (see box), Diagnostica and Alto Potenziale. Diagnostica is based on the dialogue between the Bank and the Customer (and whenever applicable with the Industry Associations and/or Advisory Firms) for the purpose of “diagnosing” appropriate management solutions for the improvement of corporate performances (e.g. asset disposal, search for partnership and borrowed funds, corporate finance restructuring, search for equity capital and access to capital markets). Alto Potenziale is targeted at the corporates which show a high potential of commercial and income development.

64 With reference to leasing and PROGETTO DISTRETTI factoring operations, Banca MPS The project has the objective of assessing the potential of the L&F entered into a commercial Italian industrial districts and developing customized and co-marketing agreement with Vismara Marine, one of the most marketing initiatives in compliance with the specific prestigious Italian shipyards. This requirements of the corporates for the purpose of improving incorporated a commercial their performances. Such an initiative incorporates the agreement for leasing operations mapping of the Italian industrial districts, the management of and a co-branding action in Focus Groups with the district representatives and the relation to all nautical events which execution of an agreement through a memorandum of took place in 2008, where our Bank understanding. The Group arranged the presentation of the participated together with Vismara Project to the market, with the participation of the Region of Marine (in particular the nautical Tuscany and some important Tuscan districts, including the shows of Cannes and Genoa). The textile industry of Prato and the shipbuilding industry of new web site of MPS Commerciale Viareggio. Leasing, a subsidiary of MPS L&F, is an important support to MPS CL “Patto”, the new product which was included in the catalogue and all the Group prospects in of all Group Banks last spring and is appreciated for its highly Italy. innovative characteristics, was awarded the second prize of the Innovation Award 2007 for the category of “Corporate Services” by Milano Finanza early in October. The prize is awarded on a yearly basis to highly innovative bank products and services, presented to the market in the last 12 months.

The Group’s traditional activity in support of local areas and entrepreneurs continued with the development of “Piattaforma Confidi”. In particular, the Group focused on the strategies to be implemented for a different valuation of the guarantees for commercial purposes in accordance with the degree of eligibility, in light of the recent instructions from the Regulatory Authority in relation to the modes and timing of registration in the 107 TUB Register by the Guarantee Authority. In 2008, the Montepaschi Group confirmed a ceiling of about 4 bn in relation to overall loan disbursements granted to Confidi, thereby proving the usual Group responsiveness to the SMEs and its area of reference, in a logic of bank of reference.

On the front of product innovation, the loan agreement “Patto” specifically designed for the SMEs (see box) was flanked by the release of the new version of “Prestiti Partecipativi Insieme e Partner”. At year-end, the Group executed a specific agreement with Enel.si Srl to finance energy savings investments (more efficient engines) through “Save finanziamento per l’efficienza energetica”. New specific agreements in relation to the photovoltaic area were signed with important industry players such as ACEA Spa, AlbaTech, Proit (in line with the existing agreements with Enel.si, Beghelli, Riello and other local players) for the supply of the “Welcome Energy: Finanziamo il fotovoltaico” package (201 transactions; + more than 100% with respect to 2007 with total disbursements of about EUR 50,000,000). In addition, specific medium-/long-term loans and integrated packages, designed in the past, continued to be marketed regularly (i.e. “Finanziamento INAIL – Bando 2006”, “A Basilea”, “Innovazione e Sviluppo” – modular loan, “Finanziamento con Provvista BEI”). The Group released the full range of asset management instruments dedicated to the corporates (especially, Local Authorities and SMEs). During the year, the Group marketed third parties’ SICAVs which are part of the multi-brand supply targeted at

65 corporate customers (JPMorgan and Schroders) and released portfolio management lines specifically dedicated to the SMEs (GP Gestione Liquidità), the Local Authorities (GP Private Investments), high-bracket Corporate Customers (GP Alta Gamma, as an alternative to Institutional portfolios under management, with high customization). In addition, the new “Pct on line” service was marketed in December.

THE LOCAL AUTHORITIES MARKET

The major initiatives undertaken in 2008 include:

As per the memorandum of understanding with ANCI Toscana, the Group completed the work on Project Financing, Public Leasing and Local Authorities Debt and published the so- called “handbooks” to be circulated to the Local Authorities; The SIOPE (Information System for the Operations of Local Authorities) project was developed including Health and Research Authorities; A new application for preparing a full database of public utilities is being implemented; As a result of the analysis of the operations of the Courts, with direct contacts with the Court Clerks and the persons in charge of the Bankruptcy Court Section, a new Internet Banking service was designed (credit/debit managed on the accounts of the receivers). Many initiatives of operational marketing were oriented to the development of the segment of Local financial institutions, Religious entities and No-profit institutions.

The overall supply of life insurance policies for the SME/Local Authorities segments was streamlined and updated. The range currently consists of Propensione, Axa-Mps Investimento Top and Axa-Mps Investimento Più (capitalization policies), and a Branch I key-man policy (Iride Corporate).

With reference to the management of financial risks, the Group expanded its range of products by introducing a floating-term contract (the Customer can negotiate the purchase/sale in question before maturity) in relation to the foreign exchange risk hedging strategies, and a synthetic term contract (with an optional structure which exactly reproduces a traditional term transaction, with Knock In and Knock Out clauses which customize the hedging profile of the structure). The already existing optional structures are flanked by the Commodity Swap in the area of commodity risk hedging strategies.

On the front of damage insurance, the Group completed the restyling of “Ecoenergy” and “Contractor All Risks – C.A.R.”. Two new policies (electronic policy and guaranteed installation policy) were released at year-end. The implementation of the new project of distribution model for supplementary social welfare, to be completed during 2009, was started under the supervision of AXA MPS. The project contemplates the innovation of the distribution process and the specialization of social welfare products by business line.

66 Additional information on the development of corporate customers payments is provided in the section covering “The Payment Systems”.

Corporate Finance

With reference to corporate finance, MPS Capital Services Banca per le Imprese undertook many initiatives in various segments of operations (Global Market, Corporate Finance, Investment Banking and Ordinary Finance) by suggesting state-of-the-art solutions which can integrate traditional loans.

The projects developed by Global Market incorporate the implementation of the adjustments to the IT platform for compliance with the MIFID provisions and the completion of the development of the advisory ARP (analysis of portfolio risk) platform base. The Group also implemented and circulated the pricing/transaction system on OTC derivatives (e-trade) to the regional desks.

Corporate Finance services include the activity of Project Financing which was expanded and consolidated in the following business segments: (civil and health) infrastructure, utilities, real estate (upgrading of urban areas and large real estate transactions) and shipbuilding industries.

The hub-and-spoke activity of the Group in the area of utilities was extended to all sectors (water, energy, gas and waste), with specific reference to the growth of operations in the field of energy from renewable sources. Wind energy plants were set up in Abruzzo, Molise, Calabria and Sicily. Two loans were executed for (i) implementing three photovoltaic energy plants in Apulia and (ii) installing more than 250 small plants in the Province of Trapani. In the area of the production of energy from biomasses and waste-derived fuel, a loan agreement was executed for revamping the thermal waste destructor at Scarlino (GR). The Bank also participated in the syndication of two important international projects in the area of energy, namely the implementation of a combined- cycle power plant in Wales and the building of six wind parks in Ireland.

In the field of infrastructure, the Group (i) secured the financial advising mandates in relation to the financing of a portion of highway in the Region of Lombardy and a marina in Campania; (ii) became the Mandated Lead Arranger of an important loan transaction in relation to railway mobility services; (iii) participated in the syndication of the financing project of the new Congress Centre in Rome, (iv) secured the financing of the first lot of Line 5 of the subway in Milan and (iv) secured the refinancing of a hospital in Piedmont.

67 As regards Real Estate, the Group financed the implementation of a business centre for the Public Administration in Emilia and executed the bridge loan preliminary to the implementation of a large shopping mall in Abruzzo. Two major operations involved the sale of most of the real estate of the Intesa San Paolo and Banco Popolare banking groups to two closed real estate funds. Two transactions were finalized for the acquisition of two real estate management companies.

As regards Shipping Finance, the Group executed twenty loan transactions with ship-owner s’ companies for the purchase of ships (already operational ships and ships being built).

With reference to Acquisition Financing, in 2008 the Group finalized 20 new transactions promoted by primary financial sponsors. The deals arranged by MPS Capital Services with the role of Mandated Lead Arranger or joint MLA incorporate the acquisition of the majority of the Mercurio group (leader in transport services by car transporters) by Palladio Finanziaria, the buy-out transaction of the Nadella group (products for line industrial handling) , Panini group (digital check scanners) and Sicurglobal group (private security and watching), and the acquisition of Jeckerson (clothing) by Stirling Square Capital. The Advisory M&A business was developed through the acquisition and/or management of mandates which concerned transactions with private and public counterparts for extraordinary corporate finance initiatives.

The Bank was strongly PRIVATE EQUITY committed to granting subsidized loans, and in The Private Equity business in support of the development of small and particular the inquiry and medium-size companies with a high growth potential was mostly management of the carried out by MPS Venture Sgr, a subsidiary of MPS Capital Services operations where it plays SpA. The company manages 6 closed-end equity funds reserved to the role of “covenanted professional investors, in a subscribed total amount of EUR 360 million. entity”. The Group In July 2008, the Ducato Venture retail fund was closed and its initial continued to promote the capital endowment of EUR 41.3 million liquidated. products specifically designed for the new In 2008 MPS Venture SGR – through its funds – executed eleven domestic industrial planning investment transactions, also participating with other primary players (Industria 2015) and in (Cadey, Sapient/Datel Group, Fly, Externautics, OMP Racing, particular for the first calls Pharmeste, Neomobile, IGS-Riva, Manutencoop Facility Management, for tender already issued. Casa di Cura Privata San Rossore and Bellco, a spin-off of Sorin) and five The Group also continued to disposals (Klopman, Dynamic Technologies, Manutencoop Facility market agricultural Management, GDA Group and Angelantoni). Two follow-on subsidized loans. transactions were executed with Starfly and the Sebach Group.

68 The development of structured finance implied a considerable increase in the operations of the Loan Agency unit, which manages a portfolio including about 150 transactions in a total amount of about EUR 2,500 million.

The service models

During the year the Group started the activities preliminary to the introduction of the new SME Service Model, which basically consists of the establishment of a management Team with the ongoing support of the specialists of the Bank (international banking) and the product companies (MPSL&F and MPSCS). The specialists shall be active members of the teams, participate in commercial planning, contribute to the assessment of the potential of the customers in the portfolio and manage, in co-ordination with the Managers, the contacts with the Customers for the offer of the products and services falling within their competence.

With reference to the Key Clients segment, the Group pursued the process of centralization of other corporate positions at the H.O. central unit and started the project of adjustment of the service model, with the objective of extending the organization-commercial principle of the management Team (as contemplated for the SME customers) to Key Clients.

OPERATING RESULTS

The Corporate Banking & Capital Market Area achieved positive results, based on the consolidation of the relations with the customers of reference, in the light of rigorous screening and monitoring processes of the borrowers. As a priority, the new transactions were channelled to the Group special credit companies, with excellent performances in the areas of project financing and industrial credit, leasing and loan purchase. New loan disbursements – with hefty loans granted to the Local Authorities segment last year - decreased. The loans disbursed by the Corporate Banking & Capital Market Area progressed considerably (+8.7% in terms of average volumes with respect to 31 December 2007). Direct funding advanced by 10% in terms of average volumes.

Total income for Corporate Banking & Capital Market (about 1.8 bn) advanced in comparison with the results as at 31 December 2007 (+4%), driven by the positive contribution of interest income (+8.2% mostly due to the expansion of traded volumes) and net commissions (+2.3%), especially lending commissions and commissions from traditional services. Although still very positive, other income (mostly attributable to the finance business of MPS Capital Services) dropped by 48% y-o-y. Loan adjustments deteriorated (+25.5%). The Net Operating Income came to EUR 341 million, dropping by

69 11.2% y-o-y. The cost/income ratio for the Area came to 47.3% (versus 49.8% as at December 2007). The amount of losses for reduction of value in relation to the corporate CGUs subject to the “impairment test”, posted to the income statement, was about EUR 151 million.

The companies included in the Corporate Banking Area incorporate:

- MPS Capital Services Banca per le Imprese - established on 10 September 2007 as a result of the merger of MPS Banca per l’Impresa and a business unit of MPS Finance - posted a net profit in the amount of EUR 38.1 million, which is indicative of positive results (though lower than last year’s) in the finance business. - MPS Leasing & Factoring – Banca per i Servizi Finanziari alle imprese consolidated its market position and posted a net profit of EUR 10.9 million (EUR 14 million as at 31 December 2007), with higher loan adjustments attributable to the deterioration of the economic situation.

D) CORPORATE CENTER

The Corporate Center is an aggregation of (a) all operating units which are individually below the benchmarks required for primary reporting, (b) the Group H.O units (i.e. governance and support, business finance, equity investments management and capital segments of divisionalized entities where ALM, treasury and capital management activities are particularly important), and (c) the service Units supporting Group units (with particular regard to the management of the collection of doubtful loans, real estate management and the development and management of IT systems, all

70 of them reporting to the Capital, Cost and Investment Governance Area). The Corporate Center also incorporates profits/losses from the companies consolidated with the net equity method, eliminations resulting from intragroup items, and Biverbanca, which has not yet become a separate division.

THE GROUP FINANCE BUSINESS

The finance business of Banca MPS is currently split into two areas of responsibility, (i) proprietary finance, directly reporting to the CEO and (ii) service finance (Treasury and Capital Management) which reports to the CFO.

PROPRIETARY FINANCE

In 2008 the crisis of the capital and credit markets, which was originally only “financial”, became a real “industry” crisis, which determined the recession of the major western economies and a crash of the international Stock Exchanges comparable to the Great Depression of 1929 (-46.3% of the Eurostoxx Index at year-end). In Europe, exacerbating signs of tension became clearer and more dramatic after the US decision of creating a USD 700 bn fund for the bailout of the large US financial and insurance groups risking bankruptcy. As a result, all member States met in Paris on 12 October 2008 and approved urgent and extraordinary guidelines which can be resumed as follows: 1) Government guarantee on interbank deposits until the end of 2009; 2) Government guarantee on new bank bond issues with maturities up to 5 years; 3) opportunity for each country to buy shareholdings in banks; 4) review of the accounting principles.

The Finance Area adopted the guidelines taken into account by the MPS Group in relation to the reclassification of the financial instruments as a result of the extraordinary measures adopted by the IASB and validated by the European Commission on 15 October to counter the serious financial crisis. Therefore, the AFS and HFT portfolios were reclassified under “Loans and receivables” (amortized cost) with total asset values of about EUR 2.9 bn. In addition, the hedge funds (HFT) portfolio was reclassified under AFS in a total amount of EUR 0.45 bn.

As a result, cash financial assets for trading purposes stood at EUR 11.3 bn as at 31 December 2008. Cash financial liabilities for trading purposes increased to roughly EUR 8.5 bn at year-end, simultaneously to the growth of financial assets.

The portfolio of financial assets available for sale totalled abt. EUR 5 bn (+1.5 bn with respect to September 2008).

Assets sold, not written off and impaired assets

TREASURY

72 The crisis of the financial markets, characterized by the investors’ strong loss of confidence in relation to the stability of the main international financial institutions, continued to determine a considerable expansion of credit spreads and to complicate the management of operational flows.

Despite the slowdown of interbank exchanges in an almost non-existent and rarefied liquidity market, where huge deposit funding implies the payment of high spreads due to the alarms linked with credit risk and counterpart risk, the Treasury and Capital Management Area ensured the MPS Group appropriate liquidity levels as a result of the management of commercial and financial flows and the related management of interest rate risk.

With reference to liquidity settlement, specific emphasis was placed on the optimization of the management of financial flows due to the critical market situation. During the year funding from repurchase agreements moved at a very fast pace driven by the commercial actions promoted by the network.

On the front of trading, in the second half of the year the Group encouraged the use of listed derivatives because they are more liquid than OTC derivatives. The overall amount of trading derivatives deals was about EUR 117.1 bn, with the Banking Book reaching a balance of about 190.5 bn.

An analysis of interbank positions (see following table) shows that the consolidated net borrowing interbank position came to roughly EUR 9.6 bn as at 31 December 2008, virtually in line with the position as at September 2008, with a focus of the commercial performances on the growth of direct funding and virtually steady customers’ assets. The net financial position is also influenced by the above-mentioned reclassifications of financial instruments.

ALM

Domestic bond funding operations, in support of the Group’s sales and marketing policies in relation to retail, corporate and private customers, included 91 new issues in a total amount of EUR 5.7 bn (Parent Bank only), with plain vanilla bonds accounting for 87.5% and structured bonds for the remaining part. In addition, in the first half of 2008 the first issue of an Upper Tier II hybrid instrument of capitalization was targeted at retail customers in a total amount of about EUR 2.2 bn.

International operations, mainly targeted at “non resident” qualified institutional investors, were affected by the extremely adverse debt market cycle, characterized by very large spreads and a strong volatility in the secondary market and CDS. The issues placed in the market, which are part of the Debt Issuance Programme, total about EUR 4.1 bn. This includes a 3-year unsecured senior issue in a total nominal amount of abt. EUR 2.5 bn, successfully completed in June 2008, and Lower Tier II subordinated issues (abt. EUR 350 million). The remaining issues in a total amount of about EUR 1.25 bn were placed as private placements.

OPERATING RESULTS

The Finance Area of the Parent Bank (inclusive of the results of Proprietary Finance and Treasury) posted a total loss of EUR 24.4 million to total income, with a y-o-y decline. This trend, influenced by the market crisis, is due to the decreasing contribution of the “strategic” portfolio and the trading component of the Finance Area, which is offset by the growing business of Treasury. The Net Operating Loss, inclusive of costs, stood at EUR 48.1 million (EUR 98.4 million as at 31 December 2007).

Parent Company - propietaryproproietary finance finance and and treasury treasury

(in milioni di euro) 31/12/2008 % chg yoy

INCOME AGGREGATES

Net interest income 188.0 n.s.

Net commissions

Financial income (loss) -212.4 n.s.

Net Financial income (loss) -24.4 -120.6% Net adjustments for impairment of loans and financial assets Operating expenses 23.7 17.4%

Net operating income -48.1 -148.9%

74 The management of liquidity risk

In 2007, before the subprime mortgage loan crisis of August which considerably reduced the credit institutions’ access to the markets, the Montepaschi Group undertook considerable and important measures. Therefore, as a result of its domestic funding policy (i.e. use of the bank network for the placement of its products), international funding policy and focus on the diversification of funding sources, the Group could face the current crisis quite confidently.

With reference to the organization policies and structure, the Montepaschi Group copes with liquidity risk issues with an official management policy of this kind of risks, also for the purpose of compliance with the provisions of Pillar II of BASEL II and the Bank of Italy in relation to liquidity risk.

The organization and management framework contemplates different Liquidity Policies and metrics oriented to monitoring and managing liquidity risk on the basis of short-term liquidity (operational liquidity) and medium-/long-term liquidity (structural liquidity). The Short-term liquidity policy makes reference to liquidity management in 1 year and is characterized by the following aspects:

- Measurement of the main expiring flows resulting from banking business; - Calculation of the liquidity mismatch, represented in a maturity ladder, showing the counterbalancing capacity items, that is promptly liquid assets consisting of the eligible securities portfolio; - Assets less expiring liabilities in the different maturities shall be lower than a cumulative limit expressed as an absolute value, resulting from quantitative analyses on benchmarks such as the Group funding capacity in different markets and/or through different instruments and the market depth in specific maturities.

The Medium-/Long-term liquidity policy makes reference to liquidity management over 1 year and is characterized by the following aspects:

- Measurement of the cash in and cash out in relation to all Group operations; - Calculation of the liquidity mismatching, as the calculation of the gap ratios between assets and liabilities over 1 year; - The use of behavioural statistical/quantitative models for the management of accounts with no contractual maturity or characterized by optional elements.

In addition, the Liquidity Policy aims at ensuring the financial balance of the structure in relation to the maturities in the time horizon over 1 year both at the Group level and at the level of each company under exam. In view of the above, structural limits were set for the Group and by company. Moreover, the different thresholds set by company are more restrictive for the Banks/Subsidiaries than for the Parent Bank which is entitled to operate, within specific limits, on the transformation of maturities.

75 As required by the prudential regulatory provisions for the Banks, the Group defined a stress model to show the impact of extreme situations on the Group liquidity profile. Therefore, the stress tests periodically conducted on the basis of endogenous and exogenous shocks determine deterministic and/or probability risk indicators.

In particular, two main kinds of scenarios are taken into account: (i) Market Stress Scenarios and (ii) Bank Specific Stress Scenarios. Said scenarios became recently true (e.g. Northern Rock), therefore it was possible to adjust the hypotheses to the latest events. The framework of reference of the stress tests was based on the FSA provisions for regulation in the UK. Specific attention was placed on estimated liquidity flows for the purpose of optimizing the management of financial flows. In order to make the Group liquidity management more effective, the Group completed a few activities oriented to increasing available counterbalancing capacity (i.e. assignable reserve assets). Last year’s “Siena 07-05” securitization in the amount of EUR 4.7 bn was flanked in April 2008 by a second issue which increased the counterbalancing capacity by an additionaladdition EUR 3 bn. As at the end of 2008, the total counterbalancing capacity eligible, once applied the haircuts, was about 18.4 bn, including a non-committed amount of about 6.3 bn. As at 31 December 2008, the Group had a ROB excess (with respect to the amount due) of about 5.3 bn and, therefore, a net liquidity balance of about 11.6 bn. Specific emphasis was put on the planning of the Group funding policies (Funding Plan), co-ordinated and guided by the Treasury and Capital Management Area (in co-operation with the Planning Area), which:

- Submits the plan of action in the financial markets, useful for achieving the objectives set by the business plan and capital management requirements, to the Finance and Liquidity Committee for approval; - Co-ordinates access to long- and short-term, domestic and international, capital markets for all the Group banks, and access to the refinancing transactions with the European Central Bank and the centralized management of compulsory reserves; - Estimates future liquidity, by simulating different market scenarios.

The MPS Group is also provided with a Contingency Plan which – unlike the Liquidity Policy – manages liquidity under stress conditions (i.e. stress, crisis) and determines:

- A process of identification and monitoring of risk indicators before the occurrence and development of a liquidity crisis; - A string of pre-arranged but flexible actions, to be activated during the first stages of development of a crisis; - The roles and responsibilities of the corporate bodies in the process of activation of the Group Contingency Plan; - The internal regulations appropriate for validating the operations of the MPS Group Management who, in a crisis scenario, shall be entitled/delegated to amend the structure of balance-sheet assets and liabilities promptly and thoroughly.

76 A liquidity crisis is a situation of difficulty or incapacity of the Bank which cannot meet its expiring cash commitments, unless it starts procedures and/or uses instruments not attributable, by intensity or method, to the ordinary course of business.

In view of the kinds of liquidity crises and their extent, following are the three operational scenario of reference which can be identified:

- Ordinary Course of Business scenario, - Stress scenario, - Crisis scenario.

On the basis of the operational scenario of reference, it is managed in terms of:

- Units involved, - Actions to be undertaken.

In 2008, in view of the market liquidity pressure shown by using general contingency indices regulated by the contingency plan (e.g. EURIBOR 3M-EUREPO3M) as early warning indicators, the Group set up a Stress Committee. The state of stress has not been revoked as of today. The Stress Committee meets periodically and debates about funding alternatives in situations of general market difficulties. No specific difficulty of the MPS Group was detected by the specific contingency indicators, including the stress tests.

THE MANAGEMENT OF THE GROUP’S EQUITY INVESTMENTS

In 2008, the Group continued to reorganize its equity investment portfolio.

- The Parent Bank transferred 73 equity investments in a total amount of about EUR 102.3 million to MPS Investments SpA, an equity investment holding company and a centre of excellence for the Group equity investment management; - MPS Capital Services SpA sold a few investments (12 shareholdings in a total amount of EUR 17.7 million) which were no longer part of its merchant banking business to MPS Investments SpA.

Following are the main changes which involved the Group equity investments in the period under exam:

1. Acquisition of new equity investments/Establishment of new companies

MPS SIM SpA: as provided for by the agreement with the AXA Group, BMPS purchased the whole share capital (100%) of AXA SIM S.p.A. (which was subsequently renamed “MPS SIM”) in a total amount of EUR 40 million.

Banca Antonveneta SpA: on 30 May 2008, the Group purchased the whole share capital of the Bank from Banco Santander, with an investment of about EUR 10.1 bn, including EUR 1.1 bn cashed by Antonveneta for the sale of Interbanca to third parties.

Nuova Banca Antonveneta SpA: was established on 23 April 2008 with a share capital of EUR 6.3 million fully paid up by Banca Monte dei Paschi di Siena S.p.A.

The company was registered in the Register of Companies on 10 November 2008, once authorized by the Bank of Italy to conduct banking business and provide investment services.

Seashell II Srl: the whole stake (100%) was purchased on 13 November 2008 with an investment of EUR/000 10.0.

Participation in capital increase/reinstatement and equity investments increases

The major transactions incorporate:

- The purchase from Fondazione Cassa di Risparmio di Vercelli, in accordance with the provisions of the agreements executed with the other shareholders upon the purchase of the controlling interest from Intesa Sanpaolo SpA, of an additional 5.78% of the share capital of Cassa di Risparmio di Biella e Vercelli SpA, in a total amount of EUR 41.9 million and the following sale to Fondazione Cassa di Risparmio of a 1.78% share in a total amount of EUR 12.9 million. As of 31 December 2008, Banca Monte dei Paschi di Siena SpA held 59% of the share capital of Biverbanca.

- The purchase of the remaining 50% portion of Quadrifoglio Vita SpA from Unipol SpA, as agreed upon, in an amount of EUR 92.5 million. The whole share capital of Quadrifoglio Vita was later sold to AXA MPS Assicurazioni Vita SpA, as contemplated in the Framework Agreement executed with the AXA Group, at the price of EUR 141.5 million;

- The subscription of the capital increase of MPS Capital Services SpA in a total amount of EUR 99.7 million (including EUR 2.0 million subscribed by Banca Toscana);

78 - The payment of the remaining 75% portion of the capital increase subscribed in Fidi Toscana SpA, with a total Group investment of EUR 2.2 million;

- The subscription of the capital increase of Compagnia Investimenti e Sviluppo SpA in an amount of EUR 1.2 million;

- The subscription of the capital increase of Aeroporto di Siena SpA, in a total amount of EUR 4 million. As at 31 December 2008, the Group had paid out only 25% of the share;

- The purchase of the remaining 45% of ABN AMRO Asset Management Italy SGR SpA from Banco Santander, with a total disbursement of EUR 35 million (the remaining 55% is held by the Parent Bank as a result of the merger by incorporation of Banca Antonveneta SpA);

- The subscription of the capital increase of UNOAERRE SpA, in a total amount of EUR 1.3 million.

2. Disposal/Sales of equity investments

In 2008, Banca MPS:

- sold the stake held in Banca Monte Parma SpA, (49.266% of the share capital in a total amount of EUR 191.7 million); - sold the total controlling interest of MPS Finance SpA of Siena (to which had been previously transferred the depositary bank business unit) to Intesa Sanpaolo SpA; - sold the investment held in Finsoe SpA, Bologna, (8.57% of the share capital) in a total amount of EUR 154.5 million; - sold the total controlling interest of Valorizzazioni Immobiliari SpA at the price of EUR 97.2 million; - sold the stake held in Banca della Ciociaria SpA (Frosinone) (5.17% of the share capital in a total amount of EUR 2.4 million); - sold the stake held in Pacchetto Localizzativo Brindisi Scrl (Brindisi) (17.80% of the share capital in a total amount of EUR/000 9.9); - sold its interest in Autocamionale della Cisa SpA – Pontetaro (PR) (0.002% of the share capital in a total amount of EUR/000 1.1); - sold its 9% stake in Etruria Telematica Srl – Monteriggioni (SI) due to share capital reduction for losses. - sold the stake held in Società Aeroportuale Calabrese S.A.CAL. SpA – Lamezia Terme (CZ) (0.6% of the share capital in a total amount of EUR/000 68.7); - sold the equity investment held in E.R.V.E.T Emilia Romagna Valorizzazione Economica Territorio SpA (Bologna) (2.449% of the share capital in a total amount of EUR/000 299.7); - sold the equity investment held in Interporto di Bologna SpA (Bologna) (1.678% of the share capital in a total amount of EUR/000 404.5)

79 - sold the stake held in Fincalabra SpA (0.764% of the share capital in a total amount of EUR/000 206.8); - sold the equity investment held in Siena Parcheggi SpA (16.667% of the share capital in a total amount of EUR/000 783.4); - sold the stake held in Sviluppo Sele Tanagro SpA (10% of the share capital in a total amount of EUR/000 3.0); - partly sold the equity investment held in Hopa SpA (0.185% of the share capital in a total amount of EUR 1.6 million);

At Group level:

- MPS Capital Services (i) purchased an additional 4.5% of the share capital of Società Incremento Chianciano Terme SpA, with an investment of EUR/000 96; (ii) purchased an additional 1.6% of the share capital of Lineapiù SpA, with an investment of EUR/000 380; (iii) purchased 0.69% of the share capital of Servizi Energetici Integrati SpA, with an investment of EUR/000 440; (iv) purchased a 20% stake of the share capital of Agricola Merse Srl, with an investment of EUR 5 million; (vi) sold its 30% interest in the share capital of Marina Blu SpA (total amount: EUR 5.2 million); (vii) purchased a 21.66% interest in the capital of Moncada Solar Equipment Srl with an investment of EUR 2.0 million (the amount was almost fully paid up as a future capital increase); (viii) purchased a 10% interest in Classica SpA with an investment of EUR 1.1 million; (ix) totally sold its 5.95% interest in Nuovi Cantieri Apuania SpA in an amount of EUR 3.1 million;

- Banca Agricola Mantovana SpA (i) merged Banca Agricola Mantovana Riscossioni SpA, a formerly wholly-owned subsidiary; (ii) purchased a 7.36% stake in Cantina Sociale di Arceto Società Cooperativa Agricola through its subsidiary Agrisviluppo SpA with an investment of EUR/000 300; (iii) purchased a 1.185% interest in Hopa SpA within a transaction of financial restructuring in an amount of EUR 1.6 million; - Monte Paschi Asset Management SGR SpA subscribed the capital increase of Total Return SGR SpA, with an investment of EUR/000 84.3; - Banca Antonveneta SpA (i) subscribed a portion of the fund of the MPS Group IT Operating Consortium, with an investment of EUR/000s 39.0; (ii) sold 19,044 class A shares of Mastercard Inc. and cashed EUR 5.8 million; (iii) subscribed the capital increase of Veneto Sviluppo SpA, keeping its stake unchanged at 4.22%, with an investment of EUR/000 82.7; (iv) subscribed the capital increase of La Cittadella SpA with an investment of EUR/000 502, and purchased the remaining 625,000 shares free of charge, thus acquiring the controlling interest of the company; (v) sold the investment held in Centrale dei Bilanci Srl (4.167% of the share capital in a total amount of EUR 21.4 million);

- MPS Investments SpA (i) sold the whole share capital of Fontanafredda Srl in an amount of EUR 90 million; (ii) subscribed the reserved capital increase of Industria e Innovazione SpA, purchasing a 12.225% share with an investment of EUR 4.9 million; (iii) purchased an additional 32.09% in MPS Intermonte SpA (former Intermonte SIM SpA) from BIM Fiduciaria SpA, with an investment of EUR 5.5 million; (iv) purchased the remaining 33.95% of the share capital of MPS Intermonte SpA (thus obtaining the controlling interest) from Banca Agricola Mantovana with a disbursement of EUR 5.8 million; (v) sold the investment held in Bancasintesi SpA (2.42% of the share capital, in a total amount of EUR/000 250; (vi) purchased 2,160 shares of Bassilichi SpA through the exchange of 50,000 shares held in Evolution Bassilichi SpA (a subsidiary of Bassilichi SpA) at the book value, in the amount of EUR/000 108. The interest in Bassilichi SpA increased from 11.46% to 11.73%; (vii)

80 partly sold the investment held in Alerion Industries SpA (1.091% of the share capital) in an amount of EUR 4.3 million; (viii) sold the investment held in Centrale dei Bilanci Srl (8.46% of the share capital in a total amount of EUR 43.7 million); (ix) sold the investment held in Asteimmobili.it SpA (5.087% of the share capital) in a total amount of EUR/000 134.8;

In addition:

- The transfer from Banca Agricola Mantovana SpA to Banca Antonveneta SpA of the business unit consisting of the 33 branches located in the Geographical Area of Veneto (north-eastern Italy), inclusive of the SME, Local Authorities and Private Centers of the Area and the whole of assets, human resources and legal relations organized for the banking business conducted by them; - The merger by incorporation of Banca Agricola Mantovana SpA into Banca Monte dei Paschi di Siena Spa, effective as of 21 September 2008; - The merger by incorporation of Banca Antonveneta SpA into Banca Monte dei Paschi di Siena Spa, effective as of 31 December 2008; - The transfer from Banca Monte dei Paschi Siena SpA to Nuova Banca Antonveneta SpA of the banking business unit consisting of 403 branches, 9 SME Centres, 4 Private Centers, 6 Local Authorities Centers and 3 Geographical Areas, in relation to north-eastern Italy, mostly resulting from the merger of Banca Antonveneta SpA. The transfer is effective as of 1 January 2009 when the company was renamed “Banca Antonveneta SpA”; - The sale of the “off site supply” business unit pursuant to art.30 of Legislative Decree no.58/1998 from MPS SIM SpA to MPS Banca Personale SpA; - The split-off of the stock brokerage business unit (SIM) from Intermonte SIM SpA to Nuova Intermonte SpA as of 1 July 2008. Effective this date, Intermonte SIM SpA (which discontinued its operations as a stock brokerage company) and Nuova Intermonte SpA changed their names into MPS Intermonte SpA and Intermonte SIM SpA. As a result of the split-off of the business unit, MPS Intermonte SpA held 95% of the capital of Intermonte SIM SpA. Later on, on 31 July 2008, MPS Intermonte sold 75% of the capital to the Private Shareholders of Intermonte SIM; - The merger by incorporation of MPS Intermonte SIM SpA into MPS Investments Spa, effective as of 18 December 2008. At the end of the extraordinary transactions which involved the stock brokerage company, the Montepaschi Group holds 20% of Intermonte SIM SpA through MPS Investments SpA; - The sale of the business unit for “the provision of the portfolio management service and business in relation to the Client Support contracts concerning the former ABN AMRO SICAVs”, pursuant to art.30 of Legislative Decree no.58/1998 from ABN Amro Asset Management Italy SGR SpA to Banca Monte dei Paschi di Siena SpA, as of 31 December 2008.

SECONDARY4.5.2 SECONDARY REPORTING REPORTING

As a basis for secondary reporting, the MontePaschi Group adopted the breakdown of operating results by geographical area. The MONTEPASCHI Group mostly operates in the domestic market, with particular focus on central Italy (the Group realizes 98% of its net operating profit in Italy).

81 However, in relation to the strong emphasis placed by the Group on international business, in 2008 the commercial operations – integrated in the Corporate Area as of September 2008 - focused on the assistance and advisory services to the Networks and the Customers in the processes of corporate internationalization, for the purpose of increasingly promoting the competitive positioning of the Italian SMEs in the international markets (additional information on the development of the direct foreign network is provided in the chapter covering “The distribution channels”).

The Group designed and implemented a string of specific initiatives targeted at supporting the SME operations in the international markets, with particular reference to the major productive business sectors in the domestic economic system. The Group preferred a highly customized approach to customers’ supply hinged on the search for the most appropriate solutions to meet the specific requirements of each company, both in relation to trade and investment projects and plans oriented to off-site production or distribution.

These initiatives include the completion of the so-called “International Commercial Programme” which originated more than 2,900 meetings with the Network Customers, and identified additional opportunities of expansion of commercial relations (abt. 85% of the cases). The programme also played an important role of “on-the-job” training for the Account Managers and materially tested an integrated interaction model between the Account Manager, the “International Specialist” and the H.O. support units. It also introduced innovative elements in terms of instruments of analysis and commercial planning and approach to the commercial interaction with the customers.

The strategic objectives underlying the commercial initiatives promoted are associated with three main guidelines:

Increasing profitability of the international business, in a logic of improvement of the return on absorbed capital through specific initiatives including, for instance, the placement of trans-national and Trade & Export Finance products, the placement of hedging products and the foreign exchange business; Expansion of operations, through the development of the customers already operating with the Group in this area, by “capturing” high value-added additional flows of international business and aligning the international share of wallet with the domestic share; and the acquisition of new Customers on the basis of a wide and complete range of supply, service quality and execution skills; Optimization of the operational modes, through the introduction of a regular method of planning and commercial development of the Customers in the international business, flanked by the optimization of the modes of interaction between the Account Managers and the product “Specialists”.

OPERATING RESULTS

The trading volumes of the International Banking Area11 progressed with respect to 2007, with specific reference to the loan portfolio.

Income from financial and insurance business amounted to EUR 122.3 million with a 10% increase with respect to December 2007. The net operating income stood at EUR 17.3 million, with a decrease on a yearly basis. The cost/income ratio was 72.5% (77.3% in December 2006).

With reference to the foreign banking subsidiaries:

- Monte Paschi Banque posted an income from financial business around EUR 57 million (abt.EUR 58 million as at 31 December 2007); - Monte Paschi Belgio recorded an income of EUR 21 million approx. (abt.16 million as of 31 December 2007).

11 At the level of primary reporting, Income from the International Banking business is incorporated in Corporate Banking/Capital Markets with reference to MP Banque, MP Belgio and the Foreign Branches, but is attributable to Private/Wealth Management with reference to MP Monaco Sam.

83 4.6 INTEGRATED RISK AND CAPITAL MANAGEMENT12

4.6.1 THE RISK MANAGEMENT PROCESS

The process of risk management regulation and definition of roles and responsibilities within the Montepaschi Group was further consolidated in 2008, partly due to the Bank of Italy’s validation of the advanced internal models for credit and operational risks for reporting purposes.

The guidelines which characterize the risk management process at the MPS Group are based on a clear distinction of roles and responsibilities at three levels of control (1st Tier, 2nd Tier, 3rd Tier).

The Board of Directors of the Parent Bank is responsible for (i) defining the strategic guidelines and risk management policies at least on an annual basis and (ii) setting the Group overall degree of risk appetite, also quantitatively in terms of Economic Capital. The Board of Statutory Auditors and the Internal Controls Committee are charged with evaluating the degree of efficiency and adequacy of the Internal Controls System, with particular reference to the control of risks.

The Head Office is responsible for ensuring compliance with the risk policies and procedures. The Risk Committee prepares the Risk Management policies and checks overall compliance with the limits assigned at different levels of operations. The Parent Bank Risk Committee assesses the risk profile achieved at the Group level and by company and, therefore, capital consumption – both in relation to Capital for regulatory purposes and Economic Capital –, and the trend of risk/return performance indicators.

The Parent Bank Finance Committee is in charge of planning the Group funding, submitting proposals of capital allocation to the Board of Directors for approval, identifying the initiatives to be adopted for the best risk-return profile of Asset & Liability Management (ALM) and the management of liquidity risk, and defining any Capital Management actions.

The Internal Controls Area of the Parent Bank is charged with setting the regulations applicable to the internal control systems and checking the actual enforcement and observance thereof.

The Risk Management Area of the Parent Bank shall define the integrated methods of analysis for the measurement of all risks incurred, for the purpose of ensuring their accurate measurement and steady monitoring. The Area shall also quantify the Economic Capital, that is the minimum amount of capital to be

12 Additional details are provided in the Notes to the Financial Statements - Part E “Information on risks and the related hedging policies”.

84 held for covering all current risks. The Area shall produce control reporting and check compliance with the operational limits set by the Board of Directors on the basis of internally developed models. The Business Control Units shall check compliance of the transactions, as the first step of controls on operations within the more general System of Internal Controls.

The Wealth Risk Management Unit – in a staff position with respect to the Private Banking/Wealth Management Division – is in charge of the control, measurement and monitoring of the risk of the investment products provided to the customers, or held by the clients.

4.6.2 THE ACTIVITIES ASSOCIATED WITH BASEL 2

In accordance with the principles contemplated by the New Accord on Capital Adequacy (BASEL II) in relation to First Pillar risks, during the first half of 2008 the Montepaschi Group completed the activities with reference to the internal models for credit and operational risks. Pursuant to Circular 263/2006 of the Bank of Italy, on 12 June 2008 the Montepaschi Group was officially authorized to use the advanced models for the measurement and management of credit risks (AIRB-Advanced Internal Rating Based) and operational risks (AMA – Advanced Measurement Approach) since the first consolidated reporting as at 30 June 2008. The Group is completing and extending such models to the entities not included in the initial area of validation, and carrying on the activities oriented to the improvement of the internal models for market and counterpart risks. In particular, in the second half of 2008 the Group issued a Group Directive for the improvement of Market Risk regulations, thereby re-designing the roles, responsibilities and processes of all players involved.

In addition, the Group continued its activities for compliance with the Second Pillar. To this end, in 2008 the Group set up a specific Capital Adequacy Unit – within the Parent Bank’s Planning Area – for the purpose of co-ordinating the optimization and governance of all processes in relation to the self-assessment of the Group capital adequacy within the ICAAP process (Internal Capital Adequacy Assessment Process). During the second half of 2008, the Group also issued a Group Directive, which regulates the roles and responsibilities in the governance of the ICAAP process, oriented to streamlining the whole Capital governance process.

With reference to the Third Pillar (obligation of “Public Disclosure”), for the purpose of ensuring compliance with the obligations of disclosure as contemplated by the regulations, the Montepaschi Group started a specific “BASEL 2” project with the objective of defining the structure and the contents of the paper (Public Disclosure – Pillar 3), and the related processes of implementation. The working group, co-ordinated by the Risk Management Area, headed by the Executive In Charge, co-operated with all the main Parent Bank’s units. “Pillar 3” public disclosure is a very effective summary paper which provides the Market with the information concerning the activities carried out, capital adequacy, risk exposure and the general characteristics of the systems for the identification, measurement and management of such risks. The

85 disclosure was published on the Montepaschi Group website (www.mps.it/Investor+Relations) and is steadily updated on the basis of the provisions of the ruling regulations.

4.6.3 The analysis of the Economic Capital for the Montepaschi Group

In the ordinary course of business, the Montepaschi Group incurs different types of risks, which can be classified as follows:

credit risk, counterpart risk, issuer risk, concentration risk, market risks in relation to the trading portfolio (Trading Book), interest rate risk of the Banking Book (Asset & Liability Management - ALM), liquidity risk, equity investment portfolio risks, UCIT risks (alternative funds), operational risk, business risk, reputational risk.

The Parent Bank Risk Management Area periodically quantifies the Economic Capital by risk kind, mostly on the basis of the internal models of measurement. Such models were specifically developed by risk factor and are mostly based on Value-at-Risk (VaR) methods for the determination of the maximum loss the Group might incur in a specific holding period and a pre-established confidence interval.

Risk measurements quantifying the Economic Capitals are determined on the basis of the internal models developed by the Montepaschi Group. Such models were officially validated by the Regulatory Authorities for regulatory purposes (Credit Risks and Operational Risks) in relation to some risk factors and specific portfolio categories. However, the outputs resulting from the internal models of market risks and operating models for counterpart risk are a daily instrument for the control and monitoring of the risk exposures generated in such areas, and for the control of the operational limits and delegated powers in accordance with the guidelines approved by the Parent Bank. With reference to credit risk, most inputs of the Credit Portfolio Model, which is being developed continuously from the viewpoint of the method, are originated by the internal models used for reporting purposes, as integrated with additional information and fine- tuning, which represent risk measurements in a merely operating logic. The output of the model of operational risk at the Group level is re-allocated on the basis of principles of historical loss, the estimates of the Top Management and profitability information (gross income) and is used for operating purposes. In addition, the results in terms of shift sensitivity of the economic value, coming from the internal model of Asset & Liability Management - which during the year was largely fine-tuned as a result of a better representation and measurement of sight accounts and behavioural aspects (prepayment risk) – are

86 integral part of the Overall Economic Capital. Business risk is currently measured as a risk factor in relation to the rigidity of the cost structure with respect to the changes in the business units caused by market components and internal strategies. Equity risk is the risk resulting from the volatility of market valuations in relation to the equity investments held in the portfolio and not deducted from net equity. Liquidity risk – with specific monitoring procedures being developed by the Group during the year - is not relevant in terms of quantification of the Economic Capital. The MPS Group is provided with operational limits and a formal policy of liquidity risk management both in the ordinary course of business and in market stress scenarios. In particular, on the basis of pre-established thresholds of tolerance, the Group set and formalized specific “contingency plan” procedures which are activated in case of need. Specific mitigation policies are being defined in relation to other risks which cannot be measured with a quantitative approach (e.g. reputational risk).

Therefore, the Economic Capital by risk factor results from the corresponding operating metrics of risk quantification. VaR measurements by risk factor keep their own value in accordance with the ruling regulations and the international best practice and are determined with different holding periods and confidence intervals.

The Overall Economic Capital (or Overall Internal Capital) is the amount of minimum capital reserves required for covering the economic losses due to the occurrence of unexpected events simultaneously caused by the different types of risk. The Overall Economic Capital results from the joint measurement of the risk factors. Such measurements are standardized both in terms of holding period (on a yearly basis) and selected confidence interval, in line with the level of rating assigned to the Montepaschi Group by the official rating agencies, and are subject to intra-risk and inter-risk diversification processes. The final output shows the Overall Economic Capital or Overall Internal Capital at the Group level, divided by risk type, indicating the weight of intra-risk diversification with respect to the “building block” approach which does not contemplate its quantification.

The Group is developing the methods of risk integration and improvement in the measurement of some risk types – which are still to be fine-tuned.

All these macro-factors of risk, which have a specific direct impact on the Group capital, are regularly measured by the Parent Bank Risk Management Area which prepares the periodical papers for the Parent Bank Risk Committee and the Board of Directors.

The Planning Area is also responsible for setting the above risk measurements for each legal entity and the Business Units, for the purpose of representing the performances adjusted by risk and the specific creation of value in a risk-adjusted logic, by using metrics of measurement consistent with the profitability component and the absorbed economic capital component. Capital allocation - in terms of final financial statements, future estimates and periodical monitoring - is always determined by the Planning Area, in co-

87 operation with the corporate bodies of each legal entity, by preparing a specific reporting adjusted to the specific business lines of the banks included in the area of consolidation, to be submitted to the Parent Bank Finance Committee for approval.

As of 31 December 2008, the Overall Diversified Economic Capital of the Montepaschi Group (excluding intragroup operations) was attributable to credit risk (abt.73%) (including counterpart, issuer and concentration risks), equity investment risk (abt.7%), business and operational risks

(10%). The capital for operating purposes with respect to financial risks (mostly consisting of the typical risks of the trading portfolio and the ALM Banking Book) is roughly 10% of the Overall Economic Capital.

Additional information on the nature, control and monitoring of each risk type is provided in Part E of the Notes to the Financial Statements.

4.6.4. SUPPLEMENTARY INFORMATION ON INVESTMENTS CONSIDERED AS HIGH-RISK INVESTMENTS BY THE MARKET

This paragraph provides additional information on (i) the investments which are considered as high-risk investments as a result of the financial crisis caused by the default of the vehicles containing US subprime mortgage loans, and (ii) growing derivatives trading operations with the customers.

These issues had already been dealt with and analyzed in the Report of the Financial Stability Forum on 7 April 2008 (“Consolidation of the stability of the markets and the players”), which showed that the recent market turbulence had increasingly required that the financial companies should disclose their exposures in terms of instruments the market considers with increasing risk. The Montepaschi Group had already disclosed these issues in its Half-Year Report as at 30 June 2008. More recently, a joint press release13 of the Bank of Italy, Consob and Isvap stressed the need of providing appropriate information transparency in the financial reports, with the objective of reducing uncertainty and the negative consequences resulting from the international crisis.

13 Bank of Italy, Consob and Isvap, “Information to be provided in the financial reports in relation to business continuity, financial risks, checks for the reduction of assets value and uncertainty in the use of the estimates”, 6 February 2009.

88 In general, there are two logic aggregates the Montepaschi Group is subject to: (i) financial positions with direct exposures to the subprime, Alt-A and monoline insurer business segments, directly influenced by the crisis and (ii) all the other financial positions of structured credit which might suffer from the general crisis of the financial markets.

The positions in the first aggregate are virtually negligible. As at 31 December 2008:

there was only one note with underlying subprime mortgage loans in a notional amount of EUR 50 mln, almost totally written down (97.5% as at 30 June 2008); the leveraged finance exposure is minimal (nominal amount: abt. EUR 13.3 mln, steady with respect to June 2008); the monoline insurer exposure is minimal (nominal amount: abt. EUR 3.65 mln with respect to EUR 2 mln as at June 2008); there no exposures or guarantees in relation to conduit loans and SIV.

With reference to the second aggregate, and in particular third parties’ structured credit products held in portfolio, as at 31 December 2008:

most exposures were investment grade (abt.92% of the total nominal value with respect to 98% as at 30 June 2008); the existing volume totals EUR 2,009 mln (EUR 2,056 mln as at 30 June 2008) in terms of book value; the average write-down percentage of the existing positions (calculated as the ratio of book value to nominal value) is 17.40% (16.53% as at 30 June 2008).

****

The following information is based on the indications as at 30 June 2008 given by the Montepaschi Group in reply to Consob request no.8069681 of 23 July 2008, and includes:

investments in consolidated Special Purpose Entities and structured credit products;

fair value disclosure;

operations in trading derivatives with the customers.

89 4.6.4 INVESTMENTS IN CONSOLIDATED SPEs (SPECIAL PURPOSE ENTITIES) AND CREDIT STRUCTURED PRODUCTS

CONSOLIDATED SPEs (SPECIAL PURPOSE ENTITIES)

Description of the Business Model with reference to the objectives and strategies

Foreword

The accounting treatment of the securitization transactions carried out by the Group before the enforcement of the international accounting principles differs from the accounting of the same transactions after such date.

The loans underlying “prior IAS transactions” were written off from the transferor’s financial statements which included only the credit enhancements, if any, executed by the transferor. The consolidation of the SPEs related to these transactions only concerned their working capital; the transferred loans, which were posted “under the line” in the financial statements of the same SPEs, were not consolidated in the financial statements of the Group. Upon the first application of the international accounting principles, the Group exploited the opportunity of not posting the assets underlying the transactions carried out before 1 January 2004, which were written off on the basis of previous domestic standards. Therefore, these assets are never shown in the consolidated financial statements, also in the cases they would not have been written off if the Group had applied the rules contemplated by IAS 39 for derecognition.

In relation to the transactions carried out after the enforcement of the IAS principles, all notes issued by the SPEs were underwritten by the originator (the Parent Bank), virtually keeping all risks and benefits of the transferred portfolio. Therefore, these securitizations do not comply with IAS 39 requirements for derecognition. The underlying loans were not written off from the originator’s financial statements and, as a result, are still shown in the assets of the Group consolidated financial statements under transferred assets not written off. The transfers did not produce any economic impact on the originator’s financial statements and, for the purpose of calculation of capital absorption, the credits are still shown in the Group weighted assets, as if they had never been transferred.

For the purpose of greater information transparency, the business model will be described by separating the transactions prior 1 January 2004 from the transactions carried out after this date.

90 Securitizations originated before 1 January 2004

The securitizations belonging to this category were structured with the objective of achieving economic benefits concerning the optimization of the credit portfolio, the diversification of funding sources and the reduction of their cost.

Following are the main Group securitizations before 1 January 2004:

securitizations of performing loans:

- Siena Mortgages 02-3 Srl - Siena Mortgages 03-4 Srl - MPS Asset Securitization SpA - Mantegna Finance Srl - Mantegna Finance II Srl - Spoleto Mortgages Srl - Giotto Finance SpA (originated by Banca Antonveneta) - Giotto Finance 2 SpA (originated by Banca Antonveneta)

securitizations of non-performing loans:

- Ulisse 2 SpA - Ulisse 4

securitizations of other assets:

- Gonzaga Finance Srl - Vintage Capital Srl

The trend of the above-mentioned securitizations is regular. This opinion is also shared by the rating agencies which did not change the ratings initially assigned to the classes of notes issued.

The Seashell II Srl securitization of performing residential mortgage loans secured by 1st degree mortgage was repurchased on 27 October 2008.

The portfolio in relation to the Ulisse Spa non performing securitization was repurchased in December 2008 by Banca Monte dei Paschi di Siena.

91 Assets securitized by MPS Asset Securitization SpA are represented by loans backed by pledges on financial instruments with maturities between 15 and 30 years originated both by the Parent Bank and by the other commercial banks of the Group.

The portfolio securitized through Siena Mortgages 02-3 and 03-4 is represented by mortgage loans originated both by the Parent Bank and other banks of the Group.

Other securitizations based on residential mortgage loans are:

Mantegna Finance Srl and Mantegna Finance II Srl in relation to assets originated by Banca Agricola Mantovana SpA; Spoleto Mortgages Srl in relation to residential mortgage loans originated by Banca Popolare di Spoleto SpA.

As to the securitizations of non-performing assets, the portfolio of Ulisse 2 SpA consists of short-term unsecured loans originated by the Parent Bank, with a more than satisfactory trend and better-than- expected actual collections.

Securitizations originated after 1 January 2004

This category consists of two transactions carried out by the Parent Bank in December 2007 and March 2008 concerning performing loans in a total amount of abt. EUR 8.5 bn.

The objective of these transactions is to diversify and consolidate available funding instruments by transforming transferred loans into re-financeable securities. All notes issued by the vehicle in relation to both transactions and subscribed by the Parent Bank are part of a more general policy of consolidation of the Group liquidity. AAA Notes are assignable securities which contribute to keep a high counterbalancing capacity for the Group.

The first of the above-mentioned transaction was carried out by the Parent Bank in December 2007 with an underlying portfolio of more than 57,000 performing residential mortgage loans in a total amount of EUR 5,162.4 mln with an expected residual life of about 20 years. From a geographical point of view, 46% of mortgage loans are concentrated in Central Italy, with northern and southern Italy accounting for 27%.

92 The vehicle company Siena Mortgages 07-5 SpA issued Residential Mortgage Backed Floating Rate Notes (RMBS) to finance the acquisition in the following tranches:

Security class Rating Total counter-value in EUR mln

A1 Aaa and AAA 4,765.90

B A2 and A9 157.45

C Ba3 and BBB 239.00

The Group set up a cash reserve amounting to EUR 123.90 mln corresponding to class D Junior securities. 93% of the company’s share capital is owned by a stichting, and 7% by Banca Monte dei Paschi di Siena SpA.

On 20 March 2008, the vehicle company Siena Mortgages 07-5 Spa authorized another securitization transaction through the acquisition of a performing loans portfolio, sold by the Parent Bank in bulk and without recourse, in the amount of EUR 3,416 mln. The purchase was executed on 31 March 2008.

The Group used again the vehicle company Siena Mortgages 07-5 Spa for this securitization. In order to finance the acquisition, the vehicle issued Residential Mortgage Backed Floating Rate Notes (RMBS) in the following tranches:

Security class Rating Total counter-value in EUR mln

A Fitch AAA 3,129.40

B Fitch A 108.30

C Fitch BBB 178.30

A cash reserve of EUR 82.07 mln corresponding to the class D Junior securities was set up.

The Parent Bank fully subscribed the notes issued by the vehicle.

This transaction, with technical characteristics similar to the above-mentioned transactions, is also part of the more general policy of consolidation of the Group liquidity position.

Within the general project of enhancement of the value of the non-performing loan portfolio as provided for by the Business Plan, on 28 December 2007 the Parent Bank executed another securitization of bad loans.

The whole bad loans portfolio, consisting of more than 25,000 loan files in a total book value of EUR 738,90 mln, was sold at the end of 2007.

From a geographical point of view, 44.25% of loans are concentrated in Central Italy, with northern Italy and southern Italy and the islands accounting for 25.33% and 30.42%, respectively.

The Group used again the vehicle company Siena Mortgages OO-1 SpA for this securitization, with an early repayment of the loans on 7 August 2007. As of 31 December 2008, the company’s share capital was wholly owned by Banca Monte dei Paschi di Siena SpA.

In this case, the notes issued by the vehicle were fully underwritten by the originator Banca Monte dei Paschi di Siena and the loans sold were not written off from the financial statements.

Internal systems of risk measurement and control

The trend of the transactions is steadily monitored through periodical (quarterly and half-yearly) measurement of the collection flows of residual capital, arrears and bad debts (arrears and bad debts in relation to performing securitizations).

Organization structure and reporting system to the Top Management

The Montepaschi Group set up a special unit within the Parent Bank Credit Policy and Control Area to co- ordinate performing securitizations. Non-performing securitizations are monitored by a special unit within MPS Gestione Crediti SpA (a subsidiary).

Moreover, a special Group Directive provides for a half-yearly report to the Top Management outlining the trends of the transactions implemented by the Group over the years.

Description of the importance in relation to the Bank’s activity

The underlying assets in relation to securitizations without derecognition account for 3.9% of consolidated assets, as shown in the following table.

Description of the exposures

The following table shows net exposures in relation to the securitizations carried out after 1 January 2004, which are represented by the book value of underlying loans sold, and not written off from the originator’s financial statements.

The exposures in the above portfolio are almost completely allocated to Italian underlying assets.

The following table shows cash exposures – mainly represented by different forms of credit enhancements – as at 31 December 2008 and 31 December 2007, in addition to the net value of underlying assets as at 31 December 2008.

95 No exposure to subprime loans or other financial products having significant relations with these assets are reported.

The above-mentioned companies are securitization vehicles, with the Group playing the role of originator. As of today, the Montepaschi Group did not act as the sponsor of any securitization transactions.

Quantification of economic effects

In 2008, own securitization implied adverse economic effects in the amount of EUR 79.34 mln mainly posted to account 130 a) “ Value adjustments/recoveries for loan impairment” of the consolidated income statement.

96 Structured credit products

Description of the business model with reference to the objectives and strategies

The Montepaschi Group allocates a portion of its capital to equity investments, with several objectives. In particular, the Group aims at:

- achieving a risk-adjusted return higher than the cost of the allocated capital, so as to create value for the shareholders; - achieving a diversification with respect to the other risks typical of its commercial business; - keeping an in-depth and up-dated view of the trends of the financial markets which inevitably affect also the domestic markets where the Group mainly operates.

In order to achieve the above-mentioned objectives, the Group set up a dedicated special unit within the Finance Area of the Parent Bank. The scope of operations in the financial market is as wide as possible so as to take advantage of the maximum diversification of risks and decreasing exposure to specific sectors of the stock market.

In this respect, the typical government bonds, equities and forex investments were flanked, effective as of 2002, by specific operations in the corporate bond market and credit derivatives. This sector followed the market trends and also made investments in structured bonds. Said investments are compliant with the above-mentioned process of diversification. Financial technology actually ensured the opportunity of taking positions in specific credit risk components such as the correlation, and the recovery through structured bonds.

The investment process starts from specific analyses and valuations made by the traders in a bottom up logic. The process is included in the overall monitoring of risks at portfolio levels. In other words, the positions are taken after a specific analysis carried out by the traders in view of a maximum risk profile for the portfolios.

All operations in the equity markets are subject to risk limits which are monitored on a daily basis, such as Stop Loss and risk limits, in particular nominal limits of max. exposure by issuer macro-categories, diversified by rating.

The following information refers to the category of structured credit products and the whole Montepaschi Group. Since there are no standardized and widely accepted definitions, for the purpose of this report the category of structured bonds incorporates, according to the instructions given by the Financial Stability

97 Forum, both structured credit products and investments in securities issued by vehicles (SPEs) and not included in the above-mentioned report concerning consolidated SPEs.

The exposures incorporate “long positions” and “short positions” as at 31 December 2008. Profits and losses, writedowns/revaluations are in relation to the whole financial year of 2008. “Long positions” are taken through cash instruments and “short positions” are held through credit derivatives on indices.

For information, the appendix includes a short description of various kinds of investments and the acronyms used in this paragraph.

This report is drawn up for regulatory purposes, by separately showing the positions in relation to the Banking Portfolio and the Trading Portfolio for Regulatory Purposes.

Description of the weight in relation to the Bank’s business

The overall Book Value of long positions in structured credit products, amounting to EUR 2,009 mln, accounts for 0.94% of consolidated assets. It is allocated as follows:

under account 20 “Financial assets held for trading purposes” in the amount of EUR 761mln (or 38% of total long positions, including EUR 446 mln classified in the Trading Portfolio for Regulatory Purposes and EUR 315 mln. in the Banking Portfolio); under account 40 “Financial assets available for sale” in the amount of EUR 50 mln (or 2% of total long positions, all of them classified in the Banking Portfolio); under account 70 “Customers’ deposits” in the amount of EUR 1,198 mln (or 60% of total long positions, all of them classified in the Banking Portfolio).

The total Book Value of net short positions in credit derivatives on indices is EUR 75.13 mln.

Description of Long Positions

With reference to the classification for Regulatory purposes, the positions are mainly allocated to the Banking Portfolio (78% in terms of book value) and secondly to the Trading Portfolio (about 22%).

98 The information shown is divided into macro-categories of structured credit products, with the nominal amount, risk exposure and (realized and unrealized) economic effects for the year of 2008. In particular, in relation to the risk exposure of long positions, the tables show the book value which is indicative of the economic loss in case of default, with nil expectations of recovery. Realized charges and income represent trading losses and profits realized in the period of reference, writedowns and revaluations posted to the income statement show the effect of the change of the book value directly posted to the Income Statement. The writedowns and revaluations with an effect on the net equity reserve are posted in relation to the instruments classified as available for sale (AFS). All amounts are expressed in EUR million.

During the second half of 2008, the Group reclassified a portion of these structured credit products – which were previously classified as HFT or AFS – to L&R. This implied a change in the accounting rules of determination of their book value (now valued at the amortized cost) and the corresponding modes of determination of the effects to the income statement and net equity reserve. In particular, for the purpose of this section, the economic effects of L&R positions do not take account of the “latent” capital losses which would be posted in continuity of the valuation criteria.

Long positions in structured credit products at the Group level amount to (nominal) EUR 2.43 bn, corresponding to a book value of roughly EUR 2 bn.

Within the Banking Portfolio (total nominal amount of about EUR 1.85 bn, book value of about EUR 1.56 bn), the weight of CDOs (collateralized debt obligations) is prevailing (abt.50%), followed by CLNs (credit linked notes) issued by SPEs (abt.30%).

Investments in a nominal amount of about EUR 0.58bn (book value: EUR 0.45 bn) including ABS ( 64%) and CDOs (36%) are classified in the Trading Portfolio.

99 Montepaschi Group TotalTotal exposure exposure with respect with respectto structured to structured credit products credit - longproducts positoons EUR/mln as of 31.12.2008)

Realized Unrealized Classificat Instrumen Effect on Nominal Exposure Profit/Los Profit/Los ion t Category Net Equity s s

ABS 68.02 60.35 0.06 0.01 -5.88 CDO 931.95 694.39 -17.23 -79.53 -5.20 Banking Book CLN 554.15 553.58 0.00 -7.58 0.00 Dynamic Man 300.00 254.70 -0.51 -33.95 0.00 Banking Bo 1854.12 1563.02 -17.68 -121.05 -11.08

Trading ABS 369.18 263.14 1.78 -91.08 0.00 Book CDO 208.99 183.02 5.28 -22.89 0.00 Trading Boo 578.17 446.16 7.06 -113.97 0.00

Credit Structured Prod 2432.29 2009.18 -10.62 -235.02 -11.08

As a whole, the average writedown percentage of all long positions in structured credit products (calculated as the ratio of book value to nominal value) was 17.40 as at 31 December 2008 (+16.53% with respect to 30 June 2008). The percentages of Banking Portfolio positions and Trading Portfolio for Regulatory Purposes positions are 16% and 23%, respectively.

All positions concerned are held for investment purposes, except for a CDO in a total book value of about EUR 100mln, with the Group playing the role of co-arranger and Portfolio Manager.

Following is a breakdown by product of long exposures, which also shows the kind of structure (i.e. synthetic, semi-synthetic or traditional). A “Traditional structure” includes investments in funded structures which do not incorporate credit derivatives. A synthetic structure includes unfunded structures and funded structures incorporating credit derivatives. A semi-synthetic structure shall group the investments including both traditional and synthetic instruments.

100 Credit Structured Products Exposure - Banking Book EUR/m ln

Realized Unrealized Sintethic/ Effect on Classification Nominal Exposure Profit/Los Profit/Los Traditional Net Equity s s

ABS ABS TRADITIONAL 8.76 8.28 0.16 0.00 -0.35 CMBS TRADITIONAL 31.80 27.75 0.11 0.01 -3.40 Other ABS TRADITIONAL 0.00 0.00 0.00 0.00 0.00 RM BS TRADITIONAL 27.46 24.32 -0.21 0.00 -2.13 ABS Total 68.02 60.35 0.06 0.01 -5.88 CDO CBO TRADITIONAL 21.68 20.64 2.71 0.00 0.00 CDO SINTETHIC 35.00 11.82 0.00 -12.48 0.00 CDO di ABS TRADITIONAL 100.00 51.00 0.71 -12.25 0.00 CDO2 TRADITIONAL 450.00 358.33 0.00 0.00 0.00 CDO3 SINTETHIC 17.96 4.91 0.00 -10.80 0.00 CLO SINTETHIC 7.49 6.66 -0.49 0.00 0.00 CLO TRADITIONAL 65.24 56.97 -1.26 0.00 -5.20 LSS SINTETHIC 20.00 14.36 -18.90 -4.46 0.00 Managed CDO SEMISINTETHIC 4.58 2.94 0.00 0.02 0.00 SLCDO SINTETHIC 210.00 166.76 0.00 -39.56 0.00 CDO Total 931.95 694.39 -17.23 -79.53 -5.20 CLN SPE CLN SINTETHIC 554.15 553.58 0.00 -7.58 0.00 CLN Total 554.15 553.58 0.00 -7.58 0.00 Dynamic Managed Portfolio CPPI SINTETHIC 150.00 118.22 1.37 -27.91 0.00 SPI SINTETHIC 150.00 136.48 -1.88 -6.04 0.00 Dynamic Managed Portfolio Total 300.00 254.70 -0.51 -33.95 0.00

Total 1854.12 1563.02 -17.68 -121.05 -11.08

101

As a whole, synthetic structures in the Banking Portfolio account for 62%, with traditional ones representing 38%. Half-synthetic structures are negligible.

CreditCredit Structured Structured Products Products Exposure Exposure Trading Book for Regulatory for Regulatory Purposes Purposes EUR/m ln

Realized Unrealized Sintethic/ Effect on Classification Nominal Exposure Profit/Los Profit/Los Traditional Net Equity s s

ABS ABS TRADITIONAL 79.90 61.44 -0.11 -15.04 0.00 CMBS TRADITIONAL 72.23 48.57 0.02 -20.60 0.00 Other ABS TRADITIONAL 0.00 0.00 -0.37 0.00 0.00 RMBS SINTETHIC 2.58 2.53 0.04 -0.05 0.00 RMBS TRADITIONAL 214.47 150.60 2.20 -55.39 0.00 ABS Total 369.18 263.14 1.78 -91.08 0.00 CDO CBO TRADITIONAL 33.78 27.48 0.02 -5.69 0.00 CLO TRADITIONAL 52.11 35.57 0.06 -14.07 0.00 Managed CDO SEMISINTETHIC 99.61 100.10 4.42 0.49 0.00 Managed CDO SINTETHIC 21.76 18.67 0.66 -3.09 0.00 SCDO SINTETHIC 1.73 1.20 0.12 -0.53 0.00 CDO Total 208.99 183.02 5.28 -22.89 0.00

Total 578.17 446.16 7.06 -113.97 0.00

Semi-synthetic structures account for 17% of the Trading Portfolio for Regulatory Purposes, with traditional ones representing 78% followed by synthetic structures (5%).

Following is the breakdown by rating of long positions, separately showing the exposures of the Banking Portfolio and the exposures of the Trading Portfolio for Regulatory Purposes.

102

With reference to the Banking Portfolio, 90% of nominal exposures consist of Investment Grade securities (with rating up to BBB-) followed by Sub-investments Grade or not Rated positions (10%).

Credit Structured Products Exposure for Regulatory Purposes

EUR/m ln

Realized Unrealized Effect on Rating Nominal Exposure Profit/Los Profit/Los Net Equity s s

AAA 94.92 84.10 1.97 -10.55 0.00 AA+ 0.78 0.54 0.00 -0.24 0.00 AA 107.14 79.65 0.25 -24.70 0.00 AA- 26.19 20.15 0.00 -5.22 0.00 A+ 55.57 42.47 0.00 -10.83 0.00 A 90.36 59.28 0.02 -26.14 0.00 A- 107.59 105.74 4.43 -1.24 0.00 BBB+ 6.57 5.08 0.09 -1.31 0.00 BBB 49.47 26.07 -0.15 -19.49 0.00 BBB- 23.90 12.53 0.11 -9.78 0.00 BB 9.00 6.11 0.00 -2.23 0.00 BB- 2.57 0.80 0.11 -1.77 0.00 B+ 2.38 2.44 0.11 0.06 0.00 NR/NA 1.73 1.20 0.12 -0.53 0.00

Total 578.17 446.16 7.06 -113.97 0.00

103 With reference to the Trading Portfolio for Regulatory Purposes, 97% of positions consist of Investment Grade securities (with rating up to BBB-) with the remaining 3% represented by Sub-investment Grade or not Rated positions.

Details of ABS exposures

The following detailed information concerning ABS is provided with reference to the geographical area, the segment of underlying assets, vintage and the average maturity of underlying assets.

Following is the geographical breakdown of underlying assets. In particular, there are no positions with underlying assets originated by US vehicles, both in the Banking Portfolio and in the Trading Portfolio.

ABS Exposure - Banking Book EUR/mln

Realized Unrealized Effect on Classification Underlying region Nominal Exposure Profit/Los Profit/Los Net Equity s s

ABS ABS Italy 7.26 6.92 0.16 0.00 -0.35 Spain 1.50 1.36 0.00 0.00 0.00 ABS Total 8.76 8.28 0.16 0.00 -0.35 CMBS France 1.28 1.01 0.04 0.00 -0.26 Germany 4.50 3.90 -0.37 0.00 0.00 Germany Sw itzerland 1.62 1.30 0.03 0.00 -0.32 Italy 15.13 12.81 0.32 0.00 -2.32 Mixed Euro 4.27 3.76 0.09 0.00 -0.50 Netherlands 5.00 4.97 0.00 0.01 0.00 CMBS Total 31.80 27.75 0.11 0.01 -3.40 RM BS Australia 3.22 3.12 -0.04 0.00 -0.05 Great Britain 5.57 4.50 -0.08 0.00 -0.72 Italy 1.25 1.25 0.00 0.00 0.00 Netherlands 5.25 4.55 -0.31 0.00 -0.12 Spain 12.17 10.90 0.22 0.00 -1.24 RMBS Total 27.46 24.32 -0.21 0.00 -2.13

Total 68.02 60.35 0.06 0.01 -5.88

Exposures in the Banking Portfolio are allocated to Italian underlying assets (abt.35%), Spanish underlying assets (20%) and Dutch underlying assets (15%).14

14 The average writedown percentage of the existing positions as of 31 December 2008 (calculated as the book value/nominal value ratio) is 11%.

104 ABS Exposure - Trading Book for Regulatory Purposes EUR/mln

Realized Unrealized Underlying Effect on Classification Nominal Exposure Profit/Los Profit/Los region Net Equity s s

ABS ABS Belgium 4.99 4.27 -0.08 -0.50 0.00 Europe 2.93 1.94 0.00 -0.97 0.00 Germany 20.00 16.87 0.00 -2.50 0.00 Great Britain 0.48 0.48 0.01 0.00 0.00 Italy 51.50 37.88 -0.04 -11.07 0.00 ABS Total 79.90 61.44 -0.11 -15.04 0.00 CMBS France 2.35 2.28 0.00 -0.07 0.00 Italy 33.74 23.42 0.02 -8.94 0.00 Mixed Euro 9.05 6.28 0.00 -2.47 0.00 Netherlands 22.22 12.79 0.00 -8.00 0.00 Spain 4.87 3.80 0.00 -1.12 0.00 CMBS Total 72.23 48.57 0.02 -20.60 0.00 Other ABS Belgium 0.00 0.00 0.02 0.00 0.00 Germany 0.00 0.00 -0.08 0.00 0.00 Italy 0.00 0.00 -0.20 0.00 0.00 Portugal 0.00 0.00 -0.02 0.00 0.00 UK 0.00 0.00 -0.09 0.00 0.00 Other ABS Total 0.00 0.00 -0.37 0.00 0.00 RM BS Germany 2.58 2.53 0.04 -0.05 0.00 Great Britain 65.91 40.76 0.12 -22.21 0.00 Greece 2.00 0.96 0.00 -0.88 0.00 Italy 64.56 48.32 1.93 -14.01 0.00 Netherlands 66.30 49.62 0.08 -14.06 0.00 Portugal 4.48 3.27 0.04 -0.85 0.00 Spain 11.22 7.67 0.03 -3.38 0.00 RMBS Total 217.05 153.13 2.24 -55.44 0.00

Total 369.18 263.14 1.78 -91.08 0.00

105 Exposures in the Trading Portfolio are allocated to Italian underlying assets (41%), Dutch ones (24%) and English ones (18%).15

Following is the breakdown of ABS by segment of underlying assets, separately showing the exposures of the Banking Portfolio and the exposures of the Trading Portfolio for Regulatory Purposes.

ABS Exposure - Banking Book EUR/mln

Realized Unrealized Underlying Effect on Classification Nominal Exposure Profit/Los Profit/Los Sector Net Equity s s

ABS ABS Equip Lease 5.67 5.56 0.12 0.00 -0.11 Other Consu 1.50 1.36 0.00 0.00 0.00 Trade Receiv 1.59 1.36 0.04 0.00 -0.24 ABS Total 8.76 8.28 0.16 0.00 -0.35 CMBS Commercial M 31.80 27.75 0.11 0.01 -3.40 CMBS Total 31.80 27.75 0.11 0.01 -3.40 RM BS Residential M 27.46 24.32 -0.21 0.00 -2.13 RMBS Total 27.46 24.32 -0.21 0.00 -2.13

Total 68.02 60.35 0.06 0.01 -5.88

Commercial mortgage loans (47%) and residential mortgage loans (40%) account for 87% of the Banking Portfolio.

15 The average writedown percentage of existing positions as of 31 December 2008 (calculated as the book value/nominal ratio) is 29%.

106 ABS Exposure - Trading Book for Regulatory Purposes EUR/mln

Realized Unrealized Underlying Effect on Classification Nominal Exposure Profit/Los Profit/Los Sector Net Equity s s

ABS ABS Auto Loan 23.00 19.61 0.00 -2.74 0.00 Credit Card 0.48 0.48 0.01 0.00 0.00 Equip Lease 29.06 20.13 -0.05 -7.18 0.00 Life Policy Lo 0.35 0.35 0.01 0.00 0.00 Mixed Assets 5.00 4.16 0.00 -0.84 0.00 Other Consu 9.00 6.71 0.00 -1.69 0.00 Receivables 4.99 4.27 -0.08 -0.50 0.00 Renew Energ 2.93 1.94 0.00 -0.97 0.00 Trade Receiv 5.09 3.79 0.00 -1.12 0.00 ABS Total 79.90 61.44 -0.11 -15.04 0.00 CMBS Commercial M 67.03 44.99 0.02 -19.35 0.00 Equip Lease 5.20 3.58 0.00 -1.25 0.00 CMBS Total 72.23 48.57 0.02 -20.60 0.00 Other ABS Consumer Lo 0.00 0.00 -0.19 0.00 0.00 Credit Cards 0.00 0.00 -0.09 0.00 0.00 Leasing 0.00 0.00 -0.10 0.00 0.00 Public Sector 0.00 0.00 0.01 0.00 0.00 Other ABS Total 0.00 0.00 -0.37 0.00 0.00 RMBS Residential M 217.05 153.13 2.24 -55.44 0.00 RMBS Total 217.05 153.13 2.24 -55.44 0.00

Total 369.18 263.14 1.78 -91.08 0.00

About 59% of the Trading Portfolio consist of positions with underlying residential mortgage loans (RMBS), followed by commercial mortgage loans (abt.21% - CMBS) and ABS positions with other underlying industries (auto loans, consumer loans, credit cards, leasing, etc. for the remaining 22%).

107 Following is the breakdown by vintage of the assets underlying ABS positions. The exposures are mostly concentrated on recent vintages (2006/07) in relation to both portfolios.

ABS Exposure - Banking Book EUR/mln

Realized Unrealized Effect on Classification Vintage Nominal Exposure Profit/Los Profit/Los Net Equity s s

ABS ABS 2000 1.50 1.36 0.00 0.00 0.00 2002 5.67 5.56 0.12 0.00 -0.11 2006 1.59 1.36 0.04 0.00 -0.24 ABS Total 8.76 8.28 0.16 0.00 -0.35 CMBS 2004 1.28 1.01 0.04 0.00 -0.26 2005 10.25 8.23 0.22 0.00 -2.02 2006 6.50 5.88 0.13 0.00 -0.62 2007 13.77 12.63 -0.28 0.01 -0.50 CMBS Total 31.80 27.75 0.11 0.01 -3.40 RMBS 1999 0.00 0.00 0.00 0.00 0.00 2000 1.21 1.18 0.00 0.00 0.00 2001 0.54 0.44 0.01 0.00 -0.10 2002 0.37 0.34 0.01 0.00 -0.03 2003 1.25 1.25 0.00 0.00 0.00 2004 5.74 4.79 0.01 0.00 -0.89 2006 9.17 8.09 -0.34 0.00 -0.34 2007 9.18 8.23 0.10 0.00 -0.77 RMBS Total 27.46 24.32 -0.21 0.00 -2.13

Total 68.02 60.35 0.06 0.01 -5.88

108 ABS Exposure - Trading Book for Regulatory Purposes EUR/mln

Realized Unrealized Effect on Classification Vintage Nominal Exposure Profit/Los Profit/Los Net Equity s s

ABS ABS 1999 0.35 0.35 0.01 0.00 0.00 2002 5.48 4.64 0.01 -0.84 0.00 2003 0.37 0.38 0.01 0.01 0.00 2004 10.83 8.51 -0.06 -1.61 0.00 2005 4.95 4.09 0.00 -0.81 0.00 2006 54.99 41.53 -0.08 -10.82 0.00 2007 2.93 1.94 0.00 -0.97 0.00 ABS Total 79.90 61.44 -0.11 -15.04 0.00 CMBS 2004 2.35 2.28 0.00 -0.07 0.00 2005 4.87 3.80 0.00 -1.12 0.00 2006 48.74 32.30 0.02 -13.81 0.00 2007 16.27 10.19 0.00 -5.60 0.00 CMBS Total 72.23 48.57 0.02 -20.60 0.00 Other ABS 2003 0.00 0.00 0.01 0.00 0.00 2004 0.00 0.00 -0.02 0.00 0.00 2005 0.00 0.00 -0.07 0.00 0.00 2006 0.00 0.00 -0.29 0.00 0.00 Other ABS Total 0.00 0.00 -0.37 0.00 0.00 RMBS 2002 0.95 0.86 0.00 -0.08 0.00 2003 15.95 12.05 0.19 -3.63 0.00 2004 17.97 10.64 0.11 -6.81 0.00 2005 7.47 5.99 0.16 -1.25 0.00 2006 119.62 83.65 0.11 -30.28 0.00 2007 55.09 39.94 1.67 -13.39 0.00 RMBS total 217.05 153.13 2.24 -55.44 0.00

Total 369.18 263.14 1.78 -91.08 0.00

109 Finally, below is the breakdown by average maturity of the assets underlying ABS positions:

ABS Exposure - Banking Book EUR/mln

Average Realized Unrealized Effect on Classification maturity Nominal Exposure Profit/Los Profit/Los Net Equity (years) s s

ABS ABS 1 0.80 0.78 0.02 0.00 -0.02 2 4.87 4.78 0.10 0.00 -0.09 4 1.50 1.36 0.00 0.00 0.00 6 1.59 1.36 0.04 0.00 -0.24 ABS Totale 8.76 8.28 0.16 0.00 -0.35 CMBS 2 1.04 0.99 0.02 0.00 -0.05 3 3.36 2.87 0.07 0.00 -0.49 4 9.27 8.09 0.20 0.00 -1.16 5 18.13 15.80 -0.18 0.01 -1.70 CMBS Totale 31.80 27.75 0.11 0.01 -3.40 RMBS 1 3.22 3.12 -0.04 0.00 -0.05 2 2.98 2.65 0.04 0.00 -0.29 3 5.79 5.34 -0.10 0.00 -0.10 4 0.37 0.34 0.01 0.00 -0.03 5 8.17 7.26 -0.27 0.00 -0.34 6 6.18 5.41 0.14 0.00 -0.77 7 0.75 0.20 0.01 0.00 -0.55 14.25 0.00 0.00 0.00 0.00 0.00 RMBS Totale 27.46 24.32 -0.21 0.00 -2.13

Totale 68.02 60.35 0.06 0.01 -5.88

49% of nominal positions of the Banking Portfolio consist of underlying assets with an average maturity not over 4 years.

110 ABS Exposure - Trading Book for Regulatory Purposes EUR/mln

Average Realized Unrealized Effect on Classification maturity Nominal Exposure Profit/Los Profit/Los Net Equity (years) s s

ABS ABS 0 1.20 1.21 0.03 0.01 0.00 1 1.33 1.31 -0.06 0.04 0.00 2 24.73 20.74 0.00 -3.39 0.00 3 5.72 5.27 0.00 -0.32 0.00 4 13.99 10.58 -0.08 -2.59 0.00 5 20.00 12.95 0.00 -5.77 0.00 6 10.00 7.44 0.00 -2.05 0.00 9 2.93 1.94 0.00 -0.97 0.00 ABS Total 79.90 61.44 -0.11 -15.04 0.00 CMBS 1 2.35 2.28 0.00 -0.07 0.00 2 4.87 3.80 0.00 -1.12 0.00 3 1.54 1.46 0.02 -0.08 0.00 4 13.05 7.96 0.00 -4.62 0.00 6 45.42 30.77 0.00 -12.27 0.00 10 5.00 2.30 0.00 -2.44 0.00 CMBS Total 72.23 48.57 0.02 -20.60 0.00 Other ABS 1 0.00 0.00 -0.31 0.00 0.00 3 0.00 0.00 -0.06 0.00 0.00 Other ABS Total 0.00 0.00 -0.37 0.00 0.00 RM BS 0 7.75 7.68 0.22 -0.06 0.00 1 7.66 6.70 0.04 -0.74 0.00 2 12.66 7.47 0.08 -4.90 0.00 3 31.50 20.09 0.00 -10.20 0.00 4 75.13 53.12 0.14 -18.41 0.00 5 19.74 14.21 0.47 -4.91 0.00 6 13.80 11.49 0.55 -2.23 0.00 7 39.81 25.76 0.74 -12.30 0.00 9 5.00 4.51 0.00 -0.06 0.00 11 3.00 1.64 0.00 -1.11 0.00 13 1.00 0.46 0.00 -0.52 0.00 RMBS Total 217.05 153.13 2.24 -55.44 0.00

Total 369.18 263.14 1.78 -91.08 0.00

66% of nominal exposures in the Trading Portfolio have underlying assets with an average maturity not exceeding 5 years, followed by underlying assets with an average maturity between 5 and 10 years (33%). Only 1% consist of underlying assets with an average maturity between 10 and 13 years.

111 Detailed CDO exposures

The information concerning CDOs is listed on the basis of the kinds of products and the seniority of tranches. In terms of geographical breakdown of the portfolios of reference, the composition of most structures is mixed, except for the EIRLES TV DE45 (CDO of ABS) position totally linked with US subprime underlying assets.

CDO Exposure - Banking Book EUR/mln

Realized Unrealized Effect on Classification Seniority Nominal Exposure Profit/Los Profit/Los Net Equity s s

CDO CBO SENIOR 21.68 20.64 2.71 0.00 0.00

CDO MEZZANINE 35.00 11.82 0.00 -12.48 0.00

CDO di ABS MEZZANINE 50.00 1.29 0.00 -12.25 0.00 SENIOR 50.00 49.71 0.71 0.00 0.00

CDO2 SENIOR 450.00 358.33 0.00 0.00 0.00

CDO3 SENIOR 17.96 4.91 0.00 -10.80 0.00

CLO JUNIOR 2.00 1.66 -0.17 0.00 0.00 MEZZANINE 46.49 43.16 -1.63 0.00 -0.18 SENIOR 24.24 18.81 0.05 0.00 -5.02

LSS SENIOR 20.00 14.36 -18.90 -4.46 0.00

Managed CDO JUNIOR 4.58 2.94 0.00 0.02 0.00

SLCDO SENIOR 210.00 166.76 0.00 -39.56 0.00

Total 931.95 694.39 -17.23 -79.53 -5.20

The main category in the Banking Portfolio is represented by Squared CDOs (CDO2 - 48%) and Synthetic Loan CDOs (SLCDO - 23%). As to seniority, senior tranches account for about 85% of the whole CDO

112 portfolio, followed by mezzanine tranches (14%). Junior tranches are negligible. Writedowns with an impact on net equity reserves are mainly concentrated on CLOs (€ -5.2mln).16

CDO Exposure - Trading Book for Regulatory Purposes EUR/mln

Realized Unrealized Effect on Classification Seniority Nominal Exposure Profit/Los Profit/Los Net Equity s s

CDO CBO JUNIOR 4.50 3.47 0.00 -1.06 0.00 MEZZANINE 13.00 8.44 0.00 -3.85 0.00 SENIOR 16.28 15.57 0.02 -0.78 0.00

CLO JUNIOR 14.87 8.32 0.00 -5.65 0.00 MEZZANINE 17.54 11.29 0.03 -5.12 0.00 SENIOR 19.70 15.96 0.03 -3.30 0.00

Managed CDO MEZZANINE 2.57 0.80 0.11 -1.77 0.00 SENIOR 118.80 117.97 4.97 -0.83 0.00

SCDO MEZZANINE 1.73 1.20 0.12 -0.53 0.00

Total 208.99 183.02 5.28 -22.89 0.00

The main category in the Trading Portfolio is represented by Managed CDOs and Collateralized Loan Obligations (CLOs) (58% and 25%, respectively). As to seniority, senior tranches account for about 74%, followed by mezzanine tranches (17%). The weight of junior tranches is the remaining 9%.17

Details of Managed Portfolio and SPE CLN exposures.

Both typologies can be found only in the Banking Portfolio.

In particular, the portfolio as at 31 December 2008 included nominal investments in the amount of € 300 mln with underlying managed portfolios (CPPIs and SPIs) and CLNs issued by SPEs in the amount of EUR 554.15 mln.

16 The average writedown percentage of existing positions as of 31 December 2008 (calculated as the book value/nominal value ratio) is 25%.

17 The average writedown percentage of existing positions as of 31 December 2008 (calculated as the book value/nominal value ratio) is 12%.

113 Dynamic Managed Portfolio Exposure - Banking Book EUR/m ln

Realized Unrealized Effect on Classification Nominal Exposure Profit/Los Profit/Los Net Equity s s

Dynamic Managed Portfolio CPPI 150.00 118.22 1.37 -27.91 0.00 SPI 150.00 136.48 -1.88 -6.04 0.00

Total 300.00 254.70 -0.51 -33.95 0.00

CLN Exposure - Banking Book EUR/m ln

Realized Unrealized Effect on Classificazione Nominal Exposure Profit/Los Profit/Los Net Equity s s

CLN SPE CLN 554.15 553.58 0.00 -7.58 0.00

Total 554.15 553.58 0.00 -7.58 0.00

Exposures to US subprime and Alt –A.

Given the negligible value of US subprime and Alt-A exposures, there are no detailed tables. The only position is represented by EIRLES TV DE45 (CDO of ABS), already mentioned in the past financial statements, fully linked with US subprime underlying assets which was almost totally written down as at 31 December 2008. However, such position is included in the above tables.

Monoline exposures

The Montepaschi Group has no direct exposures to mono-line insurers but only limited indirect positions, which may be linked with CDO positions already included in the above-mentioned tables. The estimated indirect exposure to mono-line insurers within the above-mentioned CDOs is about EUR 3.6 mln (nominal value).

114

Description of “short positions”

By their nature and purpose, the following detailed short positions play a role of mitigation of the overall risk of the bond portfolio, since they benefit from the deterioration of the creditworthiness of underlying assets, as represented by the expansion of the related credit spreads.

The exposures are all represented by derivatives on standardized credit indices and are all attributable to the Trading Portfolio. In particular, there are positions on indices such as iTraxx (European market) and CDX (US market), and industry indices such as ABX (consisting of a basket of underlying US ABSs), CMBX (consisting of a basket of underlying US CMBSs). In particular, the positions with respect to the ABX index were originally taken in relation to the subprime risk inherent in the above-mentioned EIRLES TV DE45 position.

As a whole, short exposures total a notional amount of EUR -374.26 million, with a book value as at 31 December 2008 of EUR 75.13 mln.

Credit Index: Short Position - Trading Book for Regulatory Purposes EUR/m ln

Profit/Los Index Nominal Exposure s iTraxx Europe -135.00 3.31 4.40 iTraxx Europe Crossover -130.00 18.95 15.43 ABX HE -43.11 39.78 15.85 CDX NA IG -24.59 -2.95 0.73 CMBX NA -21.56 16.09 15.87 iTraxx Europe Senior Financials -10.00 0.00 0.52 iTraxx Europe Subordinated Financi -10.00 -0.04 -0.13 Iboxx Europe 0.00 -0.01 0.28

Total -374.26 75.13 52.95

115 Quantification of the overall economic effects of Structured Credit Products

The economic effects of long positions in structured credit products, which are shown in the above tables, can be summarized as follows.

Securities classified in the financial statements in the “Available for Sale” portfolio (all belonging to the Banking Portfolio for Regulatory Purposes):

- capital losses were posted to the net equity reserve in the amount of EUR 11.08 mln;

Securities classified in the financial statements in the “Loans and Receivables” portfolio (all belonging to the Banking Portfolio for Regulatory Purposes):

- capital losses were posted to the income statement in the amount of EUR 46.57 mln, with realized losses in the amount of EUR 0.06 mln.

Securities classified in the financial statements in the “Held for Trading” portfolio.

- net capital losses were posted to the income statement in the amount of EUR 74.48mln in relation to securities classified in the Banking Portfolio for Regulatory Purposes, with realized losses in the amount of EUR 18.90 mln; - net capital losses were posted to the income statement in the amount of EUR 113.97mln in relation to securities classified in the Trading Portfolio for Regulatory Purposes, with realized net profits in the amount of EUR 7.02 mln.

Short positions held through credit index derivatives at year- end made a contribution of EUR 52.95 mln to the Group income statement.

116 Leveraged Finance

Description of the Business Model with reference to the objectives and strategies

The following information is in relation to credit exposures (loans) to Special Vehicles (SPE -Special Purpose Entity) including structured securities (e.g. CDO, CLO, RMBS) in their assets, and/or securities issued by highly leveraged borrowers, with reference to the whole Group.

These exposures are included in balance-sheet account, “Due from customers”.

Description of the weight in relation to the Bank’s business

The impact of said exposures on the Bank’s business is absolutely negligible.

The exposure includes two positions totalling a nominal amount and risk exposure of EUR 13.3 mln (EUR 3.3 mln and EUR 10 mln, respectively), with no writedown.

In addition:

- the EUR 3.3 mln position is attributable to a vehicle which invested only in securities with underlying assets being represented by different European ABSs, all of them triple A-rated as of today. - The assets of the EUR 10 mln position included only securities with underlying assets being represented by Class C1 of a non-performing loan securitization. However, these securities are expressly guaranteed by a primary Italian Credit Institution. - Said vehicles have no exposures towards US subprime and Alt-A or mono-line insurers.

117 4.6.4.2 Disclosure of the fair value of structured credit instruments

This section concerns only structured credit instrument, both with reference to long positions and short positions.

In compliance with the accounting reclassification of a portion of the positions, the investments made by the Montepaschi Group are now classified not only as HFT and AFS – which contemplate a fair value valuation on the basis of the IAS/IFRS international accounting principles – but also as L&R, therefore valued at the amortized cost.

As a result, the fair value principle is no longer applied to the whole area of structured credit instruments, but only to the instruments contemplating the fair value valuation also for the purpose of the financial statements. Therefore, a direct comparison with the data as at 30 June 2008 is not possible.

With reference to book values, about 18% of the long positions valued at fair value are attributable to active markets (Tier 1). 33% are attributable to valuations based on observable inputs (Tier 2), which are deemed to be liquid and reliable. The remaining 49% are associated with valuation models which also use non-directly observable criteria (Tier 3). Short positions on index derivatives are valued on the basis of liquid and observable inputs (Tier 2).

Montepaschi Group Fair Value Disclosure of Structured Credit Products EUR/mln 31.12.2008 Long Position

Financial Report itemEvaluation Criterion Exposure %

Item 70 assets (L&R) Amortized cost 1198.27

Item 20,40 assets (HFT, AFS) Fair Value Level 1 - Act 144.32 18% Level 2 - Obs 269.47 33% Level 3 - Not 397.12 49% Total FV eva 810.91 100%

Total long position 2009.18

Short Position

Financial Report itemEvaluation Criterion Exposure %

Item 20 assets 40 liabilities (HFT) Fair Value Level 2 - Obs 75.13 100%

Total short position 75.13

118 From the viewpoint of the organization process, portfolio valuations for the purpose of the financial statements imply the contribution of first and second tier control units, according to their respective responsibilities, and are later reported to the Top Management.

4.6.4.3 Derivatives with customers and related counterpart risk

In general, the fair value of the Over the Counter (OTC) financial instruments, including OTCs traded with the customers, is determined through estimate methods and assessment models. In particular, the fair value is calculated on the basis of the following general aspects: discount of future cash flows, models of determination of option prices, valuation of listed instruments having similar characteristics, values measured in recent comparable transactions. However, the procedures always comply with the market practice.

The valuations are made on the basis of all risk factors which are relevant for each kind of financial instrument, risk factors which can be largely observed directly or indirectly, in the market. In the first case, the values are directly observable in the transactions carried out in the market. In the second case, the values are taken from market prices through the use of appropriate mathematical and financial techniques and methods (such as the determination of volatility implicit in the price of a listed option) characterized by different degrees of complexity. The valuation models used in the calculation of the fair value of derivatives are shared by the Business Units and the Risk Management and Quantitative Analysis Units.

These models are submitted to periodical review in order to continuously develop the calculation procedures of the fair value, so that the model approach adopted is steadily in line with the prevailing domestic and international best practice.

The Montepaschi Group business in Over The Counter derivatives with customers, started in 2002 after a special resolution of the Board of Directors, incorporates operations for the purpose of interest rate risk, foreign exchange risk and commodity risk hedging. The main products traded are interest rate swaps, caps, floors, collars, forward contracts, currency options, currency swaps, commodity options and combinations of these basic instruments.

As a result of the recent acquisition of Banca Antonveneta, the positions in financial derivatives with customers also include the products traded by Antonveneta, with characteristics similar to the products already traded by the Montepaschi Group.

The products supplied to the customers, in general, share a string of common features with most operations. In particular, the traded products:

119 are not speculative; are linked with an underlying position, although they are separate from a contractual and administrative point of view; their complexity is limited, although there are no proper plain vanilla (defined as structured) position; are not characterized by financial leverage.

The derivative operations with the customers provide for the centralization of the product factory and market risk monitoring at MPS Capital Services, with the allocation, management and monitoring of counterpart credit risk with the customers going to the Commercial Banks.

Such operations include the assumption of market risks, characterized as the exposure in terms of potential loss which can be registered in the positions held as a result of negative changes in market risk factors. These operations are subject to the following main risk factors: interest rates, foreign exchange rates, indices, commodities and the relevant volatility and correlations. At the same time the Bank takes the risk that the counterpart of a derivative transaction is in default before the payment (counterpart risk).

***

Following are the main qualitative and quantitative information with reference to all OTC derivative positions with customers, in relation to the transactions with counterparts belonging to Large Corporate, SME, Local Authorities and Small Business segments, therefore excluding financial counterparts.

OTC derivatives, including the OTCs traded with the customers, are subject to collective valuation in credit terms, like other technical forms,. This valuation is developed on the basis of Risk Management models, and by categories of homogenous exposures in terms of credit risk. The relevant loss percentages are estimated taking account of the historical series (based on elements which are observable at the date of valuation) which enable an estimate of the expected loss for each category. In particular, Default Probability (DP) and Loss Given Default (LGD) are the risk parameters used in collective valuations. DP and LGD estimated by the internal models are used in relation to Corporate and Retail counterparts, as provided for by circular letter 263 issued by the Bank of Italy in December 2006. The DP which may be obtained from the external rating assigned by the rating agencies and the LGD of the Foundation method (or 45%) are used for other counterparts.

The total number of customers, also in view of the acquisition of Banca Antonveneta, is lower than 5,500 counterparts.

The total net fair value of the products is positive for the Montepaschi Group (and negative for the customers) in an amount of almost EUR 391 mln (notional amount: abt. EUR 21 bn). This result is mostly determined by interest rate operations, with a positive value of roughly EUR 340 mln and, to a lesser extent, by forex operations with a positive value of abt. EUR 36 mln.

120

Since the operations mostly consist of transactions which are not financially sophisticated, in order to produce a breakdown of simple and structured traded products, the products with several basic components and the products with minimal exotic aspects (i.e. digital payment profiles, barriers, etc.) have been considered as structured, given the nature of such operations and in a very large sense. The portion of portfolio attributable to structured products has a fair value of almost EUR 124 mln (total nominal value of about EUR 12 bn). The total amount of simple transactions is about EUR 267 mln (notional value almost EUR 9 bn).

A separate analysis of assets (positive fair values for the Group) and liabilities (negative fair values for the Group) shows that the total positive fair value amounts to about EUR 524 mln, attributable to transactions with about 3,500 customers in a total notional amount of EUR 18.6 bn. In this field, simple transactions amount to about EUR 300 mln (notional value: abt. EUR 7.3 bn), with structured transactions at about EUR 224 mln (notional value: EUR 11.3 bn). A breakdown of such value by kind of underlying assets shows that interest rate transactions stood at abt. EUR 444 mln, forex transactions at abt. EUR 60 mln, commodities transactions at abt. EUR 12 mln, with the remaining portion going to equities transactions.

The total negative fair value amounts to abt. EUR 133 mln, which is attributable to transactions with approximately 1,700 customers in a total notional value of abt. EUR 2.1 bn. In this field, simple transactions amount to abt. EUR 32 mln (notional value: abt. EUR 1.2 bn), with structured ones coming to abt. EUR 101 mln (notional value: EUR 0.9 bn). A breakdown of such value by underlying assets shows that interest rate transactions came to abt. EUR 105 mln, forex transactions to abt. EUR 25 mln, with the remaining portion going to equities and commodities transactions.

With reference to the customers who traded structured products, the cumulative exposure in comparative terms with respect to the total positive fair values in relation to the customers shows that the position with respect to the top twenty customers accounts for roughly 44% of the total, with the percentage of exposure to the top fifty customers at abt. 58% and reaching 70% with respect to the top hundred clients.

APPENDIX: GLOSSARY

Following is a short glossary of the terms used in this paragraph, with the relevant acronyms used in the detailed tables.

121 Item Type Definition Guarantees the repayment and coupon flows on the basis of the income generated by a ABS Asset Backed Security string of financial assets. They typically consists of RMBS and CMBS AFS Available For Sale IAS accounting category used to classify assets available for sale CBO Collateralized Bond Obligation CDO where the underlying portfolio mainly consists of bonds Notes issued in different classes of riskiness and with different repayment subordination CDO Collateralized Debet Obligation (tranche), as a result of the securitization of a debt instrument portfolio including credit risk. They are typically characterized by financial leverage CDO of ABS CDO of ABS CDO where the underlying portfolio mainly consists of ABS CDO2 CDO Square CDO where the underlying portfolio mainly consists of other CDO CDO3 CDO Cubed CDO where the underlying portfolio mainly consists of CDO Squared CLN Credit Linked Note Notes incorporating a credit derivative which is usually a credit default swap (CDS) CLO Collateralized Loan Obligation CDO where the underlying portfolio mainly consists loans CMBS Commerial Mortage Backed Securities ABS with underlying commercial mortgage loans guaranteed-capital notes including a dynamic trading strategy for the purpose of CPPI Constant Proportion Portfolio Insurance participating in the performance of an underlying asset Dynamic Managed Portfolio Dynamic Managed Portfolio products with CPPI/SPI-like dynamic managed underlying assets HFT Held For Trading accounting category used to classify trading assets and liabilities CDO whereby the investor has an exposure with respect to the whole super senior LSS Leveraged Super Senior tranche through a derivative contract which has a typical leverage effect Managed CDO Managed CDO CDO where the portfolio of underlying exposures is managed insurance companies specialized in securing the payment of interest and principal of Monoline insurer Monoline insurer bonds upon default of the issuer. “Mono-line insurers” means that they typically ensure the service only in relation to one industry notes guaranteeing the repayment and the coupon flows on the basis of the income Other ABS Other Asset Backed Security generated by a string of other assets (consumer credit and leasing), usually including loans for cars, credit cards, student loans, leasing financing, etc. RMBS Residential Mortage Backed Securities ABS with underlying residential mortgage loans CDO where the portfolio of underlying assets mainly consists of Credit Default Swaps SCDO Syntetic CDO (CDS) level of subordination in the repayment of notes, usually including Super Senior, Senior, Seniority Seniority Mezzanine and Junior levels SLCDO Synthetic Loan CDO CDO where the underlying portfolio mainly consists of Synthetic Loans CDS corporate vehicle established to achieve specific objectives, especially to isolate financial SPE Special Purpose Entity risks. Assets consist of a portfolio where the income is used for the service of issued bonded loans SPE CLN SPE Crediti Linked Note CLN issued by SPEs SPI Synthetic Portfolio Insurance synthetic version of CPPIs, obtained through derivatives Vintage Vintage year of origination of underlying assets of a structured credit product

122 4.7: CAPITAL FOR REGULATORY PURPOSES AND PRUDENTIAL REQUIREMENTS18

The capital for regulatory purposes and capital ratios are calculated on the basis of balance-sheet and income statement results, as determined by the application of the international IAS/IFRS accounting principles and taking account of the Regulatory Instructions issued by the 12th update to Circular no.155/91 – “Reporting instructions on capital for regulatory purposes and prudential requirements” of the Bank of Italy. The capital for regulatory purposes is calculated as the sum of positive and negative components, in accordance with their capital quality. The positive components should be fully available to the bank, for the purpose of using them in the calculation of capital absorption.

Effective the FY of 2008, the Bank calculates the prudential requirements in accordance with BASEL 2. In addition, a notice received in June 2008 authorized the Parent Bank to use internal models for the determination of the Bank’s and Group’s capital requirements, in relation to credit and operational risks.

Internal models can be applied in compliance with some qualitative and quantitative limits contemplated by the Regulatory regulations. In particular, in accordance with the limits set (“floors”), any capital savings achieved through internal models are subject to ceilings to be calibrated with respect to the requirements calculated on the basis of the past regulations (BASEL 1). Such limits to the benefits are expected to be removed in the future, also in view of the gradual additional finetuning and consolidation of the internal models adopted.

That being said, the consolidated capital for regulatory purposes of the MONTEPASCHI Group at year-end amounted to EUR 11,996 million approx. (excluding Tier 3).

18 Additional details are provided in the Notes to the Financial Statements Part F “Information on consolidated net equity”.

123 The consolidated capital for regulatory purposes as at 31 December 2008 also takes account of the elements introduced for the banks applying internal methods of determination of capital requirements with respect to credit and operational risks. These adjustments include the direct adjustment to net equity for the differences resulting from overall value adjustments to loans and the relevant expected losses quantified according to the criteria of the internal models.

The decrease in Tier 1 capital (about EUR 109 million) is positively influenced by the capital increases with a premium executed during the year in a total amount of EUR 5,990.2 million, in addition to the capitalization of an outstanding portion of profits for the year (EUR 840.4 million). The increase in goodwill - mainly attributable to the acquisition and following merger by incorporation of Banca Antonveneta SPA (EUR 5,909.7 million) - and the negative 50% filter (EUR 462.8 million) on the net tax benefit posted to the 2008 income statement resulting from the accounting treatment of the substitute tax for the fiscal redemption of goodwill had a negative impact. The increase in Tier II capital is mainly due to the issue of Upper TierII in the amount of EUR 2,160.6 million.

As at 31 December 2008, the Tier 1 capital ratio was 5.13%, with the total capital ratio at 9.32%. Excluding the application of the limit represented by the 95% floor, the Tier 1 capital ratio would come to 5.4%, with the total capital ratio at 9.8%.

124 4.8 THE OPERATIONAL STRUCTURE AND OTHER INFORMATION

4.8.1 THE OPERATIONAL STRUCTURE

The chapter covering the development of operations by business area outlined the research and development initiatives. This section of the report on operations provides information on the development of the operational structure, with particular regard to distribution channels, payment systems and human resources.

DISTRIBUTION CHANNELS

In 2008, the MPS Group continued its activity geared toward developing and streamlining its distribution channels, focusing both on the growth of the traditional network and the consolidation of innovative channels and their integration with the branch network, with the objective of expanding the multichannel credentials of the MPS Group and providing the customers with a consistent service, irrespective of the kind of access to the Bank they use.

With reference to the traditional channels, the domestic branches of the commercial banks increased to 3,104.

The Group distribution network also incorporates 868 financial promoters of MPS Banca Personale, operating in Italy through 167 financial promoters’ offices.

125 The Group distribution network incorporates specialized (SMEs, Local Authorities and Private) Centers which, due to their “proximity” to these specific customer segments, enable the Group to rapidly make the most important decisions for the customers’ operations.

THE DOMESTIC BRANCHES OF THE MPS GROUP

Lombardy

Piedmont

Marches

Tuscany

Latium Apulia

Sardinia

Sicily

126

With regard to innovative channels, the Group consolidated the process of transformation of the branch from a traditional channel to an advanced centre of relations with the customers. Today the use of innovative channels is increasingly widespread among the MPS Group customers.

In 2008, the Group introduced a new function integrating Internet, Mobile and Phone Banking channels into one contract with one mode of access. In support of the Group commitment to the development of direct channels, the Group implemented the website of www.bancainfinita.it , online since 13 March 2008. The site has a strong promotional and commercial vocation, and channels a selection of innovative products and services which can be purchased online.

The range of Infinita, which can be purchased on the Internet and via phone banking, is hinged on the following products: Conto online, PCT online and Deposito online. The online Account, targeted at the customers with a strong propensity to the use of innovative channels, includes a free package consisting of a current account, integrated multi-channels, a debit card and securities in safekeeping as an option. PCT Online is an investment instrument (Repurchase Agreements) available through Internet Banking and Phone Banking, implemented to meet the requirement of obtaining guaranteed returns. Deposito Online shall be released in the first quarter of 2009. Integrated Multi-channels are available to all Group banks.

The services activated include Firma Digitale, an integrated solution for signing any electronic document, including contracts, with legal validity. The BMPS network released this service as part of an agreement with the University of Catania targeted at first-year students, the professors and administrative personnel. The use of Firma Digitale gives several advantages to the customers and the Group, i.e. decreasing operating costs of paper contracts, increasing operational efficiency and the expansion of supply through online direct sales of new products. During the year, the Group made new Internet Banking functions available, including international wire transfers and Personal Support. A Contact Center operator can be reached through Personal Support directly from the customer’s computer (available only to Conto Online

127 Customers). The Internet Banking service was reviewed and renovated to make it consistent with the Banca Infinita brand.

The Group also implemented the Electronic Billing service, targeted at the Corporate Market, which enables the companies to file all documents in electronic format according to the law. Corporate Treasury Management, another service dedicated to the companies, provides for advanced reporting, sophisticated methods of payment reconciliation and projections.

The distribution of electronic banking services in 2008 continued to grow at a steady pace, with more than 1 million Customers using the Group online channels. In particular, with reference to direct channels:

access contracts to the direct channels of the Retail and Private segments, including integrated multi-channels and past contracts, numbered 1,258,449 contracts as at 31 December 2008; access contracts to the direct channels of the Corporate segment came to 36,807 contracts as at 31 December 2008;

The Group ATMs totalled 3,641 as at 31 December 2008.

With regard to the development of services and other functions, in 2008 the Group released new services of phone recharge through ATMs and Internet Banking, and consolidated its commercial agreements with Poste Italiane (Italian General Post Office) for the forthcoming start of the payment of (blank and pre- filled) post bills through Internet Banking. International Money Transfers can also be made through this channel. New payment functions through ATMs (i.e. TV rental rate, licence tag, ENEL light bills), which will be released in the first months of 2009, have been implemented.

In October 2008, the Group activated a payment service through ATM of local rates and fines of the Municipality of Rome, as a result of a one-year exclusive agreement which reinforces the relations of the Municipality and the Bank in the area of treasury services. Similar agreements targeted at the customized management of collections were executed with other major Customers (SKY, Sofid, Autostrade). In 2008 the Group analyzed any possible opportunities of development in relation to Mobile Payments, with solutions to be examined with the Italian Bankers’ Association/e-Committee and in co-operation with other partners, in view of a pilot project (if any) in 2009.

The Group activated the ATM functions for the sightless and the almost blind during the year. The Group ATM network is provided with a vocal synthesis software which enables the use of the ATMs with a headset or earphone also by those affected by serious sight problems. This solution was developed in co-operation with the Institute for Research, Training and Rehabilitation of the Italian Blind Union.

128 THE FOREIGN DIRECT NETWORK

In line with the operational and development guidelines outlined by the Business Plan, the international direct presence of the MONTEPASCHI Group through different business units (i.e. branches, representative offices, customer desks and Italian desks with other correspondent banks, in relation to commercial co-operation agreements), has the objective of encouraging and enhancing the centrality of the customers, supporting them in their business worldwide.

The location of the branch network was based on several guidelines:

Geographical positioning, in a logic of enhancement of the value of the Group’s presence in emerging countries with high growth rates (Hong Kong and Shanghai Branches); Enhancement of commercial operations, in synergy with the Group domestic network in support of the Italian customers operating in the markets where the foreign branches are located; Presence in the major international financial centres (London and New York branches).

The foreign Representative Offices located in the Group’s target areas have the same operating purposes in Europe, i.e. in Belgium (Representative Office of Brussels) and in Germany (Representative Office of Frankfurt), in southern Europe with units in Istanbul and in the former Confederation of Independent States (Moscow).

The MPS Group operates offices in the Mediterranean countries of northern Africa (Algiers, Tunis, Cairo and Casablanca).

Central Asia, and in particular the People’s Republic of China and India, is of great interest to the Group which has established BMPS offices in Beijing, Guangzhou and Mumbai.

Following are the major initiatives undertaken by the MPS Group on the front of commercial co- operation with foreign correspondents:

Eastern Europe: Banca Transilvania in Romania, with BMPS personnel seconded to Timisoara, with a structured supply of products and services in favour of the Italian companies operating in Romania;

Central Europe – Commerzbank in Germany with an agreement for the supply of banking products and services to the Italian companies operating in Germany;

129 South America: Agreement with the Santander Group for the supply to the Group corporate customers of excellent services in the South-American market where the Santander Group is widely established in 10 countries;

Iberian area – Bancaja banking group with BMPS personnel seconded to Valencia (Spain), which provides the subsidiaries of Italian companies with Trade Finance and Cash Management services;

Central Asia – Industrial and Commercial Bank of China (ICBC) and China Merchants Bank (CMB) in China, in addition to the existing Representative Offices in Beijing, Shanghai and Guangzhou; HDFC Bank in India (the second private bank in India), flanked by the Mumbai Representative Office;

Maghreb and Egypt: C.I.B (Commercial International Bank) in Egypt; Banque de l’Agriculture et du Development Rural in Algeria, in support to and integration of the offices in Algiers and Cairo.

In close compliance with the objectives of development of the Group operational capacity and service to the companies in emerging areas, Correspondent Banking was essentially based on different aspects:

Increasing efficiency in the management of the relations with foreign correspondents, in the area of European payments, with the execution of many agreements on the pricing of commercial money transfers for the purpose of improving our share in the international payment system; The development of interbank relations, with a focus on the counterparts operating in the geographical areas with higher growth potential, in a logic of trade finance business origination; Increase in inbound business flows initiated from abroad, with specific actions in the areas of particular commercial interest, in co-operation with the network units.

Specific agreements for the pricing of products and services – targeted at channelling higher operational flows – have been entered into with the correspondent banks.

In support of “Paschi Senza Frontiere” (a service package enabling A/C holders to send money transfers to their countries at facilitated terms, free of any commissions for specific amounts), the Group executed agreements with Banka Credins (Albania), Compagnie Bancaire de l’Afrique Occidentale – CBAO (Senegal) and Attijariwafa Bank (Morocco), for the purpose of creating synergies in the management of fund remittances from immigrant workers in Italy. New co-operation agreements with bank counterparts in North Africa and South America are in the pipeline for the same purposes.

130 PAYMENT AND COLLECTION SYSTEMS

The services in relation to payment systems are based on the enhancement of functionality and the improvement of quality, in a logic of customers’ satisfaction.

The Group continued during the year to comply with the Industry obligations, and in particular the SEPA (Single Europe Payment Area). The first “domestic European” transfer service, SEPA Credit Transfer, shall be released in January 2008, thus marking the start of the Group operations in the new single payment area. The Group also analyzed the Payment Service Directive (PSD) to ensure, as a minimum objective, compliance of all collection and payment systems with the new directive which shall be adopted by the member states in November 2009. The Group also made the necessary arrangements for the use of the IBAN code as the only bank code also for the execution of domestic transfers, in replacement of the details used so far (i.e. account number, Italian Bankers’ Association Code and Bank Code – CAB), in accordance with the method already adopted for trans-national Sepa transfers.

POS terminals installed totalled 136,252 terminals (including 64,671 POS of Banca Antonveneta). The migration to the microcircuit continued, with about 85% of terminals now compliant with the new safety regulations. The virtual POS terminals were reviewed, with the conversion of obsolete terminals which were no longer compliant with the directives of the international circuits (especially with reference to the security of transactions).

As at 31 December 2008, the MPS Group credit cards (distributed by the Group’s banks) numbered 1,262,939, debit cards topped 1,500,000 and prepaid cards exceeded 470,000 units.

The major events in 2008 included the start of the process of internalization of credit card issuing from CartaSì to Consum.it, early in March with the issue of Carta Unica Classic, a product which contemplates two options, that is the full settlement or revolving payment at the customer’s discretion.

In April 2008, the Group started the governance of the terms and conditions on payment cards through a platform (“Condizioniere”), which represents a different and more structured way of managing product prices in general, and cards in particular.

In March the Group started distributing Spider Web, a prepaid card similar to Spider, distributed through the site of Banca Infinita. The operational characteristics of the original card are flanked by the opportunity of buying this card online. During the second half of 2008 the Group started integrating the Group product catalogue for Banca Antonveneta which acquired the revolving and option credit products of Consum.it, i.e. M’honey Card and Unica Classic, Krystal (prepaid card) and the Spider service.

131 The issue of Mondo Card Plus – with chip technology and OLI (On Line to Issuer) authorization mode – enables the issuing Bank to authorize payments and withdrawals in real time, both in Italy and abroad, after executing standard checks on the validity and soundness of the card and funds available in the current account. The card meets the Sepa requirements through the international circuit associated with Bancomat/Pagobancomat.

4.8.2 HUMAN RESOURCES AND ORGANIZATION DEVELOPMENT

In light of the strategies of the new Group Business Plan, and the programmatic guidelines of the 2008 Budget, the management of human resources was oriented to:

Increasing the professional skills of front office resources, with specific focus on customers’ relations management and a proactive approach to the customers; Ensuring the best solutions to fill key business roles, with professional, training and career paths, with particular emphasis placed on young people through specific systems of identification, follow- up and support to growth; Consolidating managerial profiles, through the circulation of a behavioural model for the implementation of the Plan strategic objectives and the systematic mapping of skills, for the purpose of fuelling continuity plans; simultaneously developing differentiated salary schemes on the basis of the organization weight of the position held and personal features (skills, potentials, track record, internal/external level of replaceability); Improving the efficacy of the rewarding scheme in relation to the indicators of creation of value (objectivity and structural value of the results in the course of time) and in a logic of growing selectivity, with emphasis placed on the centrality of merit.

Organization development was oriented, as a priority, to redesign the Group through the centralization (incorporation of Banca Agricola Mantovana and Banca Toscana) and the reorganization of the Geographical Areas in order to achieve economies of scale (reduction of operating costs) and purpose (effective governance and production).

The Group also developed and finetuned the governance of commercial dies (with specific reference to the processes of operational planning), product dies (specialist units to be flanked by the network account managers) and credit dies (full centralization of the units of rating assessment/definition).

STAFFING

As at 31 December 2008, the MPS Group had a total of 32,867 employees in terms of actual workforce19, with a decrease in staffing of 1,321 with respect to 31.12.2007 (base line of the 2008-11 Business Plan), mostly attributable to the accelerated reduction and restructuring of the workforce, as defined by the Master Plan.

19 Personnel seconded to companies outside the Group and part-time cleaning staff (1st Area) are deducted from employees on the payroll.

132

In particular, the financial year was characterized by:

- considerable outflows of personnel with high seniority with 1,811 retirements (accounting for about 52% of the total amount planned for the four years from 2008 to 2011), including 1,119 resources participating in the Early Retirement Plan and the Solidarity Fund; - introduction of new high-potential young recruits (707 employees), almost totally in the Network; - professional reconversion from the Head Office to the Network of 700 resources, (above all Banca Antonveneta), with staff re-qualification contemplating operational and training experiences at an individual level. - Outflows of 217 resources due to asset disposals (Intermonte SIM, Montepaschi Asset Management SGR and minor companies).

The front office to total staff ratio was 64.2% with respect to 62.5% as at 31 December 2007, and a 67% target expected at the end of the Business Plan.

The table below shows the distribution of the MPS Group’s actual workforce by operational location.

MPS GROUP WORKFORCE: DISLOCATION BY STRUCTURE STRUCTURE 31/12/2007(1) % OF TOTAL 31/12/2008 % OF TOTAL Network (2)& Call Center 21,365 62% 21,088 64% Head Quarter 12,823 38% 11,779 36% - H.O. Italian Banks (3)(2) 8,155 24% 6,675 20% - Product Companies 1,460 4% 1,223 4% - Service Companies 2,470 7% 3,143 10% - Other Activities(4)(3) 738 2% 738 2% TOTAL 34,188 100% 32,867 100% (1) Baseline Business Plan 2008-11, Biverbanca (696 employees) and Banca Antonveneta (9.383 employees) workforce included. (2) GeograficalGeographical Area offices, Branches, SME Centers, Private Centers, Local Authorities Centers and Call Center (3) Parent Bank, H.Os of the Commercial Banks and Geographical Areas (4) Foreign Banks, MPS Banca Personale and Other Activities.

The table below show the distribution of the MPS Group’s workforce by job category.

133 In terms of academic credentials, the percentage of personnel with degrees is abt. 31% with a peak in the case of Executives (about 49%).

The average age (after the acquisition of Banca Antonveneta and Biverbanca) is 42.8 years, in line with the Bank Industry average 20.

Women account for a significant 43.1% percentage of staffing (vs. 39%).

OPERATIONAL STRATEGIES

THE DEVELOPMENT OF HUMAN RESOURCES

Following are the most significant initiatives carried out in 2008, within the above-mentioned strategic framework:

¾ the 2nd professional paths21, which use PaschiRisorse as a key tool for planning and monitoring the distinctive skills of each role and checking the employee suitability for the profile set in relation to the position filled. At the Group level, professional paths involved about 500 employees;

20 “2008 Report on the labour market in the financial industry- salaries and cost of labour in the Italian and European banks”, Bancaria Editrice.

134

¾ the implementation of the development plans with reference to the roles having a high impact on business (i.e. Heads of SME Centres and Heads of Private Centres), with programmes of individual growth. The project aims at filling – in a logic of planning - relevant managerial positions in the network and special professional posts in the Head Office;

¾ the implementation of a self-development laboratory within the project of enhancement of the resources, for the purpose of increasing the awareness of individual vocation, consolidating the skills, orienting professional growth and creating an organic channel to feed the future Group Management.

¾ The extension of the mapping of managerial qualities (developed in 2007 in relation to the Group Executives) to the Managers holding positions of responsibility in the network and the Head Office, in order to support operating strategies and develop continuity plans.

TRAINING

According to the provisions of the 2007-2009 Training Plan, during the year training continued to strengthen the professional skills typical of a role, also in synergy with the existing instruments of professional development (e.g.: PaschiRisorse and related gap analysis, professional and career paths). In this context, the Group reinforced the programmatic guidelines (Guidelines to Training by Role - GRAF and Planning of Individual Training - PAFI).

As at 31 December 2008, training involved 95% of the personnel (+15% with respect to 2007), with training hours totalling about 1,750,000 hours (including classes, online courses and on the job training) mostly concentrated on the roles targeted at developing sales and lending. Following are the major initiatives undertaken in 2008:

in relation to the technical-professional area:

- initiatives targeted at the consolidation of the distinctive skills by role (in particular, sales, finance and social welfare, lending and compliance) of the main front-end roles (Branch Managers, Family account managers, Affluent account managers, Small Business account managers and SME account managers, Loan Lab employees); - ISVAP training for insurance policies dealers; - Group Advisory Platform oriented to developing a pro-active approach to customer relations; - Group special training for internal auditors in relation to the new processes of assessment and monitoring of credit risk;

21 “Vertical” paths regulate upgrade to target positions up to the 2nd level of Managers. “Horizontal” paths favour the integration of skills in relation to same-level positions.

135 - Special training in relation to the new “Money Laundering Regulations” with reference to Network staff; - Training on procedures, instruments and service models for the integration of Banca Antonveneta;

in relation to the managerial area:

- the “Executive Maturity” course targeted at the Commercial Branch Managers, funded by the For.Te fund; - courses for the development of leadership and team building skills in the branch managers.

Courses dealing with Health and Safety issues involved both the network staff in charge of emergencies and the Branch Managers.

A strong training commitment was necessary in view of the organizational/IT integration of Antonveneta completed on 31 May 2008 simultaneously with the Bank joining the Group. Classes and on the job training involved more than 8,500 resources.

INDUSTRIAL RELATIONS

Industrial relations were characterized by continuous negotiations with the Unions for the implementation of the projects of centralization contemplated by the Business Plan, with specific reference to:

- the merger by incorporation of Banca Agricola Mantovana into Banca Monte dei Paschi di Siena and the simultaneous transfer of the business unit (branches located in north-eastern Italy) from Banca Agricola Mantovana to Banca Antonveneta; - the merger by incorporation of Banca Antonveneta into Banca Monte dei Paschi di Siena and the simultaneous transfer of the business unit to “Nuova” Banca Antonveneta; - the transfer of a business unit from ABN AMRO Asset Management S.G.R. to Banca Monte dei Paschi di Siena.

As a result of the agreements executed, it will be possible to achieve objectives of efficiency, cost reduction and enhancement of professional skills, in line with the programmes.

The agreements covering Corporate Social Responsibility issues, new key roles for the network and the Memorandum on Security are also of great importance.

136 ORGANIZATION DEVELOPMENT

The main projects followed up in the fourth quarter of 2008 by the organization development unit incorporated the definition of the new Group organization model (structure, responsibilities and size) and the issue of the rules in relation to unit interaction (regulations and guidelines for the exercise of responsibilities in corporate processes).

This is done for the purpose of achieving results in terms of organization efficiency in the management of the workforce, with specific reference to the reallocation of the resources of the Head Offices of the merged banks and staff redistribution in the Network. This should be matched with the requirement of non-dispersion of specialist resources (or resources of value), in light of any limitations to mobility (resulting from the contracts and/or for operating reasons).

4.8.3. THE TREND OF BMPS SHARES, SHAREHOLDERS’ BASE AND DEBT RATING

- PRICES

The FY of 2008 was characterized by the hefty declines of the major international share indices (Dow Jones – 33.8%, S&P 500 -38.5%, Mibtel – 48.7%, Mib30 -48.4%), with peaks in relation to financial equities (MibBanche -57.3%, DJ Euro Stoxx Banks -63.8%). Against such a critical backdrop, BMPS shares closed the year at EUR 1.53 (-48.9% with respect to January 2009), but performed better than the Italian and the European banking industries (about 8% and 14%, respectively).

CHANGES IN THE PRICES IN 2008 (MAJOR STOCK INDICES)

137 TREND OF SHARE PRICE (from 31.12.07 to 31.12.08)

BMPS SHARE PRICE: STATISTICAL SUMMARY (from 31/12/07 to 31/12/08)

Average 1.97 Low 1.22 High 2.98

CAPITALIZATION AND SHAREHOLDERS’ BASE

As at 31 December 2008, the market value of BMPS computed on the basis of 6,677,831,738 (ordinary and preferred) outstanding shares was approximately EUR 10.2 billion.

SUMMARY OF REFERENCE PRICES AND CAPITALIZATION

12.31.07* 12.31.08 Price (euro) 3.68 1.53 N° ordinary shares 2,457,264,636 5,545,952,280 N° preferred shares 565,939,729 1,131,879,458

138 N° saving shares 9,432,170 18,864,340 Capitalization (ord + pref) (euro mln) 11,125 10,217

With reference to the Bank’s shareholders’ base, on the basis of the reporting to BMPS and the Italian Securities Commission (CONSOB) in compliance with art.120 of Legislative Decree no.58/98, the major shareholders were: the MPS Foundation (the majority shareholder, holding 45.88% of the ordinary share capital); JP Morgan Chase (5.56% **); Caltagirone Francesco Gaetano (4.72%); Unicoop Firenze (3.34%); Axa S.A. and Barclays Global Investor Uk Holding LTD (2.45%).

MAIN SHAREHOLDERS in compliance with art. 120 D.Lgs. n. 58/98

Fondazione MPS 45.88%

JP Morgan Chase** 5.56%

Caltagirone Francesco Gaetano 4.72%

Axa S.A. 4.58%

Unicoop Firenze – Società 3.34% cooperativa

Barclays Global Investor Uk Holding 2.45% LTD

The situation as at 31 December 2007 with reference to the price (EUR 3.68) and the following market capitalization (EUR 11.125 million) does not take account of the conversion factor resulting from the capital increase with option right of EUR 4.97 bn fully paid up at the end of May 2008. For this reason, the price and the following capitalization would be EUR 2.988 million and EUR 9.033 million, respectively. After the share capital increase through the issue on payment with a share premium of no. 295,236,070 ordinary shares in a total amount of EUR 950,069,673.26. The capital increase, excluding the option right, was reserved for subscription to a company of the JP Morgan Chase Group which used the new shares to cover the convertible loan (Fresh). The issue of this loan was disclosed by JP Morgan on 8 April 2008. JP Morgan Chase & Co indirectly holds the bare property of this investment through JP Morgan Securities Ltd and JP Morgan Whitefriars. The beneficial interest is in favour of BMPS. The beneficial owner’s voting right on these shares is pending as long as the beneficial interest is in favour of BMPS.

VOLUMES

The number of BMPS shares traded on a daily basis averaged around 16.8 million in 2008, with a peak of 86.6 million in September and a low of 3.2 million in December. Most shares were traded in May, when the share capital was increased.

139 MONTHLY VOLUMES OF SHARES TRADED 2008 VOLUMES SUMMARY

(in millions) January 271 February 195 March 206 April 444 May 635 June 419 July 465 August 381 September 569 October 331 November 183 December 159

DEBT RATINGS

Following are the debt ratings as at 31 December 2008:

Rating Agencies Short-term debt Long-term debt 12/31/2008 12/31/2008 Moody’s Investors Service P - 1 Aa3 Standard & Poor’s A - 1 A Fitch Ratings F - 1 A

On 2 June 2008 Fitch Ratings downgraded the long-term rating of MPS to “A” from “A+” and confirmed the short-term rating at “F-1” after the completion of the acquisition of Banca Antonveneta by MPS on 30 May 2008.

INVESTOR RELATIONS IN 2008

In 2008, the Investor Relations team interacted proactively with the financial community, and further accelerated marketing activities in line with 2007, also as a result of the presentation to the financial community on 11 March 2008 of the new 2008-2011 Business Plan of the MPS Group and the capital increase fully paid up as at the end of May 2008.

The Investor Relations Unit arranged meetings with about 450 investors (including the investors met more than once in 2008) in 12 different countries. Following is the breakdown by geographical area:

140

BMPS SHARES RECOMMENDATIONS

55% of the analysts covering BMPS shares as at 31 December 2008 maintained a neutral/positive outlook, 45% had a negative stance.

141 4.8.4 COMMUNICATIONS

Communications

In addition to financial market reporting, as illustrated in the section covering “Investor Relations”, in 2008 the MPS Group’s efforts were concentrated on intensifying media relations, institutional communications and the relations with the customers’ segments and the public at large. In particular, it was made the most of the acquisition of Banca Antonveneta, the capital increase and the mergers of Banca Agricola Mantovana and Banca Toscana, with respect to the domestic and international media. The project of territorial communication attempts at enhancing the value of the MPS brand with the local press and promoting different initiatives in support of the territories and the opening of new branches.

As to institutional communications, the MPS Group continued its advertising campaign with all nationwide TV stations, including some regional broadcasters, to consolidate an appropriate positioning in terms of image. Communications in relation to the campaign concerning Banca Antonveneta were targeted at promoting a new positioning and a new mission as the Bank of the territory. In addition, the Group arranged specially tailored events by city. Simultaneously with the release of the new Advice Platform, the Group implemented a press campaign with the domestic media and a maxi billsticking in very crowded urban areas. The Group also planned a domestic press campaign in support of “L’unione che ti premia”, which promotes the joint venture between the Montepaschi Group and AXA.

With reference to e-banking, the Parent Bank web site, www.mps.it, and its English version (english.mps.it) were provided with new upgraded functions for the investors, the analysts and the press. On the front of web and new media, the Group completed the preliminary work for the new sites of Banca Antonveneta www.antonveneta.it and Consum.it www.consum.it. The preliminary work for the new site of AXA MPS (www.axa-mps.it) is in progress. The new site of Biverbanca www.biverbanca.it was already released.

As far as corporate social responsibility is concerned (s. the chapter covering “the CSR of the MPS Group”), the Group Corporate Social Responsibility initiatives were promoted through the 2008 advertising campaign, the updating of CSR news in the web channel (www.mps.it/I+nostri+Valori), the introduction of articles and advertisements in the specialized press. Additional initiatives were focused on the preparation of the Italian report of the Carbon Disclosure Project 2008, where the Group played the role of main sponsor, and the associated meeting for presentation to the political and financial world.

Internal communications incorporate Filodiretto7, a weekly electronic newsletter sent to all staff of the Montepaschi Group, and Filodiretto30, a monthly monothematic electronic magazine which deals with specific issues in an exhaustive manner. Two new instruments targeted at the Group colleagues were

142 designed and implemented. In particular, the role of Filodiretto 1 is to send spot commercials or previews in relation to the news which will be part of the communication instruments of Filodiretto7, 30 or the Montepaschi Channel to all colleagues or a pre-established selection of mailing list. Filodiretto Advice is a monthly newsletter for the colleagues operating with the ADVICE Platform.

The number of users of MONTEPASCHI Channel, the corporate television, was extended. At the end of 2008, all Group personnel had access to the Corporate TV, through the corporate intranet portals of the “Montepaschi channel” banner. MPS BP CHANNEL, the Corporate TV targeted at the approximately 800 Financial Promoters of MPS BP, is highly appreciated by the colleagues of Banca Personale with a very high daily average number of pages read in the last 6 months (more than 420 daily visitors).

In 2008, the Group sponsored several initiatives and organized meetings aimed at consolidating and developing commercial and business relations with primary players in different business sectors.

Following are the major cultural, scientific, economic and sports initiatives sponsored by the MPS Group:

with respect to cultural activity, Tuscia Operafestival 2008 - a festival of opera, symphonic music, dance, theatre and cultural events organized by Viterbo Artemusica; the 11th “Summer Festival” of Lucca – a music festival of national and international renown; the 54th Puccini Festival of Torre del Lago; Città Aromatica, a festival of music and dance promoted by the City of Siena; Fondazione Siena Jazz; “Pavarotti, the man who moved the world”, a unique anthological exhibition fully dedicated to the work and life of the Maestro; the pop music concert season at Palabam (Mantua), the Christmas Concert in Mantua; the summer season and winter season (MICAT in vertice) of Accademia Musicale Chigiana.

on the front of sports, the consolidated relations with A.C.Siena football club, Mens Sana Basket, Baseball Club Orioles Grosseto and Viadana Rugby were flanked by Monte Paschi Eroica, a cycle race, the 10th Banca MPS Grand Prix, organized by the Regional Committee for Tuscany of FIDAL; Rome Mezzamaratona, the Golf Open Championships, the 2008 Masters Junior European Championship organized by the Orbetello Tennis Club; the Bormio finals of Alpine ski, Nordic ski, freestyle and snowboard; the Final Four of Euroleague, Chianti Ecomaratona.

with reference to social initiatives, the Group supported “Comitato Un Cordone per la Vita” (One Cord for Life Committee) which operates from Lecce in several Italian regions and raises funds for promoting the collection of umbilical cords for the purpose of the research on staminal cells; the “Olympics of the Heart” with the purpose of raising funds in favour of needy children. The Montepaschi Group was the bank of reference of the “Factory of Smile 2008”, a fund raising initiative in support of solidarity projects in Italy and in the world. At Christmas time, the Group initiative “Solidarity makes Christmas shine” had the objective of supporting 19 local charitable projects in favour of needy children and young people in the major cities where Banca Monte dei Paschi di Siena and Banca Toscana are established.

143 In relation to economic initiatives, the Group has supported for years (i) Promosiena, a special company of the Chamber of Commerce promoting local production and companies in the main international markets; and (ii) Enoteca Italiana, a unique public institution which promotes the Italian great wines and wine-growing industry.

144 4.9 CORPORATE GOVERNANCE AND OTHER INFORMATION

CORPORATE GOVERNANCE REPORT

According to art.89bis of the Issuer’s Regulation of Consob and art. IA.2.6. of the Instructions on the Stock Exchange Regulations (model of administration and traditional audit)

GLOSSARY

Code: the Self-Regulation Code of the listed companies approved in March 2006 by the the Corporate Governance Committee and promoted by Borsa Italiana S.p.A. c.c.: the Italian civil code

Board: the Board of Directors of the Issuer

Issuer: the Issuer whose listed shares the Report is referring to

Financial year: the corporate year the Report is referring to

Stock Exchange Regulations Instructions: the Regulations Instructions of Markets which are organized and managed by Borsa Italiana S.p.A.

Stock Exchange Regulations: The Regulations of Markets which are organized and managed by Borsa Italiana S.p.A.

Consob Issuer Regulation: the Regulations issued by Consob with resolution no. 11971 of 1999 concerning issuers.

Consob Market Regulations: the Regulations issued by Consob with resolution no. 11191 of 2007 concerning markets.

Report: the Corporate Governance Report which the companies must draw up according to art. 124 bis of the Consolidated Act on Financial Intermediation (TUF), 89 bis of the Issuer Regulation of Consob and of art. IA2.6. of the Stock Exchange Regulation

TUF: The Legislative Decree dated 24 February 1998, no. 58 (Consolidated Act on Financial Intermediation)

145 1. ISSUER PROFILE

This report may be found on the website www.mps.it in the section “investors & ricerca”).

FOREWORD

For Banca Monte dei Paschi di Siena (BMPS) the importance of the Corporate Governance goes beyond the traditional technical aspect, i.e. a coordinated set of rules and structures governing the relationships between shareholders, managers and top managers.

In line with our mission, Corporate Governance is considered the best form of governance of our relationships with all stakeholders, in order:

- to create value for shareholders over the short and long term focusing on customer satisfaction, on professional skills development and on the interests of all stakeholders. - to serve as a model in the ever-changing Italian banking industry by confirming the position of the MPS Group as a leading domestic Group. - to develop a sense of belonging to the Group, and at the same time, respect cultural differences and ensure that each company maintains a strong presence in the area where it operates.

MPS Group Mission

The Bodies of the company operate to achieve successful results for the Group as a whole: through a fair and transparent corporate governance and an exhaustive Ethical Code, BMPS has set rules ensuring that the legitimate expectations of all stakeholders are met and that their satisfaction is a goal for the company’s management.

The overall corporate governance system refers to the Self-Regulation Code for the Listed Companies.

The compliance with the Code implies a clear distinction of roles and responsibilities, an adequate balance of powers, a balanced composition of the company bodies; its organizational principles are based on the efficacy of controls, on monitoring all corporate risks, on the adequacy of information flows and on the social responsibility of the company.

In particular, a traditional corporate management and supervision system was chosen, consisting of: - the Board of Directors, with direction-setting and strategic supervision functions; - the Board of Statutory Auditors, which monitors the compliance with laws, regulations and the Articles of Association and ensures that the company is properly managed, has adequate organisational, control, administrative and accountancy systems in place that the rules of corporate governance provided for by the Self-Regulation Code for listed companies which the Bank joined are implemented and that the instructions given by the Company to the subsidiaries are adequate according to art. 114, par. 2 of the Legislative Decree no.58/98 (Consolidated Act on Financial Intermediation); - the Shareholders’ Meeting, which has the power to decide, both in ordinary and extraordinary shareholder’ meetings, appointments and removals of the members of the Board of Directors and Board of Staturoty Auditors, their compensations and responsibilities, the approval of financial statements, profit distribution, mergers, de-mergers, capital increases, and any changes to the Articles of Association as well as the appointment of the auditing firm.

2. INFORMATION ON THE STRUCTURE OF OWNERSHIP (PURSUANT ART. 123 BIS OF THE CONSOLIDATED ACT ON FINANCIAL INTERMEDIATION) AS AT 4 DECEMBER 2008 (extraordinary shareholders’ meeting for the merger by incorporation of Banca Antonveneta S.p.A.)

146 a) EquityShare CapitalStructure Structure

Total amount in euros of subscribed and paid-up capital: € 4,486,786,372.26. Share types constituting the share capital:

No. Of shares %vs. Issued capital Listed/unlisted Rights and obligations Ordinary shares 5,545,952,280 82.82 Listed = Preferred shares 1,131,879,458 16.90 Unlisted Preference in profit distribution Savings shares 18,864,340 0.28 Unlisted Preference in profit distribution

Other financial instruments granting the right to subscribe to new issues of shares:

Listed/unlisted No. Of issued Categories of No. Of shares for instruments shares for conversion/fiscalyear conversion/fiscal year Floating rate Listed EUR 531,924,865 Pro-rata ordinary 202,282,000 equity-linked (Luxembourg stock (total amount) shares subordinated exchange) hybrid preferred securities (F.R.E.S.H.)

With regard to share-based incentive plans (stock grant) for employees of the MPS Group, implemented by allocating BMPS S.p.A ordinary shares free of charge, please refer to the information given pursuant to Art. 84 bis of CONSOB Regulation No. 11971/99 – Information on allocation of financial instruments to company’s agents, employees or contractors. It should be noted that the implementation of existing plans has not led to any increases, even free of charge, of the share capital because the necessary shares have been purchased on the market by Banca Monte dei Paschi di Siena S.p.A. pursuant to Art. 2357 of the Italian Civil Code, in compliance with current stock market intermediation practices and exclusively on the market managed by Borsa Italiana S.p.A. and within the meaning of the provisions of Art. 2.6.7 of the Regulation issued by Borsa Italiana S.p.A. themselves. b) Securities Transfer Restrictions

There are no provisions in the Articles of Association laying down restrictions to securities transfers. It should however be noted that Art. 6 of the Articles of Association provides that the sale of preferred shares be communicated without any delays to the Company by the selling shareholder and that it entails automatic conversion at par of preferred to ordinary shares. In addition, under no circumstances, a shareholder, in the capacity of a bank foundation governed by Law No. 461 of 23 December 1998 and by Legislative Decree No. 153 of 17 May 1999 and subsequent additions and amendments, either directly or indirectly controlled by one of these shareholders, may obtain the conversion of preferred shares in his possession to ordinary shares in his owner’s name.

147 c) Relevant Shareholdings

In compliance with the provisions of Art. 85 of CONSOB Regulation No. 11971, as per the information contained in the shareholder’s register and complemented by other communications received pursuant to current law and on the basis of any other information available, the only shareholders with a direct or indirect stake of more than 2% in the share capital constituted by voting shares are as follows:

Declarant Direct shareholder %of ordinary shares % of voting shares Fondazione Monte dei Fondazione Monte dei 45.875 55.049 Paschi di Siena Paschi di Siena J.P. Morgan Chase & Co. JP Morgan Securities 5.56 4.62 Ltd-JP Morgan Whitefriars Caltagirone Francesco Caltagirone Editore 4.72 3.92 Gaetano S.p.A.-Mantegna 87 S.r.l.-SO.FI.COS S.r.l.- Finced S.r.l.- Fincal S.p.A.- Capitolium S.p.A. AXA SA Various companies of 4.58 3.80 the AXA Group Unicoop Firenze Soc. Unicoop Firenze 3.34 2.77 Coop. A RL Soc.Coop. a RL Barclays Global Different companies of 2.45 2.03 Investors the Group d) Securities Granting Special Rights

No securities granting special control rights have been issued. e) Employee Shareholding: Mechanism to Exercise Voting Rights

Every MPS Group employee who is the holder of BMPS S.p.A. ordinary shares allocated following implementation of share-based incentive plans (stock grant) may exercise his voting rights in ordinary and extraordinary general meetings. f) Restrictions to Voting Rights

With regard to any restrictions to possessing shares provided for in the Articles of Association which may lead to restrictions on exercising the right to vote, it should be noted that pursuant to Art. 9 of the Articles of Association, no shareholder, except for Fondazione MPS, may own ordinary shares, with any rights, for more than 4% of the Company’s share capital. The voting right relating to shareholdings exceeding the maximum limit indicated above cannot be exercised; and the voting right which each of the shareholders within the shareholding limit should have been entitled to is proportionally reduced, unless previously otherwise jointly indicated by the shareholders concerned. In case of non-compliance, the deliberation may be challenged pursuant to Art. 2377 of the Italian Civil Code, if the required majority would not have been reached without the votes in excess with regard to the above mentioned maximum limit. The shares for which no voting rights may be exercised are however taken in consideration to meet the requirements for the lawful composition of the Shareholders’ Meeting.

148 g) Shareholders’ Agreements

With regard to the existence of shareholders’ voting syndicates or veto syndicates or of any shareholders’ agreements or other agreements and arrangements of any kind relating to the exercise of share rights or to the transfer of shares and by virtue of Art. 122 of the Consolidated Act on Financial Intermediation, BMPS has received following communications:

- On 17 January 2007, conclusion of a new consultation agreement for the duration of three years signed by 50 shareholders of the Bank on 15 January 2007 covering 81,851,786 ordinary shares of the Bank, equivalent to 3.34% of the ordinary share capital and to 2.71% of voting shares. This Agreement relates to rules of conduct and agreements on exercising the right of vote in the shareholders’ meetings as well as the sale and/or disposal of ordinary shares of the Bank.

- On 3 April 2008, conclusion on 29 March 2008 of an agreement modifying the above-mentioned consultation agreement dated 15 January 2007, signed by 50 shareholders of the Bank and dealing with the total or partial sale or assignment, also on a forward basis, of shares and any financial instruments linked with the agreement, the sale or the assignment of the bare property and/or the beneficial interest of all or part of the shares linked with the agreement, the conclusion of option or swap agreements, the right of vote on pledged shares and, in general, the communications concerning said transactions;

- On 7 July 2008, statement that, further to the changes in the BMPS share capital, the above- mentioned consultation agreement concerns no. 161,906,647 ordinary shares, corresponding to 2.9475% of the total amount of ordinary shares and to 2.4439%of the shares with right of vote in the extraordinary shareholders’ meeting, which are subdivided as follows:

Shareholder % of total ordinary shares

Gorgoni Lorenzo 0.5314% Palumbo Mario 0.2704% Leuzzi Gina 0.01953% Montinari Dario 0.1796% Montinari Piero 0.1796% Montinari Pantaleo Nicola 0.1742% Gorgoni Antonia 0.1463% Montinari Sigilfredo 0.1244% Montinari Andrea 0.1244% Montinari Luisa 0.1048% Verderamo Enrica 0.1010% 39 shareholders with stakes lower than 0.1% 0.8161% Total 2.9475%

There are therefore 50 ordinary shareholders in total. h) Appointment and Replacement of Directors and amendments to the Articles of Association

149 The Board of Directors consists of a number of members agreed upon by the ordinary shareholders’ meeting which, in any case, may not be less than nine or more than seventeen. On pain of cancellation of his appointment no Director of BMPS may simultaneously be a member of the board of directors, of the board of management or of the supervisory board of competitor banks not belonging to the MPS Group having a bank license issued by the Italian supervisory authorities and working in the market of bank deposits and savings or of the ordinary credit in Italy. Any Director of BMPS accepting one of the above- mentioned appointments shall immediately inform the Board of Directors of BMPS which will immediately declare his appointment cancelled. The members of the Board of Directors are appointed for a period of three (financial) years and their appointments expire on the date of the shareholders’ meeting convened to approve the company financial statements relating to the last financial year of their mandate. The members of the Board of Directors are elected from a list of candidates listing them with a progressive number. For each list, at least two candidates, specifically indicated, must satisfy the auditor independence requirements laid down by law. Together with each list and not later than the expiry date of its submission, following documents shall be filed at the registered office of the company: (i) the statements of each candidate accepting their candidacy and stating, under their own responsibility, the inexistence of ineligibility or incompatibility causes as well as the existence of the requirements provided for the appointment by the law and regulations ; (ii) the statements of at least two candidates stating the existence of the independence requirements; and (iii) the curricula vitae concerning personal data and professional experience of each candidate, showing the administrative and supervising roles taken in other companies. In particular, the candidates shall declare not to hold any office as a member of the board of directors, of the board of management or of the supervisory board of competitor banks which do not belong to the MPS Group having a bank license issued by the Italian supervisory authorities and working in the market of bank deposits and savings or of the ordinary credit in Italy. The lists submitted not complying with the statutory provisions shall not be voted. The lists drawn up by the shareholders must be filed at the Company registered office at least fifteen days before the date of the shareholders’ meeting in first convocation and made public in compliance with current legislation. Every shareholder may submit, or help in submitting only one list and each candidate may appear only on one list, otherwise they will be deemed ineligible. Lists may be presented only by shareholders whose total shares, alone or together with other shareholders, constitute at least 1% of the Company share capital having voting rights in the ordinary shareholders’ meeting or a different percentage required by current legislation. In order to prove the ownership of the number of shares required for submission of the lists, the shareholders must submit and/or deliver a copy of the documentary evidence of the right to participate in the shareholders’ meeting to the Company registered office at least five days before the date fixed for the shareholders’ meeting in first convocation. Each shareholder with voting rights may only vote for one list. Pursuant to Art. 15 of the Articles of Association, the election of the members of the Board of Directors will take place as follows: a) Half of the number of directors to be appointed, rounded down to the nearest number in case of a fractional number, and according to the order in which they have been listed, will be taken from the list that has received the majority of the votes given by the shareholders; b) The remaining members of the Board of Directors will be taken from the other lists. For this purpose, the votes received by the lists will then be divided by one, two, three, four and so on according to the number of directors still to be elected. The quotients calculated in this way will progressively be allocated to the candidates of each of these lists according to the order indicated in them. The quotients allocated in this way to the candidates of the various lists will be ranked in a single list in decreasing order. The candidates with the highest quotients will be elected. If several candidates have obtained the same quotient, the candidate appearing on the list from which no directors have already been elected or from which the lower number of directors have been elected will be appointed. If no directors have been elected from any of these lists or the same number of directors has been elected from each list, then, with regard to these lists, the member with the highest number of votes will be elected. If the lists have received the same number of votes and the quotients are the same, a new election

150 will take place at the general meeting and the candidate that obtains the simple majority will be elected to the Board of Directors. In any case, even notwithstanding the preceding provisions, at least one member of the Board of Directors must be taken from the minority list that has obtained the highest number of votes and which is in no way connected, not even indirectly, with the shareholders that have presented or voted for the list that came first based on the number of votes received. If, at the end of the election, no director satisfying the auditor independence requirements laid down by law is elected: (i) instead of the non-independent candidate who came last amongst the elected members of the list that has obtained the highest number of votes, the first member amongst the independent candidates of the same list will be elected according to the progressive order of presentation; (ii) instead of the non-independent candidate who came last amongst the elected members of the other lists, the member that has obtained the highest quotient amongst the independent candidates of the same lists will be elected. If at the end of the election, only one director satisfying the auditor independence requirements laid down by law is appointed and this director comes from the list that has obtained the highest number of votes, instead of the non-independent candidate who came last amongst the members elected from the other lists, the member that has obtained the highest quotient amongst the independent candidates of these lists will be appointed. If at the end of the election, only one director satisfying the auditor independence requirements laid down by law is appointed and this director comes from a list other than that which has obtained the highest number of votes, the second independent director to be appointed instead of the non-independent candidate who came last amongst the members elected from the list that has obtained the highest number of votes will be the first member amongst the independent candidates of the same list according to the progressive order of presentation. In any case, the candidate who has been replaced to allow the appointment of the lower possible number of independent directors may not be the director taken from the minority list which has obtained the highest number of votes and which is in no way connected, not even indirectly, with the shareholders who presented and voted for the list that has obtained the highest number of votes. In this case, the member to be replaced will be the non-independent candidate who came last but one in terms of quotient obtained. For the appointment of the directors, who for whatsoever reason, have not been elected in line with the procedure described above, the Shareholders’ Meeting deliberates in compliance with, and with the majority required by law. For the replacement of directors who terminate their mandate, current law provisions apply. In addition, should the mandate of the majority of the directors terminate, the entire Board of Directors should be deemed as resigned with effect from the time that a new Board of Directors is appointed.

i) Delegation of powers to increase the share capital and authorisation to purchase own shares

The Annual Shareholders’ Meeting held on 15th January 2004 resolved to increase the share capital of Banca Monte dei Paschi di Siena S.p.A. in connection with the issue of Convertible Preferred Securities for a maximum number of 213,414,634 ordinary shares with ownership from the day of conversion, granted that (i) the expiry date for this increase in share capital for this purpose is 30th September 2099, (ii) the members of the Board of Directors will issue the shares to the owners of the Convertible Preferred Securities within the calendar month following the date of request of conversion, which may be submitted during the month of September of each year from 2004 to 2010 and, subsequently, at any time, or within the month following the date of automatic conversion or of conversion in case of redemption of the Convertible Preferred Securities, so that ownership of these shares will coincide with the date of conversion and (iii) that within a month from the date of conversion, the members of the Board of Directors will file for registration at the Companies Registry Office a certificate of share capital increase for a sum equivalent to the nominal value of the shares issued.

151 The ordinary shareholders’ meeting held on 24 April 2008 resolved to authorise, pursuant to and for all purposes of Art. 2357 of the Italian Civil Code, the purchase of the Bank own shares in the quantity, at the price and as per the terms and conditions indicated below: • The purchase may be carried out in one or more transactions within 18 months from the date of this deliberation; • The minimum purchase price for ordinary shares may not be more than 30% lower than the official price obtained by the security at the Stock Exchange meeting that takes place before every purchasing transaction. The maximum purchase price for ordinary shares may not exceed by more than 5% the official price obtained by the security at the Stock Exchange meeting that takes place before every purchasing transaction; • The maximum number of shares purchased may not exceed 70,000,000 in total; • Purchases of own shares will be in compliance with the provisions of current legislation on listed companies, that is in compliance with the provisions of Art. 132 of Legislative Decree No. 58/98, Art. 144 - bis of Regulation No. 11971/99, and in compliance with the procedures laid down by Stock Exchange Regulations and with any other applicable law, including the provisions of Directive 2003/6/EC of 28 January 2003 and the relevant EU and national implementation rules.

The same meeting held on 24 April 2008 also agreed that the Board of Directors, pursuant to Art. 2357-ter, paragraph 1 of the Italian Civil Code, may proceed with selling all or part of own shares purchased, even before having completed all purchases, in one or more transactions, within 18 months, on the markets provided for by the Consob Regulation no. 16191/2007 implementing the Mifid directive. The minimum selling price may not be more than 5% lower than the official price obtained by the security at the Stock Exchange meeting that takes place before every selling transaction.

The shareholders’ meeting held on 4 December 2008 resolved to integrate the above-mentioned resolution of the shareholders’ meeting of 24 April 2008 exclusively to allow their conversion assignment to the holders of convertible bonds, as per the “Banca Antoniana Popolare Veneta convertible subordinated hybrid at fixed rate 1999-2009 loan”, who would exercise their faculty of conversion after the coming into force, from the point of view of the Italian civil code, of the merger by incorporation of BAV into BMPS, which also was on the agenda of the shareholders’ meeting.

The number of own shares in the portfolio as at 31 December 2008 was 41,875,548. l) Change of control clauses

BMPS and its subsidiaries have not concluded any significant agreements, which come into force, are amended or terminated following change of control of the contracting company. m) No agreements have been entered into between the Issuer and the members of the Board of Directors providing for compensation payments in case of resignation or dismissal/removal without a valid reason or should the employment relationship come to an end due to a takeover bid.

3.COMPLIANCE

With resolution of 5 April 2005, the BMPS Board of Directors, having examined the organisational model adopted by the Bank, accepted, as reference point for an effective “Corporate Governance”, the Code of Self-Regulation of Listed Companies (hereinafter the “Code”), approved in March 2006 by the “Committee on Corporate Governance for Listed Companies”.

Neither BMPS nor its strategically important subsidiaries are governed by provisions of non-Italian legislation which may influence the BMPS corporate governance structure.

152 4. MANAGEMENT AND COORDINATION ACTIVITIES

BMPS is not subject to management and coordination activities in accordance with Art. 2497 of the Italian Civil Code or the following articles.

5. BOARD OF DIRECTORS

5.1. COMPOSITION

The current Board of Directors was appointed by the ordinary shareholders’ meeting held on 29th April 2006 and will remain in office until the date of approval of the company financial statements for the financial year ending on 31 December 2008.

A short curriculum vitae for each member of the Board of Directors highlighting their expertise and experience in business management is included below.

Giuseppe Mussari: Degree in law and member of the Italian National Register of Lawyers for Siena since April 1993. He was President of the Siena Criminal Chamber Division from 2000 to 2001, Chairman of MPS Foundation from July 2001 to April 2006, Deputy Chairman of ACRI from September 2001 to April 2006 and Chairman of Cassa Depositi e Prestiti Steering Committee until the approval of the 2006 financial statements. He is currently a member of Toscana Life Sciences Steering Committee (since January 2004), a member of the Board of Directors and of the Executive Board of Associazione Bancaria Italiana (The Italian Banking Association) (since July 2006), a member of AXA S.A. Supervisory Board (since May 2007), a member of the ABI-ANIA Executive Board (since June 2008. He has been the Chairman of the Board of Directors of the Issuer since 30 April 2006.

Francesco Gaetano Caltagirone: Degree in engineering. In 1984 he acquired control, and became Chairman of, Vianini S.p.A., one of the leading general construction companies listed on the Stock Exchange (now Caltagirone S.p.A.). He subsequently expanded his business to include the cement and media sectors thus creating one of the leading Italian business groups, which includes five listed companies and important strategic shareholdings, with an increasing international presence. He is Chairman of Caltagirone S.p.A., Caltagirone Editore S.p.A., Il Messaggero S.p.A., Il Gazzettino S.p.A. and Eurostazioni S.p.A. and a member of the Board of Directors of Assicurazioni Generali S.p.A. and of Immobiliare Caltagirone S.p.A. He was honoured as ‘Cavaliere del Lavoro’ (recognition for achievement in the Italian economic sector) in 2006. Francesco Gaetano Caltagirone has been Deputy Chairman of the Board of Directors of the Issuer since 27 April 2003.

Ernesto Rabizzi: An Executive of Banca Monte dei Paschi di Siena from October 1997 to December 2000. From 2001 to 2004 he was member of the General Council of MPS Foundation MPS and from 2004 to 2006 Deputy Chairman of the Siena Provincial Council. He is currently Chairman of the Company Welfare Fund for the employees of Monte dei Paschi di Siena (May 2006), Chairman of the MPS Group Operations Centre (June 2006) and Chairman of Consum.it (April 2007), Deputy Chairman of Biofund S.p.A., as well as a Director of the Supplementary Pension Fund for BMPS employees. Ernesto Rabizzi has been Deputy Chairman of the Board of Directors of the Issuer since 30 April 2006.

Fabio Borghi: He was a member of MPS Foundation MPS from September 2001 to April 2003 and a member of the Board of Directors of Siena Biotech S.p.A., a member of the Board of Directors of Banca Monte Parma and Unipol Gruppo Finanziario from April 2002 to April 2004. He is currently the Chairman of MPS Gestione Crediti, and Chairman of the Supplmentary Pension Fund for BMPS employees and a member of the Board of Directors of the Company Welfare Fund for BMPS employees. Fabio Borghi has been a member of the Board of Directors of BMPS since April 2003.

153 Turiddo Campaini: He has been the Chairman of the Supervisory Board of Unicoop Firenze soc. coop. Since 2008. He was the Chairman of the Board of Directors of Unicoop Firenze soc. coop. from 1973 to 2007. From 2002 to 2007 he was the Chairman of Brico Business Cooperation S.r.l.. In 2006 he was the Chairman of the Board of Directors and Managing Director of Finsoe S.p.A. He is currently a member of the Board of Directors of MPS Capital Services, a member of the Governing Council of the Florence Chamber of Commerce, Industry, Trade and Agriculture (CCIAA). Turiddo Campani has been a member of the Board of Directors of BMPS since April 2003.

Lucia Coccheri: Degree in political sciences. She joined the MPS Group in 2003 as a member of the Board of Directors of Paschi Gestioni Immobiliari of which she became Deputy Chairman in 2005 and Chairman in 2006. She is currently Deputy Chairman of Marinella S.p.A. and has been Chairman of Sienambiente S.p.A. since 2003. She is the Deputy Chairman of Biverbanca and a member of the Board of Directors of Banca Antonveneta. Lucia Cocchieri has been a member of the Board of Directors of BMPS since April 2006.

Lorenzo Gorgoni: Degree in Economics. He was a member of the Board of Directors of Banca del Salento S.p.A. from 1973 to 1985, Managing Director from 1978 to 1985, Deputy Chairman from 1991 to 1993 and Senior Deputy Chairman from 1993 to 2000. From 2000 to 2002 he was the Chairman of the Board of Directors of Banca 121 S.p.A., and from 1988 to 1990 the Chairman of the Board of Directors of Banca di Bisceglie S.p.A. and until September 2008 a member of the Executive Committee of Banca Agricola Mantovana S.p.A.. Currently he is the Deputy Chairman of Monte Paschi Asset Management S.G.R. as well as a Director of the Italian Bankers’ Association (ABI) and of Telecom Media S.p.A. Lorenzo Gorgoni has been a member of the Board of Directors of BMPS since April 2003.

Andrea Pisaneschi: Degree in law and member of the Italian National Register of Lawyers since 1985. He has been Professor of Public Law Institutions at Siena University, Faculty of Law, since 1997. He is currently a Director of Monte Paschi Asset Management S.G.R., AXA MPS Assicurazioni Vita, AXA MPS Assicurazioni Danni and of Intermonte SIM as well as the Chairman of Banca Antonveneta. Andrea Pisaneschi has been a member of the Board of Directors of BMPS since April 2003.

Carlo Querci: He has a degree in law and was a practicing lawyer from 1957 to 1980. He was a member of the Board of Directors and he Deputy Chairman of Banca Steinhauslin S.p.A. during the periods 1968-1981 and 1992-1997. He has been a member and subsequently the Deputy Chairman of the Board of Directors of Banca Monte Parma. He is currently a Director of Banca Toscana, a Director of Monte Paschi Banque s.a. (Paris) as well as a Director of Banca Antonvenetea. Carlo Querci has been a member of the Board of Directors of BMPS since May 1997.

Pierluigi Stefanini: From 1990 to 1998 he was the Chairman of Legacoop in Bologna, from 1995 to 1998 Deputy Chairman of Legacoop Regionale Emilia-Romagna, from 1996 to 1999 Deputy Chairman of Banca di Bologna (Banca di Credito Cooperativo), from 1998 to 2006 Chairman of Coop Adriatica, from 2001 to 2005 a member of the Fondazione Cassa di Risparmio di Bologna Steering Committee and from 2001 to 2004 a member of the Scientific Committee of Nomisma S.p.A, from 2002 to 2008 a member of the Board of Directors of Ariete S.p.A. (former FINEC Holding) and from 2007 to 2009 the Chairman of Aurora Assicurazioni S.p.A. Currently he is the Chairman of Unipol Gruppo Finanziario (former Unipol Assicurazioni) and has been a member of the Board of Directors since 2001; and was the Managing Director of Unipol Assicurazioni from 9 January to 30 June 2006. He is also a member of the Board of Directors of Finsoe S.p.A. (since 1998), Holmo S.p.A. (since 2001), and from April 2007 has been the Chairman of Unipol Banca. He is also a member of the Board of the Bologna Chamber of Commerce, Industry, Trade and Agriculture (since 2003) and the Chairman of the Board of Directors of Impronta Etica S.p.A.., Chairman of UGF Assicurazioni S.p.A. (October 2007), a member of the Board of Directors of the Cassa di Risparmio di Bologna Foundation (since 2005) and of the Società Aeroporto G. Marconi of Bologna (since 2004). Since 2006 he has been a member of thee Board fo Directors of BNL S.p.A., since 2008 the Chairman of

154 Fondazione Unpolis and since 2008 e member of the Supervisory Board of Manutencoop Facility Management. Pierluigi Stefanini has been a member of the Board of Directors of BMPS since April 2006.

Name Appointment In office List Exec. Non- Indep. % Other since exec. BoD Appoint. Giuseppe Chairman 30.04.06 M X 94 5 Mussari Francesco Deputy 30.04.06 m X X 41 7 Gaetano Chairman Caltagirone Ernesto Deputy 30.04.06 M X X 97 8 Rabizzi Chairman Fabio Director 30.04.06 M X X 97 4 Borghi Turiddo Director 30.04.06 M X X 81 3 Campaini Lucia Director 30.04.06 M X X 91 5 Coccheri Lorenzo Director 30.04.06 m X X 100 3 Gorgoni Andrea Director 30.04.06 M X X 100 4 Pisaneschi Carlo Director 30.04.06 M X X 59 2 Querci Pier Luigi Director 30.04.06 m X X 44 11 Stefanini

LEGEND List: M/m depending on the list from which the director has been elected, i.e. from a majority or minority list. Exec.: mark with a cross if the director can be described as an executive director. Non exec.: mark with a cross if the director can be described as a non-executive director. Indep.: mark with a cross if the director can be described as independent according to the criteria laid down by the provisions contained in the Code, detailing at the foot of the table, whether any additions or changes have been made to these criteria (see Section 5.5 of this report). Indep. TUF: mark with a cross if the director has the qualifications of independence as provided for by art.148, par.3 of the TUF (art.144-decies of the Consob Issuers’ Regulation). % BoD: indicate director’s attendance, in percentage terms, at the meetings of the Board (when calculating said percentage, take into consideration the number of meetings the director attended in relation to the number of meetings of the Board of Directors held during the financial year or after taking up the position). Other appointments: total number of appointments held in other companies listed on regulated markets (also abroad), in financial, banking, insurance companies or companies of a certain size.

Name Appoint. EB %EB AP %AP CC % CC CIC %CIC Giuseppe Chairman Mussari Francesco Deputy M 33 Gaetano Chairman Caltagirone

155 Ernesto Deputy Rabizzi Chairman Fabio Director M 57 Borghi Turiddo Director Campaini Lucia Director M 100 Coccheri Lorenzo Director M 100 Gorgoni Andrea Director M 100 C 100 Pisaneschi Carlo Director C 83 Querci Pier Luigi Director Stefanini

LEGEND EB: Executive Board – not constituted % EB: Executive Board – not constituted A.P.: Appointments Committee – not constituted % A.P.: Appointments Committee – not constituted C.C.: Indicate C/M if coordinator/member of the Compensations Committee % C.C.: Indicate director’s attendance, in percentage terms, at the meetings of the Compensations Committee C.I.C.: Indicate C/M if coordinator/member of the Committee for Internal Control %. C.I.C.: Indicate director’s attendance, in percentage terms, at the meetings of the Committee for Internal Control

No director has terminated his mandate during the current financial year.

Plurality of Offices in Other Companies

The Board of Directors, in accepting the above mentioned Code, considering that: (i) The current members of the Board have been elected by the Shareholders’ Meeting held on 29 April 2006 and that in that occasion the meeting had the opportunity to assess the compatibility of the offices held by the members of the Board in other companies with the effective fulfilment of their duties as Directors of the Bank; (ii) the other appointments the members of the Board of Directors held at the time of their election and which were assessed at the meeting have remained more or less unchanged during 2006, 2007and 2008, reserves the right to express at a later date its opinion regarding the maximum number of offices that a member of the Board of Directors or of the Board of Auditors may hold in other companies listed on regulated markets (also abroad), in financial, banking, insurance companies or in companies of a certain size, which may be considered to be compatible with the effective fulfilment of the duties of a member of the Board of Directors of the Bank.

5.2. ROLE OF THE BOARD OF DIRECTORS

32 meetings of the Board of Directors were held during the 2008 financial year, with an average duration of 2 hours each.

Powers: The Board of Directors has all the powers of ordinary and extraordinary administration to carry out the company objectives which do not fall within the competence of the Shareholders’ Meeting as laid down

156 by law or the Articles of Association; more specifically the Articles of Association grant (Art. 17, paragraph 2) some exclusive rights to the Board of Directors, including the following: • Define the strategic direction of the Company and of the Banking Group to which it belongs and to approve their plans; • Ensure that the strategic direction and plans described above are implemented correctly and consistently in the management activities of the Company and the Banking Group; • Define the principles on which the general company structure is based and approve the company organisational structure; • Express the general direction for the structure and operation of the Banking Group defining the criteria for the coordination and direction of the subsidiaries belonging to the same Banking Group as well as for carrying out the instructions given by the Banca d’Italia; • Prepare financial statements and submit them to the general shareholders’ meeting; • Deliberate on the setting up of advisory committees to the Board; • Appoint the CEO.

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On 10 March 2008 the Board of Directors approved the new Business Plan of the Group for the period from 2008 to 2011 (s. Chapter 1 Guidelines of the 2008-2011 Business Plan).

On 28 August and on 4 December 2008 the Shareholders’ Meeting, in line with the guidelines of the above- mentioned Group’s Business Plan, approved the mergers of Banca Agricola Mantovana and of Banca Antonveneta in BMPS, respectively; then, the banking activity resulting from the latest merger and concerning the three Venetias was spinned off in favour of the specially established company called Nuova Banca Antonveneta S.p.A. (hereunder also called NBAV).

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The resolution of the B.o.D. of 23 November 2008 approved the “Group’s Directive concerning the Internal Control System” ruling the governance model of the internal control system of the MPS Group.

The new ruling framework replacing the previous Group’s Regulations (Reg. No.16) was designed according to the new ruling/statutory guidelines, to the organizational structure of the Group as well as in line with the standards and the best domestic and international practices.

The Board of Directors as “Body of Strategic and Management Supervision” ensures functionality, effectiveness and efficiency of the control system while promptly adopting corrective measures if necessary.

The following par. 13 – Internal Control System - should be referred to for all assessments regarding:

The governance model The control system components The concerned corporate functions The relationships with the Supervisory Authorities

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During 2006 the Board of Directors, having consulted the Compensations Committee, defined the compensation for the Chairman, whereas during 2007 determined the variable part of the Chairman’s compensation for the 2006 financial year on the basis of the criteria defined in their previous 2006 deliberation.

157

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The Board of Directors promptly reports to the Board of Auditors with regard to the activities carried out and on the major economic, financial and equity transactions effected by the company and its subsidiaries. In particular, they report on operations which might give rise to conflict of interests. In addition, with the latest deliberation of 16 February 2006, the Board of Directors approved the “Code of Conduct for Related Parties Transactions”.

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The Board of Directors of the Bank reviewed and resolved, on several occasions (13 November 2002, 19 February 2004 and 15 May 2006), on the obligations of bank officers and the interests of the members of the Board of Directors, as per current legislation (Art. 2391 of the Italian Civil Code, Art. 136 of Legislative Decree No. 385 of 1st September 1993 – Consolidated Banking and Credit Act – as amended by Law No. 262/2005 – TUB (Consolidated Banking Act). With the last deliberation of 15 May 2006 mentioned above, the Board of Directors, with regard to the prohibitions pursuant to Art. 136 of the Consolidated Banking Act, decided to request from each single company officer that they issue a statement indicating the following: i) The names of the companies in which they are partners with unlimited liability; ii) The names of the companies in which they have substantial interests, even if indirectly; iii) The names of the companies controlled by them: iv) The names of the companies in which they have administrative, managerial or control functions; v) The names of companies controlled, or controlling or are connected with the companies indicated under points iii) and iv) above.

This is necessary in order to comply with the procedure laid down in Art. 136 of the Consolidated Banking Act (TUB) with regard to the obligations that bank officers may have with the bank in which they are members of the Board of Directors, or which they manage or control or with banks belonging to the Group: o• directly, as a contracting entity or as unlimitedly liable for third party obligations; o•  indirectly, by means of interposition of an individual person or a legal entity, whether fictitious or real.

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As above-mentioned, the obligations of bank officers, the interests of the directors and the transactions with related parties are ruled by legal provisions (respectively, art. 136 of Legislative Decree of 1 September 1993 no. 385 Consolidated Banking and Credit Act. Art. 2391 of the Italian Civil Code, art. 2391bis of the Italian Civil Code, IAS 24 principle, Self-Regulation Code of Listed Companies) implemented by the Bank with special resolutions and internal documents (s. the Code of Conduct for transactions with related parties, adopted by the Bank with resolutions of the Board of Directors of 6 March 2003 and of 16 February 2006). To the purposes of these regulations, also transactions which are not directly referred to the bank officer but to parties related with him become relevant in particular for obligations of the corporate officers according to art. 136 of the Consolidated Banking Act and for transactions with related parties.

Therefore, in co-operation with all bank officers, the Bank implements all necessary steps to update the files of the relevant parties according to art. 136 of the Consolidated Banking Act or of the discipline of the transactions with related parties: these files are used to prepare the yearly financial statements information on transactions with related parties and whenever companies of the MPS Group examine transactions which are relevant according to the above-mentioned regulations.

158 ..°°.. ..°°.. ..°°..

Over time, the BMPS Board of Directors has amended the Code of Conduct for Related Parties Transactions (first adopted in March 2003 and subsequently amended to reflect changes in the legal reference framework and in the organisational model). In said Code of Conduct, the general concept of "Related Parties" is based on the following criteria: a) Group Correlation, relating to control and liaising relationships and relationships of significant influence which directly concern the Bank and its Group; b) Direct Correlation, which concerns, besides the members of the Company Bodies (Board of Directors and Board of Auditors) and the CEO, Executives having powers granted by the Board of Directors (that is Deputy CEO, BMPS Network Division Manager, Division and Area Managers of the Bank Parent Company and the Network Office Managers who have decision- making autonomy with regard to lending, as well as signatories, even indirectly, to shareholders’ agreements as per Art. 122, paragraph 1, of Legislative Decree No. 58/98, concerning exercise of voting rights at BMPS general meetings, if these agreements allow for the possibility to exercise a significant influence on BMPS; c) Indirect Correlation, which concerns the closest family members of the individual persons indicated under a) and b), to be interpreted as the family members who may possibly influence, or be influenced by, the individual person in their relationship with BMPS, as well as individuals who are controlled, or jointly controlled by the individual persons who are parties to the above mentioned shareholders’ agreements, or on whom said individual persons exercise a significant influence or have, directly or indirectly, a considerable percentage of voting rights. In addition, as to business transactions (that is the transactions implemented by the Bank, also through controlled companies – with own related parties) the following distinction has been made: Ordinary Operations (operations with no special elements), Significant Operations (subject to the obligation to inform the market pursuant to Art. 71 bis of the “Issuers’ Regulation” adopted by Consob with deliberation 11971), Important Operations (which, although they may not be considered as Significant Operations, still have elements of atypical/unusual transactions). In this context, it has been provided that Ordinary Operations are deliberated according to the authorisation powers defined in the current system of decision making autonomy adopted by the Bank, whereas Significant and Important Operations fall within the competence of the Board of Directors (without prejudice to the emergency powers provided for in the Bank Articles of Association). Whenever required due to the nature, value or other characteristics of the operations, the Board of Directors may request that its assessments may be supported by opinions given by one or more independent Advisors, with regard to the economic conditions and/or the technical structure and/or the legal aspects of the transactions. It has also been provided that the subsidiaries, in relation to operations to be carried out with the Bank Related Parties, take into account the Code adopted by the Parent Company, adapting it to the structure of its own decision making powers, envisaging appropriate and timely communication mechanisms with the Parent Company with regard to the above mentioned operations. There are of course no changes to the obligations laid down in Art. 136 of Legislative Decree No. 385 of 1/9/1993 (Consolidated Banking and Credit Act) concerning the “obligations of bank officers". Intra-group operations between Banca MPS and the Group Related Parties have been implemented on the basis of economic mutual benefit evaluations and on the basis of market values, as it is the case for operations implemented with other Related Parties which fall within the subjective framework of application of the Code. None of these operations were subject to the obligation to inform the market as per Art. 71 bis of Consob Regulation No. 11971/99.

During 2008, the Bank’s shareholders’ meeting did not generally or preventively authorizederogation to the non-competition clause provided for by Art. 2390of the Italian Civil Code. It should also be noted that no member of the Board of Directors informed the Board about any activities carried out in competition with the Bank during the same period of time.

159 In March 2009, Consob published a reference document on the implementation rules of art. 2391-bis of the Italian Civil Code on transactions with related parties providing for obligations of prompt and periodical communication on transactions with related parties and principles to define the procedures which the companies must adopt to implement transactions in compliance with formal and substantial fairness conditions.

This document aims at assessing the possibility of reviewing the current regulations of transparency of transactions with related parties on the basis, on the one hand, solving any interpretation uncertainties resulting from the application of art. 71-bis and, on the other hand, of implementing art. 154-ter of the Consolidated Act on Financial Intermediation on periodical information on transactions with relevant related parties.

5.3. DELEGATED BODIES

Managing Directors

The Managing Director, specified in the Articles of Association (see Articles 18 and 22 of the Articles of Association), has not been appointed.

Chairman

The Chairman of the BMPS Board of Directors has not received any management delegation from the Board, nor does he/she perform a specific role in preparing corporate strategies, at the same time he/she does not hold the office of chief executive officer, nor is he/she the BMPS controlling shareholder.

Executive Committee

The incumbent Board of Directors, as appointed by the annual shareholders meeting of 29 April 2006 and in office until approval of the annual financial statements for the year ended 31tDecember 2008, has not appointed an Executive Committee from its members.

Disclosure to the Board

As stated above, the Chairman of the Board of Directors has not received management delegations.

5.4. OTHER EXECUTIVE DIRECTORS

All members of the Board of Directors are to be considered “non-executive directors,” insofar as: (i) the managing director, specified in the Articles of Association (see Articles 18 and 22 of the Bylaws), has not been appointed; (ii) the Executive Committee, provided by Articles 18 and 19 of the Articles of Associations, was not established; (iii) there are no directors who have powers to issue directives to the Bank.

5.5. INDEPENDENT DIRECTORS

Art. 3 of the Code to which, as has already been stated, the Bank acceded by its resolution of 5 April 2007, as reference point for effective Corporate Governance, indicates among the tasks of the Board of Directors that of assessing (i) the independence of its non-executive members, considering more substance than form; (ii) relationships which could be or appear to be such as to compromise the autonomous judgment of the non-executive directors, on the basis of the information provided by the interested parties or in any case available to the issuer.

According to the Board, as already considered in the 2006 and 2007 Corporate Governance Reports, the qualification of non-executive directors as independent does not express a value judgment, but rather

160 underlines a fact, such as the absence of relations with the issuer, or with parties associated with it, such as to currently condition the autonomous judgment and free evaluation of the management’s actions. On the basis of these elements, the Board has applied all criteria provided by the Code and, after having evaluated the position of each individual director on the basis of information provided by the interested parties and in any case available to the issuer, it has found that no relationship of any kind exists, past or present, between the issuer or parties associated with the issuer and, at least, the following directors: Francesco Gaetano Caltagirone, Ernesto Rabizzi, Fabio Borghi, Turiddo Campaini, Lucia Coccheri, Lorenzo Gorgoni, Andrea Pisaneschi, Carlo Querci and Pierluigi Stefanini, while acknowledging, at the same time, that an adequate number of non-executive directors has the requirements for independence provided for by the Code. The above applies with the statement that Carlo Querci, a director, has been considered independent despite the existence of the case provided by application criterion 3.C.1.e) of the Code, namely that of being in office for more than nine of the last twelve years. In this respect, considering more substance than form, due consideration has been taken of the persistence of the ethical and professional qualities expressed by the same which allow him to express fully independent judgment, in addition to the fact that Mr. Querci was appointed by the minority shareholders.

The Board of Statutory Auditors will verify in a future meeting the proper application of the criteria and the evaluation procedures adopted by the Board of Directors to evaluate the independence of its members. The result of such controls will be disclosed to the market in the auditors’ report to the shareholders meeting called to approve the 2008 financial statements.

5.6. LEAD INDEPENDENT DIRECTOR

As stated above (see point 5.3), in consideration of the fact that the BMPS Chairman of the Board of Directors has not received any management delegation from the Board, nor performs a specific role in preparing corporate strategies, nor holds the office of chief executive officer, nor is he/she the BMPS controlling shareholder, the BMPS Board of Directors has not designated an independent director as lead independent director, as the requirements according to Application Criterion 2.C.3 of the Code have not occurred.

6. TREATMENT OF CORPORATE INFORMATION

On 12 October 2006, the Board of Directors approved the “Group Directive on Regulation of Market Abuses” (hereunder called “Directive”), which contains the guidelines for identifying a suitable process for managing privileged information.

The Directive defines the guiding principles, identifying, in compliance with external rules, behavioural criteria, organisational rules, procedures and tasks to be fulfilled as well as responsibilities and duties of the organisational structures involved in issues with the topics which are also relevant for MPS Group parties.

In this regard, to create a unified summary on regulation of Market Abuses, the Directive also summarises the provisions contained in the “Internal Dealing Regulation,” approved by the Banca MPS Board of Directors on 29 March 2006 and published on its website [Banca Monte dei Paschi di Siena | Investor Relations | Raccolta download] and on the company Intranet.

The Directive deals with the following subjects:

I) Internal Dealing: obligations of informing the public and CONSOB on transactions carried out by relevant parties, also indirectly, whose object is shares of the listed issuer or other financial instruments linked to them.

161 The Directive summarises key areas relating to this subject (applicable only to Banca MPS), while the subject is dealt with organically in the “Internal Dealing Regulation,” approved on 29 March 2006 by the BMPS Board of Directors.

II) Acquisition of own shares: definition of the modalities for purchasing shares and obligation to disclose the programme to the market.

III) Recommendations: rules on fairness and transparency of studies and research related to listed financial instruments.

IV) Privileged information: introduction of the notion privileged information as the subject of disclosure and the obligation to set up a “Register of persons who have access to privileged information.” The Directive defines the principles and methodological references for the Group Companies concerned.

V) Register of persons who have access to privileged information: obligation for the issuers and parties in a control relationship with them, to institute and manage the register of persons who, due to their work or professional activity, or as a result of the functions performed, have access to privileged information. The frameworks and application rules are defined in this context.

VI) Abuse of privileged information and market manipulation:

− introduction of new administrative wrongs in this area; − provision of specific “Safe Harbours” and allowed market practices; − introduction of the obligation to record and report to CONSOB transactions which, based on reasonable grounds, can constitute market manipulation and/or abuse of privileged information, so-called “suspect transactions” (Art. 187-nonies of the Consolidate Banking Act).

The obligations provided by Art. 187-nonies of the Consolidated Banking Act, for recording and reporting the so-called suspect transactions, are dealt with in the above-mentioned directive, specifically defining the principles and methodological references for the Group Companies concerned and as a result of which they have prepared and issued specific internal operating rules defining functions, tasks and responsibilities of peripheral and central structures.

Transparency

Legislative Decree No. 195/2007 introduced new regulations on harmonisation of transparency obligations concerning information on issuers whose securities are admitted to trading on a regulated market. The decree implements two EU Directives: Directive 2004/109 (the so-called “Transparency Directive”) and Directive 2000/14. The new provisions apply to listed issuers having Italy as member state of origin.

As to the regulations concerning financial reporting, new Art. 154 bis of the Consolidated Banking Act increases the obligations of the manager in charge of preparing the corporate accounting documents, assigning new competences and duties. The manager shal certify, according to a model designed by CONSOB through a special regulation, which may be consulted starting from July 2008, that the financial reporting contains a reliable analysis of:

- adequacy and actual application of the administrative and accounting procedures; - compliance with the international accounting standards which are acknowledged by the European Union; - matching of the corporate accounting principles with the results of accounting books and records;

162 - suitability to provide a faithful and fair picture of the assets, of the economic and financial situation of the Parent Bank and of the consolidated companies; - inclusion in the report on operations of a reliable analysis of the profit and loss account and of the operating profit together with the description of main risks and uncertainties.

Art. 154 ter of the Consolidated Banking Act deals with financial reporting and provides for the publication deadlines ates of the financial statements: the annual individual and consolidated financial statements, the report of the Board of Directors, the certification of the delegated administrative bodies and of the accounting manager as well as the auditors’ report must be published within 120 days from the closing of the financial; the half-yearly report must be published within 60 days from the end of the period.

7. INTERNAL COMMITTEES OF THE BOARD

Within the Board of Directors the Compensation Committee, the Internal Audit Committee and the Committee for Corporate Social Responsibility are established; their numerical composition, the approval dates of their regulations and of the amendments to these regulations, if any, are reported hereunder.

The Communication Committee, although not established within the Board of Directors, is also made up of directors.

COMMUNICATION COMMITTEE

•o Provided for by Regulation No. 1 – Organisation of the Parent Bank, last published on 6 December 2007. •o It is made up of the Chairman, two members of the Board of Directors, the CEO and the Communications Manager.

Task of the Communication Committee is to prepare communication strategies and budgets at Group level to be proposed to the Board, and to monitor their implementation.

In particular: •o set the communication measures to be taken in crisis situations or in response to extraordinary events, organically integrating them into the already existing ones; •o analyses and approves Group communication policy proposals from the Communication Area, from a strategic marketing perspective; •o defines the guidelines and the market positioning of the business magazines published by the Group.

On the basis of the issues which are discussed from time to time, Deputy CEOs, Executives, other Bank employees and also third parties can be called to participate in the Committee activities. The Committee meets on a quarterly basis, before significant Bank economic performance information being disclosed; it also meets, when called by the Chairman, to approve the Communication Plan or against special circumstances.

COMMITTEE FOR THE CORPORATE SOCIAL RESPONSIBILITY

The Committee is made up of four directors, has advising and proposing tasks towards the Board to implement steps aimed at safeguarding the environment, at meeting customers’ needs, at fostering professional skills and at protecting the interests of all stakeholders. The Committee backs the activity of the Board to define social responsibility policies while assessing risks and opportunities which are relevant for the company and the relative performances. Following directors sit on the Committee. Mr Carlo Querci, the co-ordinator, Mr Turiddo Campaini, Mrs Lucia Coccheri and Mr Andrea Pisaneschi.

163 The Chairman of the Statutory Board of Auditors and the Chief Executive Officer take also part in the Committee. In 2008 the Committee met three times to discuss issues such as the Ethical Code and the relative implementation policies, the Business Plan on social responsibility, the Social-environmental Financial Statements.

8. APPOINTMENT COMMITTEE

According to the resolution of 1 March 2001 the Board of Directors did not establish a special Appointment Committee and confirmed this decision on the occasion of the resolution of 5 April 2007 to join the Code.

9. COMPENSATION COMMITTEE

The Board of Directors, through the resolution of 1 March 2001, created a Compensation Committee from amongst its members. The Regulation was approved by the Board of Directors’ resolution of 6 September 2001 and amended by the resolution of 6 March 2003. The Committee consists of four independent members of the Board of Directors, one of them is the coordinator; the Chairman of the Board of Statutory Auditors or an auditor appointed by him participate in the Committee.

The Compensation Committee submits proposals to the Board of Directors, in the absence of the parties concerned, about the compensation of directors vested with special responsibilities, in conformity with the articles of association and about the remuneration, including stock option plans or share granting, if any, of the Company’s Top Management, i.e. the CEO and the Deputy CEOs.

During 2008, the Committee met six times, with the participation of the Chairman of the Board of Statutory Auditors. It appointed the Secretary, identified the criteria to calculate the bonus of the Chief Executive Officer for 2007, as well as defined the 2008 goals; it expressed an opinion for the Board of Directors about the reward system for the 2007 financial year; it proposed, to the Board of Directors, the criteria to set the variable part of the Chairman’s compensation for 2007; it set the compensation of the new Deputy Chief Executive Officers while identifying specific goals of the short-term Reward System for 2008; lastly, it established a role compensation for the Executive in charge of drawing up accounting corporate documents. The minutes of the meetings were duly recorded.

In carrying out its functions, the Committee had access to information and corporate functions necessary to perform its tasks.

10. DIRECTORS COMPENSATION

The annual compensation of the members of the Board for the years 2006 – 2007 – 2008 was set by the Shareholders Meeting of 29 April 2006 as follows: - € eighty thousand; - € twenty thousand, as supplemental compensation for the members of the Executive Committee; - € five hundred for each meeting as attendance money to be granted to the Directors for participation in the meetings of the Board of Directors and the Executive Committee, without combining multiple attendances for the same day; - Reimbursement to the Directors of any travel and lodging expenses incurred during the year in performance of their duties. At the present time, no form of variable compensation is provided linked to the Company’s economic results and/or to the achievement of determined goals, nor under the form of stock option plans.

164 Art. 27 of the Articles of Association stipulates that the Board of Directors, having consulted the Board of Statutory Auditors, will set the compensation of the directors granted special responsibilities in conformity with the Articles of Association and of the directors called on to participate in committees with consulting and proposing functions with respect to the Board (e.g. Internal Control Committee, Compensation Committee).

EMOLUMENTS received by directors during 2008 (in EUR)

Surname Emoluments Non-monetary Bonuses and Other Total and name for office Benefits other Compensation Incentives Mussari 865,000.00 (*) 1,502.00 866,502.00 Giuseppe- Chairman Rabizzi 204,500.00 1,502.00 168,029.56 (1) 374,031.56 Ernesto- Deputy Chairman Caltagirone 175,500.00 1,502.00 177,002.00 Francesco Gaetano

Borghi 107,500.00 1,502.00 164,167.27 (2) 273,169.27 Fabio Campaini 93,000.00 1,502.00 32,732.50 127,234.50 Turiddo (3) Coccheri 100,500.00 1,502.00 133,615.39 (4) 235,617.39 Lucia Gorgoni 108,000,00 1,502.00 77,502.18 (5) 187,004.18 Lorenzo Pisaneschi 114,000.00 1,502.00 136,339.44 (6) 251,841.44 Andrea Querci 95,500.00 1,502.00 88,572.27 (7) 185,574.27 Carlo Stefanini 87,000.00(°) 1,502.00 88,502.00 Luigi

(*) of which EUR 150,000.00 paid out in 2008 but referred to the 2007 financial year: they are a quota-part of the emoluments for the office calculated year after year by the Board of Directors in compliance with the resolution of the Board of Directors of 14 December 2006. (°) Paid up to Unipol Assicurazioni S.p.A. Δ Health insurance policy

(1) From subsidiaries, of which: •o €77,748.35 from Consum.it Spa for the position of Chairman; o €45,600.00 from MPS Group Operations Centre for the position of Chairman of the Consortium Committee □ € 25,761.75 from Banca Antonveneta SpA for the position of Director from 23.6.2008 to 31.12.2008; □ € 1,552.19 from Nuova Banca Antonveneta Spa for the position of Director from 23.12.2008 to 31.12.2008; •o €11,700.00 from the Company Welfare Fund for Monte dei Paschi di Siena personnel for the position of Chairman;

165 o• €5,667.27 from the Supplementary Pension Fund for Banca MPS Spa employees who joined the Bank after 1/1/1991 for the position of Director;

(2) From subsidiaries, of which: o• €60,750.00 from MPS Gestione Crediti Banca Spa for the position of Chairman; □€85,650.00 from MPS Banca Personale Spa for the position of Chairman from 31.12.2008; o• €6,700.00 from the Company Welfare Fund for Monte dei Paschi di Siena personnel for the position of Director; o• €11,067.27 from the Supplementary Pension Fund for Banca MPS Spa employees who joined the Bank after 1/1/1991 for the position of Chairman; (3) From MPS Capital Services Banca per le Imprese Spa for the position of Director;

(4) From subsidiaries, of which: o• €43,400.00 from Paschi Gestioni Immobiliari Spa for the position of Chairman; o• €18,600.00 from Marinella Spa for the position of Deputy Chairman; □€ 44,301.45 from Biverbanca SpA for the position of Deputy Chairman from 28.3.2008; □€25,761.75 from Banca Antonveneta SpA for the position of Director from 23.6.2008 to 31.12.2008; □ € 1,552.19 from Nuova Banca Antonveneta SpA for the position of Director from 23.12..2008 to 31.12.2008;

(5) From subsidiaries, of which: o• €39,002.18 from Banca Agricola Mantovana Spa for the position of Director-Member of the Executive Committee until 21.9.2008; o• €38,500.00 from Monte Paschi Asset Management SGR Spa for the position of Deputy Chairman;

(6) From subsidiaries, of which: o• €106,159.72 from Banca Antonveneta SpA for the position of Chairman from 23.6.2008 to 31.12.2008; □€ 1,552.19 from Nuova Banca Antonveneta SpA for the position of Chairman from 23.6.2008 to 31.12.2008; o• €21,500.00 from Monte Paschi Asset Management SGR Spa for the position of Director; o• €7,127.00 from Intermonte SIM Spa for the position of Director until 30.6.2008 and from MPS Intermonte SpA from 1.7 to 18.12.2008; ; (7) From subsidiaries, of which: o• €49,250.00 from Banca Toscana Spa for the position of Director; o• €12,708.36 from Monte Paschi Banque S.A. – Paris for the position of Director. □€25,761.75 from Banca Antonveneta SpA for the position of Director from 23.6.2008 to 31.12.2008; □ € 1,552.19 from Nuova Banca Antonveneta SpA for the position of Director from 23.6.2008 to 31.12.2008;

166 11.12. REMUNERATION OF THE CEO AND KEY MANAGEMENT EXECUTIVES

Surname and Emoluments Non-monetary Bonuses and Total amount Other name for the office benefits other Compensation incentives (3) Vigni Antonio 952,263.77 8,312.26 (1) 454,000.00 1,414,5676.00 12,000.00 CEO Key 3,629,931.11 48,820.22 (1) 2,621,00.00 6,299,751.33 390,207.00 management executives (*)

Δ Health Insurance policy (1) Total amount of non-work related accidents insurance policy; (2) Company performance bonus paid in 2009 – referred to the 2008 financial year – the CEO deemed it necessary to cut his performance bonus by 50% with regard to the provision of the competent bodies and disclosed it during the relative meeting of the Board of Directors; (3) Payments from subsidiaries transferred to Banca Monte dei Paschi di Siena SpA.

(*) they are the Deputy CEOs, the CFO, the Senior Executive in charge of drawing the corporate accounting documents, the Managers in charge of the Parent Bank and the Manager in charge of the MPS Network.

No share-based incentive plans benefiting executives with strategic responsibilities are planned.

12.13. INTERNAL AUDIT COMMITTEE

The Bank’s Board of Directors established, from amongst its members, the Internal Control Committee with a resolution dated 1 March 2001, in implementation of the rules contained in the Code of Self-Regulation of Listed Companies.

The Internal Control Committee is governed by its own “Regulations” approved for the first time by the Bank’s Board of Directors with its resolution of 6 November 2001; it was updated several times, and its last applicable version was approved by the Board of Directors on 10 May 2007.

167 During 2008, the Internal Control Committee met 14 times with average attendance of 85% (see attached table). The meetings were always attended by a representative of the Board of Statutory Auditors.

The “Regulations” of the Internal Control Committee establish that this Board is made up of three non- executive Directors appointed by the Board of Directors, the majority of whom are independent. At least one member of the Committee possesses adequate experience in accounting and finance. The Committee appoints, from amongst its members, a Coordinator, responsible for calling and chairing the Committee meetings. The Committee also appoints a secretary, from outside its members, who prepares the meeting minutes and assists the Committee in performing its functions; the minutes signed by the secretary and the Coordinator are made available to the Board. The Board of Directors replaces the Committee members leaving their offices for whatever reason. The current Committee was appointed by the Board of Directors with its resolution of 15 May 2006 for a three-year period and consists exclusively of non-executive and independent Directors, who remain in office until the completion of the term of the Directors. The following persons belong to the current Committee: Mr Andrea Pisaneschi (Coordinator), Mr Lorenzo Gorgoni and Mr Fabio Borghi. The majority of the current members must attend a meeting for its validity. Committee meetings are normally held at the Bank’s registered office; these meetings are also duly constituted by video conference or by telephone; in these cases, the meeting is considered to be held in the place where the Coordinator and the secretary are located.

The Chairman of the Board of Statutory Auditors or another auditor he designates and the CEO or his representative also take part in the Committee’s work. If advisable, also with regard to the issues being discussed, other Executives and employees of the Bank, as well as third parties and/or Auditing Companies as well as other external third parties can be invited to attend meetings. The Committee can also use external consultants, at the Bank’s expense.

A special resolution of the Board of Directors assigned to the Internal Control Committee the functions and/or tasks of Supervisory Body as provided for by art. 6 1 b.) of the Legislative Decree 231/2001 “Discipline of the Administrative Responsibility of legal Bodies, of companies and of associations without legal entities status”.

The Committee performs the tasks and functions provided for by its Regulations and by the relevant rules approved by the Board of Directors supporting the Board’s measures aimed at setting up a suitable internal control system.

Functions of the Internal Control Committee

Hereunder some of the most significant activities carried out by the Committee while fulfilling the tasks and functions assigned to it are reported and are more detailed in the special Regulations, in the relative policies and procedures and in the Regulations no.1 of the Bank “Organization of the Parent Bank and of the BMPS Network Management”.

In performing the tasks and functions indicated above, the Committee assists the Board in carrying out the following functions to: a) define the policy lines of the Internal Control System, so that the main risks concerning the bank and its subsidiaries are correctly identified, as well as adequately measured, managed and monitored, also defining the compatibility criteria of such risks with sound business management; b) evaluate, on at least an annual basis, the adequacy, efficiency and effective operation of the Internal Control System; c) describe, in the corporate management report, the essential elements of the Internal Control System, expressing its evaluation of the overall adequacy of the system.

168 The Committee is also required to provide the Board of Directors with its opinion on the occasion of the appointment or revocation of one or more individuals in charge of the internal control (the Manager in charge and the Senior Executives), as well as of the Managers in charge of the Compliance.

. In addition to assisting the Board in performing the above tasks, the Committee performs the following tasks: a) evaluates, together with the Manager in charge of preparing the company accounting documents and the auditors, in compliance with Act no. 262/2005, the correct use of the accounting principles and their uniformity for the purposes of preparing the Bank’s and Group’s financial statements. To this purpose it examines the special reports drawn by the competent Function and contacts the Audit firm; b) at the Board’s request, expresses opinions on specific aspects relating to the identification of the main corporate risks as well as to the planning, implementation and management of the Internal Control System; c) before the final approval of the Board of Directors, examines the work schedule prepared by the Manager in charge of the internal control and by the Manager in charge of the Compliance; receives the periodic reports prepared by the same; d) evaluates the work schedule prepared by the audit firm, the results contained in the report and in the suggestions letter. e) supervises the effectiveness of the audit process; f) receives information flows on the activities carried out and/or reports from the Internal Control System as well as from other units dealing with the specific issues. It periodically reports to the Board about these issues. It also reports to the Board, at least every six months and on the occasion of the approval of the Bank’s and Group’s financial statements and semi-annual report, on the activities performed and on the adequacy of the Internal Control System; g) supervises the compliance and periodic updating of the “corporate governance” rules, reporting to the Board and if necessary, making proposals; h) performs additional tasks assigned to it by the Board, particularly with regard to relations with the audit firm.

Supervisory Body in compliance with Legislative Decree no. 231/2001

The Internal Control Committee also performs the function of Supervisory Body provided by Art. 6 par. 1 b) of Legislative Decree 231/2001 (“Discipline of the Administrative Responsibility of Legal Entities, Companies and Associations without Legal Entity Status”). In performing that task, the Committee: o• supervises the effectiveness of the Model, verifying the consistency between actual behaviours and the established Model, and reporting violations of the provisions of the Model to the bodies responsible for imposing sanctions, if any, against the parties who have not comply with said provisions; o• evaluates the adequacy of the Model, that is, its actual ability to generally prevent undesired behaviours; o• analyses the maintenance over time of the soundness and functionality of the Model, in particular with reference to environmental changes and to new risks; o• updates the Model, (i) presenting updated proposals to the Board, and (ii) verifying the implementation and actual operation of the adopted solutions. □ fulfils its obligations and duties related to the legislative Decree 231/2007 (money laundering), in particular with reference to the provisions of Art. 52 of the same Decree.

In carrying out the above activities as Supervisory Body 231/2001, the Committee:

• is provided with autonomous powers of initiative and control, including the power to request and obtain information from every level and operating sector of the bank; • uses the support of the Internal Auditl Area for the audit and operative control aspects and the Compliance, Legal and Corporate Area for legal aspects and support from other Structures as required;

169 • is the recipient of the information obligations provided in the Model, pursuant to Art. 6, paragraph 2 d) of Legislative Decree No. 231/2001.

With a special document, the Committee reports to the Board on the activity performed in its capacity as Supervisory Body pursuant to Art. 6, paragraph 1 b) of Legislative Decree 231/2001 on the occasion of the approval of the Bank and Group financial statements and semi-annual reports.

The Committee also issues policies for the realisation of the models of the MPS Group companies and coordination of the respective Supervisory Bodies.

With regard to the above, in 2008 the Committee performed a number of activities connected both to its role as Committee pursuant to the code of conduct of listed companies and as Supervisory Body pursuant to Legislative Decree 231/2001.

These subjects were reported separately.

Within the framework of the overall activities performed by the Committee, the following ones are particularly important: it reviewed the 2008 audit plan with which the Internal Audit Area programmes a plan to be implemented at Group level in 2008 taking into account both the development of environmental external and internal varibales, as well as the strategic objectives set down in the “Business Plan”; it examined the information flows from the Internal Audit Area, preparing suitable summary documents with its observations for the Board of Directors on a quarterly basis;   *it analysed, expressing its opinion to the Board of Directors, the half-yearly reports prepared by the Internal Audit Area on its own activity and on the related results, on the overall control system efficiency and on the various updating activities carried out on the system as well as on the related follow-up of the monitoring; it analysed the reports prepared by the Internal Audit Area as provided for by the specific Supervisory provisions, expressing its opinion before that these reports are provided with the remarks of the Board of Directors and the Board of Statutory Auditors to be then forwarded, in compliance with the rules, to the Supervisory Authorities (Bankit and Consob); it assessed the report submitted by the Internal Audit Area concerning the document on “size and composition of the internal audit unit”, prepared in consideration of the significant changes introduced by the new 2008-2011 Business Plan and on the resulting new organizational/operational structure of the Group; it expressed its previous opinion to the Board of Directors concerning the issue of Group Directives on “internal control systems, non-compliance – compliance risk management, financial statements writing, conflicts of interests in investment services”; it analyzed the documents prepared in compliance with the requirements of the Bank of Italy to complete the documents already submitted concerning the credit and operational risks (approval of the Bank of Italy of 12 June 2006) Within this framework, the Committee was also informed on the subsequent requests and following answers to the Supervisory Body concerning the Internal Model adopted; it followed the completion process to establish the compliance unit in the Group as provided for by the Supervisory rules of the Bank of Italy issuing its own opinion; * it held various meetings with the Audit Firm KPMG for a comparison of the progress of planned work; * it held meetings with the Manager in charge pursuant to Law 262/2005, for the necessary reports concerning the activities for the preparation of the individual and consolidated financial statements.

As regards the other activities carried out as Supervisory Body pursuant to Legislative Decree 231/2001, the Committee requested, among other things, the competent areas to update the BMPS 231

170 Organisational Model 231 BMPS, because of important changes in the Bank’s organisational structure and the introduction of new offences within the scope of application of Legislative Decree 231. The assessments to find out the so-called “sensitive” activities, according to Legislative Decree 231/2001 were implemented through a new IT web procedure called multicompliance enabling the simultaneous finding of 231 risks, operational risks and risks pursuant Legislative decree 262/2005 in one operational environment. The report prepared by the Compliance Unit and containing the summarizing results concerning the updating of the 2008 Self Assessment for the BMPS 231 risks was submitted to the Committee which carefully evaluated it expressing its relative opinions.

During the year, the Committee received periodic information from the “231 Supervisory Bodies” of the various Companies of the Group on the control activities on compliance of own Organizational 231 Models, issuing opinions and/or authorizations as provided for by policies and procedures, s thus exercising a guiding and coordinating function.

13.14. INTERNAL CONTROL SYSTEM

With resolution of the Board of Directors of 23 November 2008 the “Group Directive concerning the Internal Control System” was approved ruling the governance model of the internal control system of the MPS Group.

The new regulation framework replaces the previous Group’s Regulation (Reg. No. 16) and complies with the new regulatory framework, with the organizational structure of the Group and is in line with the standards and the best domestic and international practices.

In the document following aspects are defined:

the governance model, the guidelines and the components of the control system, the roles and responsibilities of the Company Units within the control system, the relationships with the Supervisory Authorities.

Governance Model

The governance model of the MPS Group is in line with the provisions of the Supervisory Authorities on Corporate Governance and provides what follows:

The Board of Directors as “ Body in charge of the Strategic Supervision and of Management”. The Body ensures the functionality, efficacy and efficiency of the internal control system while promptly adopting corrective measures, if necessary.

The Head Office as “Management Body with Executive functions”. The Head Office arranges the measures aimed at keeping an efficient and effective internal control system. In this regard, it defines the information flows aimed at ensuring full knowledge and governability of the corporate events to the Board of Directors.

The Board of Statutory Auditors and the Internal Committee as “Bodies with Control functions” pursuant to the rules, the regulations and the Self-Regulation code of listed companies. In the MPS Group the Internal Control Committee is also the Supervisory Entity according to the Legislative Decree 231/2001.

171 The components of the control system

The Internal Control System is a set of rules, procedures and organizational structures aimed at achieving a sound and fair corporate management consistent with the set goals through an adequate process of identification, measurement, management and risk monitoring.

An efficient control system is a key element to achieve corporate goals. The corporate governance rules and the organizational structures must ensure conditions for a sound and cautious management. Effective interaction mechanisms between Corporate Functions become particularly relevant to obtain an integrated risk view, a dynamic process of adjustment of the controlling procedures to the changing internal and external environment.

In the Group model the components qualifying the control system are:

the control environment: the formalization of roles and of responsibilities in corporate processes is the necessary condition for an efficient corporate control system, on which all other components are based while ensuring transparency, accountability and compliance with the principles of a sound and cautious management; the risk control: the risk governance process is a set of activities linked with identifying, assessing, managing and monitoring risks resulting from the various operating segments as well as with defining their management policies; the control organization: each Corporate Unit has structures, rules and tools adequate for the governance of the activities. In line with the Group criteria in defining the organization, special attention is given to the distinction between business and control roles, in order to avoid conflict of interests, also using segregation and disclosure and safeguard mechanisms; information and communication: information shall be identified, gathered and disclosed in the way and in the times enabling each Unit to fulfil its own obligations. The information systems shall also ensure that the obligations provided for by policies and procedures and by the law are fulfilled; Monitoring: the internal control system shall be submitted to monitoring procedures in order to ensure its adequate design and working. Any corrective measure shall be promptly notified to the competent decision-making units. The Internal Audit half-yearly reports to the Corporate Bodies on adequacy and functionality of the control system.

The Corporate Units in the control system

Within the model of the Group on control system the Corporate Units are subdivided into Business Units, Control Units and Internal Audit Units.

The Business Units are the productive, commercial, administrative, operational and supporting units. These Units are responsible for governing each components of the control system for the processes assigned by the Group regulations.

The Business Units define controls on the processes falling within their competence for the risk governance, while identifying the sub-units in charge of implementing them. Special attention is given to the control system on entering into new operating sectors and when launching new products/services. Controls are defined together with the Organization Unit and is formalized in the policies and procedures.

Control Units: Units responsible for monitoring the control system in specific risk fields.

Given the transversality and the complexity of each control process the Group model provides a subdivision of activities and duties to the different corporate structures concerned against a clear assignment of

172 responsibilities to each control Unit based on competence. Such approach enables the use of economies of scale, decreases negative external factors and increases the efficacy.

In the Group model these units are the following:

The Compliance Unit The Risk Control Unit The Control Unit of the Information Reliability Risk (pursuant to Act 262) The Validation Unit of advanced system of risk management The Planning and Management Control Unit The Capital Adequacy Control Unit The Control Unit of the Failed Operational Continuity Risk The Control Unit of Health and Safety Risks in Workplaces The Control Unit of Fair Processing of Personal Data

The Regulations of the Group defines their responsibilities; the organizational model ensures its separation from and independence of the Business Units. The Group Directives govern the process and the operational mechanisms of link between the various Units and the control units.

If the control Units identify fields needing special attention they inform the Control Units which may request a specific audit of the Audit Unit.

As to the companies of the Group, the activities are assigned to organizational units of the companies or are centralized at the Units of the Parent Bank, on the basis of proportionality. Criteria and choices of each company for the different fields shall be defined in coordination with the respective Unit of the Parent Bank as ruled by the specific Guidelines on each subject matter, after consulting the Organization and Internal Audit Unit of the Parent Bank. In case of activities centralization specific agreements within the group with the relative service level agreements shall be drawn up.

Internal Audit: all components of the control system are subject to internal audit to assess their adequacy, functionality and consistency with the organizational evolution of the Group and of the external regulations.

In this regard, the said Unit carries out an independent and fair activity of assurance and advising of the Corporate Bodies and of the Top Management. To this purpose, it gains access to all corporate information and structures of the Company. The autonomy of the Unit is ensured by linking mechanisms with the Corporate Bodies; the independence requirements result from an organizational positioning which does not imply any hierarchical dependence and/or influence, such as conditioning, by any manager in charge of organizational structures.

By analogy, with the organizational model of the Parent Bank the Internal Audit of the companies of the Group is subject to independent structures, free from any hierarchical relationship with the managers in charge of the operational structures. According to the proportionality principle, it is possible to centralize the activities at the Parent Bank Unit after consulting the Internal Control Committee.

Relationships with the Supervisory Authorities

The relationships with the Supervisory Authorities are managed by each Company of the Group and by the Parent Company for the fields falling within the respective competence. In this regard:

173 The reports provided for by the law or by the regulations are written by the Company Units to which the relative responsibility/obligation is assigned. If these reports contain patrimonial, economic and financial information previous validation of the Control Unit of the Information Reliability Risk is necessary; The Compliance Unit shall be involved in issues relevant for the compliance risk; All reports produced or requests received by the Corporate Units shall be promptly forwarded to the Internal Audit; The Internal Audits of the Companies of the Group inform the corresponding unit of the Parent Bank if the requests of the Supervisory Authorities also affect the Group or deal with relevant matters.

13.1.14.1. EXECUTIVE DIRECTOR RESPONSIBLE FOR THE INTERNAL AUDIT SYSTEM

The Board of Directors has not appointed, from amongst its members, the director charged with supervising the operations of the Internal Audit System, considering that the results of the controls carried out by the Internal Audit on the validity of management, on risk trends and functionality of the overall controls system are reported:

to the Chairman of the Board of Directors, to the Board of Directors, to the Internal Control Committee, when they should be jointly analysed of if they concern strategic and managerial matters or companies of the Group, Head Office structures of the Bank as well as operational units of the network; Always, to the Board of Statutory Auditors and to the Top Management (CEO).

13.2.14.2. INTERNAL AUDIT MANAGER

The role of Internal Audit Manager is assigned to the Manager of the Parent Company Internal Audit function: the Internal Audit Area.

The Internal Audit Area functionally also reports to the Board of Directors and does not hierarchically depend of any operational area.

To increase the independence of this unit, with the resolution of 28 September 2006, the Board of Directors has provided:

the mechanisms for appointing/revoking the Manager of the Internal Audit Area, on proposal of the Chairman, having heard the opinion of the Internal Control Committee and of the Board of Statutory Auditors; the definition by the Board of Directors, on proposal of the Chairman, having heard the opinion of the Internal Control Committee and being supported by the Human Resources and Organizational Development Management of the retribution of the Manager in charge of the Area and of the Managers in charge of the Services of the same; the establishment of the Audit Plan by the Board of Directors on the report by the Internal Audit Area, having heard the CEO and the Board of Statutory Auditors and after review and prior opinion of the Internal Control Committee; the possibility of implementing internal audits by the Chairman of the Board of Directors, the Board of Directors, the Internal Control Committee and the CEO; the definition of the composition and the size of the structure by the Board of Directors on the basis of the report of the Internal Audit Area after consulting the Human Resources, Organizational Development Management and the Internal Control Committee;

174 the approval by the Board of Directors of the Parent Bank of the guidelines, at Group level, governing the management of resources assigned to the Internal Audit on the basis of the report of the Internal Audit Area, after consulting the Human Resources, Organizational Development Management and the Internal Control Committee; the modular reporting of the activity performed with: o analytical records, that is, ordinary audit activity reports sent to the CEO, the Internal Control Committee, the Chairman of the Board of Statutory Auditors and to the Chairman of the Board of Directors; o highlights, of which the most significant one is the half-yearly Reports on the internal audit system, the final statement on the activity, etc. submitted to the attention of the Control Committee, the Board of Directors, the Board of Statutory Auditors and the Top Management.

These aspects are reported in the Regulations defining the model and the organizational structure of the Parent Bank and of the BMPS Network Management while identifying the responsibilities assigned to the structures.

To perform its tasks, the Internal Audit Area is supplied with financial resources, the amount of which is calculated in the framework of the annual budget process.

The current manager in charge of the Area is Mr Fabrizio Leandri, which was appointed by the Board of Directors, on proposal of the Chairman and after consulting the Internal Control Committee on 29 November 2007.

During 2008 the Audit Plan, which had been approved by the Board of Directors on 21 February 2008, was fully completed.

An important commitment was to support the inspections and the requests of the Supervisory Authorities.

300 audits were carried out thus exceeding the budget goals (290 audits).

An increasingly significant part of them is made up of the so-called compulsory reviews: the advanced risk management systems, the assessment of the capital adequacy, the compliance process and the control system of the administrative-accounting process and the financial information.

The commitment of the Area was significant in backing the corporate re-organization and integration in order to supply assurance on adequacy of solutions against the overall system of controls in line with the assigned mission.

The commitment which is necessary for the change management and the training of the audit human resources of the merged companies as well as the obligations resulting from the new discipline on money laundering are also important.

Finally, the audit IT system was also implemented and began to operate during the year enabling an IT management of the internal processes with remarkable operational efficiency recoveries.

13.3.14.3 COMPLIANCE

On the basis of the remarks issued by the Basle Committee in April 2005 the compliance risk has become a key factor in the corporate governance of the Banks with reference to the need of fostering sound and cautious management of banking activity.

175 In this regard, Compliance is directly ruled by the Consolidated Banking Act and by the joint Regulations of Bank of Italy and Consob of 29 October 2007, as a key element of the Corporate Governance of the intermediary.

To meet the requirements set by the Supervisory Bodies, the Board of Directors of BMPS approved the establishment of a steady and efficient Compliance Unit and the issuing of a specific Group Guidelines concerning compliance risk management to be also applied by the Subsidiaries.

The Unit is responsible for generally monitoring the compliance of internal procedures with the current regulations from time to time actively fostering the values and the culture of compliance within the organization.

Taking into account the ultimate responsibility of the corporate Bodies for the non-compliance and in line with the requirements of hierarchical and functional independence provided for by the regulations as compared with the operating and business functions, the unit directly reports to the CEO with special links with the Board of Directors, the Internal Control Committee, the Board of Statutory Auditors.

From an organizational point of view, the unit is placed within the internal control system fully linked with the Internal Control Area generally ensuring the audits concerning compliance.

The Manager in charge of the Compliance, Mr Leandro Polidori, was appointed by the Board of Directors, after consulting the Board of Statutory Auditors and the Internal Control Committee on proposal of the Chairman.

13.4.14.4 ORGANISATIONAL MODEL pursuant to Legislative Decree 231/2001

The Internal Control Committee (see p. 11 above, for all information) is the Supervisory Body provided for by Art. 6 para. 1 b) of the Legislative Decree 231/2001 (“Discipline of Administrative Responsibility of Legal Entities, Companies and Associations without Legal Entity Status”).

13.5.14.5 AUDIT COMPANY

The Shareholders’ Meeting of 29 April 2005 resolved to appoint KPMG S.p.A., an auditing company, as auditors of the corporate financial statements and of the consolidated financial statements at 31 December 2005, as well as those of the two following years ended at 31 December 2006 and at 31 December 2007.

The Shareholders Meeting of 6 December 2006 then decided to extend to the company KPMG S.p.A.: (i) the task of auditing the corporate financial statements and consolidated financial statements of Banca Monte dei Paschi di Siena S.p.A. for the three-year period 2008 - 2010; (ii) the limited task of auditing the half- yearly reports for the period 2008 - 2010, (30 June 2008, 2009 and 2010), and of auditing of the regular bookkeeping of the company books and the correct reporting of management events in the accounting records.

13.5.14.5. SENIOR EXECUTIVE IN CHARGE OF PREPARING COMPANY ACCOUNTING DOCUMENTS

Act no. 262 of 28 December 2005 (and further amendments) “Provisions for the protections of savings and discipline of financial markets” inserted in the Consolidated Banking Act art. 154 bis and introduced the role of the Senior Executive in charge of preparing accounting documents of the company in the corporate organization of the Companies listed in Italy.

176 The Senior Executive prearranges adequate accounting and administrative procedures to draw up the financial statements and, with a special report enclosed with the financial statements and the consolidated financial statements, certifies the adequacy of the internal control system, as to the administrative and accounting procedures and their actual implementation in the period of reference of the accounting documents. The certification is also forwarded to the Board of Directors. The Senior Executive in charge of the deeds, communications and accounting information, also infra-annual ones, of the Group which are disclosed to the public also arranges for a statement declaring that they correspond to the books, accounting records and documents.

With the resolution of 28 June 2007, the Board of Directors of Banca Monte dei Paschi di Siena S.p.A. appointed Mr Daniele Pirondini as Senior Executive in charge of preparing the accounting and company documents.

To implement legal provisions, the Board of Directors also approved an internal model of approach to evaluate the adequacy of the administrative accounting internal control system and for the monitoring of its efficacy, a model referring to the main international reference framework (Cobit and Coso Reports).

In this framework and for the said aims, both for the Parent Bank and for the other Group Companies, the Senior Executive was granted the power of: - freely accessing all administrative and accounting information deemed relevant for the fulfilment of his tasks; - obtaining management and operational information linked to analyses useful to guarantee the adequacy of the administrative and accounting procedures; - requiring binding changes to the corporate procedures directly or indirectly affecting the economic, patrimonial or financial position against any critical issues; - performing administrative and accounting audits of any corporate procedure or process directly or indirectly affecting the economic, patrimonial or financial position; - requiring binding changes to the internal accounting control system (understood as the system made up of persons, instruments, information, rules for the mitigation of risks threatening the corporate objectives of financial reporting); - using the assistance of the other corporate units to assess risks and administrative accounting controls; - obtaining legal opinions on issues related to his activities and responsibilities and appointing attorneys in the case of legal proceedings against it for actions associated with the exercise of the function of Senior Executive in charge ; - accessing all documents of the resolutions of the Corporate Bodies directly or indirectly involved in accounting; - contacting every administrative and control body.

The Senior Executive is also allowed both to organise an adequate structure within the framework of his area of activity and to spend money, on the basis of a special budget, informing the Board of Directors through the ordinary management processes of human and financial resources.

On this basis, in 2008, the Senior Executive issued the requested certifications and statements, while keeping all necessary contacts and relationships with other internal and external control bodies such as the Board of Statutory Auditors, the Supervisory Authorities, the Internal Control Committee, the Internal Audit Area.

14.15. INTERESTS OF DIRECTORS AND TRANSACTIONS WITH RELATED PARTIES

The issue is dealt with above under point 5.2 Role of the Board of Directors, to which the reader should refer.

177 That paragraph describes what was resolved by the Board concerning transactions with related parties (Code of Conduct for Transactions with Related Parties) and matters relating to the obligations of the bank officers and the interests of the directors (Art. 2391 of the Civil Code, Art. 136 of Legislative Decree of 1st September 1993 No. 385 – Consolidated Banking Act).

15.16. APPOINTMENT OF STATUTORY AUDITORS

The Board of Statutory Auditors consists of three statutory members and two alternates. The members of the Board of Statutory Auditors are appointed on the basis of lists submitted by the shareholders, comprising two sections: one for the appointment of the Statutory Auditors and the other for the appointment of the Alternate Auditors; the candidates must be listed by progressive number and in a number not higher than that of the members to be elected. The lists submitted by the shareholders must be filed at the Company registered office at least fifteen days prior to the day set for the first calling of the Shareholders’ Meeting and published according to the law in force. The lists may be submitted only by shareholders who individually or together with other shareholders in total hold shares representing at least 1% of the Company capital having a voting right at the ordinary Shareholders’ Meeting. Together with each list, within the deposit deadline, following documents must be deposited at the Company’s registered office: (i) information on the identities of the shareholders who have submitted the lists; (ii) the declarations with which each candidate certifies the nonexistence of reasons for ineligibility and incompatibility; (iii) the CVs reporting personal and professional characteristics of each candidate, also specifying administration and control posts held in other companies. Members of the Board of Statutory Auditors will be elected as follows: a) the first two candidates from the list which receive the highest number of votes and the first candidate from the list which receives the second highest number of votes and which is not linked, not even indirectly, with the shareholders who submitted or voted for the list with the highest number of votes will be elected as Statutory Auditors; b) the first candidate from the list which receives the highest number of votes and the first candidat e from the list that receives the second highest number of votes and which is not linked, not even indirectly, to the shareholders who have presented or voted for the list with the highest number of votes will be elected Alternate Auditors; c) in case of parity of votes between the first two or more lists, a new vote will be held by the Shareholders Meeting, only the lists with parity of votes being voted on; d) in the event that an elected candidate cannot accept the position, he will be replaced by the first of the non-elected candidates on the list to which the not accepting candidate belongs; e) the statutory member taken from the list having the second highest number of votes is entitled to the chairmanship. At least one of the Statutory Auditors and at least one of the Alternate Auditors must be registered with the register of chartered accountants and have exercised the activity of legal auditing for no less than three years. To that end, at least the first candidate of every section of each list shall have these qualifications A maximum of two statutory auditors and one alternate auditor may be appointed not having the above qualifications, provided they have at least three years of experience in: a) administration or control activity or management tasks in corporations with share capital not lower than two million euros, or b) professional or university teaching in legal, economic, financial, credit, insurance and scientific and/or technical fields, strictly related to the Company’s activity, or c) managerial functions at public bodies or government agencies operating in the credit, financial and insurance or in any case in sectors strictly related to that of the Company’s activity.

In case of death, renunciation or expiry of the Chairman of the Board of Statutory Auditors, the position will be taken, until the Board is integrated pursuant to Art. 2401 of the Civil Code, by the Alternate Auditor elected in the list with the second highest number of votes. In case of death, renunciation or expiry of a Statutory Auditor, he will be replaced by the alternative auditor belonging to the same list as the Statutory Auditor replaced.

178

16.17. AUDITORS

Name Position In office List Independence Attendance Other offices from according to at the BoA the Code meetings Tommaso Chairman 29.4.2006 M Yes 100% 17 Di Tanno Pietro Statutory 29.4.2006 M Yes 100% 6 Fabretti Auditor Leonardo Statutory 29.4.2006 M Yes 93% 9 Pizzichi Auditor Marco Alternate 29.4.2006 M = = = Turillazzi Auditor Carlo Alternate 29.4.2006 M = = = Schiavone Auditor

During 2008, the number of minutes taken by the Board of Statutory Auditors totalled 53, of which 43 were meetings and 10 audits.

The Board of Statutory Auditors has assessed the independence of its members when the Bank joined the Code. On that occasion, the independence qualifications were evaluated on the basis of the criteria provided for by said Code with reference to the Directors (application principle 10. C.2), then yearly, on 10 March 2008, the existence of said qualifications was verified and finally through a special meeting of the Board of Statutory Auditors held on 4 March 2009. The Board examined the position of each auditor and did not find any new elements and therefore did not substantially notice any situation such that his autonomy of judgement could be currently influenced. In particular, Mr Pietro Fabretti, a statutory auditor, was assessed to be independent, even though in the positions provided for by the application principle 3.C.1.e) of the Code, that is, he was in the office longer than nine years out of the last twelve years. More substantially than formally, moral and professional qualities were duly considered allowing him to express full independence of judgment, as well as the fact that Mr Fabretti had been appointed by the minority shareholders. According to the Code (application principle 10.C.4), the BMPS Auditor who, on his own account or on account of third parties, has an interest in a given BMPS transaction, timely and exhaustively informs the other Auditors and the Chairman of the Board of Directors about the nature, terms, origin and scope of his interest. To adequately fulfil his supervisory duties in compliance with the principles of fair administration, the Board of Statutory Auditors participated in the 4 shareholders’ meetings and in the 32 meetings of the Board of Directors which were held during the financial year, previously examining all issues dealt with in the above- mentioned meetings; if necessary, these issues were analysed and discussed also asking for more information to the Bank’s Bodies or to the competent units. The Board was also steadily in contact with the Internal Audit Area both to obtain the necessary assistance to implement its audits and as addressees of all inspection reports containing the results of the inspections carried out by such unit during the year. Thus, the Auditors could assess the reliability and the efficiency of the internal control system adopted by the Bank not only in relation to its own corporate position but also as a unit at the top of a banking Group. The Board has also focused on the compliance of art. 136 of the Consolidated Banking Act and on the Supervisory Guidelines for the transactions carried out with units having administrative, management and control tasks of the Bank and of the companies of the Group; moreover, the Board verified that these

179 transactions had been unanimously approved by the administrative Bodies and by all auditors, subject to the obligations provided for by art. 2391 of the Italian Civil Code concerning the interests of the Directors. The Auditors have also verified that the transactions with Related Parties complied with the substantial and formal transparency and fairness criteria provided for by the relative regulations and fell within the ordinary operating activity, because they were implemented in accordance with market values and approved on the basis of assessment of mutual economic advantage and the interest of the Company. The Board of Statutory Auditors monitored the administrative and accounting system of the company through surveys carried out either directly or through the periodic exchange of information with the company in charge of the audit KPMG; the Board steadily monitored the independence of the audit company while verifying both its compliance with the applicable legal provisions and the nature and the size of services other than accounting auditing provided to BMPS and its subsidiaries by that audit firm. Finally, the Statutory Auditors also verified the organizational structure of the Bank also in relation to the sizes and characteristics of the company’s activity. To this end they implemented specific audits on a sample of network units in Italy and abroad and had steadily exchanged information with the correspondent bodies of other subsidiaries about the administration and control systems and the general trend of the company’s activity. Continuous and timely information is also exchanged with the Internal Control Committee, also thanks to the fact that, as provided by the Regulation of this Committee (art. 3, p. 3), the Chairman of the Board of Statutory Auditors or an Auditor designated by him also takes part in its activity.

17.18. RELATIONS WITH THE SHAREHOLDERS

The Bank has aimed, over time, at establishing a correct relationship with all shareholders. In order to manage the correct market positioning as well as the attractiveness of its shares, BMPS has established dedicated corporate structures, precisely: o the Research, Intelligence and Investor Relations Area, directly reporting to the CFO ([email protected] - tel. 0577/296477-296476-293038, fax 0577/296757), who takes care of relations with main investors and operators of the national and international financial communities; Mr Alessandro Santoni is the manager in charge of this structure. o the Corporate Sector, within the Secretariat General ([email protected] - tel. 0577/294577, fax 0577/296396).

In order to provide rapid and easy access to information of importance to its shareholders, the Bank uses its website to disclose information online, in Italian and in English, concerning Corporate Governance, financial statements and financial highlights, ratings, press releases, company events and presentations. In particular, to promote relations with shareholders and main investors, the Bank’s Internet site has a section (http://www.mps.it/Investor+Relations/Corporate+Governance/Assemblee) in which useful documentation is fully published. The Shareholders Meeting Rules, approved by the Board on the basis of the model prepared jointly by Assonime and ABI, are assumed by the Chairman as an ex ante act governing the way in which he will exercise management and control powers he is entitled to pursuant the Articles of Association (Art. 12, paragraphs 3 and 4). The Rules therefore are an act of the Chairman concerning the behavioural rules he will comply with on the occasion of the shareholders meetings for the exercise of his functions and are made public by filing them at the registered office and at Borsa Italiana S.p.A., as well as through a special disclosure statement in the l notice convening the Shareholders’ Meeting.

180 18.19. SHAREHOLDERS’ MEETINGS

The BMPS Articles of Association provide that shareholders who can prove their entitlement according to the modalities provided by applicable law can take part in the Shareholders’ Meeting. In particular, the documentation relating to such entitlement, as specified in the notice convening the meeting, must be received by the Company at least 2 working days prior to the date of the shareholders’ meeting. The Articles of Association do not provide that the shares for which the Communication is required pursuant to Art. 2370, paragraph 2 of the Civil Code remain unavailable until the shareholders meeting is held. Shareholders who have a voting right at the Shareholders Meeting and who, also jointly, represent at least one fortieth of the voting share capital, can request, within five days of the publication of the notice convening the of the Shareholders’ Meeting, the integration of the list of the topics to be discussed, indicating in the request the other topics which they propose. In that case, the requesting shareholders must deposit, along with the integration request, the documentation relating to their entitlement to take part in the Shareholders’ Meeting. The integration to the list of the topics which the Shareholders’ Meeting must discuss as a result of the integration requested in this paragraph, must be notified in the same forms provide for the publication of the notice convening the meeting, at least ten days prior to the date set for the Shareholders’ Meeting. The integration to the list of agenda item is not allowed for topics on which the Shareholders’ Meeting resolves, by law, on proposal of the directors or on the basis of a project or a report prepared by them. The Shareholders’ Meeting is normally held in Siena; it can also be called outside the registered office provided the location is in Italy. At the same time, the Articles of Association stipulate that voting must in any case be open: voting methods such as voting by mail and voting via e-mail are not allowed. The text of the applicable Shareholders’ Meeting Regulation was submitted to the Board of Directors and will be made public at every shareholders meeting, by lodging at the registered office and Borsa Italiana S.p.A., as well as placed on the BMPS website https://www.mps.it/investors+Relations/Corporate+Governance/.

Those who wish to take the floor at the shareholders’ meeting are requested to fill in the special “comment request card” prepared for the topics in the agenda, writing their personal data, then taking it with the tele voter given to each shareholder or deputy, in which the identification code of the Shareholder and of the respective shares represented is stored to a special “Comment Collection” station located at the entrance of the meeting room, in order to deliver it. The Chairman, in requesting the submission of comments strictly relating to the Agenda topics and as short as possible, reserves the right of providing guidelines on the maximum length of the comments prior to the opening of the discussion, taking into account the relevance of the topic and the number of comment requests received.

On the occasion of every shareholders’ meeting, the Chairman will announce the publication in the Official Gazette of the Republic and in a nationally circulating daily newspaper of the notice convening the meeting, as well as its filing of the documentation required by applicable law at the registered office and Borsa Italiana S.p.A., so that can be available to the public. In 2008 there were no significant changes in the market capitalisation of the Issuer’s shares or in the composition of its group; therefore, the Board did not deem it necessary to propose to the shareholders’ meeting changes to the Articles of Association concerning the percentages set down for the exercise of shares and the privileges to protect minority shareholders.

19.20. CHANGES AFTER THE END OF REFERENCE FINANCIAL YEAR OF REFERENCE

No changes in the corporate governance structure were introduced after the financial year’s end.

181 4.10 THE MPS GROUP’S COMMITMENT TO SOCIAL RESPONSIBILITY

The MPS Group’s mission is to “create value for shareholders in the short and long term by providing a satisfactory return on invested capital”. The Group undertakes to do so by being faithful to its values in the interest of the company, of the stakeholders and of society as a whole through corporate governance structures and Self-Regulation regulations ensuring that decisions and operations are always carried out with the greatest degree of transparency, fairness and sustainability.

It is the matter of fields referring to non-financial areas of the Group’s operations, increasingly affecting productivity, risk management, costs, staff motivation, operating and market results, image, and as a result the overall value of the company, and consequently they are significant parameters for assessing results and programmes.

These activities are covered in the Annual Report on Social Responsibility which should be referenced for further information (the Report is available at the website www.mps.it in the section “Our values”). Major projects carried out in 2008 are indicated below.

PERFORMANCE

Key indicators Human capital Employee perception index 66.7 (scale 20-100) Per capita training 6.8 days Turnover 0.97% Relationships with customers Customer perception index 73 (scale 20-100) Retention rate 95.2% Complaints -38% (from 2005 to 2008)* Environment Carbon dioxide emissions -58% (from 2004 to 2008)* Loans for renewable energy 320 million (+43%) sources * the data do not include Banca Antonveneta

Rating

The BMPS share is a component of the main financial sustainability indexes: DOW JONES SUSTAINABILITY INDEX-EURO STOXX FTSE4GOOD and FTSE4GOOD ENVIRONMENTAL LEADERS ETHIBEL

The strategy has developed according to the 2007-2009 Social Responsibility Plan monitored by the Corporate Social Responsibility Committee within the Board of Directors.

Key areas were:

Compliance and business ethics Customer protection in the framework of the economic and financial crisis Social and economic integration of low-income social categories Climate changes fight

COMPLIANCE AND BUSINESS ETHICS

182 The Ethical Code guides the corporate behaviour. This year it was revised to take into account the Group and include all principles and internal guidelines dealing with relevant behaviour in compliance with our business ethics. Starting from 2009, all staff, above all the human resources managers, shall be specifically trained on this subject and its application shall be monitored through notifications of the corporate units and of each employee as well as through the internal control system. At least once a year the Corporate Social Responsibility Committee shall examine a specific monitoring report to consider likely improvements, if any.

Compliance with legal and contractual provisions is the basis of the Code.

To monitor the Compliance and to prevent any related risk, in August 2008 a special Unit was established which is independent of the rest of organization, and directly reporting to the CEO. This Units can rely on a network of internal responsibilities within the Units and Companies of the Group to efficiently govern the issue.

The 2009 goals include the following ones: To identify priorities on which the non-compliance risk mitigation plan shall be focused; To develop a model to measure risk levels; To implement an exhaustive training programme to promote the culture of Compliance among the staff; To strengthen the internal control system

CUSTOMER PROTECTION

In the face of the current deep financial crisis the Group focused on: Managing impacts on customers brought about by defaults of important financial institutions Helping families having difficulties in refunding mortgage loans and in dealing with debts in general; Guaranteeing measures for savers and their investments; Responsibly managing corporate loans.

Lehman Brothers Default. After the bankruptcy of Lehman Brothers, a US merchant bank, last September, some of our customers were exposed to unexpected risks on their investments. In general, the customers of the Group owing policies or bonds linked with Lehman amount to abt. 0.13% of the total customer base and are almost exclusively included in the Affluent and Private categories. To follow up the issues resulting from the default and give clear instructions to the network to provide assistance to the customers, an Emergency Committee was established which has regularly met starting from September.

Aid plan for families. The Bank operated in favour of its borrowers to ease the incidence of instalments on households in the following ways: Banking mobility/transferability. The mortgage loans transferability package, provided for by the Bersani Decree was applied with a specific product: Sostimutuo, a loan with which is possible to replace a mortgage loan opened with other banks free of charge for the customer. Renegotiation of the mortgage loan. From November 2007, abt. 6,000 renegotiations have been carried out more than half of which were an extension of the repayment plan and therefore implied a decrease of the instalment. Management of the debts. Also thanks to the Consumers’ Associations united in the Consumer Lab (http://www.mps.it/Consumer+lab/) for 2009 the Group defined a programme of measures called “Combatti la crisi” (fight the crisis).

183

COMBATTI LA CRISI It consists of three real instruments against the crisis which will involve abt 100,000 families and a practical guide for consumer-customers:

The customers in a difficult situation, i.e. instalment/income ratio higher than 60%, can interrupt the payment of the instalments for 6-12 months without any charge or interest increase. The customers with unpaid instalments can recover them later. Through a specific insurance policy linked with the mortgage loan (Mutuo Paschi Protezione) the customer can hedge against interest rate fluctuations, exploit the advantage of being linked with Euribor and, with a Cap provision, can know, in advance, the maximum amount of the mortgage loan instalment. Moreover, the “Mutuo Sicuro Plus” policy will enable the customer to obtain the repayment of the unpaid mortgage loan instalments up to 12 consecutive months, in extraordinary difficult situations. As to consumer credit, starting from May 2009 customers up to date with payments can subscribe the “Fuoriclasse” option. i.e. the possibility of reducing the repayment instalment up to 2% of the remaining capital or to interrupt the payment up to six months. The guidelines of the European Directive on consumer credit (2008/48/EC) shall be implemented in advance and with some positive extensions; among them there is the possibility for the customer to exercise the right of withdrawal from a granted loan and the reduction from 1% to 0.5% of the fee for advanced redemption when the remaining amortisation is equal to or lower than 12 months. A manual shall also be published for consumers to enhance a better use of credit and prevent the risk of overindebtedness of families.

Guarantee measures for savers

The Group has promptly implemented the new rules provided for by the European Directive called MIFID. The adequacy of investment products to meet their needs, the financial culture as well as the risk propensity were verified with 870,000 customers. A specific Advisory Platform, including an intranet newsletter for the Administrators, and a Unit to control risk and performances of our investment services were set up: for each offered financial instrument and for those ones directly bought by the customers a Synthetic Risk indicator is calculated which is shown in the special information cards. The Asset Management was fully reorganised with the aim of increasing independence between production and distribution and the transparency of trading as well as of avoiding any conflicts of interest in the ownership. In this regard the Agreement with Fondo Clessidra to assign 66% of the Asset Management Company of the Group has to be considered an answer to the invitations of the Governor of the Bank of Italy and to the market requirements.

Responsible corporate lending

In consideration of the current economic and financial situation which is creating great problems to many companies, the Group has the responsibility of going on granting credit to the economy focusing on quality. A special rating system is therefore applied in compliance with Basle 2 provisions with a strict approach to risk management and the usual attention to the customer; the guidelines of our policies were gathered in a special handbook. Despite the current crisis the Group shall make its liquidity available to support the economy; this year credit volumes increased by 7% with investments in sound companies without abandoning the other ones, always ensuring a fair and sound use of lending aimed at useful and sustainable goals.

184

Social and economic integration

16% of Italians is not involved in the banking system which negatively affects capital accumulation, market exchange volumes and, as a result, development potentialities of the economy as a whole. Banks are obviously focusing on this factor.

The MPS Group is considering the issue from several points of view: It fosters a more widespread financial culture as a condition to increase the confidence of ordinary people in the banking system and in their participation in the economy It develops the offer to meet the requirements of low-income segments of society through a set of banking and non-banking solutions.

Financial education

The Group carries out a on-going Programme of financial education also taking part in the initiatives promoted by the Italian Bankers’ Association. The Programme is carried out through a special “Network of trainers” and includes: The publication of information leaflets on banking services in co-operation with the fifteen Associations of Consumers joining the Consumer Lab (http./www.mps.it/Consumer+lab/). Some hundred thousand consumers are reached by this initiative. Projects for schools within the framework of the ABI Patti Chiari Porgramme called “Io e l’economia” (“I and the economics”)

Financial inclusion

Following measures are amongst the most relevant ones of the MPS Plan for the financial inclusion: Servizio bancario di base (Basic banking service) – initiative of system (ABI-Patti Chiari) addressed to savers needing simple and economic current account services. The service cost amounts to abt EUR 3 per month and meets the requirements of the young and the immigrants. FuoriSerie – a line of products joining income goals and social aims to meet the requirements of the young, the immigrants, and precarious workers. Paschi Senza Frontiere – a true model of service to the immigrants (the so-called Migrant Banking) including, inter alia, the possibility of carrying out zero-cost bank transfers and obtain personal loans at very good conditions. Microcredito di solidarietà SpA – the financial Company of the Group specialized in micro-credit (www.microcreditosociale.eu)

185 MICROCREDITO DI SOLIDARIETA’ SPA

The Company was established in 2006 by the Bank, the Sienese institutions and charities to offer financial support to those who can hardly gain access to ordinary channels of banking credit. The activity is no profit but aims at self-financing to ensure operating continuity and capital integrity (abt EUR 1.5mln) The applied interest rate is low (4.5%). The requests are collected through a local “Rete di Ascolto” (a listening network) based on charities and are examined using a rating model focused on asset and income parameters but above all on the reliability of the loan borrower. The Company has been working up to no in the provinces of Siena and Arezzo. Further developments of the activity are now being evaluated. This year it has granted 97 small loans without any collateral for abt. total EUR 250,000 (abt EUR 700,000 from the beginning of the activity). Most frequent difficulties are the following: economic problems of small entrepreneurs, illness, overindebtness, immigration (abt. 65% of the beneficiaries are immigrant).

MIGRANT BANKING The Group contributes to the social inclusion of immigrants through Paschi Senza Frontiere, which is a true model of service including: The analysis of the immigration and of its social and economic impacts: this year insurance requirements of migrants has been analysed at yearly AXA MPS Forum for the safeguard of real estate, work and health A whole set of products and services for foreign citizens living and working in Italy, such as the possibility of bank transfers to their country of origin without fees. The volumes of bank transfers managed by the Bank are steadily growing also thanks to specific agreements with several foreign banks granting to the families similar current account conditions. A commercial approach based on local relationships with the migrant communities and with the various interest groups The professional training of the commercial operators. The banks of the Group have abt. 237,000 customers (4.4% of the total amount of customers) coming from countries with high migrant flow. Paschi Senza Frontiere was awarded the “Welcome Bank Award 2008” as best practice of financial integration of the immigrants. The model will be further developed in 2009 to meet new needs of the immigrants: monetics, instruments of payment, security in bank transfers, backing entrepreneurial projects in Italy and in the country of origin.

CLIMATE CHANGES FIGHT The economic scenarios linked with the energy markets and the climate changes are very interesting for the Bank, at least for two reasons: they are an opportunity to show the social responsibility approach of the Bank in line with the company’s mission and identity and they represent business and risk fields.

A specific policy to fight climate changes was designed focused on three strategic areas:

186 To contain energy consumption and increase the use of renewable sources. Programmes of energy effectiveness are implemented in the real estate management. The new branches and the renovations are carried out according to high performing standards also in view of energy saving and environment protection: in 2008 many measures were taken concerning lighting and air conditioning using advanced technological solutions. The aim is also to make working places more comfortable in premises which up to now were unsatisfactory, which does not always imply a decrease in consumption. The carbon dioxide emissions are progressively decreasing anyway (-58% in the last five years) thanks to a wider use of renewable energy sources (96% of electric power is supplied by water systems) and a hefty rationalization of business mobility. To develop credit and investment policies rewarding processes and products with positive impact on the environment. Uncertainty in energy costs and restrictions on carbon dioxide emissions complicate the evaluation of corporate future risks. The approach of the Bank was to support the companies to better understand these risks and actively manage them with mutual advantage while offering specific banking loans and services. This year the banks of the Grou financed renewable energy plants in favour of companies and households for abt. EUR 320 mln (+43%). Also the participation in the share capital of leading players in the fields is remarkable, such as Sorgenia, Alerion, Kerself and starting from this year Moncada Solar Equipment, a newly established company, working in research, development and production of solar and photovoltaic technology. To co-operate with the institutions and the civil society organizations to inform and to make the public aware of the issue. Main initiatives are the following: support to the Kyoto Club Association, the publication of a Handbook on state incentives for consumers in the framework of Consumer Lab activity, the implementation of the first Italy Report of Carbon Disclosure Project (www.cdproject.net)

4.11. EVENTS OCCURED AFTER THE CLOSING OF THE 2008 FINANCIAL YEAR

Following is a summary of the most significant events which occurred after 31 December 2008:

- On 25 February 2009, Banca Monte dei Paschi transferred 75% of the share capital of Marinella SpA, amounting to EUR64mln, to the “Progetto Sviluppo Marinella Spa”, made up of the Consorzio Cooperative Costruzioni together of Unieco Società Cooperativa, Società Italiana Condotte d’Acqua spA and Condotte Immobiliare.

- On 4 March 2009, the extraordinary shareholders’ meeting of the Parent Bank passed a resolution authorizing the merger of Banca Toscana into Banca Monte dei Paschi di Siena. The transaction is in line with the indications of the 2008-2011 Business Plan providing for a restructuring of the Montepaschi Group and a rationalization of the network through corporate transactions such as the merger of Banca Toscana.

4.12 OUTLOOK FOR THE FUTURE

In the first months of 2009, the crisis of 2008 has gained further momentum and the economic crisis has progressively overlapped the financial one. The above-mentioned market problems brought about a delay in the timing of asset disposal transactions planned in the Business Plan in particular in the sale of outlets for which the Antitrust extension was requested and obtained. In this regard, the Financial Statements as at 31 December 2008 were drawn up in the light of the corporate continuity since the uncertainties resulting from the current economic situation do not leave doubts on the capacity of the company to go on working regularly, also on the basis of the results of the economic and financial projections supporting the so-called impairment test.

187 In this regard the MONTEPASCHI Group will carry on its activity further focusing on the commercial core business and on the measures aimed at improving the efficiency of the cost structure while going on adopting strict policies concerning risk assessment.

More in particular: - With reference to equity soundness the Montepaschi Group’s aim will be to reach a 6.5%-7% TIER 1 and a Total Capital Ratio around 11%; in this regard, the Board of Directors of the Parent Bank has delegated the Head Office to assess the possibility of turning to the so-called “Tremonti Bonds” during the year; - Short-term and structural liquidity position is sound, adequate and with large margins of availability; - With reference to the profitability of the Bank and of the Group and in consideration of the extraordinary events affecting the results of the 2008 financial year (value adjustments on financial assets and on credits, advanced assignment of taxes due to goodwill redemption) the projections of the Group supporting the so-called “impairment test” show the sustainability of the operating results and the taxable income adequacy to recover credit for advance taxes, even in the light of uncertain forecasts.

2008 REPORT ON OPERATIONS OF THE PARENT BANK

CHAPTER 5 – INFORMATION ON OPERATIONS

5.1 OPERATING CRITERIA OF RECLASSIFICATION AS AT 31/12/08 – BANCA MPS, THE PARENT BANK

Further to the business reorganization of the Montepaschi Group already outlined in the previous chapters, during the year Banca MPS, the Parent Bank, carried out the merger by incorporation of Banca Agricola Mantovana at the end of the third quarter of 2008 and of Banca Antonveneta at the end of December 2008. In this regard, the data as at 31 December 2008 of the Parent Bank include the values referring to Banca Agricola Mantovana from 1° Janaury 2008 as well as those of Banca Antonveneta starting from 30 May 2008. Against the approach followed for the reclassified schemes of the profit and loss account of the Montepaschi Group it was impossible to integrate the contribution of the first five months of Banca Antonveneta, as a result the 2008 values cannot be compared with the historical data of Banca MPS. The following balance sheet and profit and loss accounts have been reclassified on the basis of operating criteria. In particular, the major changes introduced in the 2008 profit and loss statement involve aggregations of accounts and reclassifications carried out similarly to the Group’s reclassifications and are the following:

a) “Net income from trading/valuation of financial assets” in the reclassified profit and loss statement includes Account 80 in the accounts (Net income from trading), Account 100 (Profit/loss from sale/purchase of loans, financial assets available for sale and held to maturity, and financial liabilities), Account 110 (Net income from financial assets and liabilities at fair value), together with the dividends from some “sophisticated” securities transactions closely associated with the trading component (EUR 198 million as at 31.12.08) and adjusted for the cost of funding of said transactions (EUR 10 million as at 31.12.08), once eliminated from “interest expense and similar charges”;

b) “Adjustments/Net value adjustments for impairment of loans” in the reclassified profit and loss statement resulted from the reclassification of charges in the amount of EUR 47 million (value adjustment of junior securities totalling EUR 44 million, and charges related to financial plans

188 totalling EUR 3 million) which are more properly posted to “Net provisions for risks and charges and Other operating income/charges”;

c) The components regarding value adjustments for EUR 301 million of the item “Goodwill and financial assets impairments” were deducted from the “Net Value adjustment for financial assets impairment” in the reclassified profit and loss account;

d) “Other administrative expenses” in the reclassified profit and loss statement was supplemented with the portion concerning the recovery of stamp duties and expense recoveries from customers (EUR 198 million), posted under Account 190 “Other operating charges/income”. The component concerning the integration charges related to the Banca Antonventa amounting to EUR 77 million was also deducted from the item and assigned to the reclassified P&L account item “Integration charges”;

e) The component concerning the integration charges related to Banca Antonventa amounting to EUR 138 million was deducted from “Personnel charges” in the reclassified profit and loss account and assigned to the reclassified P&L account item “Integration charges”;

f) Net provisions for risks and charges and other operatingincome/charges” in the reclassified P&L account is the result of the imbalance between Account 190 “Other operating income/charges and Account 160 Net provisions for risks and charges, from which the deductions as per b-d were carried out.

g) “Goodwill and financial assets impairment” includes item 230 of the profit and loss account “Value adjustment of goodwill” amounting to EUR 150 million which is integrated by the value adjustments of impaired financial assets amounting to EUR 301 million.

h) The items concerned by the effects of PPA (Purchase Price Allocation22) of Banca Antonveneta (in particular: “Interest margin” for EUR 60 million and amortisation for EUR 41 million) were discharged from such effects and the relative amounts were assigned to a single item called “Net economic effects of the Purchase Price Allocation” as better detailed in the tables shown under the section “Enclosures”.

Following are the major changes introduced in the reclassification of the balance sheet:

a) “Negotiable Financial assets” on the asset side of the reclassified balance sheet includes Account 20 (Financial assets held for trading purposes), Account 30 (Financial assets at fair value) and Account 40 (Financial assets available for sale); b) “Other assets” on the asset side of the reclassified balance sheet incorporates Account 80 (Hedging derivatives), Account 90 (Value adjustment to financial assets subject to general hedging), Account 130 (Tax assets), Account 140 (Non-current assets and assets being sold) and Account 150 (Other assets); c) “Customer deposits and securities” on the liability side of the reclassified balance sheet includes Account 20 (Customer deposits), Account 30 (Securities issued) and Account 50 (Financial liabilitiesatat fairfair valuevalue););

22 PPA: fair value calculation of acquired main potential assets and liabilities

189 d) “Other liabilities” on the liability side of the reclassified balance sheet includes Account 60 (Hedging derivatives), Account 70 (Value adjustment to financial assets and liabilities subject to general hedging), Account 80 (Tax liabilities), Account 90 (Liabilities linked with assets being sold) and Account 100 (Other liabilities).

In the enclosures the comparisons between the reclassified financial statements and the accounting schedules are reported.

190 BANCA MONTE DEI PASCHI DI SIENA Highlights at 31/12/08

5.2 INCOME STATEMENT AND BALANCE SHEET FIGURES AND KEY INDICATORS

MPS GROUP 31/12/08 31/12/07

INCOME STATEMENT FIGURES (in millions of euros)

Income from banking activities 3,667.4 2,263.1

Financial income (loss) 4,099.7 2,625.9

Net operating income 832.7 626.4

Net profit (loss) for the period 1,275.4 637.5

BALANCE SHEET FIGURES AND INDICATORS (in millions of euros) 31/12/08 31/12/07

Direct funding 124,869 90,864 Indirect funding 110,854 61,125

of which: assets under management 37,499 28,796

of which: assets under custody 73,355 32,329

Customer loans 119,390 61,762

Group net equity 14,239 7,661

KEY LOAN QUALITY RATIOS (%) 31/12/08 31/12/07

Net non-performing loans/Customer loans 2.00 1.70 Net watchlist loans/Customer loans 1.39 0.62

PROFITABILITY RATIOS (%) 31/12/08 31/12/07 Cost/Income ratio 65.7 66.2 R.O.E. (on average equity) 11.6 8.3

R.O.E. (on year-end equity) 17.0 8.9

Net adjustments to loans / Year-end investments 0.48 0.42

CAPITAL RATIOS (%) 31/12/08 31/12/07 Solvency ratio 15.0 12.8 Tier 1 ratio 7.4 8.2

INFORMATION ON BMPS STOCK 31/12/08 31/12/07 Number of ordinary shares outstanding 5,545,952,280 2,457,264,636

Number of preference shares outstanding 1,131,879,458 565,939,729

Number of savings shares outstanding 18,864,340 9,432,170

Price per ordinary share: average 1.97 4.65 low 1.22 3.61 high 2.98 5.34

OPERATING STRUCTURE 31/12/08 31/12/07 Var. ass.

Total head count - year-end (1) 20,287 12,640 7,647

Number of branches in Italy 2,550 1,236 1,314 Number of branches & rep. offices abroad 16 14 2

(*) It should be noted that the incorporation of Banca Agricola mantovana and Banca Antonveneta (as of 31/05/08) the comparisons are non homogeneous (1) MPS Group w orkforce: the figure incorporates all Banca MPS personnel, excluding staff assigned to other companies (minority interests) and cleaning staff.

191

192

Equity

193 5.3 OVERVIEW ON OPERATIONS OF THE PARENT BANK

While analysing the results as at 31 December 2008 it has to be taken into account that during the financial year the Parent Bank carried out the merger by incorporation of Banca Agricola Mantovana at the end of September and at year’s end the merger of Banca Antonveneta.

5.3.1 THE TREND OF BALANCE-SHEET AGGREGATES

FUNDS MANAGEMENT

With reference to funds management, the commercial network (BMPS Bank Division) achieved remarkably positive results, with products placements reaching EUR 16.9 bn. Within a comparative framework the product placements amount to EUR 15.4bn, mainly thanks to the positive contribution of bonds, which hefty grew against the same period of the previous year and absorbed the problems occurred in the individual and collective assets management, involved in strong outflows at system level. The section of insurance products was higher than the previous year.

The following table summarises inflows of funds of the main products of the Group:

The above item, together with growth in other types of funding, resulted in the following changes in Total funding:

194

which posted performance as described below: o DIRECT FUNDING The aggregate amounts to about EUR 125 bn mainly driven by bonds placed with retail customers and funding with institutional customers. o INDIRECT FUNDING Indirect funding stood at EUR 111 bn, absorbing the negative trend of the funds under management.

In particular: o FUNDS UNDER MANAGEMENT

This item totalled EUR 37 bn with the following breakdown on a percentage basis by product:

resulting from differing performance posted for the various components, as summarised below: o Mutual funds

195

The balance of mutual funds totalled EUR 13 bn, and in the mix of assets under management in the mutual funds of Monte Paschi Asset Management SGR placed by the bank, the percentage of bond funds (71.1% compared with 64.3% at 31/12/07), hedge funds (3.4% vs. 2.7% at 31/12/2007) increased whereas simultaneously the percentage of equity funds (19.5% vs. 26.8% at 31/12/07) and balanced and flexible funds (5.5% vs. 6.2% at 31/12/07) decreased.

o Individual portfolio management

These portfolios totalled EUR 6 bn with an outflow of approximately EUR 2 bn. o Life insurance policies

At 31/12/08 this item, including pension funds, totalled EUR 18 bn showing a shift toward index and unit-linked policies.

196

■ FUNDS UNDER ADMINISTRATION

These portfolios totalled EUR 73 bn.

■ LENDING

As at 31 December 2008, bank loans amounted to abt 119 bn. With regard to domestic operations, the balances of the BMPS Bank Division confirm a growing trend (+78% in terms of average balances) with medium-/long term loans prevailing, and short-term loans decreasing.

In particular, with regard to loans disbursed by the product companies during the period operations in the Group’s specialised loan companies posted overall production of more than EUR 8 bn

197 New mortgage loans (excluding “public works”) amounted to about EUR 6.9 billion.

■ CREDIT QUALITY

As far as credit quality is concerned, Banca MPS shows a net exposure, as at 31 December 2008, in terms of impaired loans amounting to EUR 5 bn against overall customers loans of 4% and of 3.4% for non-performing loans and watchlist credits. The comparison with 2007 is not homogeneous since 2008 includes the volumes of Banca Agricola Mantovana and Banca Antonveneta.

The percentage of value adjustment to the gross exposure of impaired loans (inclusive of interest on arrears) amounts to 46%, and to 60% for the non-performing loans. The value adjustments to loans amount to 0.45% of the aggregate concerned.

5.3.2 THE TREND OF INCOME AGGREGATES

In analyzing the results as at 31 December 2008 it should be taken into account that, during the financial year, at the end of September, the Parent Bank implemented the merger by incorporation of Banca Agricola Mantovana and at year’s end the merger of Banca Antonveneta. Therefore, the 2008 data include the values of Banca Agricola Mantovana for the whole financial year and the date of Banca Antonveneta for seven months since the acquisition of the latter occurred on 30 May 2008. The data following hereunder as at 31 December 2008 are not therefore comparable with the data as at 31 December 2007.

■ 1) OPERATING PROFITABILITY

Due to the above-mentioned trends as at 31 December 2008 the BMPS Parent Bank recorded a primary net operating income amounting to EUR 3,667.4 million (EUR 2,263.1 million as at 31 December 2007).

TREND IN OPERATING REVENUES: THE COMPOSITION OF FINANCIAL AND INCURANCE INCOME

198 In terms of revenues from financial and service activities, at 31 December 2008 the financial income totalled EUR 4,099.7 million (EUR 2,625.9 million as at 31 December 2007) and absorbs the negative performances of the financial markets in 2008.

The performance of the main aggregates is summarised below: o Interest income totalled EUR 2,507.9 ( EUR 1,468 million as at 31 December 2007) o Net commissions amounted to EUR 1,159.5 million ( EUR 795.1 million as at 31 December 2007) and were affected by the negative trend in funds management revenues due to the decrease in asset under management brought about both by the negative market performance and the outflows concerning the whole system;

o Dividends collected amount to EUR 563.2 million (EUR 280.5 million as at 31 December 2007) thanks to the higher dividends coming from the companies of the Group; o Net income from trading/valuation of financial assets show a negative balance of – EUR 130 million (+EUR 82.3 million as at 31 December 2007) due to the valuation adjustments of security and derivatives portfolios to the current market valuations, which were strongly negatively affected by the worsening of the economic crisis in the last part of the year. In this regard, the MPS Group made use of the amendment issued on 13 October 2008 by IASB concerning the IAS 39 and the IFRS 7 allowing, in special circumstances, the reclassification of certain financial assets other than the derivatives from accounting categories which are evaluated at fair value to other categories; if the above-mentioned amendment was not used, capital losses would have amounted to EUR 6765 million because of the transfer from HFT to Loans - to which EUR 37 million because of the transfer from HFT to AFS - have to be added, which were posted to a special reserve of net share capital instead of to profit and loss account.

LOAN-RELATED CHARGES: NET VALUE ADJUSTMENTS ON IMPAIRED LOANS AND FINANCIAL ASSETS

199

Against the revenues resulting from credit granting in the financial period net value adjustments on impaired loans amount to EUR 577 million ( EUR 257.1 million as at 31 December 2007. These values absorb EUR 54 million of depreciation related to the solution of the well-know Hopa Group/Fingruppo issue, as well as to the effects of a complex economic situation progressively worsened in the last quarter of 2008. The above-mentioned amount reflects a provisioning rate of 48 b.p.

Net value adjustments for impaired financial assets show a positive balance of EUR 3 million.

As a consequence, net profit from financial operations amount to EUR 3,525 (EUR 2,364 million as at 31 December 2007).

OVERHEADS: OPERATING EXPENSES

During the period, measures to structurally contain expenses were pursued in line with past financial years; despite a remarkable investment plan in technology and communication and the increased inflation operating expenses amounted to EUR 2,692 million.

In particular:

A) Administrative expenses totalled EUR 2,652 (historical data: EUR 1,721.7 million as at 31 December 2007), due to: • personnel expenses amounting to EUR 1,510 million and absorbing the wage increase provided for by the renewal of the Collective Labour Agreement (application of new wage scales starting from 1 January 2008). . • Other administrative expenses, excluding the expense recovery and stamp duties on customers) amount to EUR 1,142 million thanks to the steady and accurate monitoring of expense trends and of the cost management measures.

B) Net adjustments to the value of tangible and intangible assets stand at EUR 40 million (EUR 15.5million as at 31/12/2007).

Due to the performance reported above, net operating income totalled EUR 833 million (EUR 626.4 million as at 31 December 2007).

200

The cost-income ratio amounts to 65.7 (66.2% as at 31 December 2007).

■ 2) EXTRAORDINARY ITEMS, TAXES AND NET PROFIT

The following items also contributed to net profit for the period:

the negative balance of Net provisions for risks and charges and Other operating income/charges amounting to – EUR 146 milion (-EUR 180million versus as at 31.12.07). of which income of EUR 80 million and charges of – EUR 226 million mainly due to legal disputes, actions for revocations as well as to depreciation of junior notes coupons (-EUR 43.5 million);

A balance of about EUR 122 million in profits/losses from equity investments, due to profits for EUR 233 million related to the sale of Banca Depositaria, Banca Monte Parma and Valorizzazioni Immobiliari and losses totalling EUR 11 million mainly concerning the sale of QuadrifoglioVita and valutation losses on subsidiaries;

One-off charges for EUR 215 million as quota-part of charges which may be quantified until today and are related to the integration of Banca Antonveneta and the relative reorganization steps authorized in the framework of the 2008-2011 Business Plan (charges for early retirement incentive plan for EUR 130 million, advisors, IT costs and other expenses for EUR 85 million),

Goodwill impairment and financial assets amounting to EUR -451 million of which EUR - 150 million related to IAS 36 impairment tests; in this regard, even if against an overall test holding at Group level, the CGU23 Corporate value was anyhow adjusted to take into account, in the Capital Markets account, the remarkable change of the external scenario brought about by the current economic and financial crisis; -EUR 301 refer to lasting value losses which may referred to shares, bonds, investment fund quotas and hedge funds, which adopted the strict evaluation rules defined by the cautious approach of the Group. The latter includes EUR 94 million of adjustments to the Hopa book value in the previous quarters. As a result of the above, the bank’s profit from current operations before taxes stands at EUR 142 million (EUR 770 million as at 31 December 2007) and absorbs total charges of EUR 1,075 million for value adjustments related to the extraordinary financial market crisis, provisions for risks/charges and una tantum integration expenses.

Finally, to complete the section on profits, income taxes from continuing operations totalled EUR 1,133 million (-132 million as at 31 December 2007), taking advantage of a redemption (pursuant to art. 15 of the Legislative Decree 185/08) mainly concerning the goodwill for EUR 1,114 million. These values absorbs EU 45 million linked to the non- deductibility of interest payable recently introduced by the so-called Robin Tax.

23 Cash Generating Unit

201 The net profit for the period before PPA amounts to EUR 1,275mln (EUR 638 mln as at 31 December 2007)

Therefore, the Bank’s net profit for the period amounts to EUR 1,223 million (EUR 638 million as at 31 December 2007).

ROE was 16% (ROE calculated on average shareholders’ equity: 11,2%).

5.3.3 SUBSEQUENT EVENTS OCCURRED AFTER THE CLOSING OF THE FINANCIAL YEAR

Please refer to the same section in the Report on Consolidated Operations.

5.3.4 OUTLOOK FOR THE FUTURE

Please refer to the section covering “Outlook for the future” in the Report on Consolidated Operations.

202 ANNEXES:

RECONCILIATIONS BETWEEN RECLASSIFIED ACCOUNTS AND ACCOUNTING TABLES – GROUP MONTEPASCHI

203 ﬁ nancial

ﬁ nancial

ﬁ nancial ﬁ nancial

204 ﬁ nancial

ﬁ nancial

205 ﬁ nancial

ﬁ nancial

ﬁ nancial ﬁ nancial

206 ﬁ nancial

ﬁ nancial

207 RECONCILIATION BETWEEN 2008 AND 2007 CONSOLIDATED BALANCE-SHEET AND RELATED ACCOUNTING TABLES

Equity

208 ENCLOSURES

RECONCILIATION BETWEEN RECLASSIFIED FINANCIAL STATEMENTS AND RELATED ACCOUNTING TABLES - BMPS PARENT BANK

209 g loss statement BMPS Parent Bank Reclassified profit and Interest margin Net commissionincome Income from bankin activities andDividends similar income Net result from of trading/valuation financial assets

563.2 -130.0 2,507.9 1,159.5 3,667.4 31/12/08 31/12/08 reclassified

59.8 10.3 70.2 70.2 187.3 -197.6 -197.6

Reclassications

760.8 760.8 -152.8 -317.3 -451.7 8,503.5 1,312.4 Book 2,437.8 1,159.5 3,597.3 value value -6,065.7 31/12/08 31/12/08

BMPS Parent Bank Breakdown of cost of funding relatedto Breakdown of the economic effects the of Breakdown dividends and similar income − − − Reclassified profit and loss statement Commission income Commission expense Interest and similar income Interest margin Interest and similar expense Dividends and similar income trading result from Net − – − − − − − Account 10 (partial) 10 (partial) Account 20 (partial) Account 70 (partial) Account Account 40 Account40 Account 50 RECONCILIATION BETWEEN 2008 RECLASSIFIED PROFIT AND LOSS STATEMENT AND RELATED ACCOUNTING TABLES - BMPS PARENT BANK Account 30 Account 10 acquisition BAV of allocation cost Account 20 complex trading transactions securities Account 70 related to complex securities trading transactions Account 80

210 Net result from gain (loss) hedging from Income from financial and insurancebusiness Net value adjustment for impairment of: a) loans b) financial assets

2.8 -1.0 -577.4 4,099.7

3.4 43.5 59.8 46.9 -10.3 197.6 300.9 300.9

- - -1.0 -0.5 -3.2 -1.0 68.1 70.1 -624.2 -624.2 -298.2 -300.9 4,039.9

financial

le fo financial liabilities Breakdown of net value adjustments for Breakdown of net value adjustments for Breakdown of net value adjustments for net Breakdown of for value adjustments − − − Supplemental and similar income dividends Supplemental of purchase cost for financing − − Profit/loss the from sale ofloans Net value adjustments impairment for of loans Profit/loss the from sale offinancial assets Net value adjustments impairment for of Profit/loss the from sale offinancial assets held to Net value adjustments impairment for offinancial Profit /loss the from sa − − − − − − − Net result on financial assets and liabilities valued at Net Operating Income Net gain (loss) hedging from – a) − − Account 70 (partial) 70 (partial) Account 130 a) (partial) Account 130 a) (partial) Account Account a) 100 b) Account 100 c) Account 100 account d) 100 Account 90 c) Account 130 Account 20 (partial) traded securities transactions trading securities complex to related saleavailable for maturity 110 Account fair value Account 120 Account 130 Account 130 a) (partial) impairment of loans (wirtedown of junior exposures) impairment related plans) to of loans financial (Charges b) 130 Account assets for sale available available for sale impairment assets (moved to value of financial goodwill) of adjustments assets held to maturity

211 andNet financial insurance income (loss) Administrative expenses: a) personnel expenses b) other administrative expenses adjustmentsNet value on tangible and intangible assets Operating expenses Net operating income Net provisions to risk and expense and funds other operating income/costs

-40.2 832.7 -146.2 3,525.1 -2,652.2 -1,510.0 -1,142.2 -2,692.4

-0.1 77.4 41.4 41.3 138.0 197.8 407.6 413.2 138.0 275.2 454.5 862.1 -269.0

2.8 -81.6 -32.1 -49.4 -29.5 122.8 -155.0 3,117.5 -1,648.0 -1,417.4 -3,065.4 -1,648.0 -1,417.4 -3,147.0

Breakdown of personnel expenses Breakdown of other administrative ministrative expenses − − Supplementation (Recoveries of stampof Supplementation (Recoveries Breakdown of net adjustments value on Breakdown of net adjustments value on − − − Net value adjustmentsfor impairment of other − Net value adjustments on tangible assets Net value adjustments on intangible assets Net provisions to risk and expense funds Administrative expenses Administrative Net result from financial business − − − – – Account 150 a) 150 a) (partial) Account 150 b) (partial) Account 190 Account (partial) 180 Account (partial) Account 140 Account170 Account180 Account160 Account 130 d) d) 130 Account financial transactions 150 Account Account a) Personnel expenses150 (supplemental charges) Account b) Other ad 150 charges)expenses (supplemental duties and customers' expenses) Account 170 (partial) acquisition) BAV of allocation cost of assets tangible (Effects acquisition) BAV of cost allocatio of (Effects assets intangible

212 equity of (Losses) Gain investments Integration charges Net resutl of the at valuation of value fair tangible and intangible assets goodwillImpairment of and financial assets (Loss)Profit from investment sale

0.1 122.1 -215.4 -450.9

- - -3.4 -43.5 -24.3 -77.4 -197.8 -138.0 -300.9 -215.4 -300.9

- - 0.1 0.1 277.8 122.1 122.1 -150.0 -150.0

Supplemental adjustments net for value Supplemental adjsutments value to Supplemental adjustments net for value Other supplemental administrative Supplemental expenses personnel − − − − − Breakdown of net provisions to risk and Breakdown (Recoveries of stamp duties − − Gains (Losses)equity of investments Net resultthe of valuation at fair value of tangible Profit (Loss) investment from sale Other operating income/expenses Value adjustments to goodwill − − − − − Account 130 a) 130 a) (partial) Account 160 Account (partial) 130 a) (partial ) Account 190 Account (partial) 230 a) (partial) Account Account 210 Account210 Account 220 Account 240 impairment of loans (Writedown of junior expsoures) expense funds (Effects of cost allocation of BAV acquisition) loans impairment related plans)(Charges to of financial 190 Account and customers' expenses) Account 150 a) (partial) (Integration charges) Account 150 b) (partial) charges) charges (Integration and intangible assets adjustments financial assets) impairment of for goodwill (Value 230 Account

213 Profit (Loss)Profit before tax from ordinary operations Income tax on ordinary operations after tax (Loss) Profit from ordinary operations after tax (Loss) Profit of groupsassets of being sold the for profit (loss) Net the year before PPA Economicthe effectsof Antonveneta "Purchase Allocation"Price the for profit (loss) Net year

-52.1 142.3 1,133.1 1,275.4 1,275.4 1,223.3

- 0.1 24.3 24.8 76.8 52.1 52.1 -24.8 -59.8 -41.4 -24.8 -52.1

- 65.5 1,157.9 1,157.9 1,223.3 1,223.3 1,223.3

operations

from ordinary operations dinary operations Supplemental income tax on ordinary Breakdown of net provisions to risk and Breakdown of income tax of ordinary Supplemental adjustments net on value Supplemental adjustments net on value Supplemental economic the effects of − − − − − − Profit (Loss) after tax from other than ordinary other than ordinary from tax (Loss) after Profit Net profit(Loss) the year for (Loss)Profit before tax Income tax on or Profit (Loss) after tax from ordinary ordinary from tax after (Loss) Profit − − − − (partial) (partial) − Account 290 (partial) 290 Account (partial) 10 (partial) Account 160 Account (partial) 290 Account (partial) Account 250 Account 260 Account280 Account290 acquisition) BAV of of cost operations allocation (Effects Account 270 assets being sold allocation cost acquisition Account 170 (partial) tangible assets of the(Effects acquisition cost allocation) Account 180 allocation) the cost of acquisition (Effects assets intangible expense funds acquisition(Effects cost of allocation) operations for the year (Effects cost of allocation of BAV acquisition)

214 statement BMPS Parent Bank Reclassified profit and loss Interest margin Net commissions Income from banking activities andDividends similar income Net result from trading/valuation of financial assets

82.3 795.1 280.5 1,468.0 2,263.1 31/12/07 31/12/07 Reclassified

14.1 14.1 14.1 -14.1 225.2 211.1

-225.2 -225.2 Reclassifications

0.1 795.1 895.3 505.6 505.6 -100.2 -128.8 -211.1 Book 1,453.9 5,145.3 2,249.0 value value -3,691.3 31/12/07 31/12/07

Breakdown dividends of Supplementaldividends Supplementalto cost Breakdown of cost of − − − − Profit/loss sale from of loans

BMPS Parent Bank − Commission expense Net result from trading Interest and similar income Interest and similar expenses income Dividendssimilar and Interest margin − − – − − − Reclassified profit and loss statement Account 70 (partial) 70 (partial) Account 70 (partial) Account Account 50 Account50 Account80 RECONCILIATION BETWEEN 2007 RECLASSIFIED PROFIT AND LOSS STATEMENT AND RELATED ACCOUNTING TABLES - BMPS PARENT BANK Account 30 Account 10 Account 20 Account 20 (partial) funding related to complex trading securities transactions CommissionAccount - 40 income Account 70 trading to complex related and similar income securities transactions Account 20 (partial) finance the of trading purchase equities trading to complex related and similar income securities transactions a) 100 Account

215 Net gain (loss) hedging from Income from financial and business insurance Net value adjustments for impairment of: a) loans b) financial assets Net financial and insurance income

0.0 -5.2 -257.1 2,625.9 2,363.6

4.8 36.1 10.2 51.1 51.1

- - 0.0 0.0 8.2 -7.0 -5.2 59.1 30.1 -13.4 -308.2 -308.2 2,625.9 2,312.5

Breakdown net of value Breakdown net of Breakdown net of value − − − Profit /loss sale from of financial Net value adjustments for Net value adjustments for adjustmentsfor Net value adjustmentsfor Net value Profit /loss sale from of financial Profit/Loss sale from of financial Net Value adjustmentsfor − − − − − − − Net result on financial assets and Net Operating Netincome Net result from financial business Net gain (loss) hedging from − – – − Account 130 a) 130 a) (partial) Account 130 a) (partial) Account 130 a) (partial) Account Account 100 c) Account 100 Account d) 100 Account 90 Account 120 a) Account 130 Account b) 130 d) Account 130 Account 140 Account 100b) assets for sale available assets held to maturity liabilities 110 Account valued at liabilities fair value impairment ofloans impairment of for adjustments loans (Writedown of junior exposures) adjustmentsvalue for impairment of loans (Excess Spread) adjustments for impairment of loans (Charges plans)related to financial impairment offinancial assets for sale availabel Account c) 130 impairment offinancial assets held to maturity impairment ofother financial transactions

216 Administrative expenses: a) Personnel expenses b) other administrative expenses Net value adjustments on tangible and intangible assets Operating expenses incomeNet operating Net provisions to risk and expense funds and Other operating income/expense Gain (losses)equity of investments

-15.5 626.4 323.9 -958.9 -762.8 -180.5 -1,721.7 -1,737.2

-4.8 -36.1 -10.2 131.3 131.3 131.3 131.3 182.4 -131.3 -182.4

1.9 -1.2 64.2 -15.5 -14.3 -62.3 444.0 323.9 323.9 -958.9 -958.9 -894.2 -894.2 -1,853.0 -1,868.5

Supplemental net value Supplemental net value Supplemental net value Supplemetal net value − − − Supplementation Breakdown of(Recoveries − − Net value adjustments on Other operating income/expenses Net value adjustments on tangible Administrative expenses Net provisions to risk and expense Gain (Losses)equity of investments − − − – − − Account 190 (partial) 190 Account (partial) 130 a) (partial) Account Account 150 Account180 Account190 Account a) 150 Personnel expenses Account b) Other administrative150 expenses (Recoveries of stamp duties and customers' expenses) 170 Account assets intangible assets Account 160 funds impairment of for adjustments loans (Writedown of junior exposures) Account 130 a) (partial) adjustments for impairment of loans (Excess Spread) Account 130 a) (partial) adjustments for impairment of loans (Charges plans)related to financial Account 190 (partial) stamp duties and customers' expenses) Account 210

217 nary operations Net result of the fair valuation at value of tangible and intangible assets Value adjustments to goodwill Profit (Loss) investment from sale (Loss)Profit before tax from ordinary operations Income tax on ordi (Loss) after tax fromProfit ordinary operations (Loss) after taxgrups ofProfit of assets being sold year the for profit (loss) Net

0.1 769.9 637.5 637.5 -132.4

- - - - - 0.1 0.1 769.9 637.5 637.5 -132.4 -132.4

dinary operations Net profit (Loss) for the year year the for (Loss) profit Net Value adjustments to goodwill (Loss)Profit investment sale from Net resultthe of at valuation fair (Loss)Profit before tax from ordinary (Loss)Profit after tax from other than Income tax on or ordinary from tax after (Loss) Profit − − − − − − − − Account 230 Account 240 Account290 220 Account value of tangible and intangible assets 250 Account operations Account 260 Account 270 operations 280 Account ordinary operations being sold

218

Assets Assets Reclassified balancesheet - Cash and cash equivalents : Loans a) Due from customers b) Due from banks Financial assets held for trading Financial assets held to maturity Equity investments Tangible and intangible assets

- - - 425 249 425 9,274 5,008 8,007 8,007 1,031 61,762 32,931 61,762 32,931 14,282 PARENT BANK –

31/12/07

- - - 775 426 775 9,973 5,759 6,674 6,674 7,935 23,762 23,762 15,732 119,390 119,390

31/12/08

cash equivalents cash Balance sheet - Assets Tangibleassets Equity Investments Equity Due from banks held assets to Financial maturity − Cashand Due from customers held assets Financial for trading at fair value valued assets Financial sale available for assets Financial − − − 0 − − − − − RECONCILIATION BETWEEN 2008 AND 2007 RECLASSIFIED BALANCE SHEETS SHEETS BALANCE 2008 AND BETWEEN 2007 RECLASSIFIED RECONCILIATION Account 10 Account 70 Account 60 Account 20 Account 30 Account 40 Account 50 Account 100 Account 11

219

Liabilities Reclassified balancesheet - Other assets assets Other Total assets Debts a) Due to customers and securities b) Due to Banks Financial liabilities held for trading Special provisions

5 28 783 595 204 2,121 3,064 2,952 3,064 48,149 32,130 10,585 16,068 90,864 16,068 121,390

31/12/07

9 65 181 7,509 3,699 6,530 5,782 5,782 69,990 41,600 13,279 32,149 10,483 32,149 184,751 124,869

31/12/08

fair value

-current assets and groups of assets Intangible assets assets Intangible Balance sheet - Liabilities Non assets Tax Other assets Other Due to banks trading held for liabilities Financial − − − Hedging derivatives under of financial assets in value Change Due to customers Outstanding securities at valued liabilities Financial − − − 0 0 0 − − − − − 0 Account 12 Account 80 Account 90 general hedging (+/-) Account 13 Account 14 being sold Account 15 Total assets Account 20 Account 30 Account 50 Account 10 Account 40

220

Other liabilities Technical reserves Shareholders' equity of Group a)Valutation reserves b) Reimbursable shares c) Capital instruments d) Reserves e)Share-premium account f) Share Capital g) Own shares (-) h) Net profit for the(loss) year Total liabilities and shareholders' equity

- - - 31 19 29 70 -92 196 327 313 559 638 3,131 4,141 2,032 3,179 7,661 121,390

- - - 72 47 -36 420 725 333 174 1,244 4,918 4,250 4,094 4,487 1,223 6,495 14,239 184,751

) pension) fund ) other a b

-) -)

-premium account Equity Other liabilities Other liabilities Valuation reserves Valuation shares Reimbursable Reserves Share Sharecapital shares ( Own Capital instruments Capital Staff severance indemnity reserve Net profit (Loss) for the year (+/-) Hedging derivatives Change in value of financial liabilities of financial liabilities in value Change liabilities Tax − − − − − − Liabilities related to Liabilities groups related of assets – − − − − − − 0 0 0 0 0 0 − 0 60 Account 110 Account 120 Risk and expense funds - and similar obligations Account 120 Risk and expense funds - provisions Account Account 70 general hedging under (+/-) Account 80 Account 90 being sold Account 100 Account 13 Account 14 Account 15 Account 16 Account 17 Account 18 Account 19 Account 200 Total liabilities and shareholders' equity

221

ENCLOSURES

RECONCILIATION BETWEEN THE SEGMENT REPORTING - PRIMARY SEGMENT - OF THE REPORT ON OPERATIONS AND THE SEGMENT REPORTING OF PART D OF THE NOTES TO THE FINANCIAL STATEMENTS

223

939.6 835.5 3,498.5 5,273.6 months) riclassified 141,740.1 142,465.9 Group total with BAV (7

-120.3 -433.1 -678.9 -125.5 writeback Group 5 01/01/2008) 01/01/2008) months (from Antonveneta

960.9 1,059.9 3,931.6 5,952.5 141,740.1 142,465.9 riclassified of the year Group total the beginning beginning the with from BAV

29.5 534.5 288.3 -275.7 Center Center 10,663.2 18,102.0 Corporate

596.5 844.5 340.7 1,781.8 74,636.8 42,171.0 Banking/ Banking/ Corporate Corporate Capital Markets Markets Capital

7.4 36.7 151.5 854.9 195.6 8,188.5 Wealth Private Banking/ Banking/ Management Management

426.5 859.2 2,401.2 3,686.8 55,585.3 74,004.4 network network Banking/ Banking/ Distribution Commercial Commercial

31/12/2008 RECONCILIATION BETWEEN THE SEGMENT REPORTING - PRIMARY OF REPORT ON OPERATIONS AND SEGMENT REPORTING OF PART D THE NOTES TO FINANCIAL STATEMENTS SEGMENT PRIMARY - REPORTING SEGMENT of euro) (in millions AGGREGATESINCOME Net financial and insuranceincome (loss) Net adjustments value for and financial loans impairment of assets Operating expenses incomeNet operating AGGREGATESCAPITAL Performing loans Due to customers and securities

224

CONSOLIDATED FINANCIAL STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

225

CONSOLIDATED FINANCIAL STATEMENTS

• TABLES OF THE CONSOLIDATED FINANCIAL STATEMENTS • CHANGES IN SHAREHOLDERS' EQUITY • CASH FLOW STATEMENT • NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Part A - ACCOUNTING POLICIES

Parte - INFORMATION ON THE CONSOLIDATED BALANCE SHEET

Part C - INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

Part D - SEGMENT REPORTING

Part E - INFORMATION ON RISKS AND RISK HEDGING POLICIES

Part F - INFORMATION ON CONSOLIDATED SHAREHOLDERS' EQUITY

Part G - MERGERS REGARDING COMPANIES OR BUSINESS UNITS

Part H - TRANSACTIONS WITH RELATED PARTIES

Part I - SHARE-BASED PAYMENTS

Declaration of consolidated financial statements pursuant to art. 154-bis of Legislative Decree no. 58/98

226

227

228

(in EUR) Liabilities and Shareholders' Equity 31 12 2008 31 12 2007

10 Due to banks 27.208.645.978 13.742.750.063

20 Customer deposits 81.596.414.386 60.436.581.201

30 Outstanding securities 47.157.555.961 39.808.798.078

40 Financial liabilities held for trading 18.967.188.840 19.355.217.544

50 Financial liabilities designated at fair value 13.711.900.007 13.093.848.021

60 Hedging derivatives 389.889.284 51.659.243

70 Change in value of financial liabilities recorded as part of a macrohedge (+/-) - -

80 Tax liabilities 1.399.193.303 247.851.351 a) current 1.283.515.253 94.698.154 b) deferred 115.678.050 153.153.197

90 Liabilities associated with disposal groups held for sale 45.384.071 2.863.322

100 Other liabilities 6.324.870.383 4.978.924.468

110 Staff severance indemnity reserve 539.822.794 367.908.549

120 Provisions for risks and liabilities: 1.352.022.438 1.050.811.614 a) pension fund and similar commitments 429.819.893 427.748.723 b) other provisions 922.202.545 623.062.891

130 Technical reserves - -

140 Valuation reserves 401.169.657 650.359.070

150 Redeemable shares - -

160 Equity instruments 46.871.091 70.411.547

170 Reserves 4.909.020.124 3.996.475.026

180 Share premium account 4.094.436.080 559.171.863

190 ShareEquity capital 4.486.786.372 2.031.866.478

200 Treasury shares (-) (36.962.960) (96.625.258)

210 Minority interests 279.016.681 289.962.082

220 Profit (loss) for the year (+/-) 922.752.084 1.437.558.418

Total liabilities and shareholders' equity 213.795.976.574 162.076.392.680

The above comparative data does not include the values of the former Group Antonveneta whilst it does include the impact of the move from a provisional PPA to a definitive PPA for the subsidiary Biverbanca.

229

INCOME STATEMENT

(in EUR) Accounts 31 12 2008 31 12 2007

10 Interest and similar income 10.316.025.034 7.375.916.530

20 Interest and similar expense (6.564.689.920) (4.461.488.428) 30 Net interest margin 3.751.335.114 2.914.428.102 40 Commission income 1.663.520.249 1.711.376.140

50 Commission expense (214.781.863) (196.042.949) 60 Net commissions 1.448.738.386 1.515.333.191 70 Dividends and similar income 619.475.001 570.505.553

80 Net result from trading (828.804.425) (410.997.249)

90 Net result from hedging (1.807.018) (2.668.138) 100 Profit (loss) from the sale or repurchase of: 78.806.549 214.251.710 a) loans 3.034.270 4.186.404 b) financial assets available for sale 78.136.942 216.842.762 c) financial assets held to maturity - - d) financial liabilities (2.364.663) (6.777.456) 110 Net result of financial assets and liabilities designated at fair value 72.974.889 29.463.190 120 Operating income 5.140.718.496 4.830.316.359

130 Net value adjustments/recoveries on impairment of: (1.359.971.786) (647.251.760) a) loans (1.002.281.117) (613.951.774) b) financial assets available for sale (361.298.172) (36.607.810) c) financial assets held to maturity - - d) other financial transactions 3.607.503 3.307.824 140 Net income from banking activities 3.780.746.710 4.183.064.599 150 Net premiums - - 160 Other income/expenses from insurance activities - - 170 Net income from banking and insurance activities 3.780.746.710 4.183.064.599

180 Administrative expenses: (3.885.056.975) (3.011.511.137) a) personnel expenses (2.348.181.329) (1.848.924.239) b) other administrative expenses (1.536.875.646) (1.162.586.898)

190 Net provisions for risks and charges (154.106.113) (103.466.768)

200 Net adjustments/recoveries on tangible assets (89.127.117) (67.349.905)

210 Net adjustments/recoveries on intangible assets (101.586.668) (47.651.175) 220 Other operating income/expenses 334.234.617 175.104.683

230 Operating costs (3.895.642.256) (3.054.874.302) 240 Profit (loss) on equity investments 145.500.620 141.931.824 250 Net result of tangible and intangible assets designated at fair value - -

260 Adjustments to goodwill (150.854.000) (732.000) 270 Profit (loss) on disposal of investments 27.985.155 185.425

280 Profit (loss) before tax from continuing operations 1.269.575.546 (92.263.771)

290 Taxes on income from continuing operations 929.848.471 (551.586.330) 300 Profit (loss) after tax from continuing operations 837.584.700 717.989.216 310 Profit(loss) after tax from disposal groups held for sale 93.524.402 735.210.499 320 Net profit (loss) for the year 931.109.102 1.453.199.715 330 Net profit (loss) attributable to minority interests 8.357.018 15.641.297 340 Parent company's net profit (loss) for the year 922.752.084 1.437.558.418

230 31 12 2008 31 12 2007

Basic earnings per share (Basic EPS) 0,181 0,477 Of continuing operations 0,156 0,233 Of disposal groups held for sale 0,025 0,244 Diluted earnings per share (Diluted EPS) 0,175 0,446 Of continuing operations 0,152 0,222 Of disposal groups held for sale 0,023 0,224

Basic earnings per share and diluted earnings per share show a decline compared with the same period for the previous year. This is due to the share capital increase completed on the 12 June following the acquisition of Group Antonveneta for a total of 3,035,721,650 new ordinary shares in addition to the partial conversion of Fresh (no. of shares 52,965,994) which led to an increase in the weighted average of outstanding shares for that period.

231

Consolidated statement of cash flows indirect method

A. OPERATING ACTIVITIES 31 12 2008 31 12 2007 (in EUR) 1. Cash flow from operations 2.638.787.564 2.205.786.769

net income (+/-) 931.109.101 1.453.199.715 gains/losses on financial assets held for trading and on financial assets/liabilities designated at fair value (-/+) 189.989.553 (69.640.151) gains/losses on hedging activities (-/+) 1.807.018 2.668.138 net value adjustments/recoveries on impairment (+/-) 1.991.899.329 739.230.964 net value adjustments/recoveries on tangible and intangible assets (+/-) 190.713.785 115.001.080 net provisions for risks and charges and other costs/revenues (+/-) 268.691.594 266.692.693 net premiums outstanding (86.438.000) other outstanding insurance income/charges (+/-) (761.136.000) tax and duties to be settled (+) (929.848.471) 551.586.330 net value adjustments/recoveries on disposal groups held for sale net of tax effect (+/-)

9.585.672 - other adjustments (15.160.017) (5.378.000)

2. Cash flow from/used in the reduction of financial assets (11.182.343.734) (14.690.502.790)

financial assets held for trading (11.872.028.225) 755.049.497 financial assets designated at fair value (1.969.730.943) - financial assets available for sale (243.933.774) (417.334.696) amounts due from banks: on demand 152 (2.117.973.314) amounts due from banks: other receivables 3.845.507.436 - customer loans (6.104.928.484) (12.749.368.337) hedging derivatives (11.302.195) other assets 5.162.770.104 (149.573.745)

3. Cash flow from/used in financial liabilities 18.315.889.172 12.500.142.034

due to banks: on demand 2.828.746.319 (2.848.642.270) due to banks: other payables - - due to customers 1.886.575.532 4.480.242.201 outstanding securities 1.187.358.882 9.438.942.931 financial liabilities held for trading 15.061.743.902 2.400.079.544 financial liabilities designated at fair value (101.763.740) (724.760.979) hedging derivatives (47.799.248) other liabilities (2.546.771.723) (197.920.145)

Net cash flow from/used in operating activities 9.772.333.002 15.426.013

B. INVESTMENT ACTIVITIES

1. Cash flow from: 1.031.650.145 1.506.943.381

sales of equity investments 327.233.235 350.389.000 dividends collected on equity investments 40.176.486 - sales/repayment of financial assets held to maturity - - sales of tangible assets 112.799.639 3.241.000 sales of intangible assets 43.109.785 2.212.340 sales of subsidiaries and business units 508.331.000 1.151.101.041

2. Cash flow used in: (16.008.226.227) (724.146.000)

purchases of equity investments (9.998.743.036) - purchases of financial assets held to maturity - - purchase of tangible assets (99.951.331) (103.770.000) purchase of intangible assets (6.137.973.795) (106.030.000) purchase of subsidiaries and business units 228.441.935 (514.346.000)

232

Net cash flow from/used in investment activities (14.976.576.082) 782.797.381

C. FINANCING ACTIVITIES

issue/purchase of treasury shares 13.533.723 (61.281.103) issue/purchase of equity instruments dividend distribution and other (640.377.297) (527.872.214) issue of new shares 6.036.370.668

Net cash flow from/used in financing activities 5.409.527.094 (589.153.317)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 205.284.014 209.070.077

Reconciliation

Accounts 31 12 2008 31 12 2007

Cash and cash equivalents at beginning of period 821.090.140 612.020.063

Net increase (decrease) in cash and cash equivalents 205.284.014 209.070.077

Cash and cash equivalents: effect of exchange difference

Cash and cash equivalents at end of period 1.026.374.154 821.090.140

Cash and cash equivalents for the end of the period came to 1,026,374 thousand euro and includes Account 10 Cash and cash equivalents for 1,026,368 thousand euro and further Cash of 0.6 thousand euro included under Account 150, non-current assets and disposal groups held for sale.

233 Note: Equity instruments dropped by abt. EUR 23.5 mln due to the partial conversion of the Convertible Preferred Securities. Treasury shares decreased by EUR 59.6 mln, the trading profit/loss is shown in the share premium account. Minority interests in net equity declined by EUR 10.9 mln (net), due to the loss of control of the Intermonte Sim SpA (EUR 42 mln) and the sale of 1.78% of the capital of the subsidiary Biverbanca SpA to Fondazione Cassa di Risparmio Biella, though positively offset by the change in the positive fair value (abt. EUR 25 mln) of the investment held in the Bank of Italy.

234 Note: Profit reserves include unavailable reserves (EUR 96.6 mln) equaling the amount of treasury shares

235

237

239 PART A - ACCOUNTING POLICIES

A1 – GENERALITIES

Section 1 – Declaration of compliance with the international accountingﬁ nancial reporting principles standards

These consolidated financial statements are prepared – in enforcement of Legislative Decree no. 38 of 28 February 2005 - in accordance with the international accounting principles issued by the International Accounting Standards Board (IASB) and their related interpretations by the International Financial Reporting Interpretations Committee (IFRIC), as approved by the European Commission, as contemplated by the EU Regulation no.1606 of 19 July 2002. The international accounting standards were applied with reference to the “Framework for the drafting and presentation of financial statements” (Framework). Failing a principle or an interpretation specifically applicable to a transaction, an event or circumstance, the Bank’s Management developed and applied its own accounting principles for the purpose of providing a reporting which is: o Relevant for the purposes of the economic decisions made by the users; o Reliable so as the balance-sheet; o faithful y represents the economic-financial situation of the Group, its results and financial flows; o reflects the economic substance of the transactions, other events and circumstances and not merely their legal form; o is neutral, that is with no prejudices; o is conservative; o is complete with reference to all relevant aspects. As a result, the Bank’s Management made reference to and took account of the enforceability of the following sources, listed in a hierarchically decreasing order: o the provisions and application guidebooks contained in the Principles and Interpretations which deal with similar or related cases; o the definitions, and criteria of measurement for the accounting of assets, l iabilities, income and expenses contained in the Framework.

The Bank’s Management can also take into account: o the most recent provisions issued by other entities in charge of establishing the accounting principles which use a similar Framework for the purpose of developing the accounting principles; o other accounting literature; o consolidated practices in the banking industry.

In compliance with art. 5 of Legislative Decree no. 38 of 28 February 2005, if - in exceptional cases – the application of a provision contained in the international accountingﬁ nancial reporting principles standards turned turned out toout be to nonbe non compliant compliant with with the the true true andand faithful representation of the balance-sheet, the financial situation, and the profit and loss statement, the provision was not applied. The reasons for derogation and its impact on the representation of the balance-sheet and financial situation, and the profit and loss statement, have been accounted for in the notes to the financial statements.

240 In the financial statements of each company any profits resulting from the derogation are posted under a reserve which is only distributable as to the value recovered.

Section 2 - General principles of drafting

For the purpose of the presentation and measurement of the consolidated financial statements, the MPS Group adopted the IAS/IFRS international accounting standards issued by the International Accounting Standard Board (IASB) and their interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) validated by the European Union and the provisions contained in the Circular Letter No. 262 of 22 December 2005 issued by the Bank of Italy and concerning the models and rules for preparing bank financial statements and consolidated financial statements.

The consolidated financial statements consist of: o the consolidated balance-sheet; o the consolidated profit and loss statement; o the statement of changes in consolidated shareholders’ equity; o the statement of changes in consolidated financial position; o the notes to the consolidated financial statements.

The consolidated financial statements are completed with the directors’ report on the Group’s trends situation by business sector. The consolidated financial statements are prepared with transparency and give a true and faithful view of the consolidated balance-sheet, financial position and profit and loss statement for the year. If the information required by the international accounting standards and the provisions contained in the Circular Letter no. 262 of 22 December 2005 issued by the Bank of Italy do not suffice to give a true and faithful, relevant, reliable, comparable and intelligible view of the operations, the notes to the consolidated financial statements provide the necessary supplementary information. The consolidated balance-sheet and profit and loss statement consist of accounts – marked with numbers -, sub- accounts - marked with letters – and further details, under “including” in the accounts and sub-accounts. Accounts, sub-accounts and their details are part of the balance-sheet. Each account of the balance-sheet and the profit and loss statement also indicates prior year’s amounts. If the accounts cannot be compared, the accounts in relation to the prior year are reclassified; non-comparativeness and reclassification or impossible reclassification are reported and commented in the notes to the financial statements.

With reference to the comparison the reported data are affected by the Purchase Price Allocation (PPA) of Biverbanca, a subsidiary, defined at the end of the last quarter of 2008. As far as the effects of the passage from the temporary PPA to the final one Part G – Mergers regarding companies or business lines should be referred to.

For the sake of full disclosure, the acquisition of the Antonveneta Group did not imply any changes to the comparative data, whereas the effects of the acquisition were reported in the flow of mergers in the tables in the notes to the financial statements.

Assets and liabilities, expenses and income cannot be offset, unless this is permitted or required by the international accounting standards or the provisions of Circular no. 262 of 22 December 2005 issued by the Bank of Italy. The consolidated balance-sheet and profit and loss statement do not indicate the accounts which do not show any amount for the year of reference of the balance- sheet or prior year. If a component of the assets or liabilities is part of several accounts of the balance-sheet, the notes to the financial statements indicate – whenever this is necessary for the purpose of intelligibility – that this component may also be referred to accounts other than the one where it is posted. Income shall be posted with no sign in the profit and loss statement and the respective section of the notes, whereas expenses shall be indicated in brackets.

241 In compliance with the provisions of art. 5 of Legislative Decree no. 38 of 28 February 2005, the consolidated financial statements have been prepared using the Euro as the currency of account, and the tables in the consolidated financial statements are denominated in units of Euro, while the tables in the consolidated notes are denominated in thousands of Euro. The consolidated financial statements have been prepared on an ongoing concern basis, on an accrual basis, in compliance with the principle of importance and meaningfulness of information, the predominance of substance over form and with a view to encouraging consistency with future statements. In particular, as to the ongoing concern basis, in compliance with the provisions of Document no.2 of 6 February 2009 jointly issued by the Bank of Italy, Consob and Isvap dealing with “Information to be supplied in the financial report on the ongoing concern, on financial risks, on examination for asset value decrease and on uncertainties in the use of estimates” the Group reasonably expects to go on with its operating activity in a foreseeable future and has therefore drawn up the financial statements on an ongoing concern basis; the uncertainties resulting from the current economic crisis have not remarkably affected the 2008 financial statements and do not cast doubts on the above-mentioned ongoing concern basis. More detailed information regarding main market issues is published with the Report on Operations of the Directors.

Items of a different nature or with different allocation were shown in a different way, unless they were considered to be irrelevant. All amounts shown in the consolidated financial statement were adjusted so as to reflect any events following the date of reference which, according to IAS 10, involve an obligation to make an adjustment. Subsequent events which do not imply an adjustment and therefore reflect any circumstances which occurred after the date of reference are subject to reporting in the notes to the financial statements in section 3, when they are relevant and have an impact on the users’ economic decisions.

Other information

The consolidated financial statements incorporate the financial and economic results of the MPS Group and its direct and indirect subsidiaries. In particular, the basis of consolidation includes all subsidiaries, irrespective of their legal status, the business activity pursued, their status of ongoing concerns or companies being wound up, or whether the equity investment consists of a merchant banking transaction.

During the year the following changes were made to the basis of consolidation in comparison with 31 December 2007:

By the Parent Bank:

on 30 May 2008, the full acquisition of Banca Antonveneta S.p.A. merged by incorporation into the BMPS Parent Bank at the end of last December was executed. The merger was recorded to the financial statements of the bank according to the accounting principles issued by Assirevi, OPI 1 and 2; in December 2008 the Purchase Price Allocation process was completed; To complete the acquisition of Biverbanca S.p.A., in February 2009, the Fondazione Cassa di Risparmio di Vercelli exercised the put option which had been previously sold to Banca Monte dei Paschi di Siena, through which the Parent Bank acquired a 5.78% share of the Biverbanca S.p.A. capital. Subject to the exercising of the put option by the Fondazione Cassa di Risparmio di Vercelli, the Fondazione Cassa di Risparmio di Biella exercised the call option through which the Parent Bank Banca Monte dei Paschi di Siena S.p.A. sold the 1.78% of the capital of Biverbanca, at the same put strike; after the exercising of these options the ownership percentage of Biverbanca amounts to 59%. At the end of February 2008 the full acquisition of Axa Sim S.p.A. (now MPS Sim S.p.A.) was signed which was previously controlled by the Axa Group; this transaction, as a merger, was dealt with pursuant to the 242 criteria of IFRS 3 principle; At the end of March 2008, the Parent Bank acquired the remaining 50% of the equity investments in Quadrifoglio Vita S.p.A. from Unipol S.p.A which, in December 2008 within the Bancassurance Framework Agreement with the AXA Group, was sold to AXA MPS Vita, an affiliate; In May 2008, the sale of Banca Monte dei Paschi Finance S.p.A., a subsidiary, was executed after having concentrated in it the activities of the custodian previously referred to the Parent Bank and to Montepaschi Asset Management S.p.A, a subsidiary; In June 2008, sales of Fontanafredda S.p.A., a subsidiary, and of Finsoe S.p.A, an affiliate, were executed; In July 2008, following the renegotiation of the shareholders’ agreements between the Parent Bank Banca Monte dei Paschi di Siena and the promoting partner of Intermonte Sim S.p.A, the operating business line of MPS Intermonte S.p.A. (ex Intermonte Sim S.p.A.) was sold to a specially established new-co, Intermonte Sim S.p.A. of which the Monte Group owns 20%, Still in the third quarter, the purchase of the remaining 45% of AAA S.p.A, a subsidiary was executed, which the Parent Bank already controlled thanks to the acquisition of the Antonveneta Group; Finally, in the fourth quarter, sales of the subsidiaries Valorizzazioni Immobiliari S.p.A. and Banca del Monte di Parma were executed.

As regards internal transfers within the group, please note following transactions:

By the Parent Bank:

Mergers by incorporation of the subsidiaries Banca Agricola Mantovana S.p.A. and Banca Antonveneta S.p.A. which occurred in September and December 2008, respectively; Sale of business lines represented by the open pension funds Kaleido, Paschi Previdenza and Quadrifoglio Vita S.p.A., to Axa MPS Vita S.p.A., an affiliate, within the Master Agreement of Bancassurance executed with the AXA Group; Sale of part of the equities classified in the available for sale portfolio and of some linked equity investments to MPS Investments S.p.A., a subsidiary; Acquisition of the business line relating to the Asset Management of AAA S.p.A., a subsidiary;

By MPS Sim S.p.A., a subsidiary:

Sale of the business line relating to financial promoters to Banca Personale S.p.A., a subsidiary;

By MPS Investments S.p.A, a subsidiary:

Merger by incorporation of MPS Intermonte S.p.A., a subsidiary, after selling the operating business line of MPS Intermonte S.p.A.

For the sake of full disclosure, as of the date of drawing up of the financial statements, steps necessary to sell the subsidiaries relating to the MPS Asset Management Sgr S.p.A. Group and to the AAA S.p.A. Group are being completed, for which in 2009 the necessary authorizations of Supervisory Authorities were obtained. As of 31 December 2008, these subsidiaries were considered assets being sold, therefore the data concerning the balance sheet and the profit and loss account were reclassified in the 150/180 balance sheet accounts “non-current assets and assets being sold”/”liabilities related to assets being sold” and in the 310 income statement account “Profit/loss of assets being sold after tax”, respectively. Marinella S.p.A., a subsidiary, which is also an asset being sold, was actually sold in the first quarter of 2009.

243

The breakdown of the area of line-by-line consolidation and the companies valued with the net equity method is shown under Section 10 of the Notes to the consolidated financial statements. With reference to consolidation methods, the subsidiaries1 are consolidated on a line-by-line basis, jointly controlled companies are consolidated with the proportional method or with the net equity method and the companies subject to the Group’s “significant influence” are valued with the net equity method.

1 - The concept of “control” goes beyond the percentage interest held in the share capital of a subsidiary and is to be defined as the power of deciding the management and financial policies of an entity for the purpose of obtaining benefits from its activity.

244

Line-by-line consolidation consists of the line-by-line acquisition of the balance-sheet and profit and loss statement aggregates of the subsidiaries. After the assignment to third parties, under a separate account, of their portions of net equity and profits/losses, the value of the investment is contra-entered with respect to the value of the subsidiary’s net equity. Assets, liabilities, income and expenses posted among consolidated companies are eliminated.

The profits and losses of a subsidiary purchased during the period are included in the consolidated financial statements as of the date of purchase. Profits and losses of a subsidiary sold are included in the consolidated financial statements until the date of termination of control. The difference of the selling amount and the book value as of the date of disposal (including the foreign exchange differences measured from time to time in net equity during consolidation) is posted to the profit and loss statement.

Investments held in jointly controlled companies are managed with the method of proportional consolidation or with net equity method. Joint control means the shared control, as established by contract, over a business. In this case, the unanimous agreement of all parties sharing control is required in order to make strategic financial and management decisions.

Companies over which the Group exercises significant influence, or over which it has the right to participate in the determination of financial and management policies without having control or joint control, are valued using the net equity method.

The net equity method contemplates the initial posting of the investment at cost and its subsequent adjustment on the basis of the stake held in the subsidiary’s net equity. The profit/loss for the year of the subsidiary is posted to account 240 in the consolidated profit and loss statement, “Profits, losses from equity investments”.

The financial statements processed for line-by-line and proportional consolidation include the financial statements as of 31 December 2008 approved by the Boards of Directors of the respective companies. The companies subject to the Group’s significant influence are valued with the net equity method on the basis of the latest financial statements or situations available.

Section 3 – Events subsequent to the date of reference of the financial statements For the foreseeable evolution of the activities, the special section of the report on operations o f the Directors should be referred to.

Section 4 – Other aspects

In accordance with IAS 8, paragraph 30, it is noted that as of 31 January 2009 the International Accounting Standards Board issued the definitive version of certain international accounting standards, specifically supplemented and revised as part of the existing plan of convergence with US GAAP. Moreover, in the same period some principles and interpretations were ratified by the European Commission.

Accounting principles, amendments and interpretations which cannot yet be applied or are not yet adopted in advance

245 On 30 November 2006, IASB issued the IFRS 6 accounting principle – Operating Segments which must be applied starting from 1 January 2009 replacing the IAS 14 – Sector reporting. According to the new accounting principle, the company must base the information included in the sector reporting on elements which the management uses to take its operating decisions, therefore, the identification of the operating segments is required on the basis of internal reporting which is regularly reviewed by the management in order to allocate resources to the several segments and to analyse the performances. The adoption of this principle will not impact on the valuation of the financial statements accounts. The principle was ratified on 21 November 2007 by the European Commission with the Regulation no.1358/2007.

On 29 March 2007, IASB issued a revised version of IAS 23 – Financial charges which must be applied starting from 1 January 2009. In the new version of the principle the option was removed according to which it is possible to immediately recognize, on the profit and loss account, the financial charges occurred in front of assets for which usually a specified period of time elapses before such assets are available for use or for sale. The principle will be prospectively applied to financial charges concerning capitalized assets starting from 1 January 2009. The principle was ratified on 10 December 2008 by the European Commission with Regulations no. 1260/2008.

On 6 September 2007, IASB issued a revised version of the IAS 1 - Presentation of financial statements which must be applied starting from 1 January 2009. According to the new version of the principle, all amendments produced by transactions with shareholders must be reported on a table of the changes in net equity. All transactions with third parties must be reported on a single table (comprehensive income) or in two distinct tables (profit and loss account and other comprehensive income). In any case, the changes produced by transactions with third parties may not be reported on the table of the changes in net equity. The principle was ratified on 17 December 2008 by the European Commission with the Regulation no.1274/2008.

On 10 January 2008, IASB issued a revised version of the IFRS 3 – Business Combinations and amended IAS 27 – Consolidated and separated financial statements. Main amendments to IFRS 3 concern the removal of the obligation of assessing each asset and liability of the subsidiary at fair value in each following acquisition, in case of acquisition of subsidiaries by stages. Moreover, if the company does not acquire 100% of the shareholding, the share of net equity of third parties may be assessed both at fair value (full goodwill) and using the method currently provided for by IFRS 3. The revised version of the principle also provides the allocation to profit and loss account of all costs related to the business combinations and the recognition at the date of acquisition of the liabilities for qualified payments. In the amendment to IAS 27, the IASB stated that the amendments to the equity investment not representing a loss of control must be considered equity transaction and therefore must have a counter-item to the net equity. It is also stated that when a controlling company sells the control of a subsidiary but is still holding an equity investment in the company it must evaluate the equity investment held in the financial statements at fair value and assigns profit or losses resulting from the loss of control to profit and loss account. Finally, the amendment to IAS 27 provides that all losses which may be assigned to minority shareholders are allocate to the equity investment of third parties also when they exceed their equity investment of the subsidiary. The new rules must be prospectively applied starting from 1 January 2010. The competent bodies of the European Union have not completed yet the ratification process necessary to apply the principle and the amendment.

On 17 January 2008, IASB issued an amendment to IRFS 2 - Conditions of accrual and cancellation according to which only the service and performance conditions can be considered a conditions of plan accruals to assess the instruments of remuneration based on shares. The amendment provides that, in case of cancellation of the plan, the same accounting principle must be applied both if it results from the company and from the counterpart. The amendment must be applied starting from 1 January 2009. The principle was ratified on 16 December 2008 by the European Commission with Regulation no. 1261/2008.

On 14 February 2008, IASB issued an amendment to IAS 32 – Financial instruments: presentation and to IAS 1 – Presentation of the Financial Statements – Puttable Financial Instruments and bonds resulting at the settlement. In 246 particular, according to the principle the companies must classify the puttable financial instruments and those ones requiring the company to deliver an equity investment in the company to a third party as equity instruments. This amendment must be applied starting from 1 January 2009. The principle was ratified on 21 January 2009 by the European Commission with Regulation no. 53/2009.

On 22 May 2008, IASB issued an amendment to IFRS 1 First adoption of International Financial Reporting Standard and to IAS 27 Consolidated and separate financial statements - Cost of equity investments in subsidiaries, in jointly controlled companies and in associated companies. In particular, the principle provides that, in case of first application of IFRS it is possible, in the separate financial statements and in addition to the already existing criteria, to report the investments in the subsidiaries, subject to remarkable influence and to joint control, at a deemed cost which is either the fair value at the date of transition of the separate financial statements to IAS/IFRS or the book value according to the original accounting principles (for instance, IT GAAP). The choice may be on an individual basis. The amendment concerns IAS 27 as well and in particular the treatment of dividends and of equity investments in the separate financial statements; as a matter of fact, with this amendment the distribution of profits, also of the pre-acquisition profits, are recorded to profit and loss account in the individual financial statements when the right to the dividend becomes due. Therefore, there is no longer any obligation to record the distributions of pre- acquisition dividends to decrease in value of the equity investment. On the other hand, in IAS 36 a new impairment indicator was introduced to assess equity investment which takes into account this. Such an amendment must be applied starting from 1 January 2009. The principle was ratified on 23 January 2009 by the European Commission with Regulation no. 69/2009.

On 22 May 2008, IAS issued a whole set of amendments to IFRS (improvements); hereunder the amendments which, according to IASB, will imply a change in presentation, recognition and assessment of the accounts are mentioned, leaving aside those only implying editing or terminological amendments with minimum effects in accounting. IFRS 5 – non-current assets for sale and terminated operating assets: the amendment, which must be applied starting from 1 January 2010, provides that if a company is involved in a sale plan implying the loss of control in a subsidiary all assets and liabilities of the latter must be reclassified into the assets for sale even if after the sale the company will still hold a minority equity investments in the subsidiary. IAS 1 – Presentation of Financial statements (reviewed in 2007): the amendment which must be applied starting from 1 January 2009 provides that all assets and liabilities resulting from derivative financial instruments which are not held for trading are classified in the financial statements distinguishing between current and non- current assets and liabilities. IAS 16 – Real estate, plant and machinery: the amendment must be applied starting from 1 January 2009 and provides that the companies the peculiar business of which is renting must reclassify to stock the goods which are no longer rented and are for sale and, consequently, the amounts resulting from their sale must be recognized as revenues. The amounts paid to build or buy goods to be located to others as well as the amounts resulting from the following sale of these goods represent cash flows resulting from operating assets and not from investment assets for the purposes of financial accounting. IAS 19 – Benefits for employees: the amendment must be applied starting from 1 January 2009 prospectively to the changes in benefits occurred after that date; it explains the definition cost/income concerning past working performances and provides that, in case of reduction in a plan, the effect to be immediately recorded to profit and loss account must only include the reduction in benefits related to future periods whereas the effect resulting from any reductions related to past services must be considered a negative cost as to past working performances. The Board has drawn up again the definition of short-term benefits and of long-term benefits and has modified the definition of assets return providing that this item must be recorded net of any administrative costs other than those already included in the bond value. IAS 20 – Bookkeeping and reporting of public subsidies: the amendment, which must be prospectively applied starting from 1 January 2009, provides that the benefits resulting from government subsidies granted at a much lower interest rate than the market rate must be treated as public subsidies and therefore follow the 247 recognition rules of IAS 20. IAS 23 Borrowing costs: the amendment, which must be applied starting from 1 January 2009, has reviewed the definition of borrowing costs. IAS 28 – Equity investments in associated companies: the amendment, which must be applied (also only prospectively) starting from 1 January 2009, provides that in case of equity investments valued on the basis of the equity method, any value loss must not be assigned to each assets (and in particular to goodwill, if any) making up the investment book value, but to the value of the company as a whole. Therefore, in presence of conditions for a following value recovery, the recovery must be fully recognised. IAS 28 - Equity investments in associated companies and IAS 31 – Equity investments in joint ventures: these amendments, which must be applied starting from 1 January 2009, provide that additional information is supplied also for investments in associated companies and joint ventures valued at fair value according to IAS 39. Consistently, IFRS 7- Financial instruments: additional information and IAS 32 – Financial instruments: exposures in financial statements were also amended. IAS 29 – Accounting information in economies with hyperinflation: the previous version of the principle did not mirror the fact that some assets or liabilities could be valued in financial statements at the current value instead of at the historical cost. The amendment introduced to take into account of such event must be applied starting from 1 January 2009. IAS 36 – The value loss of assets; the amendment, which must be applied starting from 1 January 2009, provides additional information if the company calculates the recoverable value of the cash generating unit using the cash flow updating method. IAS 38 – Intangible assets: the amendment must be applied starting from 1 January 2009 and provides the recording to profit and loss account of promotional and advertising costs. Moreover, it provides that, if the company incurs costs having future economic benefits without any recording of intangible assets, the latter must be recorded to profit and loss account as soon as the company is entitled to use the good, in case of goods purchase, or when a service is supplied, in case of services purchase. Moreover, the principle was modified to enable the companies to adopt the produced unit method to determine the goodwill of intangible assets at defined useful life. IAS 39 - Financial instruments: recognition and measurement. The amendment, which must be applied starting from 1 January 2009, explains how to calculate the new actual rate of return of a financial instrument at the end of a fair value hedge; it also explains that the prohibition of reclassifying them in the category of the financial instruments with fair value adjustment to the profit and loss account must not be applied to the derivative financial instruments which cannot be qualified any longer as hedging or which become hedging ones. Finally, to avoid conflicts with the new IFRS 8 – Operating Segments, it cancels any reference to a hedging instrument (former IAS 14). IAS 40 – Real estate investments: the amendment, which must be applied starting from 1 January 2009, provides that the real estate investments under way fall within the application field of IAS 40 instead of IAS16. The principle was ratified on 23 January 2009 by the European Commission with Regulation 70/2009.

On 24 November 2008, IASB issued a new version of IFRS 1 – First adoption of the International Financial Reporting Standard. The new version of the principle is an expository re-organization of the previous standard which was submitted to several adjustments.

The new version must be applied starting from 1 January 2010. The competent bodies of the European Union have not yet completed the ratification process necessary for the application of the amendment.

On 30 November 2006, IFRIC issued the IFRIC 12 interpretation – Agreement of granting of services: the interpretation concerns the granting by the government or by public entities to individuals of infrastructures to be developed, managed and kept; the interpretation distinguishes two cases: when the entity receives a financial asset to build/develop the infrastructure and when the entity receives an intangible asset represented by the right of being paid for the use of the infrastructure. In both cases, the financial/intangible asset is initially valued at fair value and then it follows the rules of the reference category. The interpretation which must be applied starting from 1 January 2009 has not been ratified yet by the European Commission 248

On 28 June 2007, IFRIC issued the IFRIC 13 interpretation – Customer’s fidelization programme: the interpretation rules the accounting of the customer’s fidelization programmes, that it of programmes according to which, further to the acquisition of goods or services of the bank , “credits” or “points” are awarded entitling customers, subject to certain conditions, to receive premiums or free or discounted goods or services. The accounting consists of posting a liability as a counter-entry to a decrease in revenues in the period of point assigning; the inscription of these returns is postponed to the premium awarding, when the liability is also cancelled. The interpretation which must be applied starting from 1 January 2009 was ratified by the European Commission on 16 December 2008 with Regulation no. 1262/2008.

On 3 July 2008, IFRIC issued the interpretation IFRIC 15 – Contracts to build real estate; the interpretation introduces a distinction for the real estate under construction according to the kind of contract/agreement between the case when the constructor supplies the service of building and the case when it sells the good. In the first case, the entity supplying the service records revenues on the basis of the percentage of completion of the building )IAS 11); in the second case, revenues are recorded depending on when the control of the good is lost. The interpretation which must be applied starting from 1 January 2009 has not been ratified yet by the European Commission.

On 3 July 2008, IFRIC issued the interpretation IFRIC 16 – Hedging of a net equity investment abroad with which it was explained that it is possible to hedge, for accounting purposes, the exposure to the exchange risk of subsidiaries, of companies under significant influence and joint ventures; in particular, the risk which can be hedged concerns the exchange difference between the functional currency of the foreign entity and the functional currency of the holding company. Moreover, the interpretation explains that, in case of an instrument hedging a net equity investment abroad the instrument can be held by any company belonging to the group and that, in case of sale of the investment, IAS 21- Effects of currency conversion must be applied to determine the value to be reclassified from net equity to profit and loss account. The interpretation must be applied starting from 1 January 2009. As of the date of this half-year financial report, the competent bodies of the European Union have not ended yet the process of ratification necessary for its application.

On 31 July 2008, IASB issued an amendment to IAS 39 – Instruments which may be designated as hedged item according to which the inflation risk can be hedged only under certain conditions and an acquired option cannot be fully designated (built-in value and time value) to hedge an one-sided risk of a forecast transaction because it does not create a perfect hedging. The amendment must be applied starting from 1 January 2010. The competent bodies of the European Union have not ended yet the process of ratification necessary for its application.

On 27 November 2008, IFRIC issued the interpretation IFRIC 17 – Distributions of non-cash assets to owners; the interpretation rules the distributions of dividends other than cash (for instance: real estate, companies, equity investments, etc.). In particular, it is clarified that in these cases, the assets distributed as dividends must be valued at fair value on distribution and that the difference, if any, between fair value and book value must be recorded to profit and loss account. The interpretation does not apply to distributions of assets which a) concern entities under common control, b) do not treat shareholders of the same class in the same way or c) concern the equity investment in a subsidiary the control of which is not lost. If applicable, the distribution could be preceded by the classification to IFRS 5; in this case, the IFRS5 rules are applied up to the dividend payment. The interpretation which must be applied starting from 1 January 2010 has not been ratified yet by the European Commission.

On 29 January 2009, the IFRIC issued the interpretation IFRIC 18 – Transfers of assets from customers: the interpretation rules the accounting treatment of tangible assets received from customers and used to connect the customers to a network and/or to supply goods and services. If the entity receives such an asset (i.e. the entity has the control of this asset) the entity posts the asset at its fair value (IAS 16); against this asset, the entity enters a revenue related to the life of the services supplied to the customer. If no period is specified, the revenue shall be

249 recognised over a period no longer than the useful life of the transferred asset. If the service only consists in connecting the customer to a network the revenue is recorded upon connection. The interpretation which must be applied starting from 1 January 2010 has not been ratified yet by the European Commission.

The principles implying major effects on the current structure are IFRS 3 – Business combinations and IAS 27 – Consolidated and separate financial statements which will not be retroactive on transactions executed until 31 December 2008.

New accounting principles, amendments and interpretations applied in the 2008 financial statements

Among the ratified principles and amendments to the accounting principles in 2008 already applied, the amendment to IAS 39 and to IFRS 7 - Reclassification of financial assets (amendments to IAS 39 “Financial instruments: Recognition and measurement” and to IFRS 7 – “Financial instruments: disclosures”) issued on 13 October 2008 by IASB and ratified by the European Commission on 15 October 2008 with Regulation no. 1004/2008 is underlined. The amendment meets the needs of alignment to the US principles to re-establish a “level playing field” with US financial institutions. These amendments cancelled some prohibitions of reclassification; in particular, the amendments to IAS 39 concern financial assets other than the derivatives classified in the accounting portfolios as “financial assets held for trading” and “financial assets available for sale”. To this purpose, two cases are distinguished: 1. The reclassification from the portfolio of “financial assets held for trading” to other asset portfolios of financial instruments (“loans and credits”, “financial assets available for sale” and “financial assets held until maturity”); these reclassifications are allowed if the entity has no intention to go on managing the instrument for trading or if the instrument has no longer the characteristics and the requirements to meet this operating activity; in particular, there are two cases: a) reclassifications which are only allowed under “rare circumstances” and to this purpose the IASB pointed out that the market conditions of the 2008 third quarter represent such “rare circumstances” b) reclassifications which are always allowed if the financial instrument had already at the beginning, at the initial classification, the characteristics of another alternative classification in the “loans and receivables ” portfolio and subject to the fact that, after the transfer, the entity has the intention and the capacity of keeping it in that new portfolio after the short term or until maturity; 2. The reclassifications from “financial assets available for sale” to “loans and receivables” if the financial asset had already at the beginning, at the initial classification, the characteristics of another alternative classification in the “loans and receivables ” portfolio and if the entity has the intention and the capacity of keeping the financial asset after the short term or until maturity.

On the contrary, reclassifications to the “financial assets held for trading” portfolio are not allowed.

The reclassifications are carried out at fair value of the financial asset at the date of transfer and profits and losses previously entered may not be reclassified. The fair value at the date of reclassification becomes the new cost or the amortized cost of the financial assets. For the instruments from the “financial assets available for sale” portfolio the amount entered to net equity reserve is reclassified to profit and loss account through the actual interest rate, if they are debit instruments, or when transferred. The amendments to the principle are effective starting from 1° July 2008 if the transfers of portfolio are carried out not later than 31 October 2008; the reclassifications are not retrospective, that is recalculating the competences of previous periods. The reclassifications carried out starting from 1 November 2008 produce effects from the date of the actual transfer.

The Group has used this amendment and has reclassified: a. Debt securities from the “financial assets held for trading” portfolio to the “loans and receivables” portfolio b. Equity securities from the “financial assets held for trading” portfolio to the “financial assets available for sale” portfolio; 250 c. Debt securities from the “financial assets held for sale” portfolio to the “loans and receivables” portfolio. The amendments from IASB to IFRS 7, inter alia, require information about: - The reclassified amount from and to each portfolio; - The “rare circumstances” which caused the reclassification; The profit or the loss created by valuations at fair value which would have been recorded to the profit and loss account if the financial asset had not been reclassified. For the information concerning the reclassifications carried out, according to the amendments to IFRS7, sections 2,4,6 and 7 of the assets of the notes to the financial statements should be referred to. In particular, due to the reclassifications capital losses amounting to EUR 336.5 were not recorded to the financial statements (before taxes). Hereunder main effects are summarized while the above-mentioned sections should be referred to for detailed information Latent capital Transferred losses Reclassification va l ues 31 Dec 2008

From HFT to AFS 481,418 From HFT to L&R- Due from banks 180,853 (24,999) (1) From HFT to L&R - Due from customers 826,805 (80,380) (1) From AFS to L&R- Due from banks 1,029,347 (43,033) (2) From AFS to L&R- Due from banks 1,391,660 (188,059) (2) 3,910,083 (336,471)

1) Capital losses which would have been posted to profit and loss statement as of 31 December 2008 had the reclassification not been carried out 2) Capital losses which would have been posted to net equity as of 31 December 2008 had the reclassification not been carried out On 27 November 2008, IASB issued an amendment integrating the above-mentioned amendment. Reclassification of financial assets – effective date and temporary provisions (amendments to IAS 39 “Financial instruments: Recognition and measurement” and to IFRS 7 “Financial instruments: Disclosures”). This further amendment clarifies that all reclassifications carried out after 31 October 2008 are effective starting from the date of reclassification. The amendment has not been ratified yet by the European Commission. Moreover, on 4 July 2007, IFRIC issued the interpretation IFRIC 14 – IAS 19 Assets for defined contribution plan and minimum criteria of hedging which clarifies the treatment of defined contribution plan surplus or of lower future contributions. The interpretation is effective starting from 2008 financial year and must be applied from the first comparative financial year recording any previous effect to net equity. IFRIC 14 was ratified on 16 December 2008 by the European Commission with Regulation 1263/2008. The application of IFRIC 14 did not affect the financial statements of the Group. A2 – SECTION CONCERNING MAJOR BALANCE-SHEET ACCOUNTS Accounting principles

The following are the accounting principles which were adopted with reference to the principal accounts of assets and liabilities for the purpose of preparing the consolidated financial statements as of 31 December 2008. 1. Financial assets held for trading a) accounting criteria Financial assets are initially posted on the date of settlement with reference to debt instruments and equities, and on the date of subscription with reference to derivatives. Upon the initial valuation, financial assets held for trading purposes are valued at fair value which usually corresponds to the amount paid, excluding any expenses or income from the transaction directly attributable to the instrument itself, which are directly posted to the profit and loss statement. This account also incorporates any implicit derivatives existing in sophisticated contracts not closely associated with the same and having the characteristics of derivatives, which are stripped from the host contract and valued at fair value. The accounting criteria of reference are applied to the primary contract. b) classification criteria This category includes debt instruments, equities purchased mainly for the purpose of obtaining profits in the short- term due to changes in the price of these instruments and the positive value of derivative contracts excluding the 251 contracts designated as hedging instruments. Derivative contracts incorporate the derivatives included in sophisticated financial instruments which were subject to separate valuation. c) valuation criteria

Following the initial valuation, financial assets held for trading purposes are valued at fair value, with the changes being posted as a contra-entry to the profit and loss statement. Market quotations are used for determining the fair value of the financial instruments listed in an active market. Failing an active market, the MPS Group used generally accepted valuation methods and models which are based on data measurable in the market such as: methods based on the valuation of listed instruments which have similar characteristics, discounting of future cash flows, models of determination of the prices of options, values measured in similar recent transactions. Equities and related derivative instruments, with a fair value which cannot be determined in a reliable way in accordance with the above-mentioned guidelines, are posted at cost, adjusted for any value reduction losses. Such losses are not reinstated. d) elimination criteria

Financial assets are eliminated upon maturity of the contractual rights on the financial flows resulting from the assets or when the financial assets are sold and all related risks/benefits are transferred. Securities received within the scope of a transaction that contractually provides for subsequent sale are not recorded in the financial statements, and securities delivered within the scope of a transaction that contractually provides for subsequent buyback are not eliminated from the financial statements. Consequently, in the case of securities acquired with an agreement for resale, the amount paid is recorded in the financial statements as due from clients or banks, while in the case of securities transferred with an agreement for repurchase, the liability is recorded under debts to banks or clients or under other liabilities. e) criteria of recognition of income components

Profits and losses resulting from any changes in the fair value of the financial assets are posted under account “80 Net profit/loss from trading” in the profit and loss statement, except for the profits and losses concerning receivable derivatives linked with the fair value option which are classified under account “110 Net profits/losses from financial assets and liabilities valued at fair value”.

2. Financial assets available for sale a) accounting criteria

Financial assets are initially posted on the date of settlement with reference to debt instruments and equities, and on the date of disbursement with reference to loans. Upon the initial valuation, financial assets are valued at fair value which usually corresponds to the amount paid, inclusive of any expenses or income from transactions directly attributable to the instrument itself. If the entry results from a reclassification of assets held to maturity, the book value is represented by the fair value upon reclassification. In the case of debt instruments, any difference of the initial value and the value of repayment is spread out over the life of the debt instrument in accordance with the method of amortised cost. b) classification criteria

This category includes non-derivative financial assets which are not classified as loans, financial assets at fair value indicated in the profit and loss statement or financial assets held to maturity. 252 In particular, this category also embraces strategic equity investments which are not managed for trading purposes and cannot be defined as controlling interest, connection and joint control, and bonds which are not subject to trading. Such investments may be transferred for any reason, such as liquidity requirements or variations in interest rates, exchange rates, or stock price. c) valuation criteria

Following the initial valuation, financial assets available for sale are still valued at fair value, with interest being posted to the profit and loss statement as resulting from the application of the amortised cost and the relative foreign exchange effect, and with appropriation to a specific net equity reserve of the profits/losses resulting from the change in fair value net of the related tax effect, excluding value reduction losses. Foreign exchange fluctuations in relation to equities are posted to the specific net equity reserve. Equities, with a fair value which cannot be determined in a reliable way, are valued at cost, adjusted for any value reduction losses. Any objective existing evidence of value reduction is reviewed at the close of the year or in the mid-year reports. Indicators of a likely value reduction are, for instance, remarkable financial difficulties of the issuer, non-fulfilment or defaults in payments of interests or capital, the possibility that the beneficiary is declared bankrupt or is submitted to another bankruptcy proceedings, the disappearance of an active market for the assets. Moreover, a remarkable or lasting fair value reduction of an equity under its cost is considered as an actual proof of value loss. In particular, as far as equities listed on active markets securities are concerned, a market price as at the date of the financial statements lower than the original purchasing cost of at least 30% or a market value lower than the cost lasting more than 12 months are considered an actual evidence of value reduction. If further reductions occur in the following financial years they are directly posted to profit and loss account. The amount of any value adjustment shown following the impairment test is recorded in the profit and loss statement as an expense for the year. Valuation recoveries are made to net equity under equity instruments and to the profit and loss statement under bonds, if the reasons for the loss of value are removed as a result of an event which occurred after the measurement of the value reduction. d) elimination criteria

Financial assets are eliminated upon maturity of the contractual rights on the financial flows resulting from the assets or when the financial assets are sold and all related risks/benefits are transferred. Securities received within the scope of a transaction that contractually provides for subsequent sale are not shown in the financial statements, and securities delivered within the scope of a transaction that contractually provides for subsequent buyback are not eliminated from the financial statements. Consequently, in the case of securities acquired with an agreement for resale, the amount paid is shown in the financial statements as due from clients or banks, while in the case of securities transferred with an agreement for repurchase, the liability is shown under debts to banks or clients or under other liabilities. e) criteria of measurement of income components

Upon the disposal, exchange with other financial instruments, or the measurement of a loss of value following an impairment test, the effects of the valuation accrued in the reserve concerning the assets available for sale are transferred to the profit and loss statement under: o account “100 – Profit/loss from purchase/sale of: b) financial assets available for sale”, in case of a disposal; o account “130 - Net value adjustments/recoveries for losses on: b) financial assets available for sale”, in case of measurement of a loss of value.

253 Valuation recoveries are made if the reasons for the loss of value are removed as a result of an event which occurred after the measurement of the value reduction. Such recoveries are posted to the profit and loss statement in the case of loans or debt instruments, and to net equity with respect to equities. 3. Financial assets held to maturity a) accounting criteria

Financial assets are initially posted on the date of settlement. Upon the initial valuation, financial assets are valued at fair value which usually corresponds to the amount paid, inclusive of any expenses or income from transactions directly attributable to the instrument itself. If the entry under this category results from a reclassification from Assets available for sale, the fair value of the assets on the date of reclassification is considered as the new amortised cost of the assets. b) classification criteria

This category includes non-derivative financial assets with fixed or determinable payments and fixed maturity, which the Group objectively intends and is able to hold upon maturity. If it is no longer appropriate to keep an investment as held to maturity as a result of a change of heart or faculty, the investment is reclassified among assets available for sale. Whenever the sales or reclassifications are irrelevant from the viewpoint of quality and quantity, any investment held upon residual maturity shall be reclassified as available for sale. c) criteria of valuation and recognition of income components

Following the initial valuation, the valuation of financial assets held to maturity is adjusted to the amortised cost using the actual interest rate method, adjusted so as to take account of the effects resulting from any devaluations. The result of the application of this method is posted to the profit and loss statement under account “10 - Interest income and similar income”. Profits/losses from the sale of these assets are posted to the profit and loss statement under account “100 - Profits/losses from the sale or repurchase of: c) financial assets held to maturity”. The impairment test is conducted at year-end or on the closing date of mid-year reports. If there is any evidence of loss of value, the amount of the loss is measured as the difference of the book value of the assets and the current value of estimated future financial flows discounted at the original actual interest rate. The amount of the loss is indicated in the profit and loss statement under account “130 - Net value adjustments/recoveries for losses on: c) financial assets held to maturity”. Valuation recoveries are made and posted under account 130 in the profit and loss statement, if the reasons for the loss of value are removed as a result of an event which occurred after the measurement of the value reduction. d) elimination criteria

Financial assets are eliminated upon maturity of the contractual rights on the financial flows resulting from the assets or when the financial assets are sold and all related risks/benefits are transferred. As of 31 December 2008, the Group holds a negligible quantity of financial instruments classified in this category, in compliance with the guidelines adopted with the specific Framework resolution.

4.Loans a) accounting criteria

Posting in the balance-sheet occurs: o for a loan: 254 - upon the date of disbursement, - when the creditor acquires the right to the payment of the amounts contractually agreed upon; o for a debt instrument: - on the date of settlement.

The initial value is quantified on the basis of the fair value of the financial instrument, which is usually the amount disbursed, or the price of subscription, including the expenses/income directly attributable to the instrument and determinable since the beginning of the transaction, even though they are settled later. This does not include the costs which have said characteristics, but are subject to repayment by the debtor or can be encompassed in the usual internal administrative expenses. Contango contracts and repurchase agreements under agreement to resell are posted as lending transactions. In particular, the latter are reported as loans with respect to the spot amount paid. b) classification criteria

Loans include loans and advances to customers and banks, both disbursed directly and purchased from third parties, with fixed or determinable payments, which are not listed in an active market and were not initially classified among financial assets available for sale and financial assets valued at fair value with effects posted to the profit and loss statement. Loans also incorporate commercial credit, repurchase agreements, loans originated by financial leasing transactions and securities purchased in a subscription or private placement, with fixed or determinable payments, not listed in active markets. Also included among loans are junior securities coming from own securitizations completed prior to First Time Adoption.

c) criteria of valuation and recognition of income components

After an initial valuation, loans are valued at the amortised cost, which is the initial book value decreased/increased by capital paying-off, value adjustments/recoveries and the amortization – calculated with the actual interest rate method – the difference of the amount disbursed and the amount repayableupon maturity, typically attributable to the expenses/income directly charged to each loan. The effective interest rate is the rate which makes the current value of future loan flows, in principal and interest, estimated over the expected life of the loan, equal to the amount disbursed, inclusive of any expenses/income attributable to the loan. Therefore, the economic effect of expenses and income is spread over the residual expected life of the loan. The amortised cost method is not used in relation to short-term loans, since the effect of the application of the discounting logic is negligible. Similar valuation criteria are adopted in relation to the loans with no specific maturity or subject to revocation. Non-performing loans (e.g. NPLs, watchlist credits, restructured loans and past due loans) are classified in accordance with the regulations issued by the Bank of Italy, supplemented with the Bank’s internal provisions which sets automatic criteria and rules for the transfer of loans between different risk categories. To this purpose, in 2008, the Bank of Italy modified the definition of watch-list credits including loans which are more than 270 days overdue thus enlarging their definition. The loans are classified by the units independently, except for past due loans and/or loans exceeding the limits for more than 180 days as well as for watch-list credits past due and/or exceeding the limits for more than 270 days, which are recorded through the use of automated procedures. In order to determine the adjustments to be made to loan book values, the Bank takes account of the different impairment levels before making an analytical or collective evaluation, as outlined hereunder. NPLs, watch-list credits and restructured loans are subject to a process of analytical valuation; past due loans and/or loans exceeding the limits for more than 180 days, loans subject to country risk and performing loans are subject to 255 collective valuation. As to the past due loans and/or loans exceeding the limits for more than 180 days, in compliance with the provisions of the latest updating issued by the Bank of Italy to the Circular Letter no. 262/2005 movements in the tables of the notes to the financial statements are anyhow reported in the way of a process of analytical valuation. With reference to the loans subject to analytical valuation, the amount of the value adjustment of each loan is equal to the difference of the book value of the loan upon valuation (amortised cost) and the current value of expected future financial flows, calculated using the original actual interest rate. Expected cash flows take account of the expected time of recovery, the presumable scrap value of any guarantees and the costs which are deemed to be incurred for credit collection. The value adjustment is posted to the profit and loss statement under account 130 - Net value adjustments/recoveries for losses. The component of the adjustment attributable to the discounting of financial flows is calculated on an accrual basis in accordance with the effective interest rate method and posted under valuation recoveries. If the quality of the impaired loan is improved to such a point that there is a reasonable certainty of timely recovery of the principal and interest, the original value of the loans is reinstated in the following years to the extent that the reasons determining the adjustment disappear, provided that such valuation can be objectively linked with an event which occurred after the adjustment. The valuation recovery is posted to the profit and loss statement and in any case cannot exceed the amortised cost the loan would have had failing prior adjustments. The loans with no objective evidence of loss are subject to a valuation of collective loss of value. Such valuation, developed on the basis of a Risk management model, is made by homogeneous loan categories in terms of credit risk and the relative loss percentages are estimated in view of time series, based on elements noticeable on the date of valuation which allow an estimate of the value of latent loss in each loan category. The model for this type of valuation provides for the following movements:

- segmentation of the loan portfolio as a function of: - customer segments (invoiced amount); - economic business sectors; - geographic location; - determination of the loss rate of individual portfolio segments, taking as a reference the historical experience of the Group. Valuation adjustments determined collectively are posted to the profit and loss statement. Any additional valuation adjustments or recoveries are recalculated at year-end or on the dates of mid-year reports in a differential manner with reference to the whole portfolio of performing loans as of the same date. d) elimination criteria

Any loans transferred are eliminated from the assets in the balance-sheet only if their disposal implied the transfer of all risks and benefits associated with the loans. However, if the risks and benefits associated with the loans transferred have been maintained, they continue to be posted among the assets in the balance-sheet, even though legally the title to the loan has effectively been transferred. If it is not possible to ascertain the actual transfer of risks and benefits, the loans are eliminated from the balance- sheet when no kind of control has been maintained on such loans. Otherwise, if such control has been kept also partly, the loans should continue to be posted to the balance-sheet to the extent of their residual portion, as measured by the exposure to the changes in value of the transferred loans and the changes in their financial flows. Finally, the loans transferred are eliminated from the balance-sheet if the contractual rights to receive the relative cash flows are maintained and an obligation to pay only said flows to third parties is simultaneously undertaken.

256 5. Financial assets valued at fair value a) accounting criteria

The Fair Value Option (FVO) applies to all financial assets and liabilities which would have originated a misrepresentation in the reporting of the profit and loss statement and balance-sheet results, and to all instruments which are managed and measured in a fair value logic, if they had been classified otherwise. b) classification criteria

This category may include the financial assets which the MPS Group intends to value at fair value with an impact on the profit and loss statement (except for equities which have no reliable fair value) when: 1. the determination of the fair value allows for the elimination or reduction of significant misrepresentations in the reporting of the profit and loss statement and balance-sheet results of the financial instruments; or 2. the management and/or valuation of a group of financial instruments at fair value with an impact on the profit and loss statement is compliant with a strategy of risk management or investment also evidenced by the Bank’s Management; or 3. there is an instrument containing an implicit derivative which significantly amends the cash flows of the host instrument and otherwise should be stripped. c) valuation criteria

Following the initial valuation, the assets are valued at fair value. Market quotations are used for determining the fair value of the financial instruments listed in an active market. Failing an active market, the MPS Group used generally accepted valuation methods and models which are based on data measurable in the market such as: methods based on the valuation of listed instruments which have similar characteristics, discounting of future cash flows, models of determination of the prices of options, values measured in similar recent transactions. d) elimination criteria

Financial assets are eliminated upon maturity of the contractual rights on the financial flows resulting from the assets or when the financial assets are sold and all related risks/benefits are transferred. Securities received within the scope of a transaction that contractually provides for subsequent sale are not shown in the financial statements, and securities delivered within the scope of a transaction that contractually provides for subsequent buyback are not eliminated from the financial statements. Consequently, in the case of securities acquired with an agreement for resale, the amount paid is shown in the financial statements as due from clients or banks, while in the case of securities transferred with an agreement for repurchase, the liability is shown under debts to banks or clients or under other liabilities.

As of 31 December 2008, the Group does not hold any financial instruments classified in this category. In compliance with the guidelines set by the respective Framework Resolution, financial asset portfolios valued at fair value have, in fact, not yet beenestablished.established. e) criteria of recognition of income components 257

Profits and losses resulting from any changes in the fair value of the financial assets are posted under account “110 - Net profit/loss from financial assets and liabilities valued at fair value” in the profit and loss statement. Receivable derivative instruments associated with the fair value option are posted accordingly, with the economic effect classified under account “110 – Net profit/loss from financial assets and liabilities valued at fair value”.

6. Hedging transactions a) accounting criteria – purposes

Risk hedging transactions are targeted at neutralizing any potential losses detectable in a specific element or group of elements, and attributable to a specific risk, with the profits detectable in a different element or group of elements, should that particular risk really occur. b) classification criteria – types of hedging

IAS 39 contemplates the following types of hedging: o fair value hedging, with the objective of covering the exposure to the changes in the fair value of a balance-sheet account, attributable to a specific risk; o hedging of financial flows, with the objective of covering the exposure to the hanges in the future financial flows attributable to specific risks associated with balance-sheet accounts; o hedging of a foreign currency investment, which refers to risk hedging of an investment in a foreign enterprise denominated in a foreign currency.

At the end of the accounting principles, a specific section is provided detailing the application issues and policies adopted by the Group with reference to hedging transactions. These issues are also addressed within section E of the notes to the financial statements relating to management of risks, as well as in sections B and C relating to the balance sheet and profit and loss statement. The hedging policies specifically adopted by the Group are explained, with particular attention to the “natural hedge” fair value option instrument which was adopted in a significant number of cases as an alternative to hedge accounting. In particular, fair value option and cash flow hedge techniques were adopted mainly in the accounting management of liability hedges, while the fair value hedge was adopted mainly for asset hedges, whether specific hedges on fixed-rate securities and mutual funds or general hedges on fixed-rate financing.

c) criteria of valuation and recognition of income components

Hedging derivatives are valued at fair value. In particular: o in the case of fair value hedging, the change in the fair value of the element hedged is offset by the change in the fair value of the hedging instrument. Such set-off is recognised and posted to the profit and loss statement under account “90 Net profit/loss from hedging transactions” on value changes, with reference both to the hedged instrument (as regards the changes produced by the underlying risk factor) and the hedging instrument. Any difference which represents the partial ineffectiveness of hedging, consequently represents thenet economic effect; o in the case of hedging of financial flows, the changes in the fair value of the derivative are posted to a specific net equity reserve with reference to the effective portion of hedging and are posted to the profit and loss statement under account “90 - Net profit/loss from hedging transactions” only when the change in the fair value of the hedging instrument does not offset the change in the financial flows of the hedged transaction;

258 o The hedging of a foreign currency investment is posted similarly to the hedging of financial flows. A hedging transaction should be attributable to a pre-established risk management strategy and should be compliant with the risk management policies adopted. In addition, the derivative instrument is indicated as a hedging instrument if there is a formal documentation of the relation between the hedged instrument and the hedging instrument and if it is effective when the hedging starts and during its expected life. The effectiveness of hedging depends on the extent that the changes in the fair value of the hedged instrument or the relative expected financial flows are offset by the changes of the hedging instrument. Therefore, the effectiveness is measured by the comparison of said changes, in view of the purpose pursued by the company when the hedging was activated. The hedging is effective (in the range of 80-125%) when the changes in the fair value (or in the cash flows) of the hedging instrument neutralize the changes in the hedged instrument almost totally, with reference to the risk element subject to hedging. Effectiveness is assessed at year end by using: o Perspective tests which account for the application of hedging accounting, since they prove its expected effectiveness; o Retrospective tests which prove the degree of hedging effectiveness achieved during the period of reference.

Derivative instruments which are considered as hedging instruments from an economic viewpoint because they are linked with financial liabilities valued at fair value (fair value option) are classified among trading derivatives; the respective positive and negative differences or margins accrued until the date of reference of the financial statements are registered, in accordance with their hedging purpose, as interest income and interest expense. Valuation profits and losses are posted in the P&L statement under account “110 – Net profit/loss from financial assets and liabilities valued at fair value”. d) elimination criteria – ineffectiveness

If the controls do not confirm the effectiveness of hedging both retrospectively and prospectively, hedging transactions are no longer reported in accordance with the above criteria and the hedging derivative contract is reclassified under trading instruments. The financial instrument subject to hedging is valued again in accordance with the principle of the original category of classification, and in case of cash flow hedge any reserve is posted to profit and loss account with the amortized cost method over the remaining useful life of the instrument. Any hedging links cease to exist also when the derivative expires or is sold or exercised, and the hedged element is sold or expires or is repaid.

7. Equity investments a) accounting criteria

This account includes equity investments: o subject to significant influence, valued using the net equity method; o any equity interests held in subsidiaries for which the consolidation of the balance sheet and profit or loss statement was not deemed significant with respect to the consolidated financial statements. The account does not include the net equity valuation of equity investments under joint control since they are consolidated using the proportional method.

259 b) classification criteria

Affiliated companies include the companies where a 20% stake or a higher percentage of voting rights is held, and the companies which – owing to specific legal relations such as the participation in shareholders’ pacts – have to be considered as companies subject to significant influence. These classifications are made irrespective of the legal status. Any potential voting rights which can be currently exercised are considered in the calculation of voting rights.

For the purpose of classification, the MPS Group classifies the companies where it has the power of determining the financial and management policies, for the purpose of obtaining benefits from their business, as subsidiaries. This occurs when more than half of the voting rights are held directly and/or indirectly or in the presence of other conditions of de facto control, such as the appointment of the majority of the directors.

The companies with contractual agreements, shareholders’ pacts or agreements of a different nature for the joint management of business and the appointment of the directors are considered as jointly-controlled companies. c) criteria of valuation and recognition of income components

Given the above, the account contains, in the main, the valuation of the equity investments using the net equity method; this method contemplates the initial posting of the investment at cost and its subsequent adjustment on the basis of the stake held in the partially owned company’s net equity. The pro rata amount of the profit/loss for the year of the partially owned company is posted to account “240 - Profits/losses from equity investments” in the consolidated profit and loss statement. d) elimination criteria

8. Tangible assets a) accounting criteria

Tangible assets are originally posted at cost which includes the purchase price and any additional charges directly attributable to the purchase and operations of the assets. Extraordinary maintenance expenses which involve an increase in future economic benefits are posted as an increase in the value of the assets. The other ordinary maintenance expenses are posted to the profit and loss statement. Financial charges are posted in compliance with the accounting method established by IAS 23 and considered as costs in the year during which they were incurred. b) classification criteria

Tangible assets include land, capital real estate, real estate investments, fixtures and fittings and equipment of any kind. Capital real estate is defined as real estate owned by the Group and used for the production and supply of services, or for administrative purposes. Real estate investments include real estate owned by the Group for the purpose of collecting rents and/or held due to the appreciation of capital invested.

This account also includes any assets used in financial lease contracts, although their possessory title rests with the leasing company and any improvements and incremental expenses incurred in relation to third parties’ assets when they refer to identifiable and separable tangible assets from which future economic benefits are expected. As regards real estate, the components in relation to land and buildings are separate assets for accounting 260 purposes and are posted separately upon acquisition. c) criteria of valuation and recognition of income components

Tangible fixed assets, including non-capital real estate, are valued at cost, less any accrued depreciation and losses of value. Fixed assets are depreciated over their useful life on a straight line basis, except for land and works of art which have an indefinite useful life and cannot be depreciated. The useful life of tangible assets subject to depreciation is periodically subject to review. In case of an adjustment of initial estimates, the relative depreciation allowance is amended accordingly. The depreciation rates and the subsequent useful life expected in the main categories of assets are reported in the specific sections of the notes to the financial statements. The presence of any signs of impairment, or indications proving that the assets might have been deteriorated, shall be checked at year end or on the dates of mid-year reports. The presence of such signs originates a comparison between the book value of the assets and their scrap value, which is the higher of the fair value, net of any selling costs, and the value-in-use of the assets, as the current value of the future flows produced by the assets. Any adjustments are posted to the profit and loss statement, in the same account to which the periodic depreciation is posted. Failing the reasons which caused the measurement of a loss, a valuation recovery – which shall not exceed the value the assets would have had, net of the depreciation calculated excluding prior losses of value - is made.

d) elimination criteria

Tangible fixed assets are eliminated from the balance-sheet upon their disposal or when the assets are permanently retired from use and no future economic benefits are expected as a result of their disposal.

9. Intangible assets a) accounting criteria

Intangible assets incorporate non-monetary, identifiable and non-material assets held to be used for a multi-annual or indefinite period. They are posted at cost, adjusted by any additional charges only if the future economic benefits attributable to the assets are expected to be realised and if the cost of the assets can be determined in a reliable way. The cost of intangible assets is otherwise posted to the profit and loss statement in the year it was incurred. Goodwill is posted in the assets side when it results from a business combination in accordance with the principles of determination indicated by IFRS 3, as a residual surplus of the global cost incurred for the transaction and the net fair value of the assets and liabilities purchased (i.e.companies or business units). If the cost incurred is lower than the fair value of the assets and liabilities purchased,badwill is posted directly to the profit and loss statement. b) criteria of classification, evaluation and recognition of income components

The cost of intangible fixed assets is amortised on a straight line basis according to their useful life. If the useful life is indefinite, the amortization is not calculated, but the adequacy of the book value of fixed assets is checked periodically. Intangible fixed assets originated by an internally developed software purchased by third parties are amortised on a straight line basis starting from the completion and start of operations of the applications according to their useful life. In light of any proved losses of value, the scrap value of the assets is estimated at year end. The amount of the loss shown in the profit and loss statement is equal to the difference of the book value of the assets and the recoverable value. 261 Posted goodwill is not subject to amortization, but its book value is checked periodically on an annual basis (or at shorter intervals) in light of any impairment of value. To this end, the cash generating units to which goodwill is attributable are identified. The amount of any reduction of value is determined on the basis of the difference of the book value of goodwill and its scrap value, if lower. Said scrap value is the higher of the fair value of the cash generating unit, net of any selling costs, and the respective value-in-use, represented by the present value of estimated cash flows for the years of operation of the cash generating unit and resulting from its disposal at the end of useful life. The resulting value adjustments are posted to the profit and loss statement under account “210 Value adjustments/recoveries on intangible assets”. Periodic depreciation is reported in the same account. No following value recoveries are posted, since this is not admitted. c) elimination criteria

Intangible fixed assets are eliminated from the balance-sheet upon their disposal and if no future economic benefits are expected.

10. Non current assets being sold a) accounting criteria

Upon initial valuation, non-current assets and groups of non-current assets being sold are initially valued at the lower of the book value and the fair value net of any selling costs. b) classification criteria

This account includes non-current assets and groups of non-current assets being sold when the book value is recovered mainly through a very likely sale transaction and not through permanent use. c) criteria of valuation and recognition of income components

Following the initial valuation, non-current assets and groups of non-current assets being sold are valued at the lower of the book value and the fair value net of any selling costs. Any profits and costs (after taxes) are posted to the profit and loss statement under a separate account, since they are in relation to discontinued operations. In this specific case (discontinued operations), it is necessary to represent the same economic information in a separate account also for the preceding periods presented in the financial statements, reclassifying the profit and loss statements as a result. Any process of amortization is stopped when non-current assets are classified under Non-current assets for sale. d) elimination criteria

Non-current assets and groups of non-current assets being sold are eliminated from the balance-sheet upon their disposal.

11. Current and deferred taxation a) accounting criteria

262 The effects of current and deferred taxation calculated in compliance with the Italian tax legislation are posted on an accrual basis, in accordance with the modes of evaluation of the income and expenses which generated them, by applying the ruling tax rates.

Income taxes are posted to the profit and loss statement excluding the taxes in relation to accounts directly credited or charged to net equity. Income tax provisions are determined on the basis of a prudential estimate of current, anticipated and deferred fiscal charges. In particular, current taxation includes the net balance of current liabilities for the year and current fiscal assets with respect to the Financial Administration, as represented by tax advances and other tax credits for any advance withholding taxes incurred or for tax credits for which reimbursement has been requested from the competent tax authorities. Tax credits transferred as a guarantee of own debts shall also be recorded within this scope. Advance and deferred taxation are determined on the basis of the temporary differences, with no time limits, of the value assigned to the assets or liabilities in accordance with statutory principles and the corresponding values for fiscal purposes, applying the so-called balance sheet liability method. Assets for advance taxation are shown in the balance-sheet to the extent that they are likely to be recovered on the basis of the capacity of the company involved and all of the participating companies – as a result of the option concerning “fiscal consolidation” – to generate a positive taxable income on an ongoing basis. Liabilities for deferred taxation are shown in the balance-sheet with the sole exception of tax suspension reserves, since the volume of available reserves already subject to taxation reasonably implies that no transactions involving taxation will be executed. Advance and deferred taxes are posted to the balance-sheet by offsetting each tax for each year, taking account of the expected time repayment profile. Advance taxes for the years in which deductible temporary differences are higher than temporary taxable differences are posted to the assets side of the balance- sheet under deferred fiscal assets. Deferred taxes for the years in which taxable temporary differences are higher than deductible temporary differences are posted to the liabilities side of the balance-sheet under deferred fiscal liabilities. b) classification and evaluation criteria

Assets and liabilities for advance and deferred taxes are valued in view of any changes in the regulations or tax rates, and of any different objective situations of the Group companies. In addition, the tax reserve is adjusted to cover the charges which might result from already notified tax assessments or litigation pending with the Tax Authorities. With reference to fiscal consolidation of the Parent Bank and the participating subsidiaries, the MPS Group executed agreements regulating off-setting flows in relation to the transfers of fiscal profits and losses. Such flows are determined by applying the ruling IRES tax rate to the taxable income of participating companies. The off-setting flow in relation to the companies with fiscal losses – calculated in compliance with the above – is recognised by the consolidating company to the consolidated company to the extent that the consolidated company might have used the losses within the five-year period established by law, in case of non-participation in fiscal consolidation. Off-setting flows so determined are posted as assets and liabilities with respect to the companies participating in fiscal consolidation, classified under Other Assets and Other Liabilities, as a contra-entry of account “290 Income tax for the current year of operations”. c) criteria of recognition of income components

If deferred fiscal assets and liabilities refer to components which affected the profit and loss statement, the contra- entry is represented by income taxes. When anticipated and deferred taxes refer to transactions which directly influenced net equity without impacting on the profit and loss statement (i.e. valuations of financial instruments available for sale or hedging derivatives of financial flows), they are posted as a contra-entry in the balance-sheet, involving the specific reserves, if necessary.

263

12. Reserves for risks and other charges

The provisions to the reserve for risks and other charges are set up only when: o There is a current (legal or implicit) obligation resulting from a past event; o The use of resources producing economic benefits is likely to be necessary in order to fulfil the obligation; o The amount of the obligation can be estimated in a reliable manner.

Whenever time is important, the provisions are brought up-to-date. The provisions to the reserve are posted to the profit and loss statement, in addition to interest expense on the reserves which were subject to time-discounting.

No provision is shown for potential and unlikely liabilities, but information is provided in the Notes to the financial statements, except in cases where the probability of using resources is remote or the phenomenon is not significant.

Sub-account “120 – Reserves for risks and other charges - Pension funds and similar obligations” includes the appropriations in compliance with IAS 19 “Employee benefits” for the purpose of balancing the technical deficit of supplementary social security funds with defined benefits. A breakdown of pension funds encompasses funds with defined benefits and funds with defined contributions. The charges borne by the employer are pre-established in relation to the funds with defined contributions, whereas the charges in relation to the funds with defined benefits are estimated and shall take account of any shortfall in contributions or returns on assets where the contributions are invested. With reference to the funds with defined benefits, the actuarial values required by the application of the above principle are determined by an independent actuarial consultant in accordance with the Projected Unit Credit Method. In particular, the obligation is calculated as the algebraic sum of the following values: - Average current value of pension benefits determined on the basis of the years of service already completed by active employees and taking account of any future salary increases; - Less the current value of any assets servicing the fund; - (less or plus) any actuarial loss or profit not shown in the balance-sheet, on the basis of the so-called “corridor” method. According to the corridor method, the actuarial profits and/or losses - defined as the difference of the book value of the liabilities and the current value of the Group’s commitments at the end of the period - shall be posted to the balance-sheet only when they exceed the higher value of 10% of the average current value of pension benefits and 10% of the current value of the assets of the pension fund. Any surplus is posted to the profit and loss statement in line with the residual average working life of active employees or during the year, in the case of retired employees. The provision for the year posted to the profit and loss statement equals the sum of annual interest accrued on the average current value of pension benefits at the beginning of the year, the average current value of benefits due to active employees during the year, actuarial profits and losses in compliance with the corridor method, net of the expected performance for the year of the assets invested by the fund.Sub-account “120 - Reserves for risks and other charges; other funds” includes any appropriations to cover expected losses for actions filed against the Bank, including actions for revocation, estimated expenses in relation to customers’ claims forsecurities brokerage, other estimated expenses in relation to legal or implicit obligations existing at the end of the period. Where the appropriations are valued analytically, the amounts appropriated are used directly to cover charges actually incurred.

13. Outstanding liabilities and securities a) accounting criteria

Such financial liabilities are first posted upon receipt of the sums raised or upon the issue of bonds.

264 This is done on the basis of the fair value of the liabilities, which is usually equal to the amount collected or the issue price, increased by any additional costs/income directly attributable to each funding or issue transaction and not repaid by the creditor. Internal administrative costs are excluded. The fair value of the financial liabilities issued (if any) on terms and conditions other than market conditions is subject to specific estimate and the difference with respect to the amount collected is directly posted to the profit and loss statement, only when the requirements of IAS 39 are met. b) classification criteria

The accounts due to banks, customers loans and advances and outstanding securities include different types of funding (both interbank funding and funding from customers) and funding through certificates of deposit and outstanding bonds, net of any repurchase. Under outstanding securities are classified all securities that are not subject to “natural” hedging through derivatives, which are classified under liabilities valued at fair value. Variable-rate securities subject to hedging of financial flows are the exceptions, which, even though they are covered by derivative contracts, are nonetheless classified under outstanding securities. The issues that are not subject to hedging include some that are index-linked. In these limited and residual cases, the implicit derivative component, which was classified under trading assets or liabilities valued at fair value, was stripped. The account also incorporates the lessee’s liabilities in relation to any financial lease transactions that may have been agreed to. c) criteria of valuation and recognition of income components

Following the initial valuation, the financial liabilities are valued at the amortised cost using the effective interest rate method. Short-term liabilities for which time is a negligible factor form an exception, and are posted at collected value. If the requirements of IAS 39 are met, any derivative incorporated in structured instruments is separated from the host contract and valued at fair value as trading assets or liabilities. In this case, the host contract is posted at amortised cost. d) elimination criteria

Financial liabilities are eliminated from the balance-sheet when they expire or are paid off. They are eliminated also in the case of repurchase of previously issued securities. The difference of the book value of the liabilities and the amount paid to repurchase is booked in the profit and loss statement. A new placement in the market of own securities after their repurchase is considered as a new issue and posted at the new price of placement, with no impact on the profit and loss statement. In compliance with the provisions of IAS 32, any potential commitment to buy own shares as a result of the issue of put options is shown in the balance-sheet under financial liabilities, with the reduction of net equity in the amount of the current value of the repayment sum established by contract, as a contra-entry. At the end of the year 2008, no sold put options existed on own shares of the Parent Bank.

14. Financial liabilities held for trading a) accounting criteria

Financial liabilities are initially posted on the date of issue with reference to debt instruments, and on the date of subscription with reference to derivatives. Upon the initial valuation, financial liabilities held for trading purposes are valued at fair value which usually corresponds to the amount collected, excluding any expenses or income from the transaction directly attributable to the instrument itself, which on the other hand are directly posted to the profit and loss statement. This account also 265 incorporates any implicit derivatives existing in sophisticated contracts not closely associated with the same and having the characteristics of derivatives, which are stripped from the host contract and valued at fair value. The accounting criteria of reference are applied to the primary contract. b) classification criteria

This category includes debt instruments issued mainly for the purpose of obtaining profits in the short-term and the negative value of derivative contracts excluding the contracts designated as hedging instruments. Derivative contracts incorporate the derivatives included in sophisticated financial instruments which were subject to separate valuation. Sub-accounts “Due to banks” and “Customers’ loans and advances” also incorporate “technical overdrafts” on securities. c) valuation criteria

Following the initial valuation, financial liabilities held for trading purposes are valued at fair value, with the changes being posted as a contra-entry in the profit and loss statement. Market quotations are used for determining the fair value of the financial instruments listed in an active market. Failing an active market, the MPS Group used generally accepted valuation methods and models which are based on data measurable in the market such as: methods based on the valuation of listed instruments which have similar characteristics, discounting of future cash flows, models of determination of the prices of options, values measured in similar recent transactions. d) elimination criteria

Financial liabilities are eliminated when they expire or are paid off. They are eliminated also in the case of repurchase of previously issued securities. The difference of the book value of the liabilities and the amount paid to repurchase is booked in the profit and loss statement. e) criteria of recognition of income components

Profits and losses resulting from any changes in the fair value of financial liabilities are posted under account “80 - Net profit/loss from trading” in the profit and loss statement, except for the profits and losses concerning payable derivatives linked with the fair value option which are classified under account “110 - Net profits/losses from financial assets and liabilities valued at fair value”.

15. Financial liabilities valued at fair value a) accounting criteria

Financial liabilities are initially posted on the date of issue with reference to debt instruments. Upon valuation, financial liabilities valued at fair value are valued at fair value which usually corresponds to the amount collected, regardless of any expenses or income from the transaction directly attributable to the instrument itself, which are posted to the profit and loss statement. The Fair Value Option (FVO) applies to all financial assets and liabilities which would have originated a misrepresentation in the reporting of the profit and loss statement and balance- sheet results, and in all instruments which are managed and measured in a fair value logic, if they had been classified otherwise. In particular, liabilities valued at fair value include fixed-income and structured funding instruments with a market risk subject to hedging through derivative contracts. The fair value of the financial liabilities issued (if any) on terms and conditions other than market conditions is subject to specific estimate and the difference with respect to the amount collected is directly posted to the profit and loss statement, 266 only when the requirements of IAS 39 are met. b) classification criteria

This category may include the financial liabilities which the MPS Group intends to value at fair value with an impact on the profit and loss statement when: 1. the determination of the fair value allows for the elimination or reduction of significant misrepresentations in the reporting of the profit and loss statement and balance-sheet results of the financial instruments; or 2. the management and/or valuation of a group of financial instruments at fair value with an impact on the profit and loss statement is compliant with a strategy of risk management or investment also evidenced by the Bank’s Management; or 3. there is an instrument containing an implicit derivative which amends the cash flows of the host instrument considerably and shall be stripped.

In particular, the Parent Bank has made provision to classify under this account financial liabilities subject to “natural hedging” through derivative instruments. These are bonds and structured fixed-rate certificates of deposit, for which the market risk is subject to systematic hedging through derivative contracts, with the exception of securities issued at a variable rate subject to hedging of financial flows, which on the contrary are classified under outstanding securities. In order to further enhance reporting and transparency regarding means of use of the fair value option, specific detailed tables are provided in the corresponding sections of the notes to the financial statements, both profit and loss and balance sheet, which further illustrate the methods and strategies of use of the fair value option by the Parent Bank. Within the scope of account “17 - Other information”, a specific chapter is also inserted on the technical means of realising hedges with particular attention to the adoption of the fair value option. c) valuation criteria

Following the initial valuation, financial liabilities are valued at fair value. Market quotations are used for determining the fair value of the financial instruments listed in an active market. Failing an active market, the MPS Group used generally accepted valuation methods and models which are based on data measurable in the market such as: methods based on the valuation of listed instruments which have similar characteristics, discounting of future cash flows, models of determination of the prices of options, values measured in similar recent transactions. d) elimination criteria

Financial liabilities are eliminated when they expire or are paid off. They are eliminated also in the case of repurchase of previously issued securities. The difference of the book value of the liabilities and the amount paid to purchase is booked in the profit and loss statement under account “110 – Net profit/loss from financial assets and liabilities valued at fair value”. e) criteria of recognition of income components

Profits and losses resulting from any changes in the fair value of the financial liabilities are posted under account “110 - Net profit/loss from financial assets and liabilities valued at fair value” in the profit and loss statement. Payable derivative instruments linked with the fair value option are classified under account “110 - Net profits/losses from financial assets and liabilities valued at fair value”.

16. Transactions denominated in foreign currencies a) accounting criteria 267

Upon the initial valuation, foreign currency transactions are denominated in the foreign currency using the exchange rates prevailing on the date of the transaction. b) criteria of classification, valuation, elimination and recognition of income components

Balance-sheet accounts denominated in foreign currencies are valued at year-end or on the dates of mid-year reports as follows: o monetary accounts are converted using the exchange rate prevailing on the closing date; o non-monetary accounts valued at historical cost are converted using the exchange rate prevailing on the date of the transaction; o non-monetary accounts valued at fair value are converted using the exchange rate prevailing on the closing date. Any differences resulting from the settlement of monetary elements or the conversion of monetary elements at exchange rates other than the initial exchange rates, or the exchange rates adopted in prior financial statements, are posted to the profit and loss statement when they arise. When a profit or a loss in relation to a non-monetary element are shown under net equity, the exchange rate difference in relation to such element is also posted under net equity. However, when a profit or a loss is posted to the profit and loss statement, the exchange rate difference in relation to such element is also posted to the profit and loss statement. The accounting position of the foreign branches having different units of account is converted into Euro by using the exchange rates prevailing on the date of reference of the balance-sheet. Any exchange rate differences attributable to investments in such foreign branches and the differences resulting from the conversion into Euro of their accounting position are posted under net equity reserves and transferred to the profit and loss statement only in the year when the investment is disposed of or reduced.

17. Insurance assets and liabilities

Reinsurers’ technical reserves

This account includes the reinsurers’ obligations resulting from reinsurance transactions based on contracts regulated by IFRS 4. The account does not include the deposits of Reinsurance companies with the transferring companies. Reinsurers’ technical reserves are determined on the basis of the existing agreements in accordance with the principles concerning actuarial reserves, subject to different valuation in relation to credit collection. As of 31 December 2008 the account 110 “Reinsurers’ technical reserves” is empty due to the loss of control of the insurance companies and to the change from full consolidation to the equity method; these reserves are reported in the 2007 comparative financial statements under account 150 “Non-current assets and groups of assets being sold”

Technical reserves in relation to life insurance

In compliance with the provisions of IFRS 4, any contracts issued are subject to prior analysis for the purpose of identifying the accounting principle of reference for each one of them. To this end, the breakdown of each life insurance contract incorporates the tariff components (so-called “coverage”) which have been classified as insurance forms or investment forms on the basis of the extent of the underlying insurance risk borne by the Companies.

As a result, the MPS Group decided to choose the following options: a) Insurance products: include branch-one temporary death policies, life annuity policies and comprehensive policies pursuant to IFRS 4.2 with ratios of annuity conversion guaranteed

268 upon the issue. As stated, for such products IFRS 4 substantially confirms the applicability of the national standards in insurance matters, which in summary, provide as follows:

- the posting of gross amounts to the profit and loss statement under income; they include all amounts accrued during the year as a result of the execution of insurance contracts, net of redemptions. Similarly, the premiums assigned to reinsurers are posted as costs for the year; - with respect to income for gross premiums, the amount of the obligations in relation to the insured parties – calculated for each contract with the prospective valuation method on the basis of the demographic/financial hypotheses currently adopted by the market - is appropriated to actuarial reserves. b) Financial products under separate management: such products, which include most branch-one life insurance policies and comprehensive policies, branch-five capitalization policies, are characterised by discretional profit sharing. Therefore, they are posted in compliance with the following provisions of IFRS 4: - the products are shown in the balance-sheet in a manner virtually similar to the provisions of the local accounting principles. This means that the premiums, payments and changes in technical reserves are posted to the profit and loss statement; - the products are valued in compliance with shadow accounting. This means that the differences of the book value and market value – with reference to securities available for sale, and the component pertaining to the insured parties, are allocated to technical reserves. The difference of the book value and market value in relation to the component pertaining to the insurance companies is allocated to net equity. However, if the securities are valued according to the fair value option, the difference of the book value and the market value is shown in the profit and loss statement with a change in technical reserves in relation to the portion pertaining to the insured parties. c) Financial products not included in a separate management, which entail no discretional profit sharing: such products, which include index and unit-linked policies, and insurance policies with specific assets not included in a separate management are posted to accordance with the provisions of IAS 39. Any insurance component concerning index- and unit-linked products is subject to independent valuation (so-called “unbundling”).

Technical reserves incorporate only the liabilities arising from insurance contracts issued as per point a), financial instruments as per point b) (Financial liabilities with iscretional profit sharing) and the insurance component of unit- and index-linked contracts. Additional information on the accounting system of the instruments as per point c) is provided in the section covering financial liabilities valued at fair value.

Insurance contracts and financial contracts with discretional profit sharing are valued in accordance with the existing practices, pursuant to IFRS 4.25.

The liabilities of Axa MPS Vita, an associated company, are determined in compliance with the provisions of Legislative Decree no.174 of 17 March 1995 and Legislative Decree no.173 of 26 May 1997.

Such liabilities are posted including any reinsurance assignments.

The macro-account also embraces the reserves set up resulting from the Liability Adequacy Test (IFRS 4.15), deferred liabilities with respect to insured parties (IFRS 4.30 and IFRS 4.34: shadow accounting) and the reserve for sums to be paid.

Actuarial reserves and reserves for operating expenses

Actuarial reserves for pure premiums and the reserves for operating expenses, in relation to insurance products and 269 financial products with discretional profit sharing, are determined on a contract-by-contract basis in accordance with the actuarial calculation principles pursuant to art. 25 of Legislative Decree no.174/1995 and using the demographic, financial and premium loading criteria adopted for the calculation of the premiums. Actuarial reserves of pure premiums include the portions of premium accrued during the year and any revaluations made in enforcement of contractual clauses.

In any case, the amount of actuarial reserves is not lower than the amount calculated according to the conditions of guaranteed minimum or at surrender value, if contemplated.

Additional reserves as per art. 25, par. 12 of Legislative Decree 174/1995 are determined on the basis of ISVAP Regulations no.1380 of 21 December 1999 and no.1801 of 21 February 2001.

Additional reserves as per art. 30, par. 4 of Legislative Decree 174/1995 in relation to the insurance component of index- and unit-linked contracts (as represented by the additional Temporary death, Long term care, Dread disease and Incapacity coverage) are set up on the basis of the actuarial calculation principles pursuant to art. 25 of said Decree.

Shadow accounting

The current practice has been modified in accordance with the provisions of IFRS 4.30 for the purpose of taking account of any capital gains identified but not realised on the assets which have a direct impact on the measurement of insurance liabilities, by the same standards as realised capital gains. The adjustments to insurance liabilities are shown under net equity if unrealised capital gains are posted under net equity; if not, they are posted to the profit and loss statement under “amounts paid and changes in technical reserves”.

Technical reserves are eliminated when the obligation indicated in the contract has been fulfilled, eliminated or has expired.

Property casualty technical reserves

In accordance with IFRS 4, property casualty reserves are determined on the basis of the existing principles, except for some supplementary reserves and equalization reserves. From this viewpoint, the principle of ultimate cost underlying the existing method is compliant with the Liability Adequacy Test (LAT) required by IFRS 4 for the purpose of ensuring the adequacy of reserves. Property casualty reserves include premium reserves, claims reserves and other reserves. As of 31 December 2008 Account 130 of “Technical reserves” under Liabilities is empty due to the loss of control of insurance companies and the change from full consolidation to the equity method; these reserves are reported in the 2007 comparative financial statements under account 90 “Liabilities linked to assets being sold” under Liabilities.

Premium reserve

The premium reserve on the risks of direct insurance policies as contemplated by Legislative Decree 173/1997 includes the portions of premium pertaining to following years, calculated for each contract on an accrual basis in accordance with posted gross premiums, less acquisition commissions and other directly chargeable acquisition costs pursuant to art. 32 of the above Decree.

The premium reserve also incorporates the premium reserve for unexpired risks. The premium reserve consists of the amount to be allocated to cover business risks after the end of the year for the purpose of paying all damages and expenses resulting from insurance contracts executed before that date. 270 Such risks are estimated on a case-by-case basis by class of insurance coverage with reference to the ratio of claims to premiums pertaining to the current generation. The reserve is calculated applying the loss ratio so determined to the reserve for portions of premium. The reserve for unexpired risks - as contemplated by the empirical method indicated by ISVAP circular no. 360/D of 21 January 1999 – consists of the surplus of the amount so determined and the sum of the reserve for portions of premium plus the premiums which shall be due in compliance with the contracts executed (expiring instalments), net of acquisition commissions and other acquisition costs, limited to directly chargeable costs. The premium reserve of the surety line of business is calculated in compliance with the method as per art. 2 paragraph 1 of ISVAP Regulation no.1978 G of 4 December 2001.

Claims reserve

Claims reserves are determined in an analytical manner through the examination of all claims existing at the end of the year, using statistical methods of evaluation with reference to objective elements, so as to enable the amount allocated to the reserve, as provided by Article 33 of Legislative Decree 173/1997, in equal measure to the latter expense, to be equal to all future foreseeable expenses inherent in the settlement of the claims, including settlement expenses.

The claims presumed to have occurred during the year and not yet reported as of the date of closing of the year are charged to the claims reserve in compliance with the provisions of art. 26 of Legislative Decree 175/1995 and art. 5 of ISVAP Regulation no. 1059/G of 4 December 1998.

Any profits and losses resulting from any changes in the value of technical reserves are shown in the profit and loss statement under “balance of other income and charges of the insurance business”.

Liability Adequacy Test

For the purpose of the IAS/IFRS, insurance liabilities adequacy is measured using current estimates of future financial flows resulting from insurance contracts and financial instruments as per IFRS 4.2. If, as a result of such evaluation, the book value of insurance liabilities is inadequate, the inadequacy is shown in the profit and loss statement under “balance of other income and charges of the insurance business” in compliance with the provisions of IFRS 4.15.

As of 31 December 2008, the insurance investments are valued using the net equity method following the relinquishment of control.

18. Other information a) Other significant financial statements accounts Hereunder some significant accounts of the Group financial statements are reported o Cash and cash equivalents

This account includes currencies that are legal tender, including bank notes and foreign coin, and sight deposits with the Central Bank of the Country or Countries in which the Group operates with its own subsidiaries or affiliates. The account is posted at face value. For foreign currencies, the face value is converted into Euro at the exchange rate as of the closing date at year-end. o Value adjustment of the financial assets and liabilities subject to generic hedging

271 These accounts show respectively the balance, whether positive or negative, of the changes in value of the assets subject to generic hedging (macrohedging) and the balance, whether positive or negative, of the changes in value of the liabilities subject to generic hedging of the interest rate risk, in application of the provisions of IAS 39 paragraph 89. o Other assets

This account shows assets not attributable to the other accounts on the assets side of the balance sheet. The account may include, for example: a) gold, silver and precious metals; b) accrued income other than that which is posted under related financial assets; c) any unsold goods according to the definition of IAS 2; d) improvements and incremental expenses sustained on third-party real estate other than that attributable to the tangible assets account and therefore not equipped with autonomous identifiability and separability. These costs are posted to other assets, since the user company exercises control of the assets for the purpose of the tenancy agreement and can obtain future economic benefits from them. Costs are posted to the profit and loss statement account “220 – Other operating income/charges” according to the shorter between the period in which the improvements and expenses can be used and the remaining term of the contract. o Staff severance indemnity fund

The staff severance indemnity fund is configured as a defined-contribution benefit subsequent to the employment relationship; therefore its actuarial value must be estimated in order to post it to the financial statements. For this estimate, the Bank adopts the projected unit credit method, which estimates future disbursements on the basis of statistical time analyses and the demographic curve, and the financial discounting of such flows according to the market interest rates. The costs accrued during the year for servicing the plan are posted to the profit and loss statement under account “180 a) Personnel expenses”, as the net amount of contributions paid, contributions pertaining to prior years not yet posted, expected income resulting from the assets servicing the plan, financial charges and actuarial profits/losses. Actuarial profits and losses, given by the difference between the balance sheet value of the liabilities and the current value of the obligation at the end of the year, are computed on the basis of the “corridor” method, which means the excess of accrued actuarial profits/losses, resulting from prior year’s closing, with respect to the higher of 10% of the current value of the benefits generated by the plan and 10% of the fair value of the assets servicing the plan. Such excess is also compared to the expected average working life of the participants in the plan. After the reform of supplementary pension funds as per Legislative Decree No. 252 of 5 December 2005, severance pay quotas accrued to 31 December 2006 remain with each company of the Group, while the severance pay quotas to be accrued after 1 January 2007, at the discretion of the employee, are assigned to the form of supplementary pension funds or are maintained at the moon companies, which will provide for the transfer of the severance pay quotas to the Treasury Fund managed by INPS. o Other liabilities

This account shows liabilities not attributable to the other accounts on the liabilities side of the balance sheet. The account includes, for example: a) payment agreements that must be classified as debts according to IFRS 2; b) debts connected with payment for provision of goods and services; c) accrued liabilities other than those to be posted under the respective financial liabilities. 272 b) Other significant accounting treatments

Hereunder accounting criteria which are relevant to understand the financial statements are analysed o Own shares

Any shares held by the Parent Bank Banca Monte dei Paschi di Siena S.p.A. are shown in the balance-sheet under a specific account and deducted directly from net equity. No profits or losses are posted to the profit and loss statement upon the purchase, sale, issue or write-off of the documents of title to the Parent Bank’s capital. Any amount paid or received is posted directly to net equity. o Payments based on shares

The existing stock granting plan contemplates the purchase and assignment on an annual basis of a certain number of shares of the Parent Bank, with a value corresponding to the amount recognised as part of the Production Bonus, to the Bank’s employees. Such value is posted as personnel expenses on an accrual basis. o Dividends and income/cost recognition

Income is recognised when collected or, in the case of sales of goods or products, when future benefits are likely to be received and such benefits can be quantified in a reliable way and, in the case of services, when they are rendered. In particular:

o Interest is recognised on a pro rata temporis basis, in accordance with the contractual interest rate or the effective interest rate in case of application of the amortised cost; o Interest on arrears is posted to the profit and loss statement only upon actual collection; o Dividends are shown in the profit and loss statement upon resolution of their distribution, when their payment is due; o Commissions for income from services are posted in the period when the services were rendered, on the basis of existing contractual agreements; o Income resulting from the brokerage or issue of financial instruments, as determined by the difference of the price of the transaction and the fair value of the instrument, is posted to the profit and loss statement when the transaction is recorded, if the fair value can be determined with reference torecent observable parameters or transactions existing in the market where the instrument is traded. Income is otherwise spread over a period of time taking account of the term and the nature of the instrument; o The management fees for the portfolio are recognised based on the duration of service; o Costs are shown in the profit and loss statement in the periods during which the respective income is posted. Any costs which cannot be associated with income are promptly shown in the P&L statement.

o Business combinations

A business combination is defined as the transfer of control of a company (or of a group of assets and integrated goods, conducted and managed as a unit). For this purpose, control is considered to be have been transferred, either when more than half of the voting rights are acquired, or in the event that, even without acquiring more than half of the voting rights of another entity, control of the latter is obtained, since, as a result of the combination, power is held: 1. over more than half of the voting rights of the other entity by virtue of agreements with other investors,

273 2. to make the management and financial decisions of the entity by reason of articles of association or an agreement, 3. to appoint or remove the majority of members of the executive board assigned to manage the company, 4. to obtain the majority of voting rights at meetings of the executive board assigned to manage the company.

A business combination may give rise to an investment link between the acquiring parent company and the acquired subsidiary. In these cases, the acquirer applies the accounting standard IFRS 3 to the consolidated financial statements while posting the acquired interests to its separate financial statements as an equity interest in a subsidiary, consequently applying the accounting principle IAS 27 “Consolidated and separate financial statements”.

A business combination may also provide for the acquisition of the net assets of another entity, including any goodwill, or the acquisition of the capital of another entity (for example mergers, splits, acquisitions of business units). Such a business combination is not translated into an investment link analogous to that between a parent company and subsidiary, and therefore in these cases the accounting principle IFRS 3 is also applied at the level of the separate financial statements.

Based on the provisions of IFRS3, for all combination transactions an acquirer must be specified, identified as the subject that obtains control over another entity or group of assets. The acquisition must be posted to the accounts on the date on which the acquirer effectively obtains control over the entity or assets acquired. The cost of a combination transaction must be determined as the sum of: 1. the fair value, as of the date of exchange, of the assets sold, of the liabilities incurred or assumed, and of the capital instruments issued by the acquirer inexchange for control; 2. any ancillary expense directly attributable to the business combination. In transactions that provide for payment in cash (or when payment is provided for using cash equivalent financial instruments), the price is what is agreed on accordingly, possibly discounted in the event that instalment payment is provided with reference to a period greater than the short term; in the event that payment occurs by means of an instrument other than cash, thus by means of issue of instruments representing capital, the price is equal to the fair value of the means of payment net of costs directly attributable to the capital issuing transaction. Included in the price of the business combination as of the date of acquisition are adjustments subject to future events, if provided for by the agreements and only in the event that they are probable, determinable in a reliable manner, and realised within 12 months following the date of acquisition of control. In order to determine the cost of the business combination, to the price as illustrated above are added the external costs incurred for the completion of the transaction, such as, for example, the professional fees paid to auditors, experts, and legal advisors, the costs for expert opinions and account auditing, preparation of informational documents required by standards, as well as consulting fees incurred to identify potential targets to acquire, if it is established in the contract that the payment will be effected only in the event of a positive outcome of the combination. Not attributable to the business combination are future costs that are predicted to be incurred following the acquisition of control, inasmuch as they do not represent liabilities incurred or assumed by the acquirer in exchange for control of the acquired entity (for example, costs for organizational, IT and legal consulting that concern operational integration and not the acquisition), the costs of integration, the costs for the trading and issuing of financial liabilities inasmuch as they constitute an integral part of the issue of the liabilities within the meaning of IAS 39.

Business combination transactions are posted to the accounts according to the “acquisition method” which provides for posting to the financial statements: o the assets, liabilities and potential liabilities of the acquired entity at the respective fair value as of the date of acquisition, including any identifiable intangible assets not already posted to be financial statements of the acquired entity, o the goodwill determined as the difference between the cost of the business combination and the net fair value of the assets, liabilities and identifiable potential liabilities; any positive surplus between the net fair value of the assets, liabilities and 274 potential liabilities acquired and the cost of the business combination is posted to the profit and loss statement.

The fair value of the assets, liabilities and potential liabilities of the acquired entity may be identified provisionally prior to the end of the year in which the combination is realised and must be completed within twelve months of the date of acquisition. Not defined as business combinations are transactions aimed at control of one or more entities that do not constitute a business activity, or aimed at temporary control, or finally, if the business combination is realised to accomplish a reorganization, thus among two or more entities or business activities already part of the Group, and not involving the change of control arrangements regardless of the percentage of rights of third parties before and after the transaction (so-called business combinations of entities under common control). o Business combinations under common control

Combination transactions between entities under common control (Business combinations) are excluded from the application of IFRS 3. Failing a reference principle, as indicated in section 1 - Declaration of conformity with international accounting standards, such transactions are posted to the accounts considering their economic significance to be specified with reference to the impact on cash flows for the Group. With regard to these considerations, the following cases may be distinguished therefore: a) transactions that do not present a significant influence on future cash flows; such transactions are posted on the basis of the principle of value continuity. Therefore, in the financial statements of the seller, the difference between the sale price and the book value is posted to the increase/decrease of net company assets. Exclusively in the event of acquisition or transfer of a controlling interest, the equity investment is posted at acquisition cost in the acquirer/transferee’s financial statements for the year; b) transactions that present a significant influence on future cash flows; such transactions are posted at the fair value corresponding to the payment exchanged. Any difference between the price of the transaction and the book value is posted to the profit and loss statement.

The accounting treatment in the financial statements of the Parent Bank of the merger by incorporation of the subsidiaries Banca Antonveneta and Banca Agricola Mantovana falls within the first case. In particular, in said financial statements, the merger by incorporation of Banca Antonveneta which is legally effective from 31 December 2008 was back-dated for accounting purposes to 31 May 2008, date of the acquisition of control of the subsidiary. For this transactions, given the conditions as per point a) the principle of value continuity was used: the used values are those used in the consolidated financial statements. This implied the posting in the financial statements of the Bank of the effects of the accounting assignment of the Banca Antonveneta purchase price used in the consolidated financial statements. This aims at making the financial statements of the Parent Bank more representative instead of using the book values of the merged company as well as at streamlining the drawing up process of the consolidated financial statements. The merger by incorporation of Banca Agricola Mantovana was legally executed on 22 September 2008 and was back-dated to 1 January 2008 for accounting purposes. Also for this transaction, given the conditions as per point a), the principle of value continuity was used; the values used are those one of the consolidated financial statements.

Amortised cost

The amortised cost of financial assets or liabilities is the value at which it was measured at the time of initial valuation net of capital repayments, plus or minus overall amortization calculated using the effective interest rate method, on the differences between the initial value and that at maturity and net of any permanent losses in value. The effective interest rate is the rate which makes the current value of future contractual payments or collection flows in cash, until maturity or subsequent date of calculation of the price, equal to the net book value of the 275 financial assets or liabilities. For the calculation of the current value, the effective interest rate is applied to the flow of estimated future collections or payments over the entire useful life of the financial assets or liabilities – or for a shorter period if certain conditions are met (for example, review of market rates). In cases in which it is not possible to reliably estimate the cash flows or expected life, the Group will use the cash flows laid down contractually for the entire contractual term. Following the initial valuation, the amortised cost makes it possible to allocate income and costs reducing or increasing the instrument over its entire expected life by means of the amortization process. The determination of the amortised cost is different depending on whether the financial assets/liabilities are subject to valuation at a fixed or variable rate. For fixed-rate instruments, future cash flows are quantified based on the known interest rate during the term of the financing. For variable-rate financial assets/liabilities, whose variability is not known beforehand (for example because it is tied to an index), the determination of cash flows is performed on the basis of the last known rate. At every rate review date, the level of amortization and the actual rate of return over the entire useful life of the instrument, that is, until the maturity date, are recalculated. The adjustment is recognised as a cost or income in the profit and loss statement. Valuation at amortised cost is performed for the loans, the financial assets held to maturity and those available for sale, for debts and for outstanding securities. The financial assets and liabilities traded under market conditions are initially posted at their fair value, which normally corresponds to the amount asked and paid including, for instruments valued at amortised cost, the directly attributable transaction and commission costs such as fees and commissions paid to agents, consultants, brokers and operators, as well as contributions withheld by regulatory organizations and stock exchanges, and transfer rates and charges. These expenses, which must be directly attributable to the separate financial assets or liabilities, impact the original actual return and make the actual interest rate associated with the transaction different from the contractual interest rate. Not considered in the calculation of the amortised cost are costs that the Group must incur regardless of the transaction (for example, administrative, clerical, publicity costs), which, even though they are specifically attributable to the transaction, occur in the normal practice of financial management (for example, activities aimed at delivery of the credit). With particular reference to loans, lump-sum reimbursements of expenses incurred by the Group for the provision of a service must not be attributed in a way that lowers the cost of supplying the finance, but as they may be considered other operating income, the related costs must be posted to the appropriate account of the profit and loss statement.

o Guarantees issued

Adjustments due to any deterioration in the guarantees issued are posted to account “100 - Other liabilities”. Value adjustments due to deterioration are posted to account “130 d) Net value adjustments/recoveries for losses on other financial transactions” in the profit and loss statement. c) Accounting principles which are relevant in the drawing up of the financial statements (with specific reference to the provisions of IAS 1 par. 113 and of document no. 2 of 6 February 2009 jointly issued by Bank of Italy/Consob/Isvap)

Hereunder follow the resolutions the Management adopted in the application process of the accounting principles expect for the resolutions concerning estimates, having significant effects on the amounts of the financial statements.

Securitizations

The securitized loans executed before the first application of the international accounting standards (F.T.A.) are not recorded in the financial statements since the Group made use of the optional exemption as provided for by the 276 IFRS1 allowing not to record financial assets/liabilities sold or cancelled before 1 January 2004. The relative junior underwritten were classified under the loans account. For transactions executed after that date with which loans are transferred to a vehicle company and in which, also in presence of the formal transfer of the legal registration of loans, the resulting financial flows are monitored as well as risks and benefits, the loans concerned are not cancelled. Therefore, the loans sold are kept in the financial statements recording a debt against a vehicle company net of the securities issued by the same company and repurchased by the transferor. Also the profit and loss account mirrors the same criteria of accounting.

Substitute tax and acknowledgement of the goodwill tax value

The goodwill is an asset which is not fiscally acknowledged if posted to the financial statements because of mergers, assignments or split-offs. Given the residual value of the goodwill account, the IFRS 3 accounting principle Business combinations, expressly forbids the posting of payable differed taxes against the misalignment occurring on first posting between the accounting value and the tax value of the goodwill. Having said that the Decree Law no. 185/2008 gave the possibility of fiscally acknowledging the goodwill paying the substitute tax for 16% of the value to be freed; the payment of the substitute tax allows the realignment of the tax value against the financial statements and the possibility of deducting the tax value of the goodwill at the ordinary rates in nine financial years (tax amortization). The above-mentioned issue is not dealt with by the international accounting standards and therefore as referred under Section 1 – Statement of compliance with the International accounting standards, the Management had to defined an accounting treatment complying with the mentioned criteria and sources in short aimed at effectively representing the transaction effects. At the end of the process the Group recorded the substitute tax (cost) and the tax benefit of the full rate deductibility (return) in one amount to the profit and loss account of 2008. The return counter-entry of the balance sheet is an assets which in the following financial years is amortized to profit and loss account thus eliminating any impact on the tax rate of the financial statements. The accounting principle adopted takes into account the analyses and evaluations jointly expressed by the Bankers’ Association and the Italian Body of Accounting. The adoption of these accounting procedures positively affected the profit and loss account of 2008 for EUR 985.6mln as described under Section 20 of the profit and loss account of the notes to the financial statements.

Accounting for hedge transactions – adoption of the fair value option in the MPS Group

In its financial risk management policy, relating to financial instruments included in the banking book, the Group has preferred the use of the accounting technique of the fair value option over the alternative methods of hedging provided by IAS 39 and in particular fair value hedge and cash flow hedge. This decision is strictly linked to the actual methods with which the Group implements its own hedge policies, tending to do so by assets, managing the overall exposure to the market. More specifically, the fair value option was adopted to represent, in the accounting, operational hedges realised by means of trading derivative financial instruments to hedge certificates of deposit issued at fixed rates and fixed-rate or structured debenture loans issued at fixed rates, both on a separate and consolidated basis (accounting mismatch). As a matter of fact, the operations of the Group lay down that issuing companies of the MPS Group, at the individual level, shall stipulate specific hedge derivatives of the funding instruments issued with the subsidiary MPS Capital Services S.p.A. (eliminated at the consolidated level), which in turn provides for managing by assets the Group’s overall exposure to the market. This approach does not permit maintaining a clear relation between the derivative stipulated among Group companies and that traded to the market. This management must be faithfully represented under the accounting profile with adoption of the fair value option introduced by the new International Accounting Standards, designating a group of financial assets or financial liabilities managed at fair value with impact on the profit and loss statement.

The scope of application of the fair value option, in the main, concerns three types of financial debt instruments: 277

plain-vanilla issues represented by debenture loans and fixed-rate certificates of deposit; structured issues represented by debenture loans whose payoff is tied to an equity component; structured issues represented by debenture loans whose payoff is determined by derivatives tied to the interest rate or the inflation rate.

The use of the fair value option, while best representing the hedge activities performed by the Group, has introduced certain elements of greater complexity compared to the other forms of hedging provided by IAS 39, such as the necessity of managing the creditworthiness of the issuer and of defining and specifying the methodologies for determining the fair value of the issued securities. On the basis of what is provided by IAS 39, the adoption of the fair value option involves the liabilities having to be valued at the fair value while also taking into account changes in registered levels of own creditworthiness. This element is considered in the valuation process; for this purpose the portfolio of financial nstruments designated for the purpose of the fair value option has been determined using methods consistent with those adopted for all other financial instruments valued at fair value owned by the Group, and explained at greater length in the following paragraph. From the perspective of careful supervision, the fair value option was subject to attention on the part of Regulatory Bodies, oriented toward controlling the potential distorting effects deriving from posting to the profit and loss statement changes in the issuer’s own creditworthiness, and consequently in the quality of the asset funds. These remarks have led the Regulatory Authorities to identify and isolate the effects deriving from changes in own creditworthiness, for which an express exclusion is provided from the calculation of the regulatory capital. As a result, the Group deducts, from its own capital for regulatory purposes, the effects deriving from changes in own creditworthiness, in compliance with the instructions provided by the Bank of Italy regarding prudential filters. There are, moreover, portfolios and classes of assets for which the use of the fair value option would increase the complexity of management and valuation of the items rather than simplifying it, for example in relation to the hedging of the asset items. With reference to these cases therefore, the Group has considered it more correct and consistent to adopt formal hedge accounting relations instead of using the fair value option. In particular, the Group has used the technique of the micro fair value hedge to hedge quotas of commercial assets valued at the amortised cost (financing, loans) and the (available for sale) securities portfolio, while using the macro fair value hedge for certain hedges also of commercial assets, and the cash flow hedge for hedging a limited portion of variable rate funding instruments.

d) Use of estimate and assumptions in the preparation of the financial statements. Main causes for uncertainty (with specific reference to the provisions of IAS paragraph 116 and to the document no. 2 of 6 February 2009 jointly issued by the Bank of Italy/Consob/Isvap).

The financial crisis, progressively overlapping the economic one, implies many consequences for the companies particularly affecting financial plans (literally, on the plans of activities of their loans). The great volatility of financial markets which are still active, the decrease in transactions on the inactive financial markets as well as the lack of future prospects create the specific/particular conditions affecting the preparation of the latest financial statements, in particular the accounting estimates required by the accounting principles which may significantly affect the values posted to the balance sheet and to the profit and loss account as well as the information concerning potential assets and liabilities recorded in the financial statements. The processing of these estimates implies the use of available information and the adoption of personal evaluations. Estimates and assumptions can change from one financial year to the other and therefore in the following financial years the current values of the financial statements can be significantly different depending on the change in personal evaluations. These estimates and evaluations are therefore difficult and uncertain also in presence of stable macroeconomic conditions. Main cases subject to the personal evaluations of the management are the following: - The use of evaluating models to recognize the fair value of financial instruments non-listed on active markets;

278 - The quantification of losses to reduce credit values and, generally, of other financial assets; - The assessment of value congruity of equity investments, of goodwill and of other tangible and intangible assets. For each case hereunder follow the most relevant evaluation issues subject to discretionary powers. Within each section of the notes to the balance sheet and profit and loss account where the contents of each account are detailed, the actual technical and conceptual solutions adopted by the Group are then analysed and studied.

Fair Value

Fair value is the amount for which an asset could be exchanged, or a liability repaid, in a free transaction between knowledgeable and independent parties.

For financial instruments, fair value is determined by means of use of prices acquired in financial markets, in the case of instruments listed on active markets, or by use of internal valuation models for other financial instruments. o Active markets

The existence of official listings in an active market is the best evidence of the fair value and, when they exist, they are used to value the financial assets or liabilities. A financial instrument is considered listed in an active market if the prices quoted are promptly and regularly available in a stock exchange or regulatory authority list and such prices represent actual market transactions that occur regularly in normal dealings. If the official listing in an active market does not exist for a financial instrument overall, but active markets exist for its constituent parts, the fair value is determined on the basis of the respective market prices for the constituent parts.

Considering the identifying features of Italian official markets and active markets as they are identifiable by means of the IAS 39, it is possible to hold in principle that the regulated markets, identified in the specific lists maintained by CONSOB, can be considered “active markets”.

o Non-active markets

If a financial instrument is not traded in an active market, it is necessary for the purpose of determination of the fair value to have recourse to: 1) the use of the prices relating to recent market transactions between knowledgeable and independent parties; 2) reference to current market values of substantially identical instruments; 3) valuation techniques consistent with the pricing methodologies commonly used in market practice.

If the fair value is determined using a valuation technique, the latter shall have the objective of: - maximising the use of specific market parameters, at the same time minimising the use of “input entity specific” parameters; - incorporating all factors that the market participants would consider in order to determine the price.

In particular, the fair value of a financial instrument is based on the following factors, where significant: the time value of the money, that is the interest at the risk-free base rate; the credit risk; the exchange rates of foreign currencies; the prices of goods; prices of instruments representing capital; 279 the extent of the future variations in price of a financial instrument, that is, its volatility; the risk of early repayment or redemption; the costs of servicing financial assets or liabilities.

It is necessary to periodically check and test the validity of the valuation technique using the prices of current market transactions pertaining to the same instrument or on the basis of observable and available market prices.

On 31 October 2008 the IASB Export Advisory Panel issued a document on measurement and the reporting concerning the fair value of the financial instruments exchanges in inactive markets. The document is not an accounting principle but a guide in a market situation where many financial instruments have become illiquid. Therefore, the guide does not set new rules but extensively deals, also through several examples, with criteria already provided for by IAS 39. In the guide, assessment approaches are confirmed which are already substantially followed by the Group.

The kind and the numbers of the used assumptions are causing uncertainty to assess the fair value of illiquid instruments. For more details the appendix to part B “Estimate of fair value concerning financial instruments” Change in determination of value loss of loans and other financial assets should be referred to.

As of every balance sheet date, the financial assets not classified in the account for financial assets held for trading or assets at fair value are subject to an impairment test (loss in value) in order to check whether there is objective evidence that the book value of these assets might not be entirely recoverable. A financial asset has suffered a reduction in value and the losses for reduction in value must be taken into account if, and only if, there is objective evidence of a reduction in the future cash flows compared to those originally estimated as a result of one or more specific events that have occurred after the initial valuation; the loss must be quantifiable in a reliable manner and related to recent events. The reduction in value may also be caused not by a single separate event but by the combined effect of several events. The objective evidence that a financial asset or group of financial assets has suffered a reduction in value includes reportable data that is observed due to the following events: a) significant financial difficulties of the issuer or debtor; b) violation of the contract, for example, non-performance or failure to pay interest or principal; c) concession to the beneficiary of a facility that the Group has taken into consideration primarily for economic or legal reasons related to the former’s financial difficulties and that would not have been granted otherwise; d)a reasonable probability that the beneficiary will declare bankruptcy or other financial restructuring procedures; e) disappearance of an active market for that financial asset due to financial difficulties. Nevertheless, the disappearance of an active market due to the fact that the financial instruments of the company are no longer publicly traded is not evidence of a reduction in value; f) reportable data that indicates the existence of a noticeable drop in the estimated future financial flows for a group of financial assets compared to the time of initial valuation of those assets, even though the reduction cannot yet be matched to the individual financial assets in the group, including: - unfavourable changes in the status of payments of the beneficiariesin the Group; or - local or national economic conditions that are associated with non-fulfilment related to the activities within the Group. Objective evidence of reduction in value for an investment in an instrument representing Capital includes information regarding important changes with an adverse effect that have been verified in the technological, market, economic or legal environment in which the issuer operates and indicates that the cost of the investment cannot be recouped. 280

The valuation of impairment is effected on an analytical basis for financial assets that present objective evidence of losses due to reduction in value, and collectively for financial assets for which there is not such objective evidence or for which the analytical valuation did not determine a value adjustment. The collective valuation is based on differentiation of homogenous risk classes of the financial assets with reference to the characteristics of the debtor/issuer, to the economic sector, to the geographic area, to the presence of any guarantees and to other relevant factors. With reference to loans to clients and to banks, those loans are subject to analytical valuation to which has been attributed the status of overdue, in default, or restructured according to the definitions of the Bank of Italy. The amount of the loss is equal to the difference of the book value of the loan upon valuation (amortised cost) and the current value of expected future financial flows, calculated using the original effective interest rate; expected cash flows take account of the expected time of recovery, the presumable scrap value of any guarantees and the costs which are deemed to be incurred for credit collection. The amount of the loss is indicated in the profit and loss statement under account “130 a) Net value adjustments/recoveries for losses on loans”. The process of analytical valuation of the aforementioned deteriorated loans entails the necessity of defining repayment levels per individual item, in order to determine the cash flows held to be recoverable. From this perspective, in the process of valuation adopted by the Bank, dimensional thresholds have been identified below which recourse will be done to the construction of automatic theoretical repayment levels. Such thresholds are fixed in accordance with bands characterised by an exposure with limited incidence compared to the total and by an elevated number of items.

The loans with no objective evidence of loss due to reduction in value are subject to collective valuation. This valuation will be by categories of loans that are homogenous in terms of credit risk indicating capacity of the debtor to repay the sums owed based on the contractual terms. The segmentation drivers used for this purpose consist of: Economic business sector, geographic location, and client segments (invoiced amount); on the basis of the latter indicator, the main segments of the portfolio will be differentiated:

- Retail - Small and Medium Enterprise Retail - Small and Medium Enterprise Corporate - Corporate - Large Corporate - Banks - Other

For each portfolio segment, the rate of loss will be determined, identifying the greatest possible synergies (as far as allowed by the various regulations) with the approach provided for the purpose of supervision of the provisions of the “New Capital Accord” called Basel 2. In particular the amount of the impairment for the year for each financing belonging to a certain homogeneous class is given by the difference between the book value and the recoverable amount as of the date of valuation, with the latter being determined by using the parameters of the calculation method provided for by the new supervisory provisions, represented by PD (probability of default) and LGD (loss- given-default). It is believed that the time horizon of one year used in the valuation of the probability of default can approximate the notion of incurred loss provided for by the international accounting standards, that is, of loss founded on actual events but not yet acquired by the entity in the review of the degree of risk of the specific client.

If, in a later year, the amount of the loss for reduction in value becomes less and the reduction can be objectively

281 linked to an event that occurred after the value reduction was reported (such as an improvement in the financial solvency of the debtor), the previously reported loss for reduction in value will be reversed. The amount of the reversal is indicated in the profit and loss statement under account “130) Net value adjustments/recoveries for losses”.

As far as the financial assets available for sale are concerned, the impairment is recorded to the profit and loss account when a reduction in fair value was directly recognised in net worth and there are the above-mentioned “objective evidence”. In these cases, the cumulative loss directly recognised in net worth must be reversed and recorded to the profit and loss account also if the financial asset has not been cancelled.

The amount of the overall loss which is reversed from net worth and recorded to profit and loss account is the difference between the purchasing cost, net of any repayment to capital account and goodwill, and the current fair value, net of any loss for value reduction on the financial assets previously recognised in the profit and loss account. The losses for value reduction recorded to profit and loss account for an investment in a instrument representing capital classified as available for sale must not be reversed with recognition to the profit and loss account. If, in a later period, the fair value of a debt instrument classified as available for sale increases and the increase can be objectively linked to an event occurring after that the loss for value reduction was recorded to profit and loss account, the loss for value reduction must be cancelled with the amount reversed recorded to profit and loss. On the other hand, the existence of a negative reserve is not enough to determine the recording of a devaluation to profit and loss account.

The kind and the numbers of the used assumptions used in identifying impairment factors and in quantifying devaluations and value recovery are causing uncertainty of the assessment. Anyway, as to the shares quoted on active markets a market price as at the date of the financial statements lower than the original purchasing cost by at least 30% or a market value lower than the cost lasting more than twelve months is considered objective evidence of value reduction. If further reductions occur in following financial years they are directly recorded to profit and loss account. For further details Section 4 of asset of the notes to the financial statements should be referred to.

Assessment of value congruity of investment, goodwill and other intangible assets

Equity investments (equity method)

The impairment process provides for the determination of the recoverable value, represented by the greater between the fair value net of selling costs and the value- in-use. The value-in-use is the current value of the projected financial flows coming from the asset that is subject to impairment; it reflects the estimate of the projected financial flows from the asset, the estimate of possible changes in the amount and/or in the timing of the financial flows, the financial time value, the price of offsetting the riskiness of the asset and other factors that can influence the valuation, by market operators, of the projected financial flows coming from the asset. Therefore, to estimate the congruity of the recording value of the investments, several assumption are necessary and the result of this verification is inevitably quite uncertain.

Goodwill

282 The recorded goodwill after purchases is subject to impairment test at least once per year and anyhow in case of impairment signs. For test purposes, once the goodwill has been allocated to a capital generating unit (CGU) the book value and the recoverable value of such units are compared according to the provisions of paragraph 9 “Intangible assets”. Usually, for the value which may be recovered of CGUs the updating method of discounted cash flows (DCFs) is used. To this purpose, the Management estimated the cash flows of CGUs which are subject to several factors such as increase in costs and returns, also depending on the changes in real economy, on customers behaviours, on completion and other factors. Therefore, to assess the congruity of the accounting value of goodwill, several assumptions are necessary and the result of this verification is inevitably quite uncertain. The special report in Section 13 of assets of the notes to financial statements gives more information on the issue.

Other tangible and intangible assets

Tangible and intangible assets with a defined useful life are subject to an impairment test if there is an indication that the book value of the goods can no longer be recovered. The recoverable value is determined with reference to the fair value of the tangible or intangible asset net of disposal charges or with reference to the value-in-use if it is determinable and if it is greater than the fair value. In 2008, because of the acquisition of Banca Antonveneta also the intangible assets recorded after the allocation of the purchasing price according to the consolidated financial statements (IFRS 3) were recognised in the financial statements of the Group. These intangible assets which may be linked to the trademark and to the customers were assessed using a complex method and several assumptions such as those on cash flows of the purchased entity, the updating rate, customer retention rate, evolution of contribution margin of deposits and loans. For these intangible asset in presence of impairment signs, such as worse results than expected, the use value is redefined and, as a result, any loss value is recorded.

As regards real estate, fair value is primarily determined on the basis of an expert valuation. This expert valuation will be repeated periodically whenever a change in the trend of the real estate market is ascertained that causes previously determined estimates to appear invalid. The loss in value will be reported only if the fair value net of selling costs or the value-in-use is less than the book value for a continuous period of three years. For the other tangible and intangible fixed assets (other than goodwill) it is assumed that the book value normally corresponds to the value-in-use, inasmuch as it is determined by an amortization process estimated on the basis of the actual contribution of the goods to the production process, and inasmuch as the determination of fair value is extremely arbitrary. The two values will diverge, giving rise to impairment, in case of damages, removal from the production process or other similar nonrecurring circumstances.

Also for these values and for the resulting assessment the kind and the numbers of the used assumptions are causing uncertainty of the assessment. For more details on the assumptions Section 12 andan 13 of the assets of the notes to financial statements should be referred to.

283

285 ASSETS

Section 1

Cash and cash equivalents - Account 10 1.1 Breakdown of cash and cash equivalents

(in thousands of EUR)

Insurance Other Total Total Banking group companies companies 31 12 2008 31 12 2007

a) Cash 924.278 - 7 924.285 694.668

b) Demand deposits with central banks 102.083 - 102.083 126.421

Total 1.026.361 - 7 1.026.368 821.089

The account "Demand deposits with central banks" does not include the "Compulsory reserve" reported under asset Account 60 "Due from banks".

286

The trading portfolio includes liquid financial instruments purchased mainly to generate profits in the short term and derivative contracts other than those formally designated as hedging instruments. Cash assets are classified as either quoted or unquoted according to whether or not the instruments have a price in an active market. Transactions in regulated markets alone are classified among the quoted derivatives.

Under cash assets, lines 1 “debt securities” and 3 “quotas of UCITS” show a decline compared with the figures for 2007. This decline is due to the fact that, in 2008, the Parent Company and certain subsidiaries applied the amendment to accounting standardsIAS39 and IFRS7 “reclassification of financial assets” issued on 13 October 2008 by IASB and approved by the European Commission on 15 October with regulation no. 1004/2008 and transferred EUR 1,039.8 mln in bond securities and EUR 449.3 mln in unquoted UCITS quotas from the portfolio of assets held for trading to the portfolios of loans and assets available for sale.

In particular, EUR 827872 mln of bond securities were transferred to the portfolio Customer loans and EUR 181 mln to Due from banks, EUR 32.1 mln of bond securities to Financial assets available for sale and EUR 449.3 mln of UCITS to Financial assets available for sale. For those securities whose transfer was completed by 1 October 2008, the price of transfer indicated or estimated on 1 July 2008 was used, while for the remaining and subsequent transfers, the price on the actual day of transfer was used. The recclassification of portfolios was carried out according to the new instructions issued by IASB, applicable only in exceptional circumstances, which include the current crisis situation in the market. The reclassifications resulted as being necessary, bearing in mind that, as a result of the crisis in the market, a significant part of the portfolio became substantially illiquid and therefore no longer tradable. As per the information requested by accounting standards, it should be noted that in the event of non-transferred securities (and thus securities that remain in the trading portfolio) at the date on which the 2008 Annual Report was edited, the consequences would be as follows:

"a) With regard to the EUR 827872 mln transferred from the trading portfolio to Customer loans, there would be a capital loss before tax posted to the income statement for approx. EUR 80,4 mln.

287 b) With regard to the EUR 181 mln transferred from the trading portfolio to Due from banks, there would be a capital loss before tax posted to the income statement for approx. EUR 25 mln. c) With regard to the EUR 449.3 mln transferred from the trading portfolio to Financial assets available for sale, the changes in fair value have, on the other hand, been recorded even though they have been entered in a specific net equity reserve instead of the income statement. At the end of the period, capital losses before tax recorded under net equity reserves came to EUR 60.5 mln which, in the event of no reclassification, would be posted to the income statement.

The reduction of item 4. Loans, mainly made up of security and repo transactions, is linked to the reduction in the sub-item Due to banks and to customers relative to table 4.1 of liabilities - Financial liabilities held for trading -, this is mainly the result of the decline in repos in the subsidiary MPS Capital Services - Banca per le imprese S.p.A..

Under cash assets, line "5 - Impaired assets" is the presumable total (EUR 9.3 mln) from loans related to existing positions with derivative contracts towards Lehman brother. Though the application of the "Chapter 11" procedure does not involve the derecognition of contracts from an IAS point of view of contracts, it does involve the offset amount being entered in the balance sheet - for the above-mentioned total of EUR 9.3 mln - under the netting agreement present in the ISDA contracts. The write-off of EUR 34.1 mln (equal to approx. 80% of the exposure) is included in the income statement under account 80 “Net result from trading”.

Cash assets, line 6 – “Assets sold not derecognised" includes securities owned by the Group committed in repo liability transactions.

The trading portfolio also includes derivatives linked with instruments for which the fair value option has been used. These derivatives are used to hedge risks related to funding stated at fair value resulting from potential interest rate risk fluctuations and from optional components implicit in the structured securities issued. The fair value of these derivatives is shown in table in line “B.1.2 - Linked with the fair value option” if they were carried out directly with counterparties outside the Group, while it is included as a part of trading derivatives in line 1.1, in all cases in which the FVO hedge - initially entered into with the subsidiary MPS Capital Services (now MPS Capital Services) - made it necessary to cover the risk outside the Group.

For fair value option derivatives entered into by Group companies with the subsidiary MPS Capital Services, it should be noted that the internal areas delegated to the activity of risk control perform specific tests at Consolidated level in order to keep a regular check on the validity of the hedge carried out in the context of the natural hedge.

Taking account of the contracts entered into with MPS Capital Services, the overall amount of FVO-linked derivatives carried out in the Group totalled EUR 904 mln.

The trading portfolio also includes derivatives stripped from other financial instruments in the banking book or those related to such instruments for management purposes. In order to calculate capital requirements, such contracts are not part of the Regulatory trading portfolio.

In addition, for the purpose of calculation of capital requirements for Regulatory purposes, all financial instruments other than derivatives are subject to a different classification when they no longer comply with the stricter requirements of the new Regulatory regulations.

All financial instruments recorded under financial assets held for trading are valued at their fair value, including equity securities. The trading portfolio does not include any capital securities relating to companies which are jointly-owned or in which there is significant influence.

288

289 290 2.2.a Quotas of UCITS: breakdown by main categories

(in thousands of EUR) Total Total Category/Values Banking group Insurance companies Other companies 31 12 2008 31 12 2007

Equity 1.060 1.060 320.146 Bond 7 7 56.495 Balanced 17.738 17.738 357.901 Liquidity - - 15.912 Flexible - - 24.989 Speculative - - 37.034 Other 1.815 4.152

Total 20.620 18.805 816.629

The table provides details for table 2.2 above and also describes the main types of investments made in UCITS that are held as a part of the trading portfolio. The decrease in UCITS in the trading portfolio is largely due to the transfer carried out at the end of September from the trading portfolio to Financial instruments available for sale.

291

292

Flows relating to business combination transactions in both "increases" and "decreases" refer to the acquisition of Group Antonveneta and to the sale of Banca Monte Parma respectively.

Lines B3 and C4 contain profit and loss from trading, accruals on issue discount and coupon tax interest, the impact of fluctuations in exchange rates, any opening (C4) and closing (B3) uncovered short positions. In addition to the aforementioned positions, the column "Debt securities" includes the impact of changes in trading securities used in liability repo transactions. In accordance with Banca d'Italia Circular 262, the opening and closing balances of securities used in these transactions are not, in fact, included in the closing balances in line D but are included in the balance in line “6 – Assets sold and not derecognised” in table 2.1 in this section. The transfers for the year (a total of EUR 1,489 mln) of illiquid instruments from the trading portfolio to Loans and Available for sale are included in line (C4) "Other changes".

293

294

295

296

297

The portfolio of financial assets available for sale includes the portion of the bond and UCITS portfolio not intended for trading purposes (banking book) and equity investments and minority shareholdings. No lending transactions are included. All assets are designated at fair value with the exception of a number (insignificant) of equity securities totalling EUR 21.7 mln; these securities are maintained at cost since it is not possible to calculate their fair value in a reliable way. In 2008 the transfer of financial instruments also concerned Financial assets available for sale. In particular, quotas of UCITS (EUR 449.3 mln) and bond securities (EUR 32.1 mln) were transferred from the trading portfolio to the AFS portfolio, while illiquid bonds (EUR 2,422 mln) were transferred from the AFS portfolio to Due from banks and Customer loans. As a consequence, these transfers determined an increase in quotas of UCITS in respect to 2007 and a decrease in bond securities. The transfers were carried out in accordance with the amendment to accounting standards IAS39 and IFRS7 “reclassification of financial assets” issued on the 13 October 2008 by IASB and approved by the European Commission on 15 October with regulation no. 1004/2008. For those securities whose transfer was completed by 1 October 2008, the price of transfer indicated or estimated on 1 July 2008 was used, while for the remaining and subsequent transfers, the price on the actual day of transfer was used. The reclassification of portfolios was carried out according to the new instructions issued by IASB, applicable only in exceptional circumstances, which include the current crisis situation in the market. The reclassifications resulted as being necessary, bearing in mind that, as a result of the crisis in the market, a significant part of the portfolio became substantially illiquid. As per the information requested by the accounting standards, it should be noted that in the event of non-transferred securities (and thus securities that remain in the trading portfolio) at the date on which the 2008 Annual Report was edited, the consequences would be as follows: a) With regard to the EUR 1,392.7 transferred from the AFS portfolio to Customer loans, capital losses before tax would be recorded under negative net equity reserves for approx. 187.3 mln di euro. b) With regard to the EUR 1,029.4 mln transferred from the AFS portfolio to Due from banks, capital losses before tax would be recorded under negative net equity reserves for EUR 43.8 mln. c) With regard to the EUR 449.3 mln transferred from the trading portfolio to Assets available for sale, the changes in fair value matured since the date of reclassification (-EUR 60.5 before tax), have been recorded under “130 a) - Valuation reserves – assets available for sale” of shareholders' equity, while, in the event of no reclassification, would have been posted to the income statement.

With regard to the impact from the transfer of quotas of UCITS from the trading portfolio to the AFS portfolio, please refer to the information provided in table 2.1 Financial assets held for trading, Part B Information on the Balance Sheet. Account "1-1.1 Structured debt securities" includes the value of the "host" security after stripping the implicit derivatives, which is classified separately under derivatives for trading purposes in accordance with IAS 39. At the end of 2007, all structured securities were committed to liability repo transactions with the subsequent reclassification in line "6. Assets sold not derecognised". "Impaired assets" shows a presumable total related to Lehman Group positions of EUR 5.6 mln. The write-off of approx. EUR 19 mln (equal to 80% of the exposure) is included in the Income Statement under account "Net value adjustments for financial assets available for sale".

298

Index Linked

Reverse convertible

Convertibles

Credit Link Notes

Equity Linked

Step up – Step down

Dual currency

Drop lock

Target redemption Note

Cap Floater

Reverse Floater

Corridor

Commodity

Fund Linked

Others 48.396 48.396

299 Other minor investments Finance portfolio

300

301

The breakdown by borrowers/issuers was in accordance with the criteria for categorising businesses by sectors and groups as provided for by Banca d'Italia.

302

4.2.a Quotas of UCITS: break down by main categories

(in thousands of EUR) Insurance Total Total Category/Value Banking Group Other companies 31. 12. 2008 31 12 2007 companies 232.954 88.990 Equity 232.954 16.435 22.376 Bonds 16.435 Balanced 258.892 258.892 35.171 Liquidity - - - Flexible - - - Reserved 477 477 1.586 Speculative 80.707 80.707 - Real Estate 24.721 24.721 22.727 Other 434 434 683 171.533 Total 614.620 614.620

The table provides details for table 4.2 above and describes the main types of investments made in UCITS held as part of the Group's Available for sale portfolio (banking book). These are mainly shares of private equity funds and thus investments aimed at generating a return over the medium term. As already reported under table 4.1 ”financial assets available for sale” the increase in quotas of UCITS is mainly due to the transfers for the year from the trading portfolio (a total of EUR 449.3).

The table shows the portion of Assets available for sale which, at year-end, was covered by hedging transactions and, especially, specific hedges. Fixed-rate debt securities, whose fair value is shown in the table, are covered from interest rate fluctuations; this cover is carried out through derivative contracts (asset swap). The portfolio mostly results from the former assets held for investment purposes which – upon the first application of the international accounting principles – were classified under assets available for sale, thus ensuring the continuity of classification within the Group banking book.

303

All existing hedging transactions at the end of 2008 conformed to the hedging requirements and prospective and retrospective testing provided for in IAS39.

304

The following have been reported among the Increases:

Line 1 “B1. Purchases”, business combination transactions shows the income from the acquisition of Group Antonveneta.

Line “B2. Increases in fair value” includes revaluations posted to net equity reserves of Banca Italia for approx. EUR 154 mln and of Sorgenia S.p.a. for 6.8 mln. Line “B3. Value recoveries” contains the write-down of negative net equity reserves of those securities which were subject to “impairment”; these same reserves have been posted to the income statement and can be seen in line “C4. Write-downs due to impairment” in the above table. Line “B4. Transfers from other portfolios” includes EUR 449 mln of UCITS and EUR 32 mln of bond securities transferred from the trading portfolio to the Available for sale portfolio. Line “B5 Other changes” include profits, exchange rate differences, changes in issue discounts and in coupon tax accruals. In particular, the column "Equity securities" includes profits from the sale of shares in Tenaris SA and of the stake in Centrale Bilanci S.p.a. (see account 100 in the income statement.)

The following have been reported among the decreases: Line “C1. Sales”, column "Debt securities", the sale of government securities for approx. EUR 2,200 mln, column "Equity securities”, the amounts from the sale of the stake held in Tenaris SA for EUR 38.5 mln. and in Centrale Bilanci for EUR 65.2 mln. Line “C3. Decreases in fair value” includes write-downs allocated to shareholders' equity reserve; in particular: • the column "debt securities” contains the total "write-downs due to impairment" posted to the income statement (EUR 19 mln) and taken on securities issued by companies of the Lehman Group; • the column "Equity securities" contains the portion of "write-downs due to impairment" (matured in 2008) posted to the income statement, the total amount of which is indicated in lines B.3 and C.4; • the colum "quotas of UCITS" includes the total amount of "write-downs due to impairment" posted to the income statement (EUR 26.0 mln), entirely matured in 2008 and reported in lines B.3 and C.4.

305 Line “C4. Write-downs due to impairment" reports the write-downs due to impairment (a total of EUR 361.5) taken on: • debt securities issued by companies of the Lehman Group for approx. EUR 19.7 mln; • listed equity securities for EUR 156.9 mln. and equity investments for approx. EUR 159 mln (the more significant of which are Banca Italease S.p.a. for EUR 28.6 mln and Hopa S.p.a. for EUR 94.3 mln.); • UCITS for EUR 26.0 mln. Line “C5. Transfers to other portfolio” contains the debt securities transferred, under amendment IAS39 and IFRS7 of October 2008, to the portfolio Customer loans for EUR 1,392.7 mln and to the portfolio Due from banks for EUR 1,029.4. Line “C6. Other changes” includes, under debt securities, the decrease for liability repo transactions for approx. EUR 2,000 mln as well as falls in exchange rate and losses from sales.

306

307

308

The Due from banks portfolio includes loans and deposits as well as the available portion of the compulsory reserve at Banca d'Italia, totalling EUR 7,004.9 mln.

In 2008 the Parent Company and certain of its subsidiaries applied the amendment to accounting standards IAS39 and IFRS7 “reclassification of financial assets” issued on 13 October 2008 by IASB and approved by the European Commission on 15 October with regulation no.1004/2008, and therefore reclassified part of the financial instruments contained in the various portfolios owned. With regard to the Due from banks portfolio, there were transfers that came from the portfolio of financial instruments held for trading and from the portfolio of financial instruments available for sale.

In particular, the parent company and the relative subsidiaries concerned, transferred bonds for EUR 181 mln from the trading portfolio and for EUR 1,029 mln from the Available for sale portfolio. For those securities whose transfer was completed by 1 October 2008, the price of transfer indicated or estimated on 1 July 2008 was used, while for the remaining and subsequent transfers the price on the actual day of transfer was used. The reclassification of portfolios was carried out according to the new instructions issued by IASB, applicable only in exceptional circumstances, which include the current crisis situation in the market. The reclassification resulted as being necessary, bearing in mind that, as a result of the crisis in the market, a significant part of the portfolio became substantially illiquid and therefore no longer tradable in the short-term. The transfer to Due from banks involved a change in the valuation criteria adopted in respect to the portfolio of origin. The portfolios transferred are, in fact, now valued at amortised cost whereas, prior to the transfer, they were valued at fair value. Negative reserves for EUR 43.8 mln, which were recorded at the date of transfer, relating to the securities classified under Assets available for sale, are fixed at that date and written off the income statement “pro rata temporis”, taking into account the duration of the relative underlying security.

A collective write-off was also calculated for the securities portfolio, as it was for other Due from banks which, at the end of 2008, resulted as "performing".

For details on the impact on the 2008 financial statements of the non-transfer of portfolios, please refer to the details in table 2.1 “financial assets held for trading” and table 4.1 “financial assets available for sale”.

The account Due from banks includes exposures towards Eastern European countries for EUR 366 mln, of which EUR 90 mln guaranteed. These mainly concern positions with foreign banks whilst, only to a minimum, with clients. Of the EUR 366 mln, the main positions can be broken down as follows: EUR 104 mln Turkey, EUR 132 mln Russia, EUR 25.1 mln Hungary and EUR 28.1 mln Byelorussia.

309 Impaired assets include exposures towards Icelandic banks for approx. EUR 20 mln. Write-offs came to approx. EUR 22 mln , equal to around 50% of the exposure.

Due from banks also included certain fair value hedges through which the Bank protected itself from interest rate fluctuations on fixed-rate credit issued in favour of banks within the Group.

310

The Customer loan portfolio incorporates all ordinary loans to customers and a portion of the securities portfolio of the banking book. The significant increase recorded for main items such as current accounts, mortgages, impaired assets and other lending transactions compared with the previous year is naturally due to the acquisition and subsequent merger through incorporation of Banca Antonveneta S.p.A.

Line 8 – “debt securities ” contains bonds of the Banking Book which, at year-end, came to EUR 2,020 mln against EUR 260 mln in 2007. The increase is mainly due to the transfer of bond securities.

In fact, in 2008 the Parent company and some of its subsidiaries applied the amendment to accounting standards IAS39 and IFRS7 “reclassification of financial assets” issued on 13 October 2008 by IASB and approved by the European Commision on 14 October with regualtion no. 1004/2008 and therefore reclassified part of the financial instruments contained in the various portfolios owned.

With regard to the Customer loan portfolio, there were transfers that came from both the portfolio of financial instruments held for trading and the portfolio of financial instruments available for sale.

In particular, the parent company and the relative subsidiaries concerned transferred bonds for EUR 826.8 mln from the trading portfolio and EUR 1,392.7 mln from the Available for sale portfolio.

For those securities whose transfer was completed by 1 October 2008, the price of transfer indicated or estimated on 1 July 2008 was used, while for the remaining and subsequent transfers the price on the actual day of transfer was used. The reclassification of portfolios was carried out according to the new instructions issued by IASB, applicable only in exceptional circumstances, which include the current crisis situation in the market. The reclassification resulted as being necessary, bearing in mind that, as a result of the crisis in the market, a significant part of the portfolio became substantially illiquid and therefore no longer tradable in the short-term. The transfer to Customer loans involved a change in the valuation criteria adopted in respect to the portfolio of origin. The portfolios transferred are, in fact, now valued at amortised cost whereas, prior to the transfer, they were valued at fair value. Negative reserves for EUR 187.2184.2 mln, which were recorded at the date of transfer, relating to the securities classified under Assets available for sale, are fixed at that date and written off the income statement “pro rata temporis”, taking into account the duration of the relative underlying security.

311 A collective write-off was also calculated for the securities portfolio, as it was for other Customer loans which, at the end of 2008, resulted as "performing".

The securities portfolio also includes underwritten ABSs resulting from own securitisations and other bonds issued by local government agencies (B.O.C).

The item "Impaired assets" includes NPLs, watchlist loans, including those over 270 days past due, restructured loans and exposure that is over 180 days past due, as defined by Banca d'Italia. Details of this exposure are given in Part E of the Notes to Financial Statements under "Credit quality".

Item 10 "Assets sold not derecognised" is made up of performing and impaired loans contained in securitisation transactions without "derecognition" carried out in 2007 and 2008 (see table C.2.1 in Part E of the Notes to the Financial Statements). The year-on year increase recorded for this item is mainly due to a securitisation transaction involving performing residential mortgage loans.

The securitisation of performing residential mortgage loans in 2008 involved the sale, without recourse, of loans totalling EUR 3.4 bln. The loans were not cancelled from the Bank's financial statements since the notes issued by the special-purpose vehicle company were fully subscribed by the Parent company, Banca Monte dei Paschi di Siena S.p.a., thereby leaving all risks and benefits with the transferor. The book value is recorded after the relative value adjustments on a collective basis.

Although the securitisation of residential mortgage loans was not placed in the notes market, it made it possible to transform the mortgage portfolio into securities with features that made them eligible for refinancing at the ECB, thereby significantly increasing the liquidity-management instruments.

312

The breakdown by borrowers/issuers was in accordance with the criteria for categorising businesses by sectors and groups as defined by Banca d'Italia. Assets sold and not derecognised include loans contained in securitisations of performing residential mortgage loans and non-performing loans carried out in 2007 and 2008.

313

The table shows the portion of the customer loan portfolio covered by hedges at year-end. In particular, the Parent company hedged specific fixed-rate loans to government agencies against the risk of interest rate fluctuations using derivatives (interest rate swap). The amount reported in the table is the cost modified for the fair value of the risk hedged.

314

In general, with regard to the hedging policies used by the Group, the fair value option is the main accounting tool considered to be the most appropriate at reflecting actual operations and management strategies adopted by the Risk Management area. In particular, the fair value option has been systematically adopted for the classification of structured and fixed-rate bonds used as funding instruments whose interest rate is hedged by the Group using derivatives. Thus, all funding hedged by derivatives is valued at fair value in line with all related hedging derivatives which, for financial statement purposes, are classified under sub-accounts in the trading portfolio.

315

The table indicates the positive fair values of hedging derivatives broken down in relation to the asset or liability hedged and in relation to the type of hedge utilised. More specifically, the fair value hedge was used to hedge against interest rate risk on fixed-rate mortgages so as to protect them from unfavourable fluctuations in interest rate. The column "Exchange risk" also contains the positive fair value of the Cross Currency Swaps entered into to hedge against exchange rate fluctuations on unlisted bond securities recorded in the Loans portfolio. On the other hand, cash flow hedges were carried out on specific floating rate bonds in order to stabilise their cash flows using interest rate swaps. The prospective and retrospective tests conducted in 2008 in compliance with the rules of accounting principle IAS 39 confirmed the holding and the regularity of the hedging relationships.

316

(in thousands of EUR) Total Change in value of hedged financial asset/group component Banking Group Insurance Other Total companies companies 31 12 2008 31 12 2007 1. Increase 31.205 - - 31.205 16.854

1.1 of specific portfolios 31.205 31.205 16.854 31.205 31.205 16.854 a) loans - - b) assets available for sales - - 1.2 overall

2. Decrease 103 - - 103 1

1.1 of specific portfolios (574) (574) 1 (574) (574) 1 a) loans - - b) assets available for sales

1.2 overall 677 - 677

Total 31.102 - - 31.102 16.853 The change in value impacted a portfolio of fixed-rate mortgages that was covered by a macro fair value hedge using derivatives (interest rate swaps) to protect it from possible fluctuations in value as a result of interest rate risk. Since the hedge is generic, the income on the item hedged that is attributable to the risk hedged cannot be applied as a direct adjustment to the value of the item hedged (as in the case of specific hedges), but must be reported in this separate asset account. The amounts included in this account must be removed from the balance sheet when the related assets and liabilities are eliminated for accounting purposes.

The fair value relating to the corresponding hedging derivatives is reported in either table 8.2 under assets or 6.2 under liabilities, both of which are called "Hedging derivatives: breakdown by hedged portfolios and type of hedge, in the "Macro-hedge" column.

The table reports the book value (amortised cost) of a group of fixed-rate mortgages totalling EUR 113.4 mln, issued by the Parent company and included under account "70 - Customer loans covered by macro interest rate hedges" as indicated in table 9.1 above, as well as mortgages in the financial plans of the subsidiary, Banca Personale, which were also covered by macro fair value hedges for EUR 147.1 mln.

The sum of this amount and the amount reported in table 9.1 gives the book value for these loans, adjusted by the profit or loss of the risk hedged.

317

318

319

TIPO Disponib. Rapporto di partecipazione DENOMINAZIONE SEDE RAPP voti % (*) Partecipante Quota % (**)

A.35 ANTONVENETA CAPITAL LLC I Delaware 1 A.0 100,000 100,000

A.36 ANTONVENETA CAPITAL LLC II Delaware 1 A.0 100,000 100,000

A.37 ANTONVENETA CAPITAL TRUST I Delaware 1 A.0 100,000 100,000

A.38 ANTONVENETA CAPITAL TRUST II Delaware 1 A.0 100,000 100,000

A.39 ANTONVENETA IMMOBILIARE S.p.a. Padova 1 A.0 100,000 100,000

A.40 GIOTTO FINANCE S.p.a. Padova 1 A.0 98,000 98,000

A.41 GIOTTO FINANCE S.p.a. Padova 1 A.0 98,000 98,000

A.42 LA CITTADELLA S.p.a. Padova 1 A.0 100,000 100,000

A.43 SALVEMINI S.r.l. Padova 1 A.0 100,000 100,000

A.44 THEANO FINANCE S.p.a. Padova 1 A.0 98,000 98,000

A.2 CompaniesCompanies consolidated consolidate withwith porportional proportional method method

A.45 BANCA POPOLARE DI SPOLETO S.p.a. Spoleto 1 A.0 25,930 25,930 (book value: 25,930% of the nominal value)

(*) Type of relationship 1 majority of voting rights in ordinary shareholders’ meeting 2 dominant influence in ordinary shareholders’ meeting 3 agreements with other partners 4 other types of ownership 5 unit management as per art. 26, par 1, Legisl. decree 87/92 6 unit management as per art. 26, par 2, Legisl. decree 87/92 7 joint ownership (**) Votes available in ordinary shareholders’ meeting (actual and potential votes)

(1)As of December 2007, the subsidiaries Marinella S.p.a., MPS Asset Management, MPS Alternative Investments Sgr, MPS Asset Management Ireland , ABN AMRO Asset Management Italy Sgr Spa and Antonveneta ABN Amro Investment Funds were considered "Disposal groups held for sale".

(*) "Nuova Banca Antonveneta", set up to head the 400 branches from the former Antonveneta, which was merged through incorporation into the Parent company BMPS.

320

321 (1) It should be noted that the stake in SI Holding, for EUR 28.6 mln, was reclassified under account 150 - Single assets held for sale.

(1) It should be noted that the stake in SI Holding, for EUR 28.6 mln, was reclassified under account 150 - Single assets held for sale.

322

Changes occurred in relation to affiliates or companies subject to significant influence that are valued at net equity. Other increases and decreases also included profits and losses resulting from this valuation.

Purchases include the increase in capital carried out in 2008 by certain partly-owned companies, first and foremost Quadrifoglio Vita S.p.A.. Other increases are relative to Intermonte Sim S.p.A., for the Banking group, which went from being a subsidiary to an affiliate in the third quarter of 2008, Antonveneta Vita and Antonveneta Danni, for the insurance companies, and Costruzioni ecologiche S.p.A., for other companies.

Decreases under "Banking group" contains the sale of the stake in Finsoe while under "Other companies" is the transfer of the stake in Si Holding S.p.A. to individual assets held for sale. Other decreases also include the total amount of dividends distributed by these same companies. In accordance with IAS 28, the valuation of the affiliates reported above includes goodwill. The main amounts of implicit goodwill, indicated below, are related to the insurance affiliates Axa MPS Assicurazioni Vita, Axa MPS Assicurazioni Danni and Antonveneta Vita.

323

324

All the Group's tangible assets are valued at cost. The increase is a result of the real estate assets coming from the acquisition of Group Antonveneta S.p.a..

On the basis of the guidelines provided by accounting principle IAS36 “asset value reduction” and of the suggestions contained in the document issued in conjunction with Banca D’Italia/Consob/Isvap no. 2 of 6 February 2009, a general review of real-estate assets was carried out with the aim of identifying any value losses to be posted to the income statement for the year. The fair value of real estate assets was thus determined with all appropriate testing being carried out by Paschi Gestioni immobiliari S.p.a., a specialised company of the Group. The fair value review at 31 December 2008 was conducted through a "desk" update of all testing initially carried out by an independent expert at the time of editing the 2005 Annual report, the first year in which the international accounting standards were applied. These test updates are carried out using revaluation/depreciation coefficients deriving from a database that is supplied by a leading external consultant.

These coefficients are subject to review, analysis and validation by the technical sector of Paschi Gestioni Immobiliari S.p.a bearing in mind both future use and geographical location of each property. In determining the fair value at 31 December 2008, negative forecast reports for the real estate market in 2009 were taken into consideration and specific corrective measures were consequently adopted. In particular, when determining the fair value at 31/12/2008 the Group decided to write off the positive revaluation coefficients shown in the database in the course of 2008 and, instead, to consider fully the negative ones.

As for real estate coming from the acquisition of Group Antonveneta s.p.a. (end of May 2008), the very recent external valuations used for the purchase price allocation were used as a basis for fair value. The comparison between the fair value determined in this way and the book value - though this meant a balance sheet write-off at 31/12/2008 of EUR 1,127 thousand for property with operational use and EUR 526 thousand for property held for investment - resulted in overall capital gains of EUR 362 mln on property with operational use and EUR 1113 mln on property held for investment. With regard to the other tangible assets, instrumental to the Group's activities, there are considered to be no extraordinary negative market elements which could determine the need for write-offs.

325

326

The increases are mainly due to the flow of business combination transactions relative to real estate held for investment purposes under Group Antonveneta. Further decreases, apart from depreciation, were recorded as a result of the aforementioned acquisition. They also include the reclassifcation to bank and customer loans of construction-phase leasing transactions and assets awaiting financial leasing in the event of formal and explicit contractual agreements (also during the construction phase) to transfer all risks under the lessee. This reclassification was carried subsequent to clarification provided by Banca d’Italia, relating to the balance-sheet reporting of construction-phase leasing transactions and assets awaiting financial leasing, which states that classification should take place under Due from banks and Customer Loans.

327

Flows from business combination transactions relate to the acquisition of the Group Antonveneta subsidiary "La cittadella", adjusted to the fair value.

Other decreases are attributable to the sale of the subsidiary, Fontanafredda.

328

The increases are mainly due to the flow of business combination transactions relative to real estate held for investment purposes under Group Antonveneta.

329

The table indicates the percentages used to depreciate major categories of tangible assets. Land and works of art are not subject to depreciation since they have an indefinite useful life. The PPA of Group Antonveneta S.p.A. involved, among other things, the fair value evaluation of all real estate and the update of the relative useful life.

330

Year –on year changes in the Account "Goodwill" are mainly due to the goodwill (EUR 5,910 mln) coming from the acquisition of and subsequent merger with the subsidiary, Banca Antonveneta.

In terms of consolidated financial statements, the acquisition of the controlling interest in Group Antonveneta called for the application of the accounting principle IFRS3 which involved (a) the consolidation of assets, liabilities and contingent liabilities of the company acquired at their respective fair values on the date of acquisition, including any identifiable intangible assets not already contained in the financial statements and (b) the calculation of goodwill as the difference between the cost of the business combination and the net fair value of identifiable assets, liabilities and contingent liabilities.

The identification of the fair value of assets, liabilities and contingent liabilities of the company acquired was completed at the end of last December; consequently the quantification of Group Antonveneta's goodwill at 31 December 2008 is to be considered definitive. The increase in other intangible assets comes from the calculation of intangible goods for approx. EUR 890 mln of original value, of which EUR 794 mln relating to Banca Antonveneta S.p.A. and EUR 96 mln relating to the subsidiary, Biverbanca, amortised, at 31 December 2008, for EUR 41.4 mln and EUR 7.5 mln respectively.

For detailed information on the acquisition of Banca Antonveneta S.p.A. and for the completion of the PPA process relating to Banca Antonveneta S.p.A. and to the subsidiary, Biverbanca S.p.A. please refer to Part G of the Notes to the consolidated Financial Statements.

331

Year-on-year changes in the Account "Goodwill" are mainly due to the goodwill (EUR 5,910 mln) coming from the acquisition of and subsequent merger with the subsidiary, Banca Antonveneta. Also reported is the sale of the jointly-owned Banca del Monte di Parma S.p.A. and the change in goodwill of Biverbanca S.p.A. resulting from the settlement of the stake held.

332 The International Accounting Standards 36 (“IAS 36”) provides for the accounting principles and the reporting related to the financial statements information dealing with the durable decrease in value of some kinds of assets, among which also the goodwill, providing also the criteria a company must comply with to ensure that the assets are recorded in the financial statements at a value which is higher than the recoverable one.

According to IAS 36, the recoverable value is the higher value between: fair value less the costs of sale – the value is the amount which can be obtained net of the costs of the disposal from selling an assets in a free transaction between aware and available parties; Use value – the value is the current amount of future cash flows which the company expects from the ongoing use of a specific assets or from a cash generating unit.

The carrying value of the goodwill is required by IAS 3614 to be compared (impairment test) with its recoverable value whenever the assets might have durably decreased in value and anyhow at least once a year, while drawing up the financial statements.

The recoverable value of goodwill is estimated with reference to the cash generating unit (CGU) since the goodwill cannot produce cash flows autonomously.

The CGU is the smallest group of assets which may be identified generating incoming financial flows largely independent on the incoming financial flows generated by other assets or group of assets in respect of which the group has an autonomous recording of results through management reporting systems.

Impairment test of the MPS Group goodwill

The crisis which has struck the world economy since September 2008 and the negative expectations on growth rates of the real economy for the next few years make the Impairment Test process particularly awkward.

In the current market situation it is important to distinguish between decrease in value with substantially internal causes concerning limited business areas and decrease in value with mainly external causes, therefore generated by the current strong financial and economic crisis and likely to concern all business areas.

The 2008-2011 Business Plan of the MPS Group (“Business Plan”) approved in march 2008 was reviewed to take into account the current market background. Starting from the strategic guidelines of the 2008-2011 Business Plan, therefore without changing business and streamlining strategies, the trends of the Group financial and economic projections were redesigned considering the data resulting from the new macro-economic scenario. Given the current phase of market discontinuity the projections were extended to 2013 to measure the income potentialities of the MPs Group and its capacity of creating value over time against the pessimistic expectations of the next two years.

The Impairment Test was then carried out taking into account the validity of the strategic measures provided for by the 2008-2011 Business Plan and by the economic and financial 2009-2013 projections approved by the Board of Directors of BMPS of 26 March 2009.

In compliance with the IAS 36 provisions and with the above-mentioned requirements the impairment test of the goodwill resulting from the BMPS financial statements and from the MPS Group consolidated financial statements as of 31 December 2008 implied following activities:

333

1) Identification of goodwill 2) Identification of CGUs and allocation of goodwill to the identified CGUs 3) Determination of the carrying value of CGUs 4) Determination of the recoverable value of CGUs 5) Comparison between carrying value and recoverable value of CGUs 6) Analysis of sensitivity of impairment test results against changes of the basic assumptions.

Identification of goodwill subject to the impairment test in the Consolidated Financial Statements

The implicit and explicit goodwill resulting from the Group financial statements as of 31 December 2008 amounting to EUR 6,966 million is subject to impairment test.

In the financial statements there are no other intangible assets with indefinite useful life.

In the Consolidated Financial Statements the overall goodwill identified for impairment test purposes is made up of explicit goodwill for EUR 6,859 million, of which EUR 6,026 related to the acquisition of the Antonveneta Group, and of implicit goodwill for EUR 107 million. The implicit goodwill are included in the book value of subsidiaries and of affiliated companies valued with the net equity method. The companies valued with the net equity method are identified as single CGU or as integral part of larger CGUs in line with the definition of CGU hereunder.

Composition of goodwill subject to impairment test in the Consolidated Financial Statements In EUR million (rounded off values) 31/12/2008 Goodwill of subsidiaries 6,859 Banca Antonveneta 6,026 Banca Agricola Mantovana S.p.A. 576 Former Banca Steinhauslin 4 MPS Capital Services Banca per l’Impresa S.p.A. 3 Banca Popolare di Spoleto S.p.A. 9 Cassa di Risparmio di Biella e Vercelli S.p.A. 207 MPS Sim S.p.A. Società di Intermediazione Immobiliare 31 Banca Monte dei Paschi Belgio 3

Implicit goodwill in the affiliated companies 107 AXA MPS Assicurazioni Vita S.p.A. 47 AXA MPS Assicurazione Danni S.p.A. 2 Interporto Toscano Vespucci 3 Sl Holding 15 Antonveneta Vita S.p.A. 40

Total goodwill of the Consolidated Financial Statements 6,966

Identification of CGUs and allocation of goodwill to the identified CGUs

334 IAS 36 provides that each CGU or group of CGU to which the goodwill is allocated must represent the lower level at which the company controls the same goodwill for management purposes and cannot anyway be higher than a segment for which the company gives disaggregated information according to IAS 14 (“Segment reporting”).

Thanks to the acquisition of the Antonveneta Group, the MPS Group started a deep restructuring aimed at meeting new market challenges with improved efficacy and efficiency profiles. The corporate reorganization within the MPS Group implied the review of the CGUs of the bank and of the Group also as far as the existing goodwill is concerned, which, until last year , was subject to an impairment test considering, as CGU of reference, the legal entity it was referred to, whereas today it is mostly integrated in BMPS.

The goodwill of the Bank and of the MPS Group, in the light of the above-mentioned events was verified identifying the CGUs for which it is possible to distinguish the assets of the Bank and those of the MPS Group and analyse the profitability flows which they are able to generate in the next few years according to an approach consistent with the Segment Reporting of the Financial Statements which, in its turn, mirrors the Management Reporting.

In particular, the MPS Group adopted a business approach to primarily represent the income/capital data, distributing the results by areas of business through which the consolidated activity is carried out: Commercial Banking/Distribution Network, Private Banking/Wealth Management, Corporate Banking/Capital Markets, Corporate Centre. Moreover, also the monitoring of the MPS Group performances and the development of the planning are implemented according to a structure subdividing the assets by business areas.

In consideration of the approach used at level of segment reporting of the MPS Group , of the analysis of the assets to which the value of goodwill can reasonably be assigned and of the minimum level against which the MPS Group can obtain information on the profit and loss account and the balance sheet to monitor the performances of the assets to which the production of this goodwill is linked, 8 CGUs were identified:

1) “CGUs MPS Retail” made up of the retail customers of BMPS branches, including the branches of the former Banca Agricola Mantovana (“BAM”) and of Banca Toscana (“BT”), of the 600 branches of the former Banca Antonveneta (“BAV”) which were not conferred to the Nuova Banca Antonveneta (“Nuova BAV”), of Consum.it, Banca Popolare di Spoleto, MPS Ireland and Sl Holding. 2) “CGUs MPS Private” made up of typically private customers of BMPs branches, including the former BAM and BT branches, MPS Monaco, MPS Banca Personale, MPS Fiduciaria, the Asset Management Area and the Wealth Management Unit. 3) “ CGUs MPS Corporate” made up of typically corporate customers of the BMPs branches, including the former BAM and BT branches, the 600 former BAV branches, foreign branches, Key Clients, MPS Leasing & Factoring, MPS Capital Services, MPS Belgio and MPS Banque. 4) “CGUs Nuova BAV Retail ” made up of retail customers of Nuova BAV. 5) “CGUs Nuova BAV Corporate” made up of typically corporate customers of Nuova BAV. 6) “CGUs Nuova BAV Private ” made up of typically private customers of Nuova BAV. 7) “CGUs Cassa di Risparmio di Biella e Vercelli” (“Biverbanca”) made up of Biverbanca the customers of which are mainly retail. 8) “CGUs insurance segment” made up of the insurance companies AXA MPS Assicurazioni Vita S.p.A., AXA MPS Assicurazioni Danni S.p.A. and Antonveneta Vita S.p.A.

335

CGUs MPS Group 1. CGUs MPS Retail 2. CGU MPS Private 3. CGU MPS Corporate BMPS network (including the BMPS network (including the BMPS network (including the former BAV, former BAM and former BAV, former BAM and former BAV, former BAM and BT branches) BT branches) BT branches) Banca Popolare di Spoleto MPS Monaco Foreign branches Consum.it MPS Banca Personale Key Clients MPS Ireland MPS Fiduciaria MPS Leasing &Factoring SI Holding Assets Management Area MPS Capital Services Wealth Management Unit MPS Belgio MPS Banque 4. CGUs Nuova BAV 5. CGUs Nuova BAV 6. CGUs Nuova BAV Retail Private Corporate 7. CGUs Biverbanca 8. CGUs insurance segment

The value of goodwill was allocated to the different CGUs taking into account those, and to what extent , able to benefit from the synergies resulting from the implemented corporate mergers.

Goodwill subject to impairment test in the Consolidated Financial Statements 6.966 (in EUR million, rounded off values)

Goodwill related to the CGUs MPS: 5,252 1. CGUs MPS Retail 2. CGUs MPS Private 3. CGUs MPS Corporate Allocated goodwill: 4,971 Allocated goodwill: 122 Allocated goodwill: 159 Of which: Of which: Of which: Explicit: 4,956 Explicit: 122 Explicit: 156 Implicit: 15 Implicit: 0 Implicit: 3

Goodwill related to the CGUs Nuova BAV: 1,418 4. CGUs Nuova BAV 5. CGUs Nuova BAV 6. CGUs Nuova BAV Retail Private Corporate Allocated goodwill: 1,003 Allocated goodwill: 50 Allocated goodwill: 365 7. CGUs Biverbanca 8. CGUs insurance Allocated goodwill: 207 segment Allocated goodwill: 89

The goodwill in the Financial Statements of the Bank is higher, as a whole, than the goodwill of the Consolidated Financial Statements. The difference in value is due to the presence in the financial statements of goodwill defined before applying the international accounting principles. On the first application of the IAS/IFRS, the Group decided to use the exemption provided for by IFRS1 of not retrospectively applying the IFRS3 principle. Therefore, the

336 remaining goodwill, recorded according to the Italian accounting principles (ITGAAP), was maintained and reported misalignment due both to the different date of accounting in the consolidated financial statements and in the statement of the bank and to the resulting different amortization process.

Therefore, the recoverable value was verified both at levels of the bank’s financial statements and of the consolidated financial statements taking into account the different recorded values of goodwill and as a result the different value of the CGUs.

In order to verify that the goods, which are addressed to auxiliary and ordinary assets (“corporate assets”) and cannot be allocated according to a reasonable and consistent principle to the identified CGUs, were not subject to a durable reduction in value the recoverable value of the MPS Group was estimated as a whole. As a matter of fact, according to IAS 36 if, during the impairment test, a centrally managed assets cannot be allocated on the basis of a reasonable and consistent principle to determined CGUs it must be verified determining the smallest group of CGUs, a kind of higher CGU, to allocate it. In this case the higher CGU was identified in the MPS Group as a whole.

Determination of the recoverable value of CGUs

The impairment test process of MPS Group goodwill as of 31 December 2008 was carried out identifying the recoverable value of each CGU in the use value. The recoverable value of the MPS Group and of the CGUs was also determined thanks to a leading advising company (Advisor). The recoverable value of the MPS Group and of the banking CGUs was estimated with the Dividend Discount Model (DDM) method in the Excess Capital version determining the value of a company on the basis of future dividend flows which may be distributed to the shareholders taking into account the development expectations and in compliance with the capital requirements provided for by the Supervisory Authority discounted at a rate expressing the specific capital risk.

The recoverable value of the insurance companies included in the CGU insurance segment was determined:

Through the Appraisal Value method for life insurance companies: it estimates the value as sum of the Embedded Value (value of the rectified net worth and of the outstanding insurance policies) and of the New Business Value (current value of future expected production); Through the discounting-back of expected income flows for the damage insurance company .

To verify the corporate assets the recoverable value of the Group as a whole was estimated after being identified in the use value still through the DDM.

2009-2013 economic-financial projections of the MPS Group

To determine the recoverable value, the 2009-2013 economic-financial projections of the MPS Group (and of the identified CGUs24) were referred to. These projections were prepared considering:

The 2008 final statement data 25 and the 2009 budget data;

24 To determine the recoverable value, the effects of the Purchase Price Allocation concerning the acquisition of Banca Antonveneta and Biverbanca and the contribution of the capital allocated to each CGU were taken into account.

25 The 2008 data are proforma data considering the Banca Antonveneta contribution for 12 months

337 The new market scenario until 2013 developed in March on the basis of internal and external sources such as the estimates of main institutions dealing with econometric analysis (ERC, IMF, Prometeia, Bank of Italy, etc.) The effects of synergies provided for by the Business Plan and the effects related to the remaining disposals provided for by the Business Plan.

Main basic assumptions of the 2009-2013 economic-financial projections of the MPs Group are reported in the following table

Turnover and margin trends 2008-2013 CAGR26 Total lending 4.2% Total collection 2.3% Asset management 6.3% Net income 5.4% Personnel costs -1.1% Other administrative expenses -2.1%

Profitability indicators 2008 2013P extraordinary post- transactions Mark down 146bps 133bps Mark up 152bps 161bps Credit cost 73bps 53bps Cost/income 66.1% 47.9%

The 2009-2013 economic-financial projections of the identified CGUs were developed on the basis of hypotheses consistent with the assumptions of the 2009-2013 economic-financial projections of the MPs Group.

Banking CGUs

The recoverable value of Retail, MPS Private and Corporate, Nuova BAV and Biverbanca Private and Corporate CGUs (together “banking CGUs”) and of the MPs Group was determined through the DDM on the basis of the following formula:

Where:

26 Compound Annual Growth Rate

338 DIVt = flows which may be distributed to the shareholders over the time span selected according to the developed economic financial projections while keeping a satisfying capital adequacy level.

I = discounting-back rate represented by the risk capital cost (ke)

VTa = current value of the terminal value (“Terminal Value”) calculated as value of an estimated irredeemable debenture estimated on the basis of a normalized flow economically sustainable and consistent with the long-term growth rate (“g”).

To estimate the flows which may distributed to the shareholders, the MPs Group 2009-2013 economic-financial projections were referred to.

To discount-back the flows which may be distributed to the shareholders, the risk capital cost was used equal to the return rate of the shareholders’ equity required by investors/shareholders for investments with similar risk characteristics. This rate was estimated through the Capital asset Pricing Model (“CAPM”) according to the following formula:

Ke = Rf + Beta* (Rm-Rf)

Where:

Rf = return rate of no risk investments, identified in the average return of ten-year government bonds issued by the Italian Government amounting to abt. 4.5% (Bloomberg source).

Beta = correlation factor between the actual return of a share and the overall return of the reference market (volatility measurement of a security against the market).

Rm-Rf = risk reward required by the market in line with the assessment policy amounting to 5%.

The Terminal Value was determined on the basis of the following formula:

VT = normalized Dividend * (l + g) / (ke –g)

Where g is the long-term growth rate.

The DDM application was carried out on the basis of parameters shared with the Advisor and able to represent the actual degree of risk/profitability which may be referred to each CGU. In particular, the parameters used for the assessment mirror following hypotheses:

Capital ratio: for the Group the 6.5% Tier 1 ratio was used, which is the minimum value above which, for the model purposes, excess capital may be distributed; also for Biverbanca, for which the CGU coincides with the legal entity, the same capital ratio used for the MPS Group was applied. For the other CGUs a Total Capital Ratio amounting to 8% was adopted as proxy of the capital for regulatory purposes and is therefore aimed at covering the whole supervisory capital requirement.

339 Capital cost (Ke): for the MPs Group the 9% rate was used in line with the capital cost of the MPS Group according to the current market parameters. For the other CGUs, estimates were carried out mirroring their specific riskiness. Long-term growth rate of income (g): it was assumed it will amount to 2% on the basis of the estimates on the expected inflation rate of main institutions dealing with econometric analysis (ERC, IMF, Prometeia). The growth rate is, therefore, not higher than the market one.

Hereunder main parameters used in determining the recoverable value of banking CGUs are reported:

Banking CGus Assessment parameters

Ke G Capital ratio MPS Retail 9.0% 2.0% 8.0% MPS Private 9.0% 2.0% 8.0% MPS Corporate 10.0% 2.0% 8.0% Nuova BAV Retail 9.0% 2.0% 8.0% Nuova BAV Private 9.0% 2.0% 8.0% Nuova BAV Corporate 10.0% 2.0% 8.0% Biverbanca (59%) 8.5% 2.0% 6.5%

Insurance CGUs

To evaluate the recoverable value of the Insurance CGU, determined as above-mentioned, following hypotheses were considered.

Insurance CGUs Assessment parameters

Ke g Insurance segment 8.5%-9.0% 2.0%

Sensitivity analysis of Impairment test results

To better understand the sensitivity of the impairment test results against the changes in the basic assumptions a sensitivity analysis was carried out: On the failed implementation of extraordinary transactions; On any issues of Tremonti Bonds amounting to EUR 1.9bn; On the discounting- back rate (+0.5%), On the capital ratio (+0.5%) used to estimate the recoverable value of the MPS Group.

Moreover, an analysis concerning the ceiling of the ke for the Impairment Test holding on each CGU was carried out, the results of which are summarized in the table hereunder:

MPS Retail 13.6% MPS Private 12.2% Nuova BAV Retail 9.7%

340 Nuova BAV Private 13.4% Nuova BAV Corporate 10.6% BIVER 8.8% Insurance segment n.r.

Conclusions

The results of the impairment test show recoverable values of the identified CGUs higher than the values of CGUs excluding the MPS Corporate CGU for which, already at level of single assessment, a recoverable value higher than the carrying value is reported. For this CGU, the sensitivity analyses bring about a further reduction in recoverable value.

Taking into account the uncertainties underlying the assessment process and in the light of the sensitivity analyses carried out, the Board of Director of BMPS deemed it advisable to devaluate the goodwill allocated to the MPS Corporate CGU amounting to EUR 150 million.

Moreover the sensitivity analyses carried out on the other CGUs do not show any durable decrease in value of the goodwill allocated to them.

341

The year-on-year increase recorded under Account "Goodwill" is mainly due to the value given to goodwill of EUR 6,025.7 mln, (pre-impairment test), coming from the acquisition and subsequent merger of the subsidiary, Banca Antonveneta, and the acquisition of the subsidiary, MPS sim s.p.A. (ex Axa Sim S.p.A.) for approx. EUR 31 mln. Decreases includes the sale of the jointly-owned subsidiary, Banca del Monte di Parma S.p.A., and the change to the goodwill of Biverbanca S.p.A. resulting from the settlement of the stake held and from the completion of the PPA process. In the column "Other intangible assets" – others with limited duration also contain the intangibles coming from the acquisition and merger of Banca Antonveneta S.p.a for a total of EUR 794.1 mln as well as the intangibles defined for the subsidiary, Biverbanca, totalling EUR 96.4 mln, (already included in the opening balance), for which the PPA process was completed last December.

Line C.2, Amortisation, with reference to column "other intangible assets" – other - with limited duration, also includes the amortisation quotas for the year relating to the intangibles recorded as a result of the acquisition of Group Antonveneta for a total of EUR 41.4 mln and EUR 7.5 mln relating to the intangibles under Biverbanca S.p.A.

"Writedowns" under "Goodwill" contain the loss in value recorded on goodwill in the Balance sheet, resulting from the failure to pass the recovery test and consequent "impairment" in 2008. The amount of adjustments came to EUR 150 mln and relates to the fact that almost all goodwill is due to the CGU Corporate which was written off during the year.

342 .

Main categories of intangible assets period % remaining

Software 20;00% - Concessioni e altre licenze 20,00% Marchio Banca Antonveneta S.p.a. - 10,00% Core deposits - conti correnti 9 9,10% Core deposits - depositi 10-11 6,70% Core overdraft 13-14 9,10% Asset under management 10-11 11,10% 8 The table reports the main intangible assets recorded at the time of Banca Antonveneta S.p.a. PPA. These are all of limited duration and thus subject to amortisation, taking into account the expected useful life. At 31 December 2008 there were no re-valued intangible assets, acquired through government grants (Ias 38, par. 44), as debt guarantees.

343

The line “Credits” under prepaid tax assets includes tax assets for value adjustments to loans which were not deducted in previous years since they exceeded the limit indicated by art. 106 of the Income Tax Act (TUIR). Such adjustments will be deductable in ninths in future financial years according to the straight-line method. The line “other financial instruments” mainly includes tax assets relating to cash flow hedging derivatives and financial assets available for sale. “Goodwill” shows tax assets which resulted from the alignment contained in art. 15 of Law no. 185/2008, mainly goodwill recorded in relation to the acquisition and subsequent merger through incorporation of Banca Antonveneta S.p.a.. The line “Other” mainly includes recoverable taxes in relation to the provisions for risks and charges with respect to deductible costs.

The above is not explicitly contained in the International accounting standards and thus, as indicated in Section 1 – Declaration of conformity to the International Accounting Standards , the Company was obliged to define an accounting plan that was in line with the criteria established and that aimed at essentially guaranteeing a substantial representation of the impact of the transaction. At the end of this process, the Bank recorded the substitute tax 8cost) and the tax benefits of being able to deduct at full rates (earnings) as a lump sum in the 2008 income statement. The equity/balance sheet contra entry of the earnings is an asset which, in subsequent years, will be amortised to the income statement, thus eliminating any interference with the tax rate reported in the balance sheet. The accounting principle adopted takes account of the analysis of the valuations that emerged between the Professional Association (ABI) and the Italian Standard Setter (Organismo Italiano di Contabilità). Adopting this accounting procedure led to an overall positive net impact on the 2008 income statement of EUR 925.8 mln as described in section 18 of the income statement under Notes to the Financial Statements.

344

The line "financial instruments" mainly includes tax liabilities relating to Cash flow hedging derivatives and Financial assets available for sale.

The table contains all prepaid taxes which will be absorbed in subsequent years as a contra-entry to the item in the income statement.

2.3, “Other increases” reports prepaid taxes for EUR1,887.6 mln. relating to the alignment of goodwill recorded by the Parent Company for the mergers through incorporation of Banca Agricola Mantovana S.p.A. and Banca Antonveneta S.p.A. due to the value alignment pursuant to art.15 of Law no. 185/2008 as well as tax assets resulting from the acquisition of the Banca Antonveneta Group. For further details, please refer to table 20.1 of the income statement.

345

The table contains all deferred taxes which will be absorbed in subsequent years as a contra-entry to the item in the income statement. 2.3, “Other increases” reports tax liabilities resulting from the acquisition of the Antonveneta Group as well as tax liabilities relating to the securitisations of non-performing loans carried out in 2007. 3.3, “Other decreases” includes the effect from the write-off of tax liabilities due to the value alignment contained in art. 15 of Law no. 185/08, mainly relating to the aforementioned securitisations of non-performing loans, to liabilities designated at fair value and relative derivatives, to shares under Assets held for trading, to the valuation at market value of loans and intangible assets at the time of purchase price allocation. For further details, please refer to the comments under table 20.1 of the income statement.

346

The changes are mainly due to the tax reported for movements in net equity reserves relating to Securities available for sale designated at fair value as well as cash flow hedging derivatives.

347

Other credits and witholdings mostly consist of income tax credits to be refunded , IRES-IRAP credits resulting from prior tax returns which can be used as a set-off, in addition to witholdings that are deductible during the year.

The total amount of taxes payable to the Treasury is shown by the algebraic sum of current tax generated on tax payables posted to the income statement and those posted directly to shareholders' equity. Other current tax payables on income are mainly attributable to the substitute taxes relating to value alignments, (ref. Law 185/2008 converted with Law 28/1/09 no.2) which come to EUR 1,281.4 mln. Ires taxes payable with contra- entry in the income system refer to the IRES relating to taxable income of the Group companies in relation to the consolidated fiscal statements.

348

At 31 December 2008 this Account included the assets and liabilities of the subsidiary, Marinella and of the subsidiaries under Gruppo Montepaschi Asset Management S.g.r. S.p.A and Gruppo A.A.A. S.p.A. for which the acquiring parties received the necessary authorisations from the Supervisory Authorities last February.

"Single assets held for sale" includes the stake in Si Holding (EUR 28.6 mln) and important real estate property of the subsidiary MPS Immobiliare, for the equivalent of EUR 104 mln.

Item B Asset groups (operating units sold) to line B.10 Other assets includes Cash for EUR 0,6 thousand.

349

The significant rise in values compared with the previous year is mainly due to the merger through incorporation of Banca Antonveneta S.p.a..

350

Due to banks were valued at cost or amortised cost since no entry was covered by fair value hedging. With regards to item 2.2 “time deposits” it should be noted that upon the acquisition of Group Antonveneta, completed at the end of May 2008, the Parent company (in addition to capital strengthening transactions) contracted a time deposit for a total of EUR 1,560 mln, the early reimbursement of which is strictly connected to a series of disposals (among which are those that have already been completed) by the end of December 2008 (Banca Monte Parma S.p.a e Valorizzazioni Immobiliari S.p.a). The loan at year-end comes to EUR 1.150 mln due to the above-mentioned sales and to other transactions executed at Group level.

The item "Liabilities related to assets sold not derecognised" contains debts reported for repo liabilities in relation to the corresponding securities sold and not derecognised under assets. The item "Other loans" also includes loans resulting from liability repo transactions carried out with respect to assets repo transactions.

351

Customer deposits are primarily valued at cost or amortised cost with the exception of one loan received that was covered by a specific fair value hedge to protect it from possible changes in fair value due to interest rate fluctuations. The item “Liabilities related to assets sold not derecognised” includes debt reported for repo liabilities in relation to the corresponding securities sold and not derecognised under assets. The item "Other loans" also contains loans resulting from repo liability transactions carried out with respect to asset repo transactions. The sharp increase in repo transactions was due to increased customer demand for short-term monetary obligations.

The table shows details from table 2.1 and contains the book value of the loan received that was covered by a specific fair value hedge to protect it from possible changes in fair value due to interest rate fluctuations. The book value corresponds to the amortised cost adjusted to the fair value of the specific risk hedged.

352

rs, the Group has regularly hedged structuredGroup hasrs, regularly hedged the issued, bonds are which d" includes the value the d" includes implicit"host" whose security derivative of the was e redeemed. Alle redeemed. liabilities are valued atamortised costcost or since no entry bonds at amortised cost for a few old issues. For several yea issues. For old few at amortised cost forbonds a epurchased bonds and certificates"Structure of The item deposit. the merger through incorporation of BancaAntonvenetamerger throughthe incorporation of S.p.a. classified under instruments designated at fair value. value. fair at designated instruments under classified the report. editing the of time at instruments financial the of value market theoretical the contains column fair value The The table reportsthe as form funding securities certificates current bonds in well of including as and expired to of deposit b coveredwas by fair Debt is reportedvalue hedging. net of r stripped,and classified under derivatives independently for appraised held trading. structuredfor balance exists remaining small a At only present, The significant year-on-yearmainly rise to in values due is

353

Index Linked 37,054 37,054 51,729 Unit linked Equity Linked 2,644 2,644 15,204 Step up Step down Dual Currency Drop Lock Target redemption Note Cap Floater Floor Floater Reverse Floater - - - Convertible - - 5,301 Credit link Notes Corridor Fund Linked - - 4,744 Other 12,604 12,604 12,664

Details are provided in this table for Table 3.1 above and includes all structured securities whose derivatives were stripped and independently assessed with a breakdown by the main types issued.

The table indicates the fair value for implicit derivatives related to structured securities that were separated from the host instrument and classified in the trading portfolio which is valued at fair value. For the purposes of regulatory reporting, these derivatives are still considered a part of the banking book and thus are not included in the trading portfolio for regulatory purposes except in those cases when they are actually intended for trading.

354

Details are provided in this table for Table 3.1 above including all subordinated securities outstanding at the end of 2008 and their relating key features. For the sake of conservatism for regulatory purposes, these liabilities are included in Tier II capital (see Part F Section 2 "Capital and ratios for regulatory purposes")

(b) Securities are non-redeemable. BMPS has the option of either total or partial reimbursement of notes that are exercisable after 21 December 2010 and 27 June 2011 respectively.

355

The table includes outstanding securities covered by specific hedges. More specifically, at year-end, cash flow hedges were carried out using OTC interest rate derivatives covering certain plain vanilla bonds. Positions were hedged to transform floating-rate funding to fixed-rate funding thereby ensuring a balance with funds generated by the corresponding fixed-rate assets funded in this manner. For cash-flow hedges, the fair value of derivative contracts is posted in a special net equity reserve.

The specific fair value hedges relates to the subsidiaries Biverbanca and Banca Popolare di Spoleto, for which the fair value option is not applied while the year-on-year rise in specific cash-flow hedges is mainly due to a new hedge on cash-flows, for a par value of EUR 2,160.6 mln, used in the second half of 2008, on the new subordinated issue - floating rate - Upper Tier II 2008-2018.

356

- Linked with the the with - Linked

the table the in line “B.1.2 Other”. Other”. - ated as hedging instruments, hedging as ated classified in which the FVO hedge made it necessary hedge FVO the which in -end. icated in the table in line “B.1.3 in line table in the icated that appropriateconduct internal the specificto areas delegatedcontrol risk dge the risks related to funding designated at fair value, resulting from potential potential from resulting value, fair at designated funding to related risks dgethe related to related suchmanagement instruments for For the purposes. of purposes fair value of these fair derivatives is reported in contracts other than those formally thancontracts those design other hedge. Bearing in mindcontracts MPSthewith Capital Services, intothe in entered Bearing hedge. ading derivatives, in line 1.1, in all cases derivatives, in all in line 1.1, ading fair value is ind fair value the fair value assumed year fair at value the profits in the short term and derivative roup, but is reflected asroup, but is of tr reflected a portion Hedging derivatives”, depending on

d in the for purposes; trading regulatory portfolio d in their ies with the subsidiary MPS Capital Services,subsidiary Capital the be noted MPS it should with ies mponentsstructuredthe securities.The in implicit outstanding struments for which the fair value option has been used:struments these he the value option fair for which ncial instruments issued mainly toncial instruments issued generate Hedging derivatives” “60 – Hedging or under liability

to cover the risk outside the Group since this hedge was initially entered into with the subsidiary MPS Capital Services. Capital MPS subsidiary the into with entered initially this hedge was since the Group outside cover the risk to The trading portfolio also includes derivativesThe trading includes portfolio in linked with also fluctuations in interest rates and the existencethe fluctuations co interest rates and optional in of G the outside counterparties with directly out carried were they if option”, value fair testscheck order to of at Consolidated periodically the level in natural context the hedge the out the validity carried in of mln.overall amount FVO-linked EUR of came to 223 derivativescarriedthe Group out within The trading portfolio includes liquid fina liquid includes The trading portfolio Group compan intoFor fair derivatives by entered value option those or book banking the instruments in other financial from stripped contractsderivative includes trading also The portfolio under assetAccount “80 – capital calculating these contractsrequirements, are not include All financial instruments reported under financial liabilities held for trading are designated at fair value. value. fair at are designated trading for held financial liabilities reported under instruments financial All

357

The table indicates the fair value of derivative contracts classified in the trading portfolio of the financial statements and broken down by the main types of risk that they cover. The "interest rate" column also incorporates financial derivatives with underlying debt securities.

358

The table provides details for table 4.1 and reports the book value ( fair value) of derivatives used to hedge instruments for which the fair value option was used, broken down by method of utilisation. At the end of 2008, all derivatives linked to the fair value option - recorded in the trading portfolio - related to the natural and systematic hedging of structured and fixed-rate bonds issued by the Group. These derivative contracts are classified in the Trading portfolio. From the standpoint of reporting in the income statement, they follow rules that are similar to those used for hedging derivatives: The positive or negative spreads or margins settled or accrued until the reporting date of the financial statements are recorded under interest income and expense, while valuation-related profits and losses are reported under Account “110 - Net result on financial assets and liabilities designated at fair value” in the income statement with reporting consistent with that used for funding instruments for which the fair value option has been used.

359

The changes indicated under "Customer deposits" do not include EUR 41,222 thousand for uncovered positions.

360

361

The table reports financial liabilities represented by structured and fixed-rate bonds that were classified at fair value and that have been systematically hedged using derivative contracts to cover the risk of interest rate fluctuations and the risk resulting from the existence of implicit options. As indicated by the IASB and in the "Supervisory guidance on the use of the fair value option", which was issued by the Basel Committee on Banking Supervision, the fair value option may serve as an alternative or supplement to hedge accounting, at the discretion of banks, to delineate their risk-hedging strategies. The adoption of the fair value option for funding instruments has, in general, allowed the Parent Company, Banca Monte dei Paschi di Siena, and the subsidiary bank networks to achieve a more meaningful accounting representation that is in line with the actual approach used for hedging risks. At the same time, it has allowed them to reduce the complexity of administration and to measure financial instruments in a more reliable way. Thus, all funding hedged by derivatives is designated at fair value in keeping with all related hedging derivatives which, for financial statement purposes, are classified under sub-accounts in the trading portfolio.

Hedging is perfect since the Group regularly executes derivative contracts with the characteristics of the underlying bonds issued, by specifically hedging each issue and accurately avoiding dynamic hedging or hedging by volume which might generate non-perfectly traceable (therefore not distributable) capital values.

Derivative-related positive or negative differentials or margins settled or accrued up to the financial statement reporting date are recorded under interest income and expense, while valuation-related profits and losses are reported under Account "110 - Net result on financial assets and liabilities designated at fair value" in the income statement with reporting consistent with that used for funding instruments for which the fair value option has been used. When adopting the FVO, the Group took into consideration that this accounting approach, unlike the hedge-accounting method, also requires changes in the value of bonds due to changes in their credit rating to be reported. Since nearly the entire bond portfolio is placed with non-institutional customers due to the lack of an active market, the fair value of bonds is determined using valuation methods. As indicated, when determining fair value, due consideration is given to credit ratings as well as the spread. On the other hand, the fair value of liabilities listed in active markets is the market value. Similarly, changes in the bond's credit-rating can be observed directly. Value differences resulting from changes in the bond's credit-rating are monitored closely since they are not included in calculations for regulatory capital. In adopting the FVO, the Group incorporated the recommendations and directives issued on the subject by the Basel Committee.

The table provides details for Table 5.1 above and reports the book value ( fair value) of liabilities for which the fair value option was used, broken down by method of utilisation. In particular, as at 31 December 2008, all liabilities reported at fair value were cases of natural hedges since the bonds concerned were regularly hedged using derivative contracts. In fact, the adoption of the fair value designation for bonds was necessary in order to ensure consistency between valuation criteria used for derivative contracts and bonds in order to eliminate possible "distortions" of an accounting nature.

362

The risk of interest rate fluctuations and the risk associated with optional components implicit in structured securities, both of which are present in funding at fair value, are regularly hedged using derivative contracts. These contracts are included in the trading portfolio but, in terms of their reporting in the income statement, follow rules that are analogous to those used for hedge-accounting derivatives in light of the management function of financial instruments used for hedging purposes. In fact, the positive or negative differentials or margins settled or accrued up to the financial statement reporting date are recorded under interest income and expense, while valuation-related profits and losses are recorded under Account “110 - Net result on financial assets and liabilities designated at fair value” in the income statement with reporting consistent with that used for funding instruments for which the fair value option has been used.

The table provides details of the key features of subordinated financial liabilities designated at fair value. For the purposes of calculating regulatory capital, subordinated liabilities are not designated at fair value but at the amount actually collected.

363

The table shows the changes occurred during the year in liabilities related to the portfolio designated at fair value along with details of the main types of liabilities.

Accounts B4 and C4 include profits and losses from repurchases, accrued issuance spreads and coupon interest and the impact of interest rate fluctuations. Item B4 contains the values relative to the acquisition of the Antonveneta Group.

Index Linked 811,822 811,822 1,581,567 Unit linked - Equity Linked 84,834 84,834 308,128 Step up Step down - Dual Currency 73,815 Drop Lock - Target redemption Note - Cap Floater 15,444 15,444 97,552 Floor Floater - Reverse Floater - Convertible - Credit link Notes - Corridor - Fund Linked 10,404 Commodity - Commodities linked 81,632 81,632 67,503 Other 18,267 18,267 99,451

TOTAL 1,011,999 1,011,999 2,238,420

The table indicates the main types of structured bonds issued by the Group and subject to fair value designation. Since the bonds are stated at fair value, the implicit derivative was not separated for accounting purposes. The decline in respect to the previous year is due to the maturity of certain issues.

364

365 In general, with regard to the hedging policies used by the Group, the fair value option is the main accounting tool deemed the most appropriate for reflecting the actual operations and management strategies adopted by the Risk Management area. In particular, the fair value option has been systematically adopted for the classification of structured and fixed-rate bonds used as funding instruments whose interest rate risk is hedged by the bank using derivatives. Thus, all funding hedged by derivatives is valued at fair value in keeping with all related hedging derivatives, which for financial statement purposes, are classified under specific sub-accounts in the trading portfolio. On the other hand, the hedge-accounting tool was used more precisely for specific types of transactions, and primarily those aimed at hedging financial instruments reported under financial statement assets. Thus, the table reports the book value (fair value) related to hedging derivative contracts for hedges carried out using the hedge-accounting tool.

The table indicates the negative fair values of hedging derivatives broken down in relation to the asset or liability hedged and in relation to the type of hedge taken. More specifically, the fair value hedge was used to hedge against the risk of interest rate fluctuations for a portion of the fixed-rate bond portfolio reported under assets and held for purposes other than trading and thus included in the available for sale portfolio (asset swaps). It was also used for the specific hedging of fixed-rate mortgages, again to protect them from potential unfavourable interest rate movements, and for the financial plans of the Personal Bank subsidiary. Macro hedges were instead used for a larger portfolio of loans for the same purposes. Though of lesser impact, there are also fair value hedges on exchange and interest rate risks (shown as hedges on multiple risks) for securities classified in the Loans portfolio and fair value hedges on credit risk for securities classified in the Available for sale portfolio and in the Loans portfolio. With regard to financial liabilities, cash flow hedges were done for specific floating rate bonds in order to stabilise their cash flows using interest rate swaps.

366

367

368

369

The significant year-on-year rise is mainly due to the acquisition and subsequent merger through incorporation of Group Antonveneta S.p.a..

370

For the purposes of international accounting standards, provisions for staff severance indemnity are considered a defined benefit fund, changes in which (resulting from actuarial variations), are reported in detail in Section 12.3 in Liabilities together with changes in the company's defined benefit pension funds. The provision to the staff severance indemnity, as stated by Banca d’Italia, does not include those amounts which, as a result of the reform introduced by Legislative Decree no. 252 were paid directly by the Group to supplemental pension funds or to the Treasury Fund managed directly by INPS, taking into account options exercised by employees. These items can be found under personnel expenses “supplementary pension funds: defined contributions”.

The year-on-year increase is mainly due to the flow of business combination transactions relating to the acquisition of Group Antonveneta.

371

The significant rise in Other provisions for risks and charges is mainly due to the acquisition of Group Antonveneta and its subsequent merger with the Parent Company. At the date of merger, the total amount of funds reported as a result of the merger, came to EUR 368.4 mln, of which EUR 30.8 mln relating to severance funds and EUR 337.14 mln relating to other provisions for risks and charges.

Increases included the amount shown in item B2 "Changes due to the passage of time" in the column "Other funds" in relation to the amount of time value accrued during the year due to the approach of the estimated maturity of the projected liability of EUR 20.7 mln. Decreases included the amount shown in item C1 "Utilisation during the period" in the "Other reserves" column in relation to direct utilisations of the reserve for risks and charges (totally EUR 15.89 mln) for disbursements actually made to cover transactions carried out during the period. Among these, the settlement of the existing disputes with the Group, Parmalat, for EUR 84.9 mln and Bell for EUR 11.8 mln.

372 o the Emilia, direct as to reach a portionlast to of the reach oyees already retired as of 7 plan and (ii) a defined benefit

uding the informationuding in relation to The fund, which includes the Parent Bank’s the Parent includes fund, Bank’s The which capital, the has objective of ensuring thatthe rank active duty staff”. duty active rank of ensuring supplementary pensions to the of supplementary to general ensuring pensions tive of a supplementary ensuring pension in addition to opolare e Cooperativo di Reggi of transfer of their pension to position Fondo Pensioni -in- on 1 January 1982 (in to relation Managerial Staff). The pension in favour of the empl paid through compulsory pension schemes to the employees of Social Security pensions so as so pensions Security Social of he independent Actuaryhe independent the with value of an theshowed Plan within thewithin Bank’s the Security Social to pensions, the staff already retired as of 1 t: (i) a defined contributiont: (i) a defined pension al reserve calculatedtheActuary,al reserve independent by as required to thethe of personnel area. e Plan is thee Plan actuarial compliant reserve with calculated the by ing members until depletion of the annuity beneficiaries. the ing of depletion until members annuity beneficiaries. t capitalmanagement. takes and investment actuarial risks, incl ntained the definedsystem. benefit the ntained

tion benefits” IAS 19 “staff of actuary, are determined by an independent through the of use Plan contemplate an integrationcontemplate Plan Accounting Policies. Policies. Accounting e retirees in relation to the to “current”in relation salary e retirees “equal of e Bank of Italy’s provisions. of Bank e nd with legalnd with status and fully independen The Plan has the objective of integrating the Social Security operativo di Reggio Emilia. The Plan has theoperativo objective exclusive di Plan has The Reggio Emilia. Supplementary defined benefit pensionThe Planthe plan. has objec security coverage toformer the of Banca di Credito employees P level. A level. reserve the comparison calculated of actuarial by t Banca Monte dei Paschifor Banca S.p.A.this Monte dei to contributes plan – aia di Bologna. The Plan integrates substitutes and the pension rmer Tax Collection Tax rmer area of the Parent Bank.set The plan, up aia di Bologna. The Terms of the of Bologna. The Terms aia di zation fund haszation the objective of paying pensions in addition to employees. The value of the Plan is compliantthe actuarithe is employees. Plan with The value of t to the members participating in the plan until of the depletion members the plan in participating the tot egulations and the agreements on 4 February established 1956 and later of ensuring a higher social security coverage. The value of th are both internal and external supplementary funds. both and external pension internal are he future sums to be paid with respectfuture with mai to retiredstaffto sumshe be paid who the internal plans, as per th internal the the benefit defined pension plans, thewhere Group substantially ion plans, the actuarial values required by the applicathe actuarialthe ion plans, values required by ormation about theormation defined benefit about pension plan. rsonale dei Paschi del Monte a fu di Siena”, ibutions only from the Bank ensures a global pension to th to pension Bankthe ensuresonly from a global ibutions Banca Antonveneta, theto agreement pursuant of 12 September 2000. – FAP – retireessupplementary a receive benefit defined (annuity). pension (both active duty personnel and retirees) Banca former Oper of salary calculatedrates on the of basis determined by hierarchical excess of this value with respect to the requirement necessary to cope with future contributions with respect to the participat the to respect with contributions future with cope to necessary requirement the to respect with value this of excess compulsory insurance, for the of purpose giving a higher social beneficiariessurvivors theformerthe annuity life of of the or cover respec with currentfuture thesums be paid to value of December 1989 and their assigns, in accordance the with r Plan which receives contr receives which Plan Aziendale October B.N.A. 2000,merged when Antonveneta, with or to the employees retiring aftersuch did not who exercise date the right Supplementary pension of plan in favour the personnel of the fo Socialsecurity pensions to the personnel of former Banca Oper Popolareformer offor e Co Banca the Pension employees plan Pension plan for the employees former of Banca Popolare Veneta. Pension plan for the employees former of B.N.A. capitali This - - - - - “Cassa di Previdenza Aziendale per il Pe the staff severance indemnity fund. fund. indemnity severance staff the With defined supplementary the reference benefit to pens Statements Financial to– the the Notes A of as under Part detailed method, credit”the unit “projected where co-obligor theThe defined plans Group is a benefit pension Internal pension plans: plans: Internal pension 12.3 DEFINED BENEFIT PENSION PLANS plans the of Description 12.3.1. is the informationFollowing required by IAS19 in relation to personnel and retirees joined the bank 31 December who before consists 1990, separate of two and independent formsmanagemen of provide inf tables following pension plan. The -Pension plan for the personnelformer of Banca Agricola Mantovana S.p.A. External pensionExternal plans: - independent Actuary, required to cover as current the value of t the general compulsory insurance to the assigns, for the purpose The annexes to the financial statements include the statements to financial reports include the The annexes of

373

ounting standards,ounting are classified as h, in accordance with international acc with h, in accordance arial profits not and lossesarial reported that were due"corridor"the of the to application nal funds and the Provisionsnal fundsthe staff severance for and indemnity whic The table reports the changes for the year in internal and exter changesThe tablethe year in internalthe reports for and defined benefit funds. Closing balances representdefinedthefunds. benefittaking balances fund theoretical Closing into the actu account liability to gross related method.

374

The table shows the difference in defined benefit commitments between funded plans and non-funded plans. Plans are funded when there are appropriations to cover the liability.

375

able 12.3.3 above, broken down by the main classes of financialclasses and non- main of by the broken 12.3.3 above, down able sets servicing the plan and thusservicingthe T thethe fundssets in plan assets of as of balances year-end the for table this in provided are Details and SICAVS. fundsmutual form the of mainly in are Otherfinancial assets assets. 376

The table makes it possible to reconcile the present value of funds valued in an independent actuary's assessment with the current value of reported liabilities. In fact, due to the application of the "corridor" method, actuarial profits and losses are posted to the financial statements only when they exceed 10% of the current value of the defined benefit commitment and 10% of the fair value of any assets servicing the plan.

With regard to internal and external pension funds, actuarial profits and losses are immediately reported since these are funds related almost exclusively to retiring personnel with an insignificant amount of assets.

377

378

379 Section 14

Redeemable shares - Account 150

14.1 Redeemable shares: breakdown

380 Equity

At 31 December net equity came to EUR 14,824 mln, showing a sharp increase on the EUR 8,649.2 at the end of 2007(+ 71.39%). With regard to the individual items under Shareholders' equity, the main changes recorded pertained to Share capital, Share premium and Reserves. The net rise in Share capital (+ EUR 2,454.9 mln) and in Share premium (+ EUR 3,535.3 mln is due to a series of transactions that were carried out in 2008 aimed at increasing the Bank's share capital in order to allow for the acquisition of Group Banca Antonveneta. On 10 April 2008, the Board of Directors, delegated by the shareholders of the BMPS Shareholders' meeting on 6 March 2008, approved a share capital increase through the issue for payment, with premium, of 295,236,070 ordinary shares with a par value of Eur 0.67 each, to be underwritten by JPMorgan for the price of EUR 3.218 per share – and thus for a total of EUR 950,069,673.26 – allowing the issue by JPMorgan, or even another company not belonging to the JPMorgan group, of financial instruments convertible to ordinary BMPS shares. On 15 April 2008, the Parent Company, BMPS, stipulated a contract with J.P. Morgan Securities Ltd whereby J.P. Morgan would underwrite all newly issued ordinary shares at the price established by the Board of Directors. This transaction involved an increase in share capital of EUR 197.8 mln, the equivalent par value of the shares, and an increase in share premiums of EUR 752.3 mln. On 16 April 2008, the Parent Company, BMPS, acquired from J.P. Morgan Securities Ltd the right to beneficial interest on these shares, pursuant to art. 2352 c.c., for a thirty-year period, with the possibility to terminate the agreement beforehand in the event of conversion of convertible instruments. In exchange for the right to beneficial interest of shares, the Parent Company BMPS has agreed to pay an annual fee to J.P. Morgan Securities Ltd; this payment depends on distributable profits, the liquid payment of dividends from distributable profits and for a total amount that does not exceed the difference between distributable profits and paid dividends. Voting rights relating to the shares, and which lie with the beneficial owner, results as suspended for as long as the right to beneficial ownership remains in favour of the Parent Company, BMPS. In addition to the aforementioned contract, a Swap contract was signed, in which it was agreed that certain payments would be charged to the Parent Company, BMPS against a fixed premium of approx. EUR 50 mln, to be received upon conversion of the aforementioned convertible instruments.

On 24 April 2008 the Bank's Board of Directors agreed to a share capital increase transaction which led to an increase in net equity for a total of EUR 4,973.8 mln, of which EUR 2,221.6 mln of share capital and EUR 2,752.2 mln of share premium, corresponding to the value of EUR 1.5 per share, of which EUR 0.67 par value and EUR 0.83 share premium. The transaction determined the issue of 2,740,485,580 ordinary shares, 565,939,729 preferred shares and 9,432,170 ordinary shares.

The increase in Reserves is due to the attribution of non-distributed 2007 profit, to the increase in consolidation reserves coming from the increase in share capital carried out by certain subsidiaries of the Group using the revaluation reserves, as well as the impact of deconsolidation of certain subsidiaries sold during the year.

381 15.2 “Equity” and “Treasury shares”: breakdown

15.2.a Equity: breakdown

The Parent Company's fully paid-up share capital totals Euro 4,486,786,372.26 and is made of three share categories: ordinary, preferred and savings shares.

Share capital is made up of 5,545,952,280 ordinary shares with a par value of EUR 0.67 each, 1,131,879,458 preferred shares with a par value of EUR 0.67 each and 18,864,340 savings shares with a par value of EUR 0.67 each. Ordinary and preferred shares are registered and indivisible. Each share entitles the holder to one vote. Preferred shares have no voting right at ordinary shareholders' meeting. Savings shares, which are indivisible, may be registered or bearer shares at the discretion of the shareholder. The shares have no voting rights and are in a senior position for the distribution of profits and repayments of capital.

In 2008 there were various transactions which led to an increase in share capital thus modifying how it was broken down.

The first two share capital transactions were decided in April and both had the aim of strengthening the Parent company's equity, necessary for the acquisition of Group Antonveneta.

As a result of the share capital increase decided on by the Parent Company's Board of Directors on 24 April 2008, 3,315,857,479 shares were issued, of which 2,740,485,580 ordinary, 565,939,729 preferred and 9,432,170 savings with a total increase in par value of EUR 2,221,624,510.93. On 10 April 2008 a further share capital increase was approved for JPMorgan subscription with the issue of 295,236,070 ordinary shares for the equivalent par value of EUR 197,808,166.90.

A third transaction was also carried out in September 2008 with which 52,965,994 ordinary shares were issued resulting in an increase in par value of EUR 35.5 mln for the share capital increase already approved to service the partial conversion of convertible preferred securities. The Parent Company's directors issued the shares to holders of the convertible preferred securities who requested conversion in September 2008. In fact, the regulation specifies that the request for conversion may be made by bond holders in September of each year from 2004 to 2010 and, subsequently, at any time ie. within the month following the automatic conversion or conversion in the event of the redemption of the convertible preferred securities.

The portion subject to conversion in September 2008 was equal to 19.9% of the original par value of the loan.

International accounting standards treat any repurchase of own shares in the same way as the repayment of capital. For this reason, a payment made to repurchase shares is ideally reported as a direct reduction to net equity in the balance sheet.

382 15.3 Equity” - number of parent company shares: annual changes

In 2008 there were new issues for payment for a total of 3,035,721,650 ordinary shares, 565,939,729 preferred shares and 9,432,170 savings shares through two share capital increase transactions carried out for the acquisition of Group Antonveneta. Furthermore, there were new issues for payment of 52,965,994 ordinary shares for the share capital increase already approved to service the partial conversion of convertible preferred securities. The Ordinary Shareholders' Meeting of 24 April 2008 re-authorised (pursuant to art. 2357 C.C.) the acquisition of own shares for a total maximum of 70,000,000.

383

The item "Equity Instruments" includes the equity component related to bonds issued by the Parent Company and convertible to its shares. In particular, this is the amount calculated, at the time the convertible preferred securities were issued, in relation to the implicit option, which, pursuant to IAS32, must be stripped from the bond since it is considered an equity-based instrument. The decrease of EUR 23.5 mln was due to the transfer of the implicit option component to the extraordinary reserve. This option was exercised by bond holders, and the bonds were actually converted in 2008.

15.5 PROFIT RESERVES : other information

The table provides details for the valuation reserves included in the Group's net equity. Specifically, it includes the IAS reserves related to the Available for sale portfolio (which reports the net capital gain/loss resulting from the fair value designation of financial instruments in the AFS portfolio), cash flow hedges (which reports the fair value of derivatives used for cash flow hedges) and exchange differences. In addition, the reserves required by special revaluation laws are indicated.

The change in valuation reserves is mainly due to the reserve relating to Financial assets available for sale for the update of fair value designation and for realisation of the portfolio. The reserve "Non-current assets held for sale" includes the reclassification of the reserves required under "Special revaluation laws" related to the subsidiaries, Marinella S.p.A. which was held for sale at 31/12/2008 ; the reserves "Non-current assets held for sale" at 31 December 2007 also related to Marinella S.p.A. and to the subsidiary Valorizzazioni Immobiliare S.p.A., sold in the last quarter of the year.

384

"Increases" include the increase in fair value mainly relating to the adjustment of the stake in Banca d'Italia to the last available approved balance sheet In "Decreases", line C1 mainly relates to the reclassification to the income statement of negative reserves resulting from the write-off of securities available for sale.

385

386

The reserve “Non-current assets held for sale” includes the reclassification of the reserves under "Special revaluation laws" related to the subsidiary, Marinella SpA, considered as “held for sale” at 31 December 2008.

387

Banca D’Italia is not included in D’Italia in not included is Banca eserve for the investmenteserve equity in ndment introduced by the IASB to accounting principles IAS39 and IFRS7,IAS39 and principles tothe accounting IASB introducedndment by istinction between capital gains and losses and capital gains between istinction securities and equity for and debt regulatory capital. Further details are reported in Table 15.9.1.a. Further capital. regulatory details are reported in below. cation and was posted to the income statement, minus interest income, on the the statement,minusincome, on interestincome the posted to cation and was ter deferred taxes for the equity investments in Banca d’Italia (EUR 606.9), Istituto per il il per Istituto 606.9), (EUR d’Italia Banca in investments equity the for taxes deferred ter nt is especially importantfor of filters quantification the for The balance of these reserves was set of these balance the date reserves at of reclassifi was The ailable for sale, the table indicates the opening balance with a d balancethe a with opening the indicatesfor table sale,ailable g from fair value designation, we report the capital gains af report capital designation, gains the fairfrom value we g quotas UCITS. of fromthe portfolio, salethe Available for to Loans portfolio. securities. reclassified the of period thebasis of remaining With net the valuation reserve regard to the forAv portfolio ofcategory reserveThe breakdown the instrume by of financial Under the positive reserves equity for securities resultin creditoSportivo S.S,B. accordancemln).mln) In precautions, 49.5 provisions with (EUR and (EUR as 13.1 the issued positive r regulatory capital. Negativesecurities reservesmln) under the securities value of EUR ame reserves the on debt include 133.2 on reclassified (for

388

15.9 Valuation reserves for financial assets available for sale: annual changes

The values contained in the table are after tax, where applicable. Line 2.1.”Fair values increases” in the colunn “Debt securities” includes the revalutations on equity investments in the Bank of Italy for Eur 101 mln; in the colunn “Quotas of UCIST only revalutations of quotas in private equity investment entities are reported. Line 2.2. “Reclassification through income statement of negative reserves” under “due to impairment”shows value adjustment “130b) Value adjustment for impairment of financial assets available for sale”

More specifically, line 2.2 in the column "Debt securities" includes the write-offs on the Lehman position for EUR 15.2 mln. The net book value of Lehman bonds in the portfolio, after adjustment which brought the value to be recovered to approx. 20 cents at year end, amounts to a total of EUR 4.5 mln. The column "Equity securities", on the other hand, contains value adjustments due to impairment on equity investments for EUR 80.2 mln. The main adjustments on equity investments were those pertaining to Hopa (EUR 90.6 mln), Banca Italease (EUR 27.5 mln), Sorin (EUR 12.9 mln), the London Stock Exchange (EUR 5.6 mln) Snia (EUR 4.7 mln) and Telecom Italia (EUR 3.7 mln). The share portfolio (not equity-investments) contains write-offs in Mediobanca (EUR 4.2 mln), Unicredit (EUR 4.6 mln), General Electric (EUR 19.2 mln), Barclays (EUR 8.3 mln) UBS (EUR 9.0 mln) Rhodia (EUR 5.9 mln) Commerzbank (EUR 5.8 mln), Ericsson (EUR 6.3 mln) and Citigroup (EUR 4.8 mln). Write-offs on hedge funds were also recorded for a total of EUR 17.8 mln. For equity securities listed in active markets, the Bank considers as objective proof of value reduction to be a market price at the Balance Sheet date that is lower - in respect to the original cost of acquisition - by at least 30%, or the extended presence (more than 12 months) of a market value that is lower than the cost. In the event of further reductions in subsequent years, these will be posted to the income statement directly.

Line "2.2 - Reclassification through income statement of negative reserves” under "Debt securities" includes the reclassification through the income statement (totalling EUR 12.5 mln) of negative reserves of securities available for sale transferred to the Loans portfolio in accordance with the amendment to IAS39 and IFRS7 issued by IASB in October 2008. For details please refer to Notes to Financial Statements, Account "40 - Financial assets available for sale". The column "Equity securities" includes the reclassification through the income statement of the negative reserve resulting from the sale of certain equity investments; Iniziative Immobiliari S.r.l. for EUR 3.5 mln, Ombrone S.p.a. for EUR 1.8 mln, Tenaris for 5.0 mln and Google for EUR 2.4 mln.

Line "3.1 Fair value decreases" in the "Debt securities" column indicates the capital losses allocated due to the particular prudence applied in the current period in the valuation of financial instruments not listed in active markets, especially in light of the particularly illiquid situation at year-end. For unlisted financial instruments, in addition to valuation techniques, bid prices actually offered by market counterparties were also taken into account. The amount of EUR 220.1 mln indicated in the "Equity securities" is almost entirely made up of the quota of value adjustments carried out in 2008 due to impairment and reported in line 2.2 of this table; this quota comes to EUR 140.2 mln for equity investments and EUR 79.8 mln for shares (not equity investments). The sum of EUR 71.1 mln reported in column "quotas of UCITS" is made up of EUR 17.8 mln of hedge funds reported in line 2.2 of this table, matured in 2008, and fair value decreases of hedge funds and private equity for a total of EUR 52.9 mln, allocated to reserves.

389

390

391

392

ty investments and is therefore a detail of Tables 15.8 and 15.9 above. The The ty 15.9therefore investments Tables 15.8 above. and and is a detail of nd consequently statement. postedthetond income le for sale portfolio for main equi for portfolio sale le for to reserve the of Availab the itten relative investments of the to equity sale off the due a column of disposals indicates the total reservesthecolumn of amount of the indicates wr disposals The table shows details of the capital gains and losses posted and capital gains theshows details of The table

393 Equity

Net equity held by third parties shows a fall of EUR 10.9 mln due to the negative impact (EUR 42 mln) of the loss of control of Sim S.p.A. and the sale of 1.78% of capital in the subsidiary Biverbanca S.p.A. to Fondazione Cassa di Risparmio di Biella, which was only partially offset (for approx. EUR 25 mln) by the increase in fair value of the equity investment in Banca d’Italia held by Biverbanca.

The change in valuation reserves is mainly due to the increase in fair value of the equity investment in Banca d’Italia held by Biverbanca.

394

395

396

397 5 Administration and trading on behalf of third-parties: banking group

With regard to Custodian bank activities, it should be noted that in January 2008 the business line , Depobanca, was sold to MPS Finance Banca Mobiliare S.p.A., the vehicle company identified for the subsequent sale of Custodian Bank assets to the Group Intesa Sanpaolo S.p.A. completed in May 2008. Following this transaction, a significant fall was recorded in line 3.a third party securities held in deposit related to custodian bank activities.

398

399 1 – Book value/fair value of financial instruments

The table below compares the fair value of the financial instruments with the relative book value and summarises the results already shown in Part B in compliance with the reporting required by Banca d'Italia. The comparison between balance-sheet data and fair value shows no difference in relation to the portfolios which are designated at fair value for the purpose of the financial statements. Loans (assets) and outstanding securities (liabilities), which are valued at amortised cost, are the accounts which show the most significant differences.

Additional information on designation at fair value of financial instruments (securities and derivatives)

The information contained in this section is applicable to financial instruments designated at fair value which, under balance sheet assets, are: • Held for Trading: financial assets held for trading (account 20); • Fair Value Option: financial assets designated at fair value (account 30); • Available for Sale: financial assets available for sale (account 40); • Hedging derivatives (account 80);

Liabilities are: • Held for Trading: financial liabilities held for trading (account 40); • Fair Value Option: financial liabilities designated at fair value (account 50); • hedging derivatives (account 60).

400 The fair value hierarchy introduced by SFAS 157 and included in the amendment to IFRS 7 of 5 March 2009 states that, for financial instruments designated at fair value (Held for Trading, Fair Value Option and Available for Sale), the following criteria are to applied (in hierarchical order):

• Level 1 – Active market: for financial instruments quoted and/or traded in an active market, the fair value is the quotation expressed in the market of reference; • Level 2 - Comparable approach: Failing any quotations in an active market, the fair value is determined through valuation techniques and models based on parameters directly or indirectly observable in the market or by identifying a reliable price of similar financial instruments (by type of risk); • Level 3 – Mark to Model approach: for financial instruments whose fair value is determined through the use of non-observable market parameters.

The prices of financial instruments are regularly monitored upon the information provider and the individual contributions provided by the various parties are valued for the purpose of validating the significance of the fair value.

For the valuation of financial instrument for which there is no price available in an active market, the MPS Group uses the same valuation models that are widely used among the leading financial institutions.

The valuation of "non-contributed" securities (ie. securities without official quotation in an active market) is carried out using the comparable approach by identifying the spread inferable from liquid and contributed securities with similar characteristics to those under evaluation. The data which is analysed for valuation purposes is in the following hierarchical order:

• liquid and contributed securities of the same issuer; • Issuer's Credit Default swap; • liquid and contributed securities issued by issuer with same rating and belonging to the same industry sector; • Credit Default Swap of issuers with same rating and belonging to the same/similar industry sector.

These parameters are monitored taking into account the security's seniority in relation to the issuer's debt structure and are subject to a periodical check through a spread analysis of the new issues.

The valuation of Over The Counter (OTC) derivatives of interest rate, exchange rate, equity and inflation is carried out using the comparable approach since the pricing models used are fed by parameters observable (directly or indirected) in the market (e.g.trends in interest rate, exchange rates and volatility) and are constantly subjected to specific monitoring processes.

The majority of bonds issued by the Group designated at fair value are not quoted in an active market; the MPS Group, therefore, determines the fair value using valuation techniques that take into consideration creditworthiness as well as commercial spread. instead, with regard to liabilites quoted in active markets, the fair value adopted is that of the market.

With regard to the valuation of complex financial instruments included in level 3, the MPS Group used calculation methods based upon specific relative hypothesis: • updates in cash flows based on future scenarios hypothesised through the analysis of past data and on the basis of behavioural presumptions; • subjective assumptions on non-observable parameters, analysing past data of the specific underlying risk factor or using specialised research (e.g. market reports of leading financial institutions etc.).

These models are subject to continuous control and development of fair value calculation methods so as to adopt methodologies that are constantly aligned with prevailing market best practices.

401 Summary on fair value hierarchy (in EUR millions)

Consolidated financial statements as of 31 December 2008

Level 1 Level 2 Level 3 TOTAL

Financial Assets held for trading

Cash 9.301,60 3.108,01 397,11 12.806,72

Derivatives 451,16 14.737,37 - 15.188,52

Total financial assets held for trading 9.752,76 17.845,38 397,11 27.995,24

Financial assets valued at fair value 177,39 62,65 - 180,04

Financial assets available for sale

Securities 3.090,60 3.569,64 1,81 6,662,06

Total financial assets available for sale 3.090,60 3.569,64 1,81 6,662,06

Hedging derivatives - 110,86 - 110,86

Total assets 12.843,36 21.525,88 398,92 34.768,16

Financial liabilities held for trading

Cash 8.777,39 - - 8.777,39

Derivatives 0,02 15.067,01 - 15.067,03

Total financial liabilities held for trading 8.777,41 15.067,01 - 23.844,42

Liabilities valued at fair value

Securities 1.094,23 13.351,12 - 14.445,35

Total liabilities valued at fair value 1.094,23 13.351,12 - 14.445,35

Hedging derivatives - 495,41 - 495,41

Total liabilities 9.871,64 28.913,54 - 38.785,18

402

(%)

Consolidated financial statements as of 31 December 2008

Level 1 Level 2 Level 3 TOTAL

Financial Assets held for trading

Cash 73% 24% 3% 100%

Derivatives 3% 97% 0% 100%

Total financial assets held for trading 35% 64% 1% 100%

Financial assets valued at fair value 65% 35% 0% 100%

Financial assets available for sale

Securities 46% 54% 0% 100%

Total financial assets available for sale 46% 54% 0% 100%

Hedging derivatives 0% 100% 0% 100%

Total assets 37% 62% 1% 100%

Financial liabilities held for trading

Cash 100% 0% 0% 100%

Derivatives 0% 100% 0% 100%

Total financial liabilities held for trading 37% 63% 0% 100%

Liabilities valued at fair value

Securities 8% 92% 0% 100%

Total liabilities valued at fair value 8% 92% 0% 100%

Hedging derivatives 0% 100% 0% 100%

Total liabilities 25% 75% 0% 100%

The Group has equipped itself with a rigorous process for assessing, validating and controlling market parameters used to valuate financial instruments. More specifically, the process involves: • the correct feeding of the Front Office and Market Risk Management software by the information provider; • daily monitoring of parameters; • periodical validation and control of the above; • the qualitative/quantitative validation of illiquid parameters.

In the event of new financial instruments being used, new valuation models are defined which, before being used, undergo a validation process involving various areas. The oganisational process involves the detail analysis of payoffs and the consequent "modelling" of the financial instruments in the Front Office and Market Risk Management systems with the purpose of allocating the correct valuation model to each product and guaranteeing the constant monitoring of financial risks.

Certification of pricing models is based upon the capacity of these models to repeat the market prices available and on the monitoring of possible "developments" through continuous calibration activities.

403 Other financial instruments (credit)

- with respect to demand lending and funding, the Group took on the prompt maturity of the contractual obligations, corresponding to the date of the financial statements. Thus, their fair value is approximate to the book value;

- The fair value of performing medium/long term customer loans results from internally developed valuation techniques, by updating the residual contractual flows at the ruling interest rates. In particular, future cash flows have been adjusted with expected losses (lump- sum adjustments) and updated using a free-risk interest rate curve; - The fair value of impaired assets results from internally devloped valuation techniques, by updating the residual cash flows as contemplated by each repayment schedule at the ruling free-risk interest rates. In this case also, the updating rates are free of risk since the flows subject to updating are not contractual flows but flows minus expected losses. - Additional information concerning medium/long term liabilities and outstanding securities designated at fair value (FOV) is provided in section 5 of Liabilities, Table 5.1 - financial liabilities designated at fair value; The standards and models adopted are homogenous within the Group but may differ from the criteria adopted by other Banking Groups, since these are internal models. Consequently, the values obtained may not be comparable with those reported by other Banking groups. Since IAS/IFRS do not require fair value reporting in relation to all the Group's assets and liabilities. For instance, certain financial instruments (e.g demand deposits) are excluded and, in general, a good portion of non-financial elements (eg. goodwill, tangible assets, equity investments classified under Account 100 of Assets in the balance sheet etc.); consequently, the resulting fair value total cannot represent an estimate of the Bank's economic value.

404

405

The column of impaired financial assets shows the interest paid on such assets calculated, with reference to the financial assets valued at amortised cost, in accordance with the actual interest rate method and interest on arrears actually collected. Accrued interest on arrears, which are totally written off since they are deemed to be unrecoverable, contribute to interest income only with respect to the portion actually recovered. The portion of non-recovered interest on arrears is written off and directly deducted from the interest accrued. Any interest recovered in the years following the year of maturity are treated as value recoveries on loans and recorded under account 130 of the income statement "net adjustments/recoveries on impairments"

The debt securities in lines 5 and 6, "Due from banks" and "Customer loans", in column "Performing financial assets" contain the interest accrued on debt securities which have been reclassified in the course of the year according to the instructions of the amendment to IAS39 and IFRS7 issued by the IASB on 13 October 2008. In particular, the table includes both coupon-tax flows (for EUR 19.7 mln) and issues pro rata temporis of negative reserves on securities available for sale (AFS) (EUR 19.2 transferred to credits). In fact, in 2008 the Parent Company along with certain subsidiaries transferred part of the portfolio represented by unlisted securities from the originating portfolio, Financial assets held for trading (EUR 1,007.7 mln) and financial assets held for sale (EUR 2,422 mln) to the Loans category according to the instructions contained in IAS39. In Part B of the Notes – Information on the balance sheet - in section 6 “Due from banks” and 7 “Customer loans” clear details can be found in relation to the transfer of securities carried out in 2008. The line of financial assets held for trading purposes in the column "Other assets", includes: - positive and negative differentials and margins on derivative contracts associated with interest-bearing financial assets and liabilities, classified in the trading portfolio; - margins between forward exchange as established in the outright contracts and the current spot exchange upon the execution of the contracts. The line of financial assets sold but not derecognised shows interest income accrued on securities held, subject to funding repurchase agreements which, according to the international accounting standards, are not to be cancelled from balance-sheet assets since the spot sale with a simultaneous commitment to repurchase does not imply the transfer of any risks and benefits. Line 8 "Financial assets sold but not derecognised" contains interest income accrued on financial instruments which were sold but not written off as per IAS 39 concerning "derecognition" which states that though these assets are sold, they are not to be written off from the balance sheet since the bank substantially kept the related benefits and risks. In these cases, according to international accounting standards, such transactions are to be treated as Loans. In particular, the column “debt securities” contains interest income on securities held, subject to funding repurchase agreements which, according to international accounting standards, are not to be cancelled from balance-sheet assets since the spot sale with a simultaneous commitment to repurchase does not imply the transfer of any risks and benefits. The column "Loans" includes interest income from performing mortgage loans, sold through securitisation transactions. In this case also, the application of international accounting standards did not allow for the write-off of assets since the originator Bank subscribed all notes issued by the vehicle. Both in 2007 and in 2008, various transactions with these characteristics were carried out with the aim of securitising part of the Loans portfolio, giving rise to securities available for refinancing transactions with the European Central Bank, increasing the instruments available to improve the Group's liquidity margins.

406 The line "hedging derivatives" shows the positive balance (EUR 14.3 mln), between positive and negative differentials on derivative contracts classified as hedging according to hedge accounting rules provided for by IAS39. Table 1.2 below re-opens the net balance and separately shows income and charges, taking account of the different types of hedging implemented.

The line "Other assets", column "Other assets" shows interest accrued on tax credit and other residual assets.

407

The table shows a breakdown of account "Hedging derivatives" in Table 1.1. interest and similar income. In particular, the table shows the opening of negative and positive differentials on "Hedge accounting" hedging contract IAS39 with the different types of hedging executed.

The balance of the net differentials at the end of 2008 was positive for EUR 14.3 mln against EUR 12.2 mln in 2007. In 2008, in line with the hedging objectives and consequent minimisation of interest rate risk on the Parent company's banking book, cash flow hedging transactions were also carried out on bond issues. These transactions led to an increase in volumes of the positive and negative differentials regulated in the course of the year.

408

409

Line 3, "Outstanding securities" shows the interest expense accrued in the year on bonds and certificates of deposits valued at amortised cost.

Line 4 “Financial liabilities held for trading”, column "Other liabilities" reports a balance of EUR 461 mln relating to: a.1) positive and negative differentials and margins on derivative contracts associated with interest-bearing financial assets and liabilities, classified in the trading portfolio: a.2) margins between forward exchange as established in the outright contracts and the current spot exchange upon the execution of the contracts. In the case of a.1) this concerns interest rate swaps connected to fixed-rate debt securities classified in the trading portfolio whereas a.2) involves outright and forex swaps. The net differentials relating to financial liability hedging contracts designated at fair value (fair value option) is included under interest expenses since it is negative for the current year.

Line 5 “Financial liabilities designated at fair value “ contains the interest expense accrued on structured, fixed/rate bonds, systematically subject to cover from adverse interest rate fluctuations through derivative contracts (interest rate swap).

The line, "financial liabilities relating to assets sold but not derecognised" shows the charges in relation to liabilities which, in compliance with the IAS39 accounting principle must be posted to assets which, although sold, are not yet cancelled from the financial statements since the related risks and benefits do not yet appear as transferred. In particular, the column "liabilities" includes the charges concerning debts for payable repurchase agreements on own securities and debt securities posted against the securitisation of performing residential mortgage loans carried out in the course of both 2007 and 2008 in order to improve the Group's liquidity profile with securities for re-financing with the European Central Bank. Charges relative to debts for payable repurchase agreements on securities, the availability of which was obtained through receivable repurchase agreements are included in the lines "Due to customers" and "Customer deposits", in the "Debts" column.

410

The table is a breakdown of above table 1.4 interest and similar expense. In particular, net differentials on hedging derivatives of financial assets designated at fair value (fair value option) which, in table are contained in line 4 "Financial liabilities held for trading", under "Other liabilities".

411

412

413

414

415

The table shows the amount of dividends collected on equity securities traded in the trading portfolio and on minority equity interests classified in the portfolio of assets available for sale.

Instead, dividends relating to Group subsidiaries and affiliates, whether consolidated fully or using the net equity method, were of course excluded.

416

The table shows the profit/loss attributable to the portfolio of financial assets and liabilities held for trading purposes with the exception of derivative contracts hedging financial instruments for which the fair value option was adopted; their valuation results are shown in table 7.1 of the Notes to the financial statements, "Net profit/loss from financial assets and liabilities designated at fair value. Line 1, “financial assets held for trading”, includes the write-offs carried out on debt securities at year-end for a total of EUR 257.3 mln, of which EUR 191 mln was attributable to structured loan products. Line 3, "exchange differences" contains, as is the norm, the positive or negative balance of any value changes of the financial assets and liabilities denominated in currencies that are different from those in trading. Therefore, the effect resulting from any changes due to foreign exchange is not subject to separate reporting in the case of trading instruments.

The account also includes the economic effects of the fair value valuation of derivative contracts on interest rates (interest rate swaps) originally protecting interest margin with respect to a portfolio of fixed-rate loans disbursed to the customers. Although such derivative contracts are useful for reducing the risk resulting from any possible interest rate fluctuations, they have been classified in the trading portfolio of the balance-sheet in accordance with the provisions of the international accounting standards, since they do not comply with the restrictive requirements of IAS 39 for their classification in the hedging portfolio for IAS/IFRS purposes.

417

The table shows the net profit/loss resulting from hedging and includes the income components posted to the profit and loss statement, resulting from the valuation process of assets and liabilities subject to hedging and the relative hedging derivative contracts, including any foreign exchange differences. Further hedging transactions were effected during the year in relation to interest rate fluctuations and the credit risk on certain bond securities.

418

the repurchase of own financial liabilities. financial ofthe own repurchase e equity interestse equity held in Centrale Bilanci (EUR 49 mln),mln), Bassilichi (2.5 ities are to be shown in the balance-sheet in a logic iswhich biased towards nt realisation of lossesnt realisation of or profits. fair value as well as the as result of value as well fair ln in losses. losses. ln in available for sale incorporate available the gainssale capital from of th e accountinginternational standardsrepurchase the of liabil own The table shows the results of the sale of financial assets other than those held for trading purposes and thosethosetradingfinancial designatedthan at for purposes assets othersale and held of results shows the of the The table As far as financial liabilities are concerned, according to th The maincapitaldisposal from gains equity the instruments of substance rather than form, as a real anticipated redemption with the cancellation of the financial instrument and the subsequethe instrument and financial the of cancellation the real anticipated with redemption a substance form, rather as than m 5 and approx.mln profitEUR 17.7financialmln), of Mastercard ofresulted EUR trading the securities (1.8 equity in whilst 419

The account incorporates capital gains and losses originated by the fair value valuation of the financial liabilities classified in the fair value option portfolio and of the relative hedging derivative contracts. In particular, the Group has structured fixed-rate and structured bonds issued, systematically subject to hedging from adverse interest rate fluctuations through derivative contracts (interest rate swaps) in the portfolio of liabilities designated at fair value. The only exceptions involve the company subject to joint control, Banca Popolare di Spoleto, and the subsidiary Biverbanca, which provide for hedging of financial liability risks through specific hedging using the fair value hedge IAS 39. The allocation of such instruments to the FVO portfolio meets the requirement of ensuring consistency of the valuation criteria adopted for the liabilities with the corresponding derivatives in a logic of "natural hedge", and therefore of considerable reduction of the misrepresentation which would be caused by a valuation with non-homogeneous accounting criteria. The positive result of EUR 72.9 mln includes the rise in creditworthiness of the Parent Company for a total of EUR 61.2 mln.

420

The Group has classified fixed-rate and structured bonds issued - that are systematically subject to hedging from adverse interest rate fluctuations through derivative contracts (interest rate swaps) - under liabilities designated at fair value. The allocation of such instruments to the FVO portfolio meets the requirements of ensuring consistency of the valuation criteria adopted for the liabilities with the corresponding derivatives in a logic of "natural hedge", and therefore of considerable reduction of the misrepresentation which would be caused by a valuation with non-homogeneous accounting criteria. Therefore, the table shows that the income impacts achieved by the Group on financial assets and liabilities designated at fair value are all attributable to hedging operations.

Fair value changes for outstanding liabilities resulting from changes in own creditworthiness are immunised for the quantification of capital for regulatory purposes.

421

A=interest B=other

The account includes value adjustments and write-backs with respect to the impairment of the financial instruments allocated to the Customer loans and Due from banks portfolios. In particular, the column "Write-offs" shows the losses recorded in relation to the final write-off of the financial instruments whereas the column "Other" includes the specific write-offs on impaired loans subject to analytical valuation. Portfolio value adjustments are quantified with reference to performing financial instruments. The line "Due from banks" contains specific write-offs for EUR 18.7 mln, of which EUR 18.3 mln attributable to Icelandic bank positions which at year-end showed a residual net exposure of EUR 16.9 mln with an adjustment percentage average of approximately 50%. The column of portfolio value adjustments contains the collective write-offs carried out on Due from banks classified as performing for approximately EUR 4.9 mln. Adjustments by volumes towards banks has been calculated using the official rating (where available) or, in the event of no official rating, using average sector probabilities. Column A (specific write-backs) incorporates the write-backs relating to the interest released on impaired positions valued at amortised cost as well as recovered interest on arrears which were written-off during the year of maturity.

422 A specific characteristic of securities classified under Financial assets available for sale is the fair value valuation with capital gains and losses being directly allocated to a specific net equity reserve, with the exception of losses resulting from value reductions which must be posted to the income statement. Accounting principle IAS39 clearly states that at the time of editing the year-end report, it is necessary to verify the presence of objective situations of impairment which could result in the carrying value of the assets themselves being considered non-recoverable. In such cases, it is necessary to allocate the capital loss accumulated directly to the income statement, re-setting to zero the relative net equity negative reserve. The particular market conditions of 2008 meant that the need arose for further specification of the policies aimed at monitoring - at a more detailed and consistent level - situations of value deterioration in relation to the differences between the values recorded in the balance-sheet and those expressed by the market. The IASB has taken note of the particular economic situation of the markets and in 2008 adopted new regulations specially designed to mitigate the impact of the existing accounting rules ( fair value) upon the balance sheets. in issuing these new updates which brought changes to the international accounting standards IAS39 and IFRS7, the IASB underlined the particular situation being experienced by the markets, defining this economic situation as a "rare circumstance". In anticipation of a possible review of the impairment rules currently contained in IAS39, which do not take into account the exceptional moment being experienced by international markets, the Parent Company, BMPS, defined some extremely tight regulations, adopting therefore a very conservative and prudent approach. With a specific regard to equity securities listed in active markets, these are written off the income statement in the event of a significant or extended decline in fair value. The IAS/IFRS have not established any parameters with which to determine if such a decline is signifant or extended and therefore, in general, each company adopts its own internal policy for more accurately identifying these parameters. Taking the more prevalent indications into consideration, there was a write-off in the income statement in the event of: - a value at the balance-sheet date that was lower than the book value by at least 30%; or - a value that was lower than the book value for at least 12 consecutive months.

With regard to equity securities not listed in active markets, the valuation is carried out through a fundamental analysis of companies issuing the equity instrument. In this case, an extensive loss in the income statement is recorded only in the event of an actual deterioration of the fundamental themselves and thus, for example, as an effect of a significant decline in the company's net equity or consequent to the implementation of a debt restructuring plan by the issuer. Even for those equity securities not listed in active markets, any loss in value to be posted to the income statement always coincides with the cumulated loss in the balance sheet under the specific net equity reserve. The only element of discretion compared with equity securities listed in active markets therefore, pertains to thecalculation of fair value.

With regard to debt securities, on the other hand, whether listed in active markets or not, the recording of an extensive loss in the income statement is strictly connected to the capability of the issuer in meeting its own requirements and therefore paying out the remunerations necessary and reimbursing upon maturity of capital. It is therefore necessary to evaluate if there are any indication of “loss event” which could have a negative impact on the liquid flows expected. If there are no actual losses then no loss is shown on the security and any capital losses remains recorded in the negative net equity reserve.

Due to the application of these rules, at the end of 2008 the Group posted extensive value losses to the income state for a total of EUR 361.7 mln, of which EUR 315.9 mln attributable to shares, EUR 19.8 mln to bonds and EUR 26.0 mln on quotas of mutual funds and hedge funds.

With regard to the remaining balance in the net equity reserve on financial assets available for sale, please refer to table 15.9 of the Notes, Section 15 Group equity in Part B Information on the balance sheet.

Among the more significant write-offs on equity investements in 2008 were Hopa (EUR 94.4 mln), Bell (EUR 8 mln), Sorin (EUR 43 mln), Italease (EUR 28.6 mln) GLG MKT Neutral (EUR 20.7 mln), London Stock Exchange (EUR 5.7 mln) Snia (EUR 4.8 mln) and Telecom Italia (EUR 3.8 mln).

With regard to the portfolio other than the equity investments portfolio, there were write-offs for Mediobanca (EUR 6.1 mln), Unicredit (EUR 6.6 mln), Generale Electric (EUR 28.0 mln), Barclays (EUR 12.1 mln), UBS (EUR 13.1 mln), Rhodia (EUR 8.7 mln), Commerzbank (EUR 8.5 mln), Ericsson (EUR 9.2 mln) and Citigroup (EUR 7.0 mln). There were also write-offs on hedge funds for a total of EUR 26.0 mln.

As far as the bonds portfolio is concerned, the write-off on the Lehman position for approximately EUR 18 mln was recorded. The net Book value of Lehman bonds in the portfolio - after a value adjustment which brought the write-back value at year-end to approximately 20 cents - comes to a total of around EUR 5mln.

423

A=interest B=other

The account shows write-offs/write-backs on guarantees issued against an expected loss in the event of their enforcement, which are set off under account 120 "Funds and risks" of liabilities in the balance sheet.

424

The provision for pension funds and similar funds includes the provisions made with respect to internal funds while the account "payments to external complementary pension funds" shows the contributions paid and the adjustments made in relation to the external pension funds. The year's provision for staff severance - as pointed out by Banca d'Italia - does not include the quotas which, as a result of the reform introduced by Legislative Decree 252 of 5 December 2005, are paid directly by the Group (according to the options exercised by employees) to supplementary pension funds or Treasury funds managed directly by INPS (the national social security institute). These items are shown under personnel expenses, "payments to supplementary pension funds : defined contribution). The account "Other staff benefits" includes the benefits disbursed to the employees in relation to early-retirement plans for EUR 144.7 mln. Costs related to share-based payments contain the charges attributable to the employee stock-granting plan.

425

The figure at the end of 2008 also includes the employees of Banca Agricola Mantovana S.p.a. and Banca Antonveneta S.p.a..

426

427

In order to understand better the trends in the operating costs posted to the income statement for 2008, this table shows the main extraordinary costs which were sustained as part of the Group integration process which, in 2008 itself, led to the merger through incorporation of both Banca Antonveneta and Banca Agricola Mantovana. The table therefore shows details of the two previous tables, Personnel expenses (11.1) and Administrative expenses (11.5).

428

The account "Net provisions for risks and charges" for EUR 224.3 mln includes the amounts for the year in relation to legal disputes and actions for revocation. The account "Write-backs" includes recoveries due to provision surplus in relation to expenses charges actually sustained.

429

The "Amortisation" column shows the total amount of amortisations for the year relating to all tangible goods. Tangible assets with defined useful life are subject to monitoring of impairment. This monitoring is conducted by comparing the book value with the write-back value of the single assets. Alternatively, the write-back value may be shown as fair value net of disposal charges or as use value, if this can be determined and if it results as being higher than the fair value. As is the case at each year-end, the MPS Group valued the fair value of its real estate. The valuation of real estate is carried out directly by the subsidiary, Paschi Gestioni Immobiliari, a specialised company which has been assigned the task of managing the Group's real estate. The fair value testing at 31 December 2008 was carried out through a "desk" update of the valuations carried out by an independent expert at the time of editing the 2004 Report, the year which saw the first application of the international accounting standards. The valuation updates are carried out using revaluation/devaluation coefficients coming from a database supplied by a leading external consultant. These coefficients are subject to monitoring, analysis and validation by the technical sector of the subsidiary, Paschi Gestioni Immobiliari, taking account of both the use and the geographical location of each property. When determining the fair value at 31 December, considerations were also made as to the negative reports coming from real estate market forecasts for 2009, which led to specific corrective measures being adopted. In particular, in determining the fair value at 31/12/2008, the Group decided to set to zero the positive revaluation coefficients shown in the database from 2008 and, instead, take into full consideration the negative ones. The comparison between this calculation of fair value and the book value led to a write-off of EUR 1.6 mln in the balance sheet at 31/12/2008. With regard to other tangible goods instrumental to the company's assets (not real estate) and with a view to company continuity, no other extraordinary market elements are believed to exist which would call for further write-offs.

430

431

The account "amortisation" mainly refers to the software and hardware held by the MPS Group Operations Consortium and the amortisation of intangible assets identified during the PPA process for Biverbanca (EUR 7.5 mln) and the newly-acquired Banca Antonvenenta S.p.A (EUR 41.4 mln).

432

The account "Other operating expenses" also includes non-cashed bankers drafts (after 10-year ordinary prescription and prior three- year prescription), to be reported to the Fund set up with the "Ministero dell’Economia e delle Finanze" following the extension to the area in which Law 166 of the 27 October 2008 can be applied, relative to dormant positions, and now also relative to amounts from bankers drafts that have not been cashed within the limitations of the relative law. The total amount of cheques previously reported as contingent assets and now included in Other operating expenses since they are amounts to be allocated to Funds comes to approximately EUR 24 mln. Expenses relating to improvements on third-parts goods are subject to amortisation taking account of the useful life of the shorter period between that in which improvements and expenses can be utilised and that which covers the remainder of the contract.

The recovery of taxes is primarily attributable to the stamp tax on current accounts and deposits and the replacement tax on medium- term loans, in addition to the tax on market contracts. Other operating income comes from recovery of services rendered for third- parties, rentals from real estate and relating recovery of expenses.

433

Profit from the sale of jointly-owned companies, equal to EUR 90,200 thousand, before EUR 500 thousand in taxation, is attributable to the sale of the subsidiary Banca Monte di Parma S.p.A. The sale of Banca Monte Parma S.p.A. was part of the estimated sales plan designed to partially finance the acquisition of Group Antonveneta. Upon the acquisition of Antonveneta at the end of May 2008, in addition to the capital strengthening transactions it carried out, the Parent company, Banca Monte dei paschi di Siena, also took out a loan for a total of EUR 1.560 mln, the early repayment of which is strictly connected to a series of sales among which was the sale of Banca Monte Parma S.p.a and Valorizzazioni Immobiliari S.p.a.(see account 310). The remaining loan at year-end came to EUR 1,150 mln following both the aforementioned sale and other transactions carried out at Group level. Profit from the sale of subsidiaries came to EUR 224,922 thousand, before EUR 1,300 thousand in taxation, and is mainly attributable to the sale of the subsidiary, Banca Monte Paschi Finance S.p.A., upon which the activities as custodian bank was pre-emptively concentrated (EUR 192,763 thousand), and Fontanafredda (EUR 30,742 thousand, before approximately EUR 2,500 thousand taxation). Losses from disposals of subsidiaries came to EUR 32,350 thousand and are mainly attributable to the deconsolidation of the subsidiary, Intermonte Sim S.p.A., whose stake was reduced to 20%. Expenses from deconsolidation include the cancellation of goodwill for a total of EUR 26,859 thousand. Profit from the sale of companies subject to significant influence comes to EUR 1,970 thousand and is attributable to the sale of Marina Blu, while the losses from disposals of companies subject to significant influence relates to the sale of the associate company, Finsoe S.p.A. for EUR 40,261 thousand.

434

Since goodwill concerns assets with an indefinite and unlimited useful life, it is subject to testing at the end of each year regarding the substistence and possible recovery of the value recorded in the balance sheet. The test carried out showed a loss in the value of goodwill allocated to CGU (cash generating unit) Corporate for a total of EUR 150 mln. This loss in value was reported in the income statement, counter-balanced by the direct reduction in goodwill recorded under assets of the Balance sheet. For further details on the impairment test methods, please refer to the relative chapter in Part B of Notes – information on the balance sheet – section 12 assets; tangible assets: breakdown by asset type.

435

Profit from sales is mainly related to the sale of two prestigious properties held by the subsidiaries Banca Toscana S.p.A. and Monte Paschi Banque.

436

Law no. 185/2008 converted with Law no. 2 of 28 January 2009 allowed companies which produced the balance sheet using international accounting standards to re-align existing differences between book and fiscal values present in the balance sheet at 31/12/2008 with payment of a favourable substitute tax (16%). The same law also allowed companies executing extraordinary transactions characterised by an ordinary tax neutrality system - mergers, divestitures, sales - to re-align fiscal values to book values through payment of a favourable substitute tax (variable). The Group took the decision to use both options and recorded the effects of these in the 2008 Report. With a specific regard to extraordinary transactions, BMPS decided to align the differences between book and fiscal values coming from the mergers through incorporation of Banca Agricola Mantovana S.p.a. and Banca Antonveneta S.pa. These choices had a significant impact on both current taxes and deferred taxes for the year. As far as current taxes are concerned, there was a negative impact from the accounting of the substitute tax (Law 185/2008) which will be paid in June 2009 for a total of EUR 1,223.8 mln, of which EUR 1,153.8 mln attributable to the value realignments coming from two extraordinary transactions. Deferred tax (assets and liabilities) was also impacted by the value realignments option. In particular, with regard to deferred tax assets, there was a positive impact on the account "Taxes" due to the allocation of deferred tax assets to “aligned” goodwill which came to EUR 1,887.6 mln, while the cancellation of deferred tax liabilities following the re-alignment led to a positive impact on the income statement of EUR 524.5 . Thus, the overall benefit to the year's income statement deriving from the adjustment of goodwill comes to EUR 925.8 mln. (difference between deferred tax assets recorded - EUR 1,887.6 mln - and substitute tax to be paid - EUR 961.8 mln). The overall benefit to the year's income statement as a result of the value alignment of intangibles and of credit market values identified upon the Antonveneta PPPA comes to EUR 165.5 mln (difference between deferred tax liabilities, written off for EUR 357.5 mln, and substitute tax to be paid for EUR 192.0 mln. Finally, the benefits resulting from the values generated by the application of the international accounting standards comes to EUR 97 mln (difference between deferred tax liability, written off for EUR 167 mln and substitute tax to be paid for EUR 70 mln). For further details relating to this transaction, please see Section 14 Tax assets and tax liabilities Account 140 Assets and Account 80 Liabilities in Part B, Information on the balance sheet. Total income for taxes on income for the year (EUR 929.8 mln) was therefore influenced by EUR 1,189 mln of extraordinary income from having exercised the two aforementioned options contained in Law no. 185/2008.

437

(1) These mainly refer to dividends, value adjustments on equity investments, goodwill impairment, non-deductible interest liabilities art. 96 Tuir.

(2) This is mainly attributable to the impact of the value realignment pursuant to Law 185/08 art. 15 of 1,189 million.

438

Following the activities being carried out at 31.12.2008 leading to the sale of the subsidiary, Marinella, and the subsidiaries under Gruppo Montepaschi Asset Management S.g.r. S.p.A and Gruppo A.A.A. S.p.A., these same subsidiaries were considered as groups of assets held for sale and therefore the data relative to the income statement has been reclassified under account 310 of the income statement, Profit (loss) after tax from groups of assets held for sale.

The valuation of the single assets and of the groups of assets held for sale at the lower value between book value and sale price - net of related costs - does not involve any write-off.

Losses from disposal, equal to EUR 59,686 are attributable to the subsidiaries Valorizzazioni Immobiliari S.p.A. (EUR 9,073 thousand) and Quadrifoglio Vita S.p.A. (EUR 50,613 thousand).

439

22.1 Breakdown of account 330 – “Minority interest in profit for the year”

22.2 Breakdown of account 330 – “Minority interest in loss for the year”

440

441

442

443 SUMMARY OF INCOME AND EXPENSES IN THE CONSOLIDATED FINANCIAL STATEMENTS

444

445

PART D – SEGMENT REPORTING This part of the notes to the financial statements has been prepared in accordance with IAS/IFRS international accounting standards with particular reference to no. 14. In this regard, we note that on 30 November 2006 IASB (International Accounting Standards Board) issued the IFRS 8 (“Operating Segment”) accounting standard, which will go into effect starting from 1 January 2009, replacing IAS 14 – Segment Reporting.

For purposes of identifying the business segments and the data to be allocated, the MPS Group segment reporting considers the Group’s organisational and management structure, as well as the current internal reporting system in support of the Management’s operating decisions, as a starting point. A. PRIMARY REPORTING

BREAKDOWN BY BUSINESS SEGMENT: FINANCIAL DATA (PRIMARY REPORTING PROVIDED FOR BY IAS 14)

THE MPS GROUP OPERATIONS The MPS Group operates throughout Italy and in the major international financial centres, with operations ranging from traditional lending (i.e. short-/medium-/long-term loans to retail and corporate customers, leasing, factoring, and consumer credit) to asset management, bancassurance and pension products, private banking, investment banking and corporate finance. As of 2001, the MPS Group introduced and gradually implemented Value Based management control instruments, with the objective of monitoring profitability by business area and unit. The VBM system adopted by the Group proved to be appropriate for the management of the business segment identification rules and the review of segment reporting regulations. In addition, the system meets the regulatory requirements with respect to the correlation between financial reporting for internal purposes and the data used for external reporting.

In this framework, for purposes of segment reporting as contemplated by the IAS regulations, the MPS Group adopted a business approach choosing the major business segments in relation to consolidated operations as the primary reporting basis for the breakdown of income/capital data. This breakdown results from logical aggregations of data of different types of legal entities:

“divisionalised” (Banca Monte dei Paschi di Siena, Banca Toscana and Banca Antonveneta); “non-divisionalised” (product companies and other banks); “service units” which provide services and support within the Group.

The Group is currently divided into the following business areas:

- Commercial Banking & Distribution Network - Private Banking & Wealth Management - Corporate Banking & Capital Markets - Capital, Cost and Investment Governance.

Consequently, the segments identified for purposes of describing the Group’s operating

446 profit, defined also on the basis of the representativeness/prevalence of the business, are the fol owing:

Commercial Banking & Distribution Network; Private Banking & Wealth Management; Corporate Banking & Capital Markets, and the Corporate Center, which includes, among others, Capital, Cost and Investment Governance.

The first three segments incorporate the commercial retail, private, corporate and key clients (formerly large corporate) networks, which are indicative of the customer segmentation of the divisionalised Banks (Retail, Private, Corporate and Key Clients), for purposes of the Group’s internal reporting carried out by applying quantitative and qualitative/behavioural criteria. The abovementioned segments are also allocated data from the non-divisionalised legal entities (product companies) in compliance with the Group’s governance rules (i.e., in line with the functional and hierarchical units resulting from the Group’s current organisational structure).

In particular:

COMMERCIAL BANKING & DISTRIBUTION NETWORK The Commercial Banking & Distribution Network is in charge of investment deposits and provides financial and non-financial services to the Retail customers of the divisionalised entities (including “small business” customers) and the customers of the non-divisionalised company, which deals with consumer credit, also through the management of electronic payment instruments. In addition, the Area manages minority interests in Banca Popolare di Spoleto.

PRIVATE BANKING & WEALTH MANAGEMENT Private Banking & Wealth Management is in charge of the supply of a customised and exclusive range of products/services to Private customers, in order to meet the most sophisticated requirements in terms of asset management and financial planning, including advice on non-strictly financial services (i.e. tax planning, real estate, art & legal advisory) and financial promotion.

CORPORATE BANKING & CAPITAL MARKETS Corporate Banking and Capital markets is in charge of the management of operations with the Corporate and Key Clients of the divisionalised entities and the product companies operating in the area of short-/medium-/long-term corporate loans, corporate finance, leasing and factoring, investment banking and financial engineering, equity capital markets and brokerage. This business segment also encompasses international operations.

CORPORATE CENTER The Corporate Center is the segment that aggregates the operating units which are individually below the benchmarks required for primary reporting, the MPS Group H.O units (i.e. governance and support functions, business finance and custodian bank, the management of equity investments and capital segments of divisionalised entities where ALM, treasury and capital management activities are particularly important), the service

447 Units supporting Group units (with particular regard to the units in charge of the management of the collection of doubtful loans, real estate management and the development and management of IT systems, all of them reporting to the Capital, Cost and Investment Governance Area). The Corporate Centre also incorporates the contribution of Intermonte SpA, Banca Monte Parma, Biverbanca SpA, profits/losses from the companies consolidated with the net equity method and eliminations resulting from intra-group items, as well as profits from discontinued operations after tax.

INCOME STATEMENT CRITERIA BY BUSINESS SEGMENT The composition of net operating profit by business segment is based on the following criteria:

• Interest income in relation to the segments of the divisionalised entities is calculated by contribution on the basis of the internal rates of transfer by product and maturity. With reference to the Group’s other entities, interest income is represented by the difference between interest income and similar income and interest expense and similar expenses.

• Net commissions are determined by direct allocation of real commissions to the business segments.

• Net value adjustments/recoveries on impaired loans are allocated to the business segments that originated them. With reference to the segments of the divisionalised entities, the balance-sheet aggregate is allocated on the basis of the distribution of the expected loss to each business segment (the “Private” business segment is not included in this allocation, by convention), comparing these results with the historical distribution of writedown provisions between customers and parties subject to creditors’ agreement proceedings.

• Operating expenses include administrative expenses and writedowns of tangible and intangible assets. Said accounts, in relation to the IT Service, the Corporate Center organisation unit and the Head Offices of the Divisionalised Entities, are allocated to each segment in accordance with a model which is based on the logic of service supplied to the different organisation units and allocates operating expenses to the identified units before redistributing them to the segments. The costs which are not reasonably attributable to the business segments are allocated to the Corporate Center. With specific reference to personnel expenses for the network staff of the Divisionalised Entities, the allocation to the Business Segments is based on the univocal job position of human resources and, if this is not univocal, according to specific criteria in relation to the activity carried out. As regards non-divisionalised Entities (mono-segment), the respective total operating expenses converge on the corresponding business segments.

BASIC CRITERIA FOR THE STATEMENT OF CAPITAL AGGREGATES BY BUSINESS SEGMENT Capital aggregates are represented by using the internal reporting system as a starting point in order to identify the accounts directly attributable to the segments. Such accounts are related to income/expenses assigned to each segment.

In particular:

• Active customer loans are the assets used for the segment operations, directly

448 attributable to the segment itself.

• Customer deposits and outstanding securities are the liabilities resulting from the segment operations, directly attributable to the segment itself.

INTER-SEGMENT OPERATIONS The income and results of each segment include the transfers between business segments and geographical areas. These transfers are reported in accordance with the best practices accepted by the market (e.g. the ordinary market value method or the cost method increased by inappropriate margin) both with respect to commercial and financial transactions. The income of each business segment is determined before intra-group balances and the intra-group transactions are eliminated during the process of consolidation. If intragroup transactions are executed between entities belonging to the same business segment, the respective balances are eliminated within such segment. The balances of intra-group transactions are not shown separately, in compliance with par.28 of IAS 14 (“Therefore, with rare exceptions, a company shall provide a segment reporting in its financial statements as in the case of the internal reports to the directors”) and its internal reporting system.

2008 STANDARDS FOR PREPARATION In compliance with the IAS 14 accounting standard and in order to correctly show the data of 2008 following changes occurred in the organisational structure of the Group were taken into account:

* restructuring process of production units and simultaneous sale of non-strategic assets:

- exclusion of contribution of MPS SGR AM as well as of its subsidiaries (Mps Alternative Investments and MPS Assets Management Ireland) from the Private Banking Management (following the execution of the agreements for the sale of 66% of its equity investments) and of the Triple A Group.

- exclusion of the contribution of Banca Monte Parma (which is aggregated through the proportional method) from the Commercial Banking Management (following the agreements for the sale of 49.266% of its equity investments).

The contribution of the above-mentioned companies as of 31 December 2008 is kept “line by line” (i.e. without application of IFRS5) and reported to the Corporate Centre section for reconciliation purposes of the data shown under the column of the reclassified Group total amount;

- exclusion of the contribution of Intermonte SpA from Corporate Banking Management and simultaneous posting to Corporate Centre.

* Changes in the business segments, as a result of the new organisation of the Parent Bank and of the other corporate transactions:

- incorporation of Banca Antonveneta into Banca Monte Paschi with the resulting divisionalisation of the network reporting to the three business sectors, Retail, Private and Corporate in compliance with the accounting table of the profit and loss account of the notes to the financial statements and the allocation of the other non-commercial assets to the Corporate Centre; - incorporation of the assets concerning the MPS Sim promoters network into Banca Personale, included in the Private Banking Management.

449 * migrations of customers between segments, which have entailed the implementation/refinement of the cost allocation model; * adoption of new rules for calculating expected loss on the basis of which, as stated under the income statement preparation criteria, loan write-downs are distributed; Following is a breakdown of the MPS Group financial results/capital aggregates at 31/12/08 on the basis of the above-mentioned business segments, which differ from those ones reported in the tables of the Report on Operations in the chapter “Segment Reporting” because the latter takes also into account the first 5 months of Banca Antonveneta (s. Report on Operations Section Enclosures “Comparison between Segment Reporting Primary Segment of the Report on Operations and the Segment Reporting of Part D of the Notes to the Financial Statements”)

SEGMENT REPORTING – PRIMARY SEGMENT (in millions of Euro) Commercial Banking/ Private banking/ Crorporate Banking/ Corporate TOTAL reclassified Distribution Network Wealth management Capital Markets Center Group

31/12/08

INCOM;E AGGREGATES Net Financial and insurance income/loss 3.240,0 180,1 1.618,9 234,5 5.273,6

Net adjustment for impairment of loans and financial assets 374,0 6,8 527,7 31,0 939,6

Operating expenses 2.070,9 139,2 753,9 534,5 3.498,5

Net operating income 795,0 34,0 337,3 -330,9 835,5

CORPORATE AGGREGATES

Performing loans 55.585,3 854,9 74.636,8 10.663,2 141.740,1

Due to customers and securities 74.004,4 8.188,5 42.171,0 18.102,0 141.465,92

Losses due to value reduction placed under the operating result and reported in the profit and loss account as at the end of 2008 amount to EUR 542 million, of which 151 for goodwill adjustments, as better explained in the Notes to the financial statements under “Intangible assets”.

The following table shows the historical data as of December 31st , 2007:

31/12/07

INCOM;E AGGREGATES Net Financial and insurance income/loss 2.792,4 318,4 1.328,7 469,7 4.968,2

450 Net adjustment for impairment of loans and financial assets -272,7 -5,3 -275,1 -36,6 -589,7

Operating expenses -1.645,4 -189,9 -663,4 -402,0 -2.900,8

Net operating income 879,2 123,1 444,2 31,1 1.477,6

CORPORATE AGGREGATES

Performing loans 42.210,8 772,5 52.925,4 8.417,6 104.326,2 Due to customers and securities 47.703,0 5.121,3 29.636,2 30.886,5 113.347,0

BREAKDOWN BY GEOGRAPHICAL AREA: FINANCIAL DATA (SECONDARY REPORTING PROVIDED FOR BY IAS 14)

As a basis for secondary reporting, the MPS Group adopted the breakdown of operating results by geographical area. The MPS Group operates almost exclusively in the Italian market, with a particular concentration in the areas of central Italy (the domestic market accounts for 98% of the net operating income).

B. SECONDARY REPORTING

SEGMENT REPORTING – SECONDARY Y SEGMENT (in millions of Euro) TOTAL reclassified 31/12/08 ITALY ABROAD GROUP

INCOM;E AGGREGATES Net Financial and insurance income/loss 5.151,3 122,3 5.273,6

Net adjustment for impairment of loans and financial assets 923,2 16,4 939,6

Operating expenses 3.409,9 88,6 3.498,5

Net operating income 818,2 17,3 835,5

CORPORATE AGGREGATES

Performing loans 138.674,3 3.065,8 141.740,1 Due to customers and securities 133.537,2 8.928,7 142.465,9

451 The following table shows the historical data as of December 31st , 2007:

SEGMENT REPORTING – SECONDARY Y SEGMENT (in millions of Euro) TOTAL reclassified 31/12/07 ITALY ABROAD GROUP

INCOM;E AGGREGATES Net Financial and insurance income/loss 4.862,4 105,8 4.968,2

Net adjustment for impairment of loans and financial assets -590,8 1,1 -589,7

Operating expenses -2.806,7 -94,1 -2.900,8

Net operating income 818,2 17,3 835,5

CORPORATE AGGREGATES

Performing loans 102.083,2 2.243,1 104.326,2 Due to customers and securities 103.262,6 10.084,4 113.347,0

452

453 Section 1

Credit risk

1. Generalities

In compliance with the guidelines of the Business Plan approved by the Parent Bank’s Board of Directors, the MPS Banking Group still pursues a priority objective aimed at to improving the quality of the loan portfolio managed and the ensuing containment of credit cost. In particular, as a priority, the whole Group is committed to focusing on some basic guidelines:

additional improvement of the loan portfolio quality also through the definition of credit policies addressing the loan credit and management; the implementation of the instruments and processes for the governance of credit risk through the use of the AIRB internal model in accordance with Basle 2 principles. In the first quarter of 2008 the Supervisory Authorities authorized the calculation of the capital requirements using the internal system of rating; the improvement - also in a strictly commercial logic – of the management of non-performing loans collections.

2. Credit risk management policies

2.1 Organisation aspects

Credit granting, management and control within the MPS Group is carried out at three management macro-levels: the first one is centralized with the Parent Bank, with the Credit Policies and Control Area as the units for references and strategic management; the second level is located at the Loans Network Units/Credit Management Offices of each bank of the banking Group and, finally, the third level is focused on the peripheral network of the Geographical Areas of the Group and its aggregate units in relation to credit risk monitoring. In particular, the Credit Policies and Control Area : Sets the loan portfolio development policies and draws up guidelines for credit quality management; seeks to optimise the quality of the portfolio by minimising the overall costs of credit risk through: a. the development of credit systems and procedures (granting, monitoring and recovery); b. the integration of credit risk measures (PD, LGD, EAD) in the credit process; c. the coordination and management of the process of monitoring relevant Group risks; d. the follow up of economic groups in financial difficulties and of respective turnaround plans;

defines the general guidelines and conduct for the securitisation of performing and non-performing loans, in co-operation with the other competent units;

454 assigns a rating to the Key Clients segment; assigns a rating to corporate customers other than Key Clients; monitors the aggregates evolution. Starting from June 2008 the credit risk management processes were also extended to Banca Antonveneta, thanks to the standardization of the organisational structure monitoring the credit activity at each company of the Group. In each bank of the Group, lending is monitored by a specific unit in charge of loan granting and controlling provided with a system of discretional decision-making limits set by the Board of Directors and adopted by each bank in compliance with the current regulations.

All the units involved to the extent of their competence and on the basis of the customers’ segmentation and riskiness, disburse/manage loans and monitor credit risks through adequate procedures (based on the internal rating system) for the determination of creditworthiness, for the credit file inquiry, for the follow up in time of the development of business relationships, and the measurement of estimated emerging irregular/abnormal situations.

In compliance with the instructions of the Supervisory Authorities, credit quality is steadily monitored both by the Head Office and the branches. The new Network Organization, which came into force in September 2008, provides a Manager in charge of the Credit Quality and of the Market in addition to the existing functions, who is responsible for ensuring the quality and the follow up of abnormal loans in the Geographical Areas.

The Group specialized company (MPS Gestione Crediti Banca SpA) is entrusted by the delegating banks with the management of non-performing loans and their collection.

The new Organisation of the Parent Bank provides that the Model and Credit System Validation Unit in charge of reviewing the smooth operation of the rating system implemented, directly reports to the Operating Governance and Credit Management. The unit also complies with the requirement of creating a Credit Risk Control Unit within groups that adopt the AIRB systems, in charge of implementing second-tier controls in support of the smooth working of the internal rating system.

2.2 Management, measurement and control systems

In 2008 the MPS Group completed the reorganization of the lending process for the purpose of making it compliant with the principles of the new accord on capital (Basle 2). The statistical models aimed at preparing the Internal Rating Model and the allocation processes completed in 2007 were authorized by the Supervisory Authorities for the calculation of the capital requirements with the Advanced IRB System (AIRB). The new metrics introduced by Basle 2 were also extended to other processes such as the model of discretionary powers of exception to transparent price lists with a steadily growing use in the daily operations on the Intranet. In 2008 the performances linked to the lending processes were verified and the validity of the structure was confirmed; the post-lending monitoring process is steadily developing and is increasingly focused on detecting advanced signs of criticalities and timely reassessing the risk. According to Basle 2, the Bank shall

455 adopt credit risk measurement necessary for the calculation of Capital for regulatory purposes (AIRB approach): Probability of Default (PD); Loss Given Default (LGD); and Exposure at Default (EAD). The new parameter having a stronger impact on risk measurements is the “Probability of Default,” which is expressed by the rating and represents the creditworthiness of a counterpart understood as the capacity of fulfilling the obligations taken in a time period of one year. The rating therefore implies a probabilistic approach to risk assessment, measures the estimated quality of the portfolio in the daily processes of loan valuation, credit management and pricing procedures, as well as the methods of provisioning and reporting to the Management. All lending procedures use the counterpart rating as the decision-making driver and are conceived in keeping with the specifics of the different customer segments in order to optimise the use of resources employed in credit management/monitoring and to achieve the right balance between the commercial push and effective credit management. The internal rating system, which concerns the Corporate and Retail portfolios, results from the development of many statistical models specialized by kind of customer for the purpose of assigning a rating both to the prospects (model of initial granting based on financial, socio-demographic and external database information), as well as to counterparts (in this case, behaviour models using internal trend data were also used). The rating assignment process contributes to improving effectiveness in credit management in that it is a transparent and consistent support for decisions on granting credit, and it offers guidance on risk based pricing. For the purpose of complying with the requirement of separateness as provided for by the Instructions of the Supervisory Authorities, special units have been defined (Loan Labs), whose managers have been granted decision-making autonomy in assigning ratings to counterparts with a turnover higher than EUR 2.5 million. The customers with a turnover lower than EUR 2,5 million are automatically assigned a statistical rating. For the purpose of an objective and shared valuation of the legal- economic relations within the MPS Group, the Group fine-tuned a specific process named “Groups of Connected Customers” which enables to establish and update the mapping of said ties through automatic processing rules which deal with objective data measurable obtainable from internal and external official sources. The process is directly ruled by the Credit Policies and Control Area through a specific unit, which monitors the quality and consistency of the database kept, updated by the Loan Labs of each bank, and it has exclusive decision-making power on the groups with existing positions shared by several banks with a huge global loan threshold.

i. Credit policies

In July 2008, a new definition process of credit policies was introduced based on the analytical portfolio estimates resulting from the new credit risk measurements brought about by the adoption of the advanced approach to the new Supervisory Instructions, which may be also used in management filed such as guidelines in credit risk taking.

In particular, the possibility of guiding behaviours and activities was analysed so that increase in lending

456 can meet and be consistent with the propensity of the Group to take credit risk, as expressed with the limits of Economic Capital and Expected Loss.

The process had three stages:

1. Analysis of the current portfolio

2. Estimates of trends

3. Definition of credit policy measures

The analysis of the current portfolio is carried out for the purpose of evidencing the key risk factors and identifying the most efficient leverage to contain the expected loss. The level of rigidity of the portfolio was also evaluated, affected by the share of long-term exposures and the presence of sector concentrations which determines the capacity of affecting the qualitative composition of the portfolio.

The trend scenario is estimated to understand the evolution of the current portfolio failing corrective measures on the basis of external macro-economic factors and objectives of growth in loans.

The definition of credit policy measures is therefore guided by the need of matching portfolio risk trends with the Economic Capital and Expected Loss limits assigned to the credit risk within the Capital Allocation process.

Measures consists of operational guidelines concerning new lending and management of outstanding stocks distinguished by segment of customers, counterpart risk, industry and technical form.

A resolution of the Board of Directors of the Parent Bank approved the results of the project defining the process which have been disclosed to the main units concerned. The aims have been then communicated to the network through the budget process whereas the operational guidelines will be disclosed in a ruling document to be published and in a training course addressed to the whole decision-making units concerned to be held in the first months of 2009.

2.2.2 Granting processes

The credit granting procedures are aimed at improving the effectiveness, efficiency and level of service in the management of credit, setting out to:

automate loan proposals and risk assessments, as much as possible; • • assess creditworthiness by assigning an internal rating to each counterpart;

• improve response time to the customers;

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The procedure available to the Network and to the Head Office and managing all the stages of the credit granting process is the Electronic Loan File (Pratica Elettronica di Fido, or P.E.F), which is being optimised to improve both response time and the selection of the assumable risks; in 2008 main measures were linked to: Release of consistent regulations; quick acquisition of information from the Risk Centre Unit; acquisition of corporate financial statements and income data of individuals from a special central file unit of the Group.

The processes of valuation and resolution implemented in the Electronic Loan File reflect the principles and the rules of the internal rating system. Therefore, there are different paths depending on the customer being an individual/ consumer (retail) or a company (corporate with a turnover lower than EUR 2.5 million and corporate with a turnover higher than EUR 2.5 million) and on its status of “prospect” or “existing customer” . In line with the regulatory provisions issued by the Supervisory Institute, the Electronic Loan File was designed for the purpose of using a single rating if the counterparts are shared by several banks in the MPS Group. Among the activities aimed at achieving compliance with the AIRB requirements, the allocation of decision-making authority in the credit granting procedure on the basis of risk-based logics is one of the key qualification criteria to achieve the experience requirements set by the Bank of Italy. As a result of this logics providing for the identification of decision-making bodies with powers increasing in proportion to the growth of the risk underlying the loan, both regulatory and management benefits were achieved.

In 2008, a system of definition of discretionary powers was distributed to the whole network regarding exceptions for rates applied to customers based on customer risk (rating) and product risk. The instrument offers a theoretical measurement of profitability to cover credit risk which is quantified in compliance with the new Basel 2 rules through the calculation of the expected loss. The pricing model to determine the spread on funding rates is aimed at defining future profitability of each credit transactions and has already become an ordinary tool of the commercial and decision-making network of the corporate customers.

2.2.3 Monitoring processes

As to credit portfolio management and monitoring, the Network still uses the process of trend management , which is based on rating model forecasting and is able to monitor the development of the bank’s loan portfolio with the passing of time, focusing the attention of managers exclusively on customers having a medium/high statistical default probability in one year.

Trend Management is based on an Early Warning system acting through three sub-processes:

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“Systematic Watch”, which concentrates and directs actions monitoring higher risk positions. With this process, the Bank decided to act preventively through portfolio reclassifications to safeguard the performing loan portfolio identifying future problems in advance with portfolio reclassifications. time. The redesign of the process, which had been planned for the second half of 2008, was postponed due to the integrations of the Banks of the Group;

“Operationals management” with the task of daily monitoring the credit Portfolio highlighting internal and external irregular events indicative of potential risks in order to anticipate mid-month impairments which are overlooked by the rating. The process is hinged on an IT application which shows the users any anomalies and directs to different management actions according to the level of criticality.

“Simplified Renewals”, with the objective – for limited-risk positions – of automatically renewing the validity of outstanding loans from year to year for internal purposes.

In 2008 in two Geographical Areas of the Banca MPS a new monitoring process was tried aimed at improving efficiency and efficacy in reminding, requalification and recovery of bad loans (unpaid instalments and overdrafts) The process anticipates the impairment of the portfolio quality while spotting the deteriorating events at the beginning

In order to improve identification of rating downgrading signals not only in the outstanding portfolio after expiry, as provided for by the Trend Management, a monitoring process for the customer rating was set up with different effects depending on the counterpart: i,e Corporate with a turnover higher than EUR 2.5 million, Corporate with a turnover lower than EUR 2.5 million, and Retail which prevent the use of a downgraded rating and/or require the renewal of the loan file, so that the Board of Directors may become aware of the change in creditworthiness.

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For the different portfolios of assets, the table shows the breakdown by credit quality, according to the definition of impaired assets provided for by Banca d'Italia and adopted also for balance sheet purposes. Since the entire portfolio of financial assets is subject to classification by credit quality, it is noted that the items, Due from banks and Customer loans, include not only loans but also other technical forms (securities etc.). The amounts stated are those included in the balance sheet and therefore do not include the respective doubtful receivables.

Impaired assets classified among assets sold not derecognised have also been specified in the different portfolios. The significant increase recorded for non-performing loans in 2008 is mainly due to the acquisition of Banca Antonveneta S.p.A.

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For the different portfolios of financial assets, the table shows the breakdown by credit quality, according to the definition of impaired exposures provided by Banca d'Italia and also adopted for balance sheet purposes. Since the entire portfolio of financial assets is subject to classification by credit quality, it is noted that the items, Due from Banks and Customer loans, include not only loans but also other technical forms (securities etc.). The amounts stated are those included in the balance sheet, both including and not including doubtful receivables.

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The table shows the breakdown by credit quality, according to the definition of impaired exposures provided for by Banca d'Italia and adopted also for balance-sheet purposes. Since the entire portfolio of financial assets is subject to classification by credit quality, it is noted that the items, Due from banks and Customer loans, include not only loans but also other technical forms (securities etc.).

The cash exposure amounts are therefore those shown on the Balance sheet, both including and not including doubtful receivables. In particular, the cash exposures summarise all the financial assets with banks coming from balance sheet Accounts 20 "Financial assets held for trading", 30 "Financial assets designated at fair value", 40 "Financial assets available for sale" and 60 "Due from banks", with the exception of derivatives which, in this section, are considered off-balance sheet. The off- balance sheet exposures include all financial transactions other than cash transactions (guarantees issued, commitments, derivatives, including hedging derivatives), which entail credit risk, valued according to the measurement criteria established by Banca d'Italia.

462

463

With reference to cash exposures to banks, the table shows the trend of impaired exposures subject to country risk during the course of the year. In particular, among the write-offs, decreases due to credit extinguishing events are shown. Since the entire portfolio of financial assets is subject to classification by credit quality, it is therefore noted that the exposures include not only loans but also other technical forms (securities etc.). The cash exposure values are those in the Balance sheet.

464

With reference to cash exposures to banks, the table shows the trend of total adjustments on impaired impaired exposures subject to country risk during the course of the year. In particular, among the write-offs, decreases due to credit extinguishing events are shown. Since the entire portfolio of financial assets is subject to classification by credit quality, it is therefore noted that the exposures include not only loans but also other technical forms (securities etc.). The cash exposure values are those in the Balance sheet.

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The table shows the breakdown by credit quality, according to the definition of impaired exposures provided for by Banca d'Italia and adopted also for balance sheet purposes. Since the entire portfolio of financial assets is subject to classification by credit quality, it is noted that the items, Due from Banks and Customer loans, include not only loans but also other technical forms (securities etc.). The amounts stated are those included in the balance sheet, both including and not including doubtful receivables.

Additional information on the quantification and evidence of the capital ratios covering only loans is provided in the Report on Operations.

The cash exposure amounts are therefore those of the balance sheet, both including and not including doubtful receivables. In particular, the cash exposures summarise all the financial assets with banks coming from balance sheet Accounts 20 "Financial assets held for trading", 30 "Financial assets designated at fair value", 40 "Financial assets available for sale" and 70 "Customer loans", with the exception of derivatives which, in this section, are considered off-balance sheet. The off-balance sheet exposures include all financial transactions other than cash transactions (guarantees issued, commitments, derivatives, including hedging derivatives), which entail credit risk, valued according to the measurement criteria established by Banca d'Italia. The cash exposures also include loans sold and not written off during the course of the financial year relative to the securitisation of performing (residential mortgage loans) and non-performing loans. For more detailed information regarding the securitisation transactions, please refer to paragraph C "Asset securitisation and sale transactions". The off-balance sheet exposures include all financial transactions other than cash transactions (guarantees issued, commitments, derivatives, including hedging derivatives), which entail credit risk, valued according to the measurement criteria established by Banca d'Italia.

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467

With reference to cash exposures to customers , the table shows the trend of impaired exposures subject to country risk during the course of the year. In particular, among the write-offs, decreases due to credit extinguishing events are shown. Since the entire portfolio of financial assets is subject to classification by credit quality, it is therefore noted that the exposures include not only loans but also other technical forms (securities etc.). The cash exposure values are those in the Balance sheet.

Item B.3 Other changes, mainly includes values attributable to the acquisition of Banca Antonveneta S.p.a. Item C.2 also includes write-offs of positions that were completely amortised.

468

With reference to cash exposures to customers, the table shows the trend of total value adjustments on impaired exposures subject to country risk during the course of the year. Item B.3 Other changes, mainly includes values attributable to the acquisition of Banca Antonveneta S.p.a. Item C.2 also includes write-offs of positions that were completely amortised.

469

t the classification provided by the e customers whose creditworthiness is equivalent to S&P categories S&P creditworthiness to equivalent is customers whose e t. ovided for by Banca d'Italia (in the case of two ratings, the one is worse used; anscoding tables have been used to conver are those balance in the sheet in Table A.1.3shown (exposures to banks) and A.1.6 gs shows that,the total of loans,the 59.6% approximately of exposures are covered by the exposures covered by external ratings, 92% come from exposures covered ratings, the by external 92% come th

is chosen).is In order to information, ensure internal reliable tr e used by Standarde used & Poor’s. The exposures considered to portfolios subject to possible validation) and external ratin external to portfolios to validation) and subject possible model with the remaining 40.4% having no creditworthinessthe remaining 40.4% assessmen having no model with agencies to the onesPoor’s. the by Standard & to agencies adopted ranging from AAA to A-. A-. to AAA from ranging The external The external rating categories in thistable adopted are thos ratingscoverThe external approximatelyOf 23% of total exposure. only accordingly (limited ratings ofA joint internal analysis an external rating internal or deriving froman external by a rating an (exposures toWhen customers). several external ratings are assigned, the criteria adopted the in choosing rating are those pr different rating when therewhen are three or more ratings assigned,second the one

470

ory Authorities, no conversion with of the

d A1), 33.1% from Average Qualitycustomers (Master Scale classes rs (Masterrs Scale classes C3,and D3), D1, 1.8% D2 fromPoor Quality al models. For this purpose, the only exposures (counterparties)thethis only exposures purpose, shown models. For al A/B1) is equal to of the 39% is equal A/B1) rating. an internal total exposures with y" customery"segments concerned. basis, are On this the exposures in relation the validation process the with Supervis

itution" and "Government and Localitution" and authorit risk assigned on the ratings risk assignedintern of the basis given by the on ed in relationmodels/legal to the entities/portfolios involved in

ereInst "Banking""Non Banking , Financial customerscustomersclassesclassifiedScale (MasterThe total E3).of as InvestmentE1, E2 (Master and classes Scale Grade AA to these segments were reported assegmentstomodels, were official theseinternal provided with the rating ratings. they"unrated" although in were A2,B1), A3 and 38.5%Fair Quality from customersB2,classes (Master Scale B3, C1 and C2), 14.8% from Mediocre Qualitycustome The table provides a breakdown of Banca MPS customersThe tableof class of provides a breakdown Banca MPS by AAA an classes Scale (Master customers Quality High from come rating internal an with exposures the of 5.9% how shows table The EUR RATED exposures to amount 85 Total NOT to subject portfolio total the of 40% ie. million, reporting. are those the internal on which rating ismeasur periodically wh theofficial internal to rating rating

471

the sellers hedges of (credit derivatives) are identified according to the s and to customers not only include loans buts customers also and to not loans only include the with financial assets all refore does not correspond to the total balance-sheet exposures in that it does financial statements. statements. financial tractual value of the same is shown under theshown columns,tractual ofissame the value CollateralPersonal and osure amount column, the the exposure of amount net is reported. The exposure tees, thetees,sectors business the of guarantors (signature loans)and customers that are totally or partially guaranteed. The table the of customerssectors of by business groups".the In and exp The table shows the amountcash exposures of to banks and to notthe include of amount non-guaranteed positions.theAs cashcaseto previousthe this bank tables, with exposures in also exception of derivative contracts. As regards personal guaran classification criteriaclassification contained in Banca "Classification d'Italia's amount also includes performing and non-performingamount performing and also includes thecancelledtransactions, not securitisation from were the of which loans The fairthe value of guaranteesthe estimated on date referenceoffinancial of statements the failing such or,con the value, guarantees.

472

473

Total Total of (credit hedges derivatives) are identified according toclassification the artially guaranteed. The table therefore does not include the amount of non- ng derivativesng to banks and to customers that are totally or p ion of customers sectorsion of by business and groups". guaranteed positions.As regards personal guarantees, thesectors business the of guarantors loans)and (signature the sellers Banca d'Italia'scriteriacontained in "Classificat The table shows the amount of off-balance sheet exposures includi

474

ives) are identified according the to s from the ratio of the amount secured by contract to the gross exposure ) and the sellers hedges of (credit derivat

he Financial statements or, in the absence of such information, the of such information, statements absence in the or, he Financial guaranteed table therefore does totaltable the not correspond balance-sheet to that exposures in and the respective the and guaranteed amount. tocustomers banks and to not only includefinancial loans all assets but also with with the previous tables, also in this case the cashcasethe thethis with previousexposures in tables, also of the positive the theof difference fair value of between the guarantee curitisation of non-performing and not written off.sold loans l guarantees, the business sectors ofguarantors the (signature loans itthenon-guaranteed amount does not of include positions. As guaranteesThe columnscontainthe Collateral and Personal fair value of the guarantees estimated at thet date reference of of The table shows the amount of impaired cash exposures to banks and to customerspartiallythattotally to guaranteed. The or cash are and exposures to impaired amount of banks shows the The table The percentage of coverage of the guarantees received, necessary for classifying the exposures under different accounts, result amountcontractually on the guaranteed gross exposure, valued accordingmeasurement to the provided by Banca criteria d'Italia. amount. guaranteestheSurpluscontains fair amount value The column classification criteria contained in Banca d'Italia's "Classification of customers by business sectors and groups". groups". and sectors business by customers of "Classification d'Italia's Banca in contained criteria classification sethe to related loans consideration takes into The table also the exception of derivative contracts. As regards persona

475

476

s from thefrom s ratio of the amount secured by contract to the gross exposure

anteed. The tableanteed. therefore The include not does the amount of non-guaranteed and the respective the and guaranteed amount. he Financial statements or, in the absence of such information, the information, of such guaranteed the absence or,statements in Financial he vatives) are identified to according thevatives) Banca criteria contained classification in of the positive the the difference of the fair value of guarantee between ees containfair of guaranteesees thethe value the date reference at of estimated of t The table shows the amount of impaired off-balanceshows impaired the of The table amount sheetcustomersare totally exposuresto banks guar that to or partially and positions. As regards personal guarantees, the business sectors of the guarantors (signature loans) and the sellers of hedges (credit deri amountcontractually on the guaranteed gross exposure, valued according measurement to the provided by Banca criteria d'Italia. Personal guarant CollateralThe columns and d'Italia'ssectors "Classification of customers by business and groups". The percentage of coverage of the guarantees received, necessary for classifying the exposures under different accounts, result

amount. guaranteestheSurpluscontains fair amount value The column

477

Total

478

les, whilst the off-balanceles, whilst exposures sheet include transactions all financial ished by Bancaished d'Italia. ation transactionscarriedation Parent out by the company. as stated in its "Classification of customers by businesssectors its "Classificationstated of customers and groups". in by as and excluding doubtful receivab complies with the classificationcriteria complies the of Banca d'Italia with the balance-sheet, both including othercash than transactions (guarantees commitments, issued, derivatives),measurement the to valued according criteria establ by businessthetheThe breakdown sector of debtors applicants and mortgagenot performing (residential off loan) and non-performing written with and sold loanssecuritis includes loan The table The cash reported exposures in the tables are those valued in

479

480

le, the whilst off-balancesheetthanfinancial other exposurescas transactions all include

and excluding doubtful excluding receivab and the balance-sheet,the both including financial year with performingmortgageyear with loan) financial (residential nd excluding doubtfulnd excluding receivables. The exposures are broken down geographicallyThe exposures are broken down counterparty's according the to country residence. of derivatives),measurementthe criteriato valued according established by Banca d'Italia. a Values are stated both including and non-performing loan securitisationand non-performing loan transactions. The cash exposures reported in the tablesthose are valued in not off written the and sold loans during includes The table

481

The cash exposures reported in the tables are those valued in the balance-sheet, both including and excluding doubtful receivable, whilst the off-balance sheet exposures include all financial transactions other than cash transactions (guarantees issued, commitments, derivatives), valued according to the measurement criteria established by Banca d'Italia. Values are stated both including and excluding doubtful receivables. The exposures are broken down geographically according to the counterparty's country of residence.

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In compliance with Regulatory instructions, no positions result as having to be classified under significant risks at 31/12/2008.

483 C. SECURITISATIONS AND DISPOSALS OF ASSETS

C.1 Securitisations

Qualitative information

Structures, processes, objectives

The securitisations of performing assets were structured aiming at obtaining economic benefits from the optimization of the loan portfolio management, the diversification of the sources of financing, the reduction of their costs and the matching of maturities of assets and liabilities.

The trend of securitizations was regular; this opinion is also shared by the rating agencies which did not change the ratings originally assigned to the classes of notes issued.

During 2008 two securitizations were extinguished in advance.

On 15 October 2008, Seashell II was extinguished with the resulting repurchase of the remaining credits represented by residential mortgage loans originated by the former Banca 121 SpA and amounting to EUR 147.3 million. The advanced extinction was carried out at book value and pointed out a value recovery of EUR 1.7 million cashing excess spread credits outstanding at the expiry date.

On 16 December 2008, Ulisse S.p.A was extinguished in advance; its portfolio consists of non-performing residential mortgage loans originated by the Parent Bank Banca Monte dei Paschi di Siena S.p.A. amounting to EUR 45.1 million. Also in this case the advanced extinction was carried out at book value and pointed out a value recovery to profit and loss account of EUR40.2 million since the junior note owned by the Bank with nominal value of EUR 61.2 million, was fully devalued in the previous years.

The portfolio securitised through the vehicle companies Siena Mortgages 02-3 and 03-4 consists of mortgage loans originated both by the Parent Bank and by other companies of the group. In 2008, for Siena Mortgages 02-3 EUR 20.4 million were cashed due to further excess spread the credit of which had been fully extinguished in the previous financial years, posting this value to profit and loss account as value recovery.

The assets securitized by MPS Assets Securitization SpA are loans secured by pledges on financial instruments with maturities ranging from 15 to 30 years originated both by the Parent Bank and by the other commercial banks of the group.

The other securitisations involving residential mortgage loans are Mantegna Finance Srl and Mantegna Finance II Srl for the assets originated by Banca Agricola Mantovana SpA.

Following the merger by incorporation of Banca Antonveneta SPA on 31 December 2008 the Bank stepped in as servicer of two securitisations of performing mortgage loans granted to individuals called Giotto and Giotto 2 SpA.

The securitised assets as true sale transactions were no longer included in the assets of the balance sheet of the former BAV, however the relative junior notes fully subscribed by the Bank were reported.

With reference to non-performing assets securitisation the portfolio of Ulisse 2 SpA consists of unsecured short-term loans originated by the Parent Bank Banca Monte dei Paschi di Siena SpA. As of the date of the financial statements, the cumulative recoveries obtained are well above the expectations of the originally estimated Cumulative Business Plan.

As to the non-performing securitisation Siena Mortgages 00-1 SpA executed in December 2007, on 7 March 2008 the vehicle company issued securities in the following tranches:

Class A senior notes – amounting to EUR 391,000,000.00

Class B junior notes – amounting to EUR 69,000,000.00

All notes issued were fully underwritten by the originator Banca Monte dei Paschi di Siena SpA. In compliance with the international rules provided for by the international accounting principle IAS 39 dealing with derecognition the loans sold were not cancelled from the financial statements.

As of the date of the financial statements, the recoveries obtained are in line with the expectations of the originally estimated Cumulative Business Plan.

INTERNAL SYSTEMS OF RISK MEASUREMENT AND CONTROL

The trend of transactions is steadily monitored through quarterly and monthly measurements of the collection flows of residual capital, of late payment and bad loan positions (the last two obviously concern performing securitisations).

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ORGANISATIONAL STRUCTURE AND REPORTING TO THE TOP MANAGEMENT

The MPS Group has set up a specific unit within the Credit Policies and Control Area of the Parent Bank in charge of co-ordinating performing securitisations. Non-performing securitisations are followed up by a unit specially established within MPS Gestione Crediti SpA, a subsidiary. In addition, a Group Directive provides that a half-yearly report is sent to the Top Management in relation to the trend of the transactions implemented over time by the Banking Group.

SECURITISATIONS EXECUTED DURING THE 2008 FINANCIAL YEAR

In March 2008 the Parent Bank executed a performing loan securitisation consisting of a portfolio of over 41,000 residential mortgage loans for an overall amount of EUR 3,416 million and an expected residual life of approximately 20 years to diversify and increase available funding and capital management instruments.

For these loans the SPV Siena Mortgages 07-5 SpA was used dealing with the securitisation of residential mortgage performing loans executed in December 2007. The overall portfolio of both tranches is posted to the “due to customers” account of the financial statements for a total amount of EUR 7,604.1 million since assets were sold but not derecognised.

To finance the acquisition, the vehicle Siena Mortgages 07-5 SpA issued RMBS (Residential Mortgage-backed Floating Rate Notes) in the following tranches:

Class A 1 Notes (AAA rating) amounting to EUR 3, 129,400,000

Class B Notes (A rating) amounting to EUR 108,300,000

Class B Notes (BBB rating) amounting to EUR 178,300,000

A cash reserve of EUR 82.0 million was also set up corresponding to Class D junior notes. 93% of the share capital of the SPV is held by a stichting trust and 7% by Banca Monte dei Paschi di Siena SpA.

From the geographical point of view, 46% of the loans are concentrated in Central Italy with an equal share of 27% for the North and South.

The characteristics of the securitisation do not allow any write-offs of risk assets to calculate prudential ratios. To calculate capital absorptions loans are kept in the weighted assets of the Group as if they had never been sold. All notes issued were fully subscribed by the originator Banca Monte Paschi di Siena SpA. From the standpoint of the financial statements the full subscription of the notes essentially implies keeping the risks and benefits of the sold portfolio. In compliance with the rules provided for by the international accounting standard IAS 39 on derecognition, loans sold may not be cancelled from the financial statements. Therefore, the sale did not imply any economic impact on the 2008 financial statements and the sale price was set at book value of the loans outstanding as at the date of sale. The loans are still reported in the financial statements even though in the special category of assets sold and not derecognised while the subscribed notes are not reported.

The full and direct subscription of the notes by the selling Parent Bank BMPS did not allow then to directly obtain liquidity from the market however provided the Group with notes which can be used for refinancing purposes with the ECB and for repurchase agreements improving safety margins and the liquidity risk position. The AAA-rated notes constitute the main way to meet short-term commitments through instruments which can be promptly made liquid.

485

ter transactionter completed the was with sale in 2007, without recourse of a non- nsactions and guarantees of creditform as othernsactions enhancement. and well as 08. 08. Parent company are reported: tisations, including cash tisations, including tra ritisations and third-partyritisations and securi en by the originator Banca Monte dei Paschi di Siena S.p.a.in SienaPaschi di dei originatoren by the Banca Monte 20 junior exposures of EURmln 66.9 and senior exposures of EURmln. 373.7 This lat lds junior exposures of EUR 84.7 mln;84.7junior exposures of EUR lds The table shows the Group's secushows exposures the toThe table own reference with the by out carried NPLs with transactions two below, C.1.2 table in illustrated better as securitisations, own to regard With ho S.p.a.,- Ulisse Group in which the 2 - Siena 00-1 S.p.a.,Group holds the in which fully underwritt were performingwhich portfolio, the of notes

486

487

488

tatementor directly to reserves. equity net ns, the financial assets or liabilities sold and not be derecognisedsold not to and have did assetsthe or liabilities financial ns, hnical forms relative to the assets sold. The column of "adjustments/recoveries" column of hnicalThe formsthe sold. to relative assets uary 2004, for which theuary 2004, Group for which theof exemptions IAS/IFRS the from made use he second part of the transaction carried out in 2008.transaction carried in of thehe second out part ements of IAS 39.ements of IAS as well as write-offs s well theas to income posted and revaluations national principles, if national cancellations such not did meet the requir Siena Mortgage 07-5 Mortgage Siena securitisation have been fullyt subscribedfor shows recoveries any flows of value adjustmentsthe for and year, The table shows the Bank'sshows theThe table reference securitisation exposures with each transaction, to own also contractual theindicating tec As already stated C.1.1, the notesin table thefor issued Sub-accountstatements" securitisationsA."Subject full financial to the own Jan effectedtoderecognition includes on 1 prior conformity requirements by IFRSfor allowed first 1 meant applications. exemptions These to that, thesetransactio regard with previous the of the basis on sheet, balance recorded in the

489

490

491

------(2.445) (2.639) (2.295) (1.831) (4.288) (2.376) (2.261) - - - - (557) - - - 2.298 2.610 799 4.113 8.898 7.568 ------9.292 2.046 - 3.804 3.504 15 . 2 8 7 (307) (114) 40 (342) (1.110) (769) (1.118) (540) ------(776) Residential mortgages A 1 ATLAF A.16 Non-residential mortgages ATLAMA.17 A 03-36 TV 1 Residential mortgages SRL ATLANTE A.18 Residential mortgages SRL FINANCE ATLANTIDE A.19 FTA-HealthCare II TESORERIA BONOS AYT A.20 -Bond DE FONDO I SUBORDINADA AYT DEUDA A.21 ACTIVOS DE TITULIZACION DE FONDO IV Other assets IMMOBILIARIAS PROMOCIONES AYT A.22 3.073 2.049 ACTIVOS DE TITULIZACION Other assets 1.069 A.23 - BANCAJA TV 2043Residential mortgages - ACTIVOS DE TITULIZACION DE FONDO BANCAJAA.24 1 Residential mortgages ACTIVOS DE BANCAJA TITULIZACION DE A.25 FONDO 6 Residential mortgages - DE TITULIZACION BBVA DE FTPYME 5 FONDO A.26 ACTIVOS - -Loans FTA 1 LEASING BBVA A.27 -Loans A.28 BBVAR A2 50TV 2007-1 Residential mortgages 3.528 BELUGAA.29 Residential mortgages MBS SRL RESIDENTIAL 6 BERICA A.30 Residential mortgages 1.649 5.410 - -

492

------(1.682) (59) (1.109) (3.630) (5.652) (1.099) (1.131) (1.043) - - - - (8.779) - (1) - - 2.145 4.509 1.638 24.014 480 - 2.692 16.747 8.322 1.718 1.608 - - - 3.289 - - (674) (504) (898) (989) ------(1.269) - - (1.498) - - A.31 BERICA 6 RESIDENTIAL MBS 1 SRL MBS 1 RESIDENTIAL 6 BERICA A.31 Residential mortgages A.32 BLUESTONE PLC SECURITIES Residential mortgages SRL BP MORTGAGES A.33 Residential mortgages TV A2 07 BPMO A.34 Residential mortgages NV/SA 2006-1 B-TRA - A.35 -Receivables BV 2006 FINANCING CANDIDE A.36 Residential mortgages 47 TV A1 CAPIM A.37 - Residential mortgages TV B 11 CARDS 2002-A A.38 Credit cards PARTNERSHIP - LIMITED MEZZCAP CB A.39 Small M edium Business loans BV FINANCE CLASSIC A.40 4.234 4.267 Residential mortgages PLC - SECURITIES CLAVIS A.41 Residential 7.431 mortgages TVA.42 CLOVERIE 2007-2 14 Bond 7.829 A.43 COLOM BOCommercial loans - A.44 COLOM BOResidential mortgages TV A2 42 CORDUSIO A.45 45.525 Residential mortgages SRL 2 FINANCE CREDICO A.46 - Residential mortgages SRL 3 FINANCE CREDICO A.47 691 11.018 - - - -

493

------19.071 ------(315) (801) (842) 49 - (2.244) (520) ------1.301 12.195 1.992 457 - 4.161 2.488 - - 827 - - - - - (87) (262) 50 (264) (1.248) 3 ------Residential mortgages TV 15 A1 F3 CREDICO A.48 -Bond BA.49 TV14 DECO 2005-E1X Non-residential mortgages CLA2A.50 DOLOM 17 FI ITI -Leasing DRIVER ONE GMA.51 BH-Auto Loan A.52 DRIVER TWO GM BH-Auto Loan SRL CONSUMER DUCATO A.53 Personal loans 281 A.54 E-M AC BV NL 2004-I Residential mortgages A.55 - ENTASI SRL Non-performing loans TV13 4.779 A1E7 1 EMPYR A.56 -Bond 04/13 A TV 4.670 1 EPC A.57 Non-residential mortgages A.58 F-E BLUE SRL - - Commercial mortgages A.59 FIP FUNDING 023 TVNon-residential mortgages TVA.60 02/09 GIOTT 1B - Residential mortgages JL14 D TV GONZA 3.622 A.61 49.713 -Bond A.62 GONZAG TV OC12-Bond 1.013 A.63 GRANITE M ASTER PLC ISSUER Commercial mortgages 5.898 - - - 55.388 -

494

------(4.862) (2.603) (70) - (1.251) - - - -

(3.960) (552) (99) - (60) (1.765) (881) - 756 198 1.691 436 - 603 803 957 2.281 1.664 3.583 - 4.486 8.877 - - - - 150 - (980) - - - (79) - (34) (45) 3 ------A.64 GRANITE M ASTER PLC ISSUER Residential mortgages A.65 GRAN 2004-2 2B TV 44Residential mortgages TV 2044 GRAN A.66 Residential mortgages TV 14 A.67 GREYL A1EL -Bond SRL HELICONUS A.68 Residential mortgages 33 TV 4B HIPO - HIPO A.69 Residential mortgages A.70 A.27 HM SF X A TV 02-34 Residential mortgages A1A 2 IMSER A.71 - Non-residential mortgages A .72 INTESA LEA SE 15A 3 TV-Leasing - A.73 ITALEASE 8.504 FINANCE SPA 2005-1Residential mortgages A.74 KENM TV 14 O 2X 7EB1 862 -Bond PLC - FINANCE MORTGAGE KION A.75 Residential mortgages 338 A .76 LA DEFENSE III P LC mortgages Commercial LAMBDA BVA.77 FINANCE mortgages Commercial 995 - 242 LAMBDA BVA.78 FINANCE Residential mortgages BV MESDAG LEO A.79 - mortgages Commercial SRL FINANCE LEASIMPRESA A.80 - - - 3.786 - 2.233

495

------16 - 2.943 ------

------(1.179) (1.414) (176) - - (134) (529) (1.137) - (2.566) ------4.456 1.607 11.809 4.934 6.541 3.192 1.196 - 5.652 - - - - - 2.038 ------(574) (22) (331) - 493 ------Residential mortgages SRL VEHICLE SECURITISATION LOCAT A.81 -Leasing PLC FUNDING LUDGATE A.82 Residential mortgages MANTEG NO14 TV A.83 Comnmercial and residential mortgages MARCH 06-38CLA2A.84 MUT2 - Residential mortgages A 1 MEDIA A.85 Residential mortgages PLC 1 NO FUNDING METRIX A.86 -Loans 2.821 TVA.87 M B2 05-19 ETRX 1X Small M edium Business loans A.88 M ONASTERY BV 2006-I Residential mortgages B N009 3.788 4.365 ASS MPS A.89 Personal loans A.90 M PSAS TV N033Personal 1.607 loans MPSA.91 ASSET SEC DSUBTV 33 Consumer loans 2.271 A.92 M PS FIRST TV 09 -Bond A.93 M UTINA SRL - Non-performing loans S.A. FINANCE PATAGONIA A.94 - Residential mortgages 01/16 PATAGONIA-ZC A.95 - -Bond SRL CMBS UNO PATRIMONIO A.96 - mortgages Commercial - - - 100.100 1.252 -

496

------7 (679) (30) (496) ------(4.027) (8.071) - (240) 10.425 2.884 15.989 1.845 1.403 541 1.566 ------(69) (1.093) (2.656) (1.267) (20) (80) (258) 13 ------A.97 PATRIMONIO UNO CMBS SRL CMBS UNO PATRIMONIO A.97 Residential mortgages MTG 42 4B 3 PERMA A.98 Residential mortgages A.99 PERM ANENT M ASTER PLC ISSUER Residential mortgages SRL 2 FINANCE PHARMA A.100 -Leasing SRL 2 FINANCE PHARMA A.101 - Residential mortgages PREPSA.102 TV 2014Small M edium Business loans PREPS-2A.103 TV 06-14 16 - TV A1 Small M edium Business loans PREPS2007-1 - A.104 1.643 TV A 45 Small M edium Business loans A04-1 PROVI A.105 TV B 45 Residential mortgages A04-1 PROVI - A.106 Residential A mortgages 2021 TV PTRMO A.107 Non-residential B mortgages 2021 TV PTRMO A.108 4.681 BVNon-residential mortgages PARKING 1.717 QUALITY 3.332 A.109 PLCCommercial 17 mortgages SECURITIES MORTGAGE RESIDENTIAL A.110 1.127 PLC 18 Residential mortgages SECURITIES MORTGAGE RESIDENTIAL A.111 Residential mortgages - - 1.457 - 1.818 4.968

497

------(351) ------1.685 ------(1.720) (748) - - (744) ------(156) - - 1.220 - - 2.928 - 1.676 1.224 1.358 - - 2.551 516 - - - 60 - (312) (754) (238) - 4 - (10) ------A.112 RESIDENTIAL MORTGAGE SECURITIES 20 PLC 20 SECURITIES MORTGAGE RESIDENTIAL A.112 Residential mortgages SA 1 NO FINANCE CONSUMER RUSSIAN A.113 Personal loans 856 A4TV13 DRYD-2X RUTLN A.114 -Bond SAGRES SOCIEDADE DEA.115 TITULARIZACAO DE CREDITOS SA 485 -Receivables SAN 09 TV GIORGIO A.116 Life insurance DE FONDO 1 SANTANDER FINANCIACION A.117 ACTIVOS DE TITULIZACION Residential mortgages 2.439 SEM PER FINANCE GMBHA.118 2007-1 Commercial mortgages SESTANTE FINANCEA.119 SRL TVResidential mortgage 07/12 B1 SHAMR A.120 -Bond SIENA A2 2003-4 A.121 350 Residential mortgages SIENA MA.122 CLA2N037 2.218 Residential mortgages SIENM TV O A.123 DE38Residential mortgages SIENA MA.124 CLBN037Residential mortgages - SIENA MA.125 ORTG CL.C 2.617 Residential mortgages LTD 25 NO CONDUIT LOAN EUROPEAN SILENUS A.126 3.721 387 15.741 16.743 - -

498

------(2.148) - - (889) (169) - (91) - 4 ------1.901 109 1.683 2.263 3.735 4.718 1.567 1.178 - 92 ------(107) (126) (362) (446) (993) ------3 13 - Commercial mortgages SIENA MA.127 ORT CLA2 C 37 Residential mortgages DE38 TV SIMOR A.128 Residential mortgages TV C1 SM 01-27 ILE A.129 Small M edium Business loans BV 2007 SKYLINE A.130 Commercial mortgages BV SYNTHETIC 2005 SMILE A.131 TVResidential 35 mortgages A2 SUB SPOLETO A.132 3.534 Residential mortgages STICHTING MA.133 EM PHIS 2006-IResidential mortgages STORMA.134 TV 2046Residential mortgages - SRL SUNRISE A.135 - Personal loans - A TA .136 URUS CM B S2 C 15TVNon-residential mortgages 1.294 - ACTIVOS DE TITULIZACION DE FONDO TDA 28 A.137 Residential mortgages B 2007-2X TITN A.138 - Non-residential mortgages 3.467 TITULIZACION DEA.139 ACTIVOS SGFT SAResidential mortgages A . 14 0 4.433 T R E VNon-performing I 3 loans DE FONDO A 1 T HIPOTECARIO V VALENCIA 0 11 1 A.141 ACTIVOS DE TITULIZACION 1.030 Residential 2015 mortgages CLA2 - LEASE VELA A.142 - - 383 15 8

499

------al technical forms relative to the assets sold. The column of column of sold. assets to The the al technical relative forms - ns postedstatementthe to income to or directly net reserves equity in the ables, subsequenttoables, reclassification the securities of the for year. -

- - (335) - - - - 23.699 27.844 (99.390) 8 (22.005) - ird-party securitisation and alsotransaction shows the contractu recoveries for the year, as well asrecoveriesfor write-offs the year, well as and revaluatio 1.993 - 306.325 416.812 es classified under Trading, Available for sale and Loans &classifiedsale for under Trading, Available and Loans es Receiv (331) (23.906) (15.157) - Total 31 12 2008 12 Total 31 474.210 Total 31 12 2007 12 Total 31 544.211 The table shows the Bank's exposures reference with toth each At year-end, 2008 third-party by securiti exposures shown are "adjustments/recoveries" of flows value adjustments and shows any case of securities available for sale. sale. for available securities of case -Leasing 00/10 B-TV VINTAGE A.143 -Bond A WINDM .144 XXA TV 19Non-residential mortgages - 2.194

500 C.1.4 Exposures to securitisations classified by portfolio and type of financial asset

(in thousands of EUR) Total Total Financial assets Financial assets Financial assets Financial assets Exposure/Portfolio designated at Loans held for trading available for sale held to maturity fair value 31 12 2008 31 12 2007

1. Cash exposure - Senior 230.367 44.570 200.026 474.963 373.665 - Mezzanine 236.121 9.301 75.009 320.431 431.539 - Junior 15.438 343.207 358.645 307.301

2. Off-balance sheet exposure - Senior - Mezzanine - Junior

The table shows the Group's exposure with reference to each own and third-party securitisation transactiona and also indicates the balance-sheet portfolios to which such assets have been allocated. All assets relative to own securitisations have been fully derecognised thus the exposures are shown by the different forms of existing credit support (excess spread, junior etc). The two performing and non-performing securitisation transactions effected by the Parent compnay - Siena 07-5 and Siena 00-1 - which were not subject to derecognitionin the financial statements are not reported in this table, as per Banca d'Italia guidelines.

C.1.5 Overall amount of securitised assets underlying junior securities or other forms of credit

31 12 2008 (in thousands of EUR)

Asset/Amount Traditional securitisations Synthetic securitisations

A. Own underlying assets: 10.079.313

A.1 Totally derecognised 1.801.237 1. Non-performing loans 201.664 x 2. Watchlist loans x 3. Restructured loans x 4. Past-due x 5. Other assets 1.599.573 x

A.2 Partially derecognised - 1. Non-performing loans x 2. Watchlist loans x 3. Restructured loans x 4. Past-due x 5. Other assets x

A.3 Not derecognised 8.278.076 1. Non-performing loans 674.781 2. Watchlist loans 5.806 3. Restructured loans 4. Past-due 24.468 5. Other assets 7.573.021

B. Attività sottostanti di terzi: 586.360 B.1 Non-performing loans 701 B.2 Watchlist loans 452 B.3 Restructured loans B.4 Past-due 139 B.5 Other assets 585.068

501 The table shows, in proportion to junior securities and other forms of credit support held, the amount of securitised assets at the date of the financial statements, broken down according to the quality of the asset securitised and to their origin (own or third-party). In the case of multi-originator securitisations, the underlying assets have been divided into own and third-party assets in proportion to the weight that junior exposures and other kind of credit facilities have on the whole of securitised assets. The multi-originator securitisations are represented by Siena Mortgages 03-4, whose share of assets at risk involving junior securities held by the Group have been broken down into own and third-party assets.

The amount relative to A.3 "Not derecognised" refers to the performing securitisation on residential mortgage loans, "Siena 07-5", and non-performing securitisation on non-performing loans, "Siena 00-1", of the Parent company.

31 12 2007 (in thousands of EUR)

Asset/Amount Traditional securitisation Synthetic securitisation

A. Own underlying assets 7.280.251

A.1 Totally derecognised 2.137.695 1. Non-performing loans 308.315 x 2. Watchlist loans x 3. Restructured loans x 4. Past-due x 5. Other assets 1.829.380 x

A.2 Partially derecognised 1. Non-performing loans x 2. Watchlist loans x 3. Restructured loans x 4. Past-due x 5. Other assets x

A.3 Not derecognised 5.142.556 1. Non-performing loans 2. Watchlist loans 3. Restructured loans 4. Past-due 5. Other assets 5.142.556

B. Third-party underlying assets 515.155 B.1 Non-performing loans B.2 Watchlist loans B.3 Restructured loans B.4 Past-due B.5 Other assets 515.155

C.1.6 Stakes in special purpose vehicles

Name Head office Stake %

Siena Mortgages 00-1 S.p.a. Milano - Via Pontaccio n. 10 100,0% Siena Mortgages 02-3 S.p.A. Conegliano (TV) - Via V. Alfieri n.1 9,1% Siena Mortgages 03-4 S.p.A. Roma - Via E.Duse n. 53 6,0% Siena Mortgages 07-5 S.p.A. Roma - Via E.Duse n. 53 7,0% Mantegna Finance Srl Mantova - Corso V. Emanuele 2 7,0% Mantegna Finance II Srl Mantova - Corso V. Emanuele 2 7,0% MAS Roma - Via E.Duse n. 53 10 , 0 % Ulisse 2 S.p.a. Milano - Via Pontaccio n. 10 60,0% Giotto Finance PD - Via Porciglia n. 14 98,0% Giotto Finance II PD - Via Porciglia n. 14 98,0%

This table shows the stakes held in vehicle companies which, in all cases, are in relation to own securitisations.

502

assets Performing 31 12 2008 Junior (in thousands of EUR) Impaired assetsImpaired assets Performing M ezzanine (year-end data) (year-end Impaired assetsImpaired Percentage share of redeemed notes ons, the servicing activity is carried out by the originator banks banks by the out is originator carried activity servicing the ons, assets

Performing Senior Impaired assetsImpaired G Performing 79,63% 66,08% 76,62% - - 50,42% 60,94% 70,24%

Impaired Loan collections during the year - 100,00% 0,00% 100,00% 0,00% 15,97% 0,00% UHSXUFKDVHGUHSXUFKDVH Performing 198.476 34.635 49.987 419.132 1.026.548 201.724 179.013 18.299 (year-end data) (year-end Securitised assets Impaired 981.333 10.380.206 208.986 2.351.978 981.333 357.959 8.099.677 105.443 774.485 securitised loans and redemptions of notes issued by the vehicle the by issued notes of redemptions and loans securitised - 59.934 130.753

727$/ 727$/ 727$/ 727$/ 727$/ 727$/ / / $ $ 7 7 2 2 7 7 6HDVKHOO,,6UO Mps Assets Securitisation S.p.A. Securitisation Assets Mps 548.490 Mantegna II Srl II Mantegna 99.481 Mantegna I Srl I Mantegna 128.009 Siena Mortgages 07-5 S.p.A..Siena 3.167.210 Siena Mortgages 07-5 S.p.A..Siena 4.436.922 Siena Mortgages 03-4 S.r.l.Siena 760.775 Siena Mortgages 02-3 S.r.l.Siena 580.176 Ulisse2 S.p.AUlisse2 Mortgages 00-1 S.p.A.Siena Srl Finance Cirene 737.177 195.703 48.453 Vehicle company C.1.7 Servicer assets - Collections on *LRWWR)LQDQFH *LRWWR)LQDQFH,, 7 *RQ]DJD)LQDQFH6UO 6HJHVWD 7 The table shows own securitisationswhere the Bank plays the role of servicer. With reference to multi-originator securitisati relating to the portion of credit assigned. assigned. credit of portion to the relating

503

- (in thousands of EUR) thousands (in Total Total Total Total 5.141.660 740.067 3.825.128 3.825.128 9.706.855 2.206.177

xx xx xx

Customer loans x x x 705.055 7.573.021 7.573.021 705.055 12.538.862 4.260.786 12.538.862

recognition in 2007 and 2008. All assets involved in in involved assets All and in 2008. 2007 recognition

sets of the balance sheet. These are assets (securities) sold in in sold (securities) assets are These sheet. balance the of sets Due from banks Due 97.223 97.223 97.223 9.076.029 797.953 9.076.029

maturity

xxx xxx xxx xxx Financial assets held to

sale

694.579 2.068.368 2.068.368 2.068.368 Financial assets available for

fair value

xxx x xxx xxxxx Financial assets designated at

trading

Financial assets held for 3.023.211 A1.297.242 B1.297.242 C A B1.297.242 C A B C A B C A B C A B C 2008 12 31 2007 12 31

Technical forms/Portfolio A. Cash exposure Cash A. securities Debt 1. securities Equity 2. assets 5. Impaired B. De r ivative s Total 31/12/2007 3. UCITS 4. Loans Total 31/12/2008 C.2 Sales transactions Sales C.2 derecognised not sold assets Financial C.2.1 A = financial assets sold posted in full (book value) (book full in posted sold assets financial = A value) part (book in posted sold assets financial = B value) part (full in posted sold assets financial = C as under recorded partially or fully still but derecognised not and sold assets financial the of value book the shows table The relation to repurchase agreement liabilities as well as performing loans and impaired assets which were securitised without de without securitised were which assets impaired and loans as performing well as liabilities agreement repurchase to relation statements. financial the from cancelled been 2007 have to prior transactions securitisation

504 C.2.1.b - Type of sales transaction of financial assets not derecognised

(in thousands of EUR) Total Total Account/Value 31 12 2008 31 12 2007

Repurchase agreement liabilities 4.260.786 3.824.108 Securitisations 8.278.077 5.881.727 Securities loan Sales

Total 12.538.863 9.705.835

505

- - - - -

ities.

5.661.353 5.661.353 4.780.947 4.780.947 3.755.662

10.442.300

Total

(in thousands of Euro) Euro) of thousands (in

5.161

4.354.170 4.354.170 3.310.494 3.310.494 7.664.664

Customer loans

- -

95.403 95.403 95.403

103.468

Due from banks

- - - -

Financial assets held to maturity

685.650 931.058 931.058 645.673 685.650 685.650

1.616.708

d in part or underdin whole part in on assets balance the sheet. These involve only liabilities posted for repurchase liabil agreement Financial assets saleavailable for - - - -

ld and not not ld and derecognised

Financial assets valuevalued at fair -

526.130 526.130 526.130 539.395 539.395

1.065.525 3.001.360

assets so financial

2008 2007

Liability/Asset portfolio 12/ 12/

Asset s totally sold sold s totally Asset sod partly Assets Asset s totally sold sold s totally Asset sod partly Assets sold s totally Asset sod partly Assets

31/

Customer deposits deposits Customer a) b) a) b) a) b)

tal tal

o o

2. Due to banks banks to 2. Due securities 3. Outstanding T T 1.

C.2.2 Financial liabilities relating to relating liabilities Financial C.2.2 The table shows the book value of the financial liabilities posted as cross-entries for financial assets sold and not recognize

506

D. MODELS FOR THE MEASUREMENT OF CREDIT RISK

The analysis of credit risk is conducted by using the Credit Portfolio Model, as internally developed by the Parent Bank, which produces a detailed output including the classical risk measurements of Expected Loss, Unexpected Loss and inter-risk diversified Economic Capital, with a one-year time interval and a confidence interval graded according to the official rating assigned to the Group itself. The inputs include: default probability, LGD rates, number and kinds of guarantees securing the loans, operating internal EAD ratios, correlation matrix. The last component, based on internal estimates (and periodically fine-tuned for the purpose of introducing more advanced models of measurement) quantifies the component of diversification/concentration – by position – of the positions held in portfolio. The logic of calculation of the economic capital is based on Credit-VaR metrics, in accordance with the implementations of other banks. The output of the portfolio model provides detailed measurements by position (shows the time trend of credit risk in accordance with different possible aggregations of the variables subject to analysis, by legal entity, kind of customers, geographical area, business, rating class, continental area) as well as the component of absorbed capital for operating purposes by indicating the impact of diversification, unlike a building-block logic. Additional indications coming from the Credit Portfolio Model concern “what-if” analyses produced on some discriminating variables such as default probabilities, LGD rates, the trend of the value of the guarantees and margins available on credit lines for the purpose of quantifying the levels of Expected Loss and Economic Capital, should the underlying (hypothetical and historical) assumptions occur.

The chart below shows the breakdown of credit quality of the Montepaschi Group loan portfolio (excluding financial assets positions). About 48% of risk exposures are disbursed to customers of high and good quality. The following grading also includes the exposures to banks, Government Authorities, and non- regulated financial and bank institutions. However, within the portfolio model, these counterparts are assigned a credit standing valuation by using the official ratings (if existing) or appropriate internally determined values, although a specific programme of implementation of internal ratings for the purpose of validation with the Regulatory Authorities is not contemplated in the short term.

507 - Credit loan portfolio - Quality distribution on December 31st 2008

50%

40%

30%

20%

10%

0% Highest Quality Good Quality Fair Quality Speculative Hight Default (IG) Quality (IG) (SG) Quality (SG) Quality (W) % EAD % EL % ECAP

The following graph shows the breakdown of credit quality with respect to the Corporate and Retail portfolios validated by the Regulatory Authority for Basel 2 purposes (internal rating models). The weight of exposures with high and good quality as of 31 December 2008 was about 39% of overall exposures.

- Credit loan portfolio (Corporate and Retail Customers) - Quality distribution on December 31st 2008

50%

40%

30%

20%

10%

0% Highest Quality Good Quality Fair Quality Speculative Hight Default (IG) Quality (IG) (SG) Quality (SG) Quality (W)

% EAD % EL % ECAP

508

The following graphs show the marginal contribution, in terms of Risk Exposure, Expected Loss and Economic Capital, of the three Commercial Banks (Banca MPS, Banca Toscana, Biver Banca) which account for about 84% of the total of the Montepaschi Group, and MPS L&F, MPS Capital Services, Consumit and B.Personale which account for the remaining 14%. As of 31 December 2008, Banca Antonveneta merged by incorporation into Banca MPS.

509 With reference to risk measurements, expected loss is mostly attributable to the Parent Bank (71.7%), followed by Banca Toscana (9.2%) and MPS Capital Services (7.9%), with the remaining portion (11.1%) covering the risks of MPS L&F, Consum.it, BiverBanca and Banca Personale. The total amount of economic capital with respect to credit risk is mostly absorbed by the Parent Bank (abt. 71%) followed by the other commercial banks, Banca Toscana and BiverBanca (abt.11%), with the remaining portion (18%) going to the other entities.

510 The measurements as of 31 December 2008 show that the Montepaschi Group risk exposures are mainly attributable to “Corporates” and “Retail” (64.6% of total disbursements and 21.9%, respectively). Exposures to Government and Local Authorities total 7.8% with the portion of “Banks and Financial Companies” standing at 5.8%.

More than 85% of the Expected Loss and Economic Capital are attributable to the “Corporates”.

511

512 The geographical breakdown of the Group customers indicates that risk exposures are mainly concentrated on northern Italy (39.3%), central Italy and Sardinia (21.5%), Tuscany and Umbria (18.4%), southern Italy and Sicily (16.2%). The international risk exposure is 4.6%.

Loans in northern Italy (43.4%) gave the highest contribution to overall risk measurements (Expected Loss + Economic Capital), followed by Tuscany and Umbria (18.8%), central Italy and Sardinia (18.5%), southern Italy and Sicily (17%). The contribution of foreign customers to risk measurements is marginal (2.2%).

SOUTH AND SICILY 17.0% TUSCANY AND NORTH UMBRIA 43.4% 18.8%

FOREIGN 2.2% CENTER AND SARDINIA 18.5%

An analysis of the exposures of the top 10 business sectors - which account for abt. 82% of total loans - in accordance with the classification of the Bank of Italy shows that “other services in relation to sales” absorb 24.62% of total risk measurements, followed by “Trade services (17.44%), “Building and Public Works” (14.60%). All these sectors account for about 57% of total risk measurements. “Farming, forestry and

513 fishing”, “Textile products, leather and footwear”, “Foodstuffs, beverages and tobacco products” account for 13.52% of the total Expected Loss and Economic Capital.

% Risk measures (Expected Loss + Economic Capital) December 31st, 2008

Other Sales Services 24,62% Retailing services 17,44% Building Trade & utility's infrast. 14,60% Agriculture, forestry & fishing prod. 5,03% Textile & leather prod. 4,57% Food, beverage and tobacco prod. 3,92% Hotels & public utilities 3,64% 3,56% Metalworking products Other industrial prod. 2,96% Energy products 2,52%

514 SECTION 2

Market risks

The presence of market risks, associated with the Trading Portfolio and the Banking Portfolio, is of great importance within the integrated management of risks and capital of the Montepaschi Group.

MARKET RISKS INHERENT IN THE TRADING PORTFOLIO

The Trading Portfolio of the Montepaschi Group – Trading Book – consists of the Trading Portfolios for Regulatory Purposes managed by the Parent Bank (BMPS), MPS Capital Services (MPSCS), and - to a lesser extent - by BiverBanca and the Irish subsidiary Monte Paschi Ireland. The addition of Banca Antonveneta to the Group in 2008 had no significant impact, since the operating approach adopted provided for the centralization of all market risks with BMPS and MPSCS. The portfolios of the other commercial subsidiaries are virtually closed to market risks and include only own bonds held for the service of retail customers. Derivative operations, traded on behalf of the customers, contemplate the centralization and monitoring of risks by MPSCS.

The market risks of the trading book are monitored for operating purposes in terms of Value-at-Risk (VaR) with reference to the Parent Bank and the other Group entities which are of importance as independent market risk taking centres. Each bank operates individually with its own trading portfolio and simultaneously manages interest rate, equities, forex and credit positions in an integrated manner, within the operating limits set by the Board of Directors. In particular, with reference to the Parent Bank Trading Portfolio, the aggregate monitored with integrated VaR methods is larger than the aggregate for regulatory purposes, since it incorporates some positions of the Banking Portfolio which, from the operating viewpoint, are under the responsibility of the Business Areas carrying out trading activities.

In this section, only for the purpose of VaR calculation, the Trading Portfolio should be expanded to include the positions of the Banking Portfolio which are not qualified for the Trading Portfolio for Regulatory Purposes. Most of these positions were taken directly on the basis of instructions coming from the Board of Directors or are attributable to the Parent Bank’s Finance Area (e.g. AFS equities and bonds). In addition, in Q408, the Montepaschi Group - in the general application of the IAS international accounting standards - decided to reclassify a portion of the HFT portfolio under L&R. This also determined the reclassification for regulatory purposes from the Trading Portfolio to the Banking Portfolio. However, in order to ensure continuity and comparativeness to the risk metrics in 2008, the Group continued to measure the VaR in an integrated manner also for these positions, and did not eliminate them from trading positions in the strict sense.

The Montepaschi Group Trading Portfolio is subject to daily monitoring and reporting by the Parent Bank Risk Management Area on the basis of proprietary systems. The operating VaR is calculated independently from the operating units on the basis of the internal model of risk measurement implemented by the Risk Management Unit, in line with the main international best practices.

Operating trading limits, as approved by the Parent Bank Board of Directors, are expressed by level of delegated powers in terms of diversified VaR by risk factor, portfolio and monthly and annual Stop Loss. In particular, the trading book credit risk is included in VaR reports and the respective limits in relation to the credit spread risk portion and is also subject to specific operating limits of issuer risk and bond concentration, which contemplate notional maximum amounts by guarantor and rating class.

VaR is calculated with a 99% confidence interval and a holding period of one business day. The method used involves the historical simulation with daily full revaluation of all primary positions, on the basis of 500 historical records of the risk factors (lookback period) with daily shift. The VaR thus calculated takes account of all effects of diversification by risk factor, portfolio and traded instrument. It is not necessary to assume any a priori functional form in the distribution of returns on assets, and the correlations between different financial instruments are implicitly captured by the VaR model on the basis of the joint historical trend of risk factors. The flow of daily operating reporting on market risks is periodically sent to the Parent Bank Risk

515 Committee and Board of Directors in the Risk Management Report, which informs the Top management of the overall risk profile of the Montepaschi Group.

The following kinds of risk factors (IR, EQ, FX, CS) are taken into account by the Internal Model of Market Risks:

IR: Interest rates on all relevant curves and relative volatility; EQ: equity prices, indices and baskets and relative volatility; FX: Foreign exchange rates and relative volatility; CS: credit spread levels.

However, the VaR (or diversified VaR, or Net VaR, net of all effects of diversification) – which is calculated as one integrated measurement - is calculated and disaggregated daily on the basis of three methods of analysis:

Organization/operating analysis of the Portfolios, Analysis by Financial Instruments, Analysis by Risk Family.

The VaR can be also assessed on the basis of any combination of these methods so as to support very detailed analyses of the events concerning the portfolios.

Following are the risk factors which can be identified: Interest Rate VaR (IR VaR), Equity VaR (EQ VaR), Forex VaR (FX VaR) and Credit Spread VaR (CS VaR). The algebraic sum of these components determines the Gross VaR (or non diversified VaR) which quantifies, if compared with the diversified VaR, the benefit of diversification by risk factor resulting from holding portfolios allocated to non perfectly correlated asset classes and risk factors. This information can be analyzed on the basis of the above-mentioned methods.

Therefore, the new model adopted early in 2008 produced diversified VaR metrics for the whole Montepaschi Group in order to appreciate, in an integrated manner, all the effects of diversification which might be generated in the banks due to the specific positioning implemented by the business units.

In addition, scenario analysis are regularly carried out in relation to different risk factors with different levels of granularity.

516 In 2008, the trend of the Group risks was mainly affected by two events:

a) The change in the internal model as a result of the introduction of the new Market Risk Management System, which modelled some risk factors more accurately; b) The exacerbating international crisis which – after Lehman default – determined a general increase in the volatility of all risk factors.

With specific reference to point b), the VaR model with historical simulation incorporated such market scenarios which now steadily represent tail events. Therefore, this produced a general increase in VaR estimates, also at a parity of any other condition.

MPS Group: Value-at-Risk (VaR) - VaR 99% 1 day in €/mln -

70 65 50.08 mln 60 31.12.2008 55 35.85 mln 50 31.03.2008 27.91 mln 45 25.78 mln 30.09.2008 40 30.06.2008 35 30 25 20 15 MPS Group 10 MPS Bank 5 Average Year 2008 € 33.30 mln 0

31-Jul-08 31-Dec-07 31-Jan-08 29-Feb-08 31-Mar-08 30-Apr-08 31-May-08 30-Jun-08 31-Aug-08 30-Sep-08 31-Oct-08 30-Nov-08 31-Dec-08

As of 31 December 2008, the Group VaR came to roughly EUR 50 million, double the amount registered as of the end of 2007.

MPS Group VaR With reference to the legal entities, the Group market risks were steadily concentrated on Banca VaR Breakdown per Bank: 31.12.2008 MPS and MPS Capital Services.

As of 31 December 2008, the Parent Bank

MPS Capital contributed to overall risk with 69%, MPS Capital MPS Bank Services Services accounted for about 29%, and the 69% 29% remaining banks for the residual 2%.

Other Banks 2%

517

MPS Group VaR In terms of VaR breakdown by risk factors, as of 31

VaR Breakdown per Risk Factor: 31.12.2008 December 2008 the Group portfolio was allocated firstly to equity risk factors (EQ VaR) (about 43%) CS VaR and secondly Credit Spread risk factors (CS VaR) 26% EQ VaR 43% (26%), with interest rate risk factors (IR VaR) accounting for 16% and foreign exchange risk factors (FX VaR) for the remaining 15%.

FX VaR 15%

IR VaR 16%

During 2008, the Group VaR fluctuated in a range going from a low of EUR 22.56 million recorded on 26 August to a high of EUR 58.08 million on 20 November. During the year, the average VaR stood at EUR 33.30 million. The year-end VaR was EUR 50.08 million.

MPS Group VaR 99% 1 day /min VaR Date Year-end 50.08 31/12/2008 Minimum 22.56 26/08/2008 Maximum 58.08 20/11/2008 Average 33.30

The trend of the Parent Bank VaR diversified by risk factor and portfolio is in line with the Group. This trend is mainly due to the Equity VaR and the Forex VaR and, secondly, Interest Rate VaR and Credit Spread VaR.

MPS Bank: Value-at-Risk (VaR) - VaR 99% 1 day in €/mln -

35.47 mln 45 31.12.2008

40 23.97 mln 35 31.03.2008 30 16.00 mln 30.06.2008 19.54 mln 25 30.09.2008

31-Jul-08 31-Dec-07 31-Jan-08 29-Feb-08 31-Mar-08 30-Apr-08 31-May-08 30-Jun-08 31-Aug-08 30-Sep-08 31-Oct-08 30-Nov-08 31-Dec-08

518

MPS Bank VaR In terms of VaR breakdown by risk factors, as of 31 December 2008 the Parent Bank portfolio was allocated firstly to equity risk factors (EQ VaR) CS VaR 27% (about 40%) and ,secondly, Credit Spread risk factors (CS VaR) (27%), with foreign exchange risk EQ VaR 40% factors (FX VaR) accounting for 19% and interest rate risk factors (IR VaR) for the remaining 14%. FX VaR 19%

IR VaR 14%

During 2008, the Parent Bank VaR fluctuated in a range going from a low of EUR 14.07 million recorded on 29 July to a high of EUR 41.39 million on 19 December. During the year, the average VaR of Banca MPS stood at EUR 22.89 million. The year-end VaR was EUR 35.47 million.

MPS Group VaR 99% 1 day /min VaR Date Year-end 35.47 31/12/2008 Minimum 14.07 26/08/2008 Maxaximum 41.39 20/11/2008 Average 22.89

519 2.1 Interest rate risk – Trading portfolio for regulatory purposes

Qualitative information

A. General aspects

Each bank of the Group bank which is considered a market risk taking centre contributes to determining the interest rate risk of the overall Trading Portfolio.

The Finance Area and the Treasury and Capital Management Area are the Business Areas in charge of trading for the Parent Bank. The Finance Area manages a proprietary portfolio which takes trading positions on interest rates and credit. In general, interest rate positions are taken by purchasing or selling bonds, and by creating positions in listed derivatives (futures) and OTCs (IRS, swaptions). Trading is carried out exclusively on the Bank’s own behalf, with objectives of absolute return, in compliance with the delegated limits delegated in terms of VaR and monthly and yearly Stop Loss.

The management of the interest rate risk of the Trading Portfolio is flanked by the activity of the Centralized Treasury Unit of the Treasury and Capital Management Area, which operates in the short-term portion of the main interest rate curves, mostly through bonds and listed derivatives.

With reference to the credit risk existing in the trading portfolio, securities positions are generally managed through the purchase or sale of bonds issued by corporates, and by creating synthetic positions in derivatives. The activity is oriented to achieving a long or short position on each issuer, or a long or short exposure to specific industries. Trading is carried out exclusively on the Bank’s own behalf, with objectives of absolute return, in compliance with additional specific limits of issuer risk and concentration, as resolved by the Board of Directors.

B. Management processes and methods of measurement of interest rate risk

Additional information concerning the process of market risk management in relation to the management and methods of measurement of interest rate risk is provided in the section covering “Market risks inherent in the Trading Portfolio”.

520 Quantitative information

2.Trading portfolio for regulatory purposes: internal models and other methods of sensitivity analysis.

The interest rate risk of the Trading Portfolio is monitored in terms of VaR and scenario analysis.

Each business unit of the Group operates independently on the basis of the delegated objectives and powers. The positions are managed by specific desks provided with specific operating limits. Each desk adopts an integrated approach to risk management (other than interest rate risk, when applicable) for the purpose of benefitting from the natural hedging resulting from simultaneously holding positions based on non perfectly correlated risk factors. The VaR by risk factor (specifically, Interest Rate VaR) has an operating importance for the purpose of risk management analyses, even though the operating units use the overall VaR diversified by risk factor and portfolio. Following is the information in relation to the Group diversified Interest Rate VaR.

MPS Group: Interest Rate VaR - VaR 99% 1 day in €/mln -

31-Jul-08 31-Dec-07 31-Jan-08 29-Feb-08 31-Mar-08 30-Apr-08 31-May-08 30-Jun-08 31-Aug-08 30-Sep-08 31-Oct-08 30-Nov-08 31-Dec-08

MPS Group Interest Rate VaR 99% 1 day

VaR (EUR mln) Date End of period 11.31 31/12/2008 Min 2.37 24/01/2008 Max 11.83 24/12/2008 Average 6.05

521 Simulations include four interest rate risk scenarios:

Parallel shift of + 100 bp in relation to all interest rate curves Parallel shift of - 100 bp in relation to all interest rate curves Parallel shift of +1% in relation to all surfaces of volatility of all interest rate curves

The total effect, determined as the change of Market Value, was estimated only taking account of the positions in relation to the Trading Portfolio in the strict sense, both from an operating and reporting viewpoint. The positions, classified as HFT from an accounting standpoint, post the Market Values changes directly to the P&L statement.

MPS Group: Trading Book

EUR/mln

Risk Family Scenario Global Effect Interest Rate +100bp all Interest rate Curves -7.80 Interest Rate -100bp all Interest rate Curves 100.97 Interest Rate +1% all Interst Rate Volatility 2.31

The sharp asymmetry between the +100bp and -100bp scenarios is attributable to option portfolios on Interest Rate Futures with short-term maturities, which would determine the exercise of the options - given the absolute levels of the USD and EUR exchange rates – with ensuing potential benefits for the Montepaschi Group. Excluding such operations, the scenario analyses by +/-100 bp would be EUR – 2.5 million and EUR + 18.5 million, respectively.

522 2.2 Interest rate risk – Banking Portfolio

Qualitative information

A. General aspects, processes of management and methods of measurement of interest rate risk

In accordance with the international best practice, the Banking Book identifies the whole of the Bank’s commercial operations in relation to the transformation of the maturities of assets and liabilities, Treasury, foreign branches and reference hedging derivatives. The Banking Book area (aligned with the banking portfolio for regulatory purposes) and the process of centralization of ALM management are determined by the resolution of the Board of Directors of the Parent Bank which deals with the “Centralization of Asset & Liability Management and operating limits in relation to the interest rate risk and liquidity risk of the Group Banking Book”, approved by the Parent Bank Board of Directors in September 2007.

The management strategies of the Banking Book, adopted by the Finance and Liquidity Committee and monitored by the Parent Bank’s Risk Committee, are based on the measurement of the interest rate risk in a logic of total return and are oriented to minimizing the volatility of the expected interest margin in the current financial year (12 months) or minimizing the volatility of the global economic value on the basis of changing interest rate structures.

The fluctuations of interest margin at risk and the changes in the economic value of assets and liabilities of the Banking Book are analyzed by applying deterministic shifts of 25 bp, 100 bp and 200 bp. The 200 bp shift is applied in compliance with the provisions of Basel 2 “second pillar”, expressed as a percentage in relation to Tier 1 and consolidated Capital for Regulatory Purposes.

The risk measurements of the commercial banks of the Montepaschi Group are calculated using a model of valuation of sight items or core deposits, with characteristics of stability and partial insensitivity to changing interest rates described in the systems with a statistical/predictive model (replicating portfolio) which takes account of a significant historical trend of past customers’ behaviours. The duration of demand asset items, within which the replicating portfolio is modelled, is currently about one month and a half for the Parent Bank, with the duration of liabilities items at about eight and a half months.

In addition, in Q408, the Montepaschi Group introduced a behavioural method in interest rate risk measurements which takes account of prepaid mortgage loans (prepayment risk). The rates of prepayment of loans, and in particular residential mortgage loans, became potentially more unsteady due to a string of concurrent factors, such as greater volatility in the curve of interest rates due to the recent crisis.

Within the defined model, the Treasury and Capital Management Area is in charge of managing the Group interest rate risk and liquidity risk as a whole. Within the Area, the Centralized Treasury Unit manages the Group short-term interest rate risk and liquidity risk. The Group Balance Sheet Management Unit (i) manages the structural interest rate risk and the risk of transformation of maturities (structural liquidity) for the Group, (ii) monitors and manages the hedging (with the different accounting models which can be used), (iii) follows up the composition of the “network” (BMPS and other Group companies) internal Euro and foreign currency rates in relation to all transactions of importance with maturities over the short-term, (iv) proposes the economic terms of access to funds by the Group companies to the Finance and Liquidity Committee, (v) manages the Group funding requirements by proposing new bond issues and centrally managing the administrative requirements in relation to the Group bond issues.

The Montepaschi Group, and therefore Banca MPS, manages the interest rate risk by portfolio. In general, hedging derivatives are executed within the Group with MPS Capital Services Banca per le Imprese, which in turn manages the global exposure to the market by volume. Therefore, as a result of this approach, a univocal relation between the derivatives executed by each Group company and market derivatives cannot be maintained.

523 The adoption of the Fair Value Option (introduced by the new international accounting standards – IAS 39) gives a faithful view of this approach, by designing a group of financial assets or liabilities managed at fair value with an impact on the P&L statement. This approach is adopted by Banca MPS in relation to the financial liabilities subject to fair value hedging by homogeneous portfolio. The Fair Value Option adopted concerns the accounting mismatch between a Fair Value item and an item valued on the basis of other accounting criteria.

The use of the Fair Value Option with respect to some portfolios and classes of assets increases complexity in the management or valuation of the items (in particular, in relation to assets hedging). In this case, Banca MPS adopted official IAS-compliant hedging forms.

In particular, the following are the main existing kinds of IAS-compliant hedging:

Micro Fair Value Hedge: hedging of commercial assets (loans/mortgage loans classified as Loans and Receivables) of Banca MPS and its Foreign Branches and the securities portfolio of Banca MPS and its Foreign Branches (classified as Loans & Receivables and Available for Sale, respectively); Macro Fair Value Hedge: hedging of commercial assets (loans/mortgage loans classified as Loans and Receivables); Micro Cash Flow Hedge: hedging of a limited portion of floating rate funding.

524 Quantitative information

2.Banking portfolio: internal models and other methods of sensitivity analysis.

As of 31 December 2008, the sensitivity of the Montepaschi Group shows a risk exposure profile in relation to increasing interest rates. The extent of the economic value at risk is in any case fully compliant with the amount of Tier 1 and Capital for Regulatory Purposes, and well below the level considered as the critical threshold (20% in relation to a 200 bp interest rate shock) by the New Accord on Capital (Basel 2).

MPS Group 31/12/08 Risk indicators for shift of 100 basis point +100 bp -100 bp Net interest income at risk / Net interest income 0,41% 0,39% Economic Value at risk / Tier 1 capital 8,30% 10,21% Economic value at risk / Capital computed for regulatory purposes 4,70% 5,78%

525 1.2 MARKET RISKS

1.2.3 Price risk – Trading portfolio for regulatory purposes

Qualitative information

A. General aspects

Each bank of the Group which is considered a market risk taking centre contributes to determining the price risk of the overall Trading Portfolio.

The Finance Area is the Business Areas in charge of trading for the Parent Bank. The Finance Area manages a proprietary portfolio and takes trading positions on equities, indices and commodities. In general, equities positions are taken both by purchasing or selling equities, and by creating positions in listed derivatives (futures) and OTCs (options). Trading is carried out exclusively on the Bank’s own behalf, with objectives of absolute return, in compliance with the delegated limits in terms of VaR and monthly and yearly Stop Loss.

B. Management processes and methods of measurement of price risk

Additional information on the process of market risk management in relation to the management and the methods of measurement of price risk is provided in the section covering “The Market risks inherent in the Trading Portfolio”.

526

527 3. Trading portfolio for regulatory purposes: internal models and other methods for sensitivity analysis

The price risk of the Trading Portfolio is monitored in terms of VaR and scenario analysis.

Each business unit of the Group operates independently on the basis of the objectives and delegated powers. The positions are managed by specific desks provided with specific operating limits. Each desk adopts an integrated approach to risk management (other than price risk, when applicable) for the purpose of benefitting from the natural hedging resulting from simultaneously holding positions based on non perfectly correlated risk factors. The VaR by specific factor (specifically, Equity VaR) has an operating importance for the purpose of risk management analyses, even though the operating units use the overall VaR diversified by risk factor and portfolio. Following is the information in relation to the Group diversified Equity VaR.

MPS Group VaR Equity 99% 1 day

VaR (EUR mln) Date Year-end 29.76 31/12/2008 Minimum 9.88 12/06/2008 Maximum 34.71 16/10/2008 Average 18.40

Following are the simulations of price scenarios:

+1% of each equity, commodity, index, basket price -1% of each equity, commodity, index, basket price +1% of all volatility surfaces of all equities and commodities risk factors

528 MPS Group Trading portfolio In € mln

Risk Family Scenario Total impact Equity +1% Equity prices (prices, indices, baskets) 1.15 Equity -1% Equity prices (prices, indices, baskets) -1.15 Equity +1% Equity volatility -1.21

2. Banking portfolio: internal models and other methods of sensitivity analysis

The instrument used for the measurement of price risk for the equity investment portfolio is the Value-at-Risk (VaR), which represents the loss the portfolio valued at the Fair Value could incur in a quarter of a year (holding period) with a 99% confidence interval. The VaR model used (other than the VaR model used for the Trading Portfolio) is parametric and is based on the traditional approach of the variance-covariance matrix. The estimate of price volatility is based on the historical trends of market returns in relation to listed companies and the historical trends of industry indices in relation to non-listed companies. The portfolio analyzed includes all equity investments held by all companies of the Montepaschi Group in companies outside the Group, or in companies which are neither fully nor proportionally consolidated.

As of 31 December 2008, the VaR of the equity investment portfolio (99% and a 1-quarter holding period) is about 24% of the Fair Value of the portfolio, with a high risk concentration on the 7 top investments.

The above-described model also measures the marginal risk contribution of each equity investment and disaggregate the measurement made in a Group logic on the equity investments held by each Legal Entity.

The Risk Management Area – which develops and maintains the internal measurement system – periodically reports to the Parent Bank Risk Committee in relation to the extent of the risks in the equity investment portfolio and their time trend.

The Risk Management Area develops and maintains the internal measurement system also with reference to alternative funds and for the purpose of determining the Economic Capital uses a measurement changed by the Regulatory approach.

Following is a scenario analysis which incorporates all equity investments, hedge funds and other positions taken on the basis of instructions from the Board of Directors or attributable to the Banking Portfolio of the Parent Bank Finance Area (e.g. AFS securities), and which are not included in the above scenario analysis in relation to the price risk of the Trading Portfolio.

529 Following is a scenario analysis which incorporates all equity investments, hedge funds and other positions taken on the basis of instructions from the Board of Directors or attributable to the Banking Portfolio of the Parent Bank Finance Area (e.g. AFS securities), and which are not included in the above scenario analysis in relation to the price risk of the Trading Portfolio.

MPS Group banking portfolio in € mln

Risk Family Scenario Total impact Equity +1% Equity prices (prices, indices, baskets) 22.96 Equity -1% Equity prices (prices, indices, baskets) -22.96 Equity +1% Equity volatility 0.18

The weight of the equity investment portfolio with respect to the total scenario analysis is about 65%.

1.2.4 Price risk – Banking Book

Qualitative information

A. General aspects, management processes and methods of measurement of price risk

B. Hedging of price risk

The price risk of the Banking Book of the Montepaschi Group is measured in relation to the equity positions mostly held for strategic or institutional/instrumental purposes. The relevant portfolio mainly consists of equity investments, alternative funds (hedge funds), AFS shares and, to a minimum extent, derivatives.

The equity investment portfolio of the Montepaschi Group includes about 270 equity investments in companies outside the Group and about 70% of its value is concentrated on 7 investments. The unit value of the remaining equity investments is rather limited (abt.180 investments have a value lower than EUR 1 million accounting for 1.7% of the overall portfolio). There are about 20 merely financial equity investments in relation to the portfolio of MPS Capital Services Banca per le Imprese, accounting for roughly 2.9% of the overall value of the portfolio.

UCIT operations are carried out exclusively through the direct purchase of funds/SICAVs, with no use of derivative contracts.

530 Qualitative Information

1. Banking portafolio: Cash esposures in equity securities and UCITs (in thousands of Euro) Book value Account 31.12.2007 31.12.2008 Listed Not listed Listed Not listed

A. Debt securities 204.487 1.850.954 304.829 1.132.631 A.1 Shares 204.225 1.833.094 304.829 1.132.631 A.2 Innovative capital istruments A.3 Other capital istruments 262 17.860 B. UCITs 64.144 550.477 259.059 258.604 B.1 Italian-law mutual funds 19.046 63.402 15.305 64.427 "open-end harmonized funds 14.517 62.650 13.665 61.555 "open-end non-harmonized funds 1 " closed-end funds 4.528 275 1.640 1.713 "mutual funds reserved for specific 477 1.059 categories of investors "speculative funds B.2 Funds of other EU countries 45.098 56.500 14.456 "harmonized funds 44.584 14.456 "open-end non-harmonized funds 11.916 "closed-end non-harmonized funds B.3 Funds of non EU countries 487.075 187.254 179.721 "open-end funds 487.075 163.779 136.107 "closed-end funds 23.475 43.614

Total 268.631 2.401.431 563.888 1.391.235

531 1.2.5. Foreign exchange risk

Qualitative information

A. General aspects, processes of management and methods of measurement of foreign exchange risk

Foreign exchange operations are mainly based on short-term trading with the systematic balancing of the transactions originated by the network banks which automatically fuel the Group position. Trading is mainly carried out by the Centralized Treasury Unit of the Treasury and Capital Management Area in relation to forex options. The foreign branches maintained small forex positions originated only by available funds for commercial purposes. The considerable cash and OTC derivatives turnover activated followed a linear risk trend, with an accurate and steady use of delegated powers. Foreign currency equity investments are typically financed by funding in the same currency with no forex risk taken.

Quantitative information

1. Breakdown by currency in which the assets, liabilities and derivatives are denominated

73.674

532

2. Internal models and other methods of sensitivity analysis

The foreign exchange risk is monitored in terms of VaR and scenario analysis (see the paragraph covering “THE MARKET RISKS INHERENT IN THE TRADING PORTFOLIO” in relation to the methods). Following is the information in relation to the Group diversified Forex VaR.

533 MPS Group VaR Forex 99% 1 day

VaR (EUR mln) Date Year-end 10.16 31/12/2008 Minimum 1.80 08/09/2008 Maximum 16.57 22/01/2008 Average 6.45

Following are the scenarios simulated in relation to the foreign exchange rates:

+1% of all foreign exchange rates with respect to the Euro, -1% of all foreign exchange rates with respect to the Euro, +1% of all volatility surfaces of all foreign exchange rates.

The effect on the net operating profit and profit/loss for the year was estimated only taking account of the positions classified as HFT from the accounting viewpoint, which post any Market Value changes directly to the Profit and Loss Statement. The impact on net equity was estimated only with reference to the positions classified as AFS, which have an impact only on Net Equity also from the accounting viewpoint. The total effect results from the algebraic sum of the two components. Following is the summary of scenario analyses.

MPS Group in € mln

Impact on net operating profit and profit Impact on net equity Risk Family Scenario Total impact and loss for the year Forex +1% Exchange rate against EUR 4.87 -1.06 3.81 Forex -1% Exchange rate against EUR -4.87 1.06 -3.81 Forex +1% Forex volatility -1.06 0.00 -1.06

534 1.2.6 Derivative financial instruments

Derivative contracts in the following tables are divided into derivative contracts classified in the trading portfolio for regulatory purposes and derivative contracts in relation to the Banking Portfolio (Banking Book), in accordance with the provisions of the Bank of Italy for Prudential Regulation. The breakdown for the purpose of the financial statements in accordance with the international accounting standards is different, since there is only one distinction between trading derivatives and hedge accounting derivatives.

The classification for regulatory purposes is fundamental to separate the instruments actually used for trading purposes and therefore for generating capital absorption for market risks from the instruments used for different purposes which are regulated as capital absorption for credit risk.

In particular, derivative contracts included in the trading portfolio for Regulatory purposes of Banca Monte dei Paschi match the derivatives existing in the trading portfolio for balance-sheet purposes, except for the derivatives associated with the instruments which adopted the fair value option and represent instruments for market risk hedging instruments on fair value funding and derivative contracts separated from or associated with other financial instruments of the banking book for operating purposes.

These contracts include credit default swaps classified in the trading portfolio for balance-sheet purposes, but which cover a portfolio of loans from insolvency risk from the operating viewpoint, and are considered as part of the banking book.

The MPS Group business in OTC derivatives with the customers, started in 2002 as a result of a specific resolution of the Board of Directors, contemplates operations conducted for the purpose of interest rate, foreign exchange and commodity risk hedging. The main products traded incorporate interest rate swaps, caps, floors, collars, forward contracts, currency options, currency swaps, options on commodities and combinations of such basic instruments.

In general, the products provided to the customers share a string of common characteristics which characterize a large portion of operations. In particular, the products traded:

Have no speculative nature; Are associated with an underlying position, although they are separated contractually and from the administrative viewpoint from this position; Show limited elements of complexity, although in light of non proper plain vanilla positions (defined as structured); Are not characterized by financial leverage.

The current derivative operations with the customers contemplate the centralization of the product factory at MPS Capital Services and its monitoring of market risks, with the Network Banks in charge of the allocation, management and monitoring of the counterpart credit risk with respect to the customers. Such operations include the taking of market risks characterized as the exposure in terms of potential loss which can be recorded in relation to the positions held as a result of adverse changes in the market parameters (risk factors). Following are the main risk factors these operations are subject to: interest rates, foreign exchange rates, indices, commodities and the relevant volatility and correlations. The Bank simultaneously takes the risk that the counterpart in a transaction based on derivative instruments is in default before the settlement of the transaction (counterpart risk).

In general, the fair value of OTC financial instruments, not directly listed in active markets, is calculated through estimate methods and valuation models. In particular, the fair value is determined by using the following general principles: valuation of listed instruments with similar characteristics, calculation of discounted cash flows, models of determination of the price of the options, values measured in recent comparable transactions. The methods used are in any case compliant with the market practice.

The valuations take account of all relevant risk factors by type of financial instrument, risk factors directly or indirectly measurable in the market. In the former case, the values can be directly observed from transactions carried out in the market; in the latter case, the values are obtained from market prices through the use of appropriate techniques and mathematical-financial methods (such as the determination of implicit volatility from the price of a listed option). The models of valuation used in the calculation of the fair value of derivative contracts are shared by the Risk Management, Quantitative Analysis Units and the Business Units.

Such models are subject to a periodical valuation for the purpose of continuously developing the modes of calculation of the fair value. All of this is done so as the model approach adopted is steadily in line with the prevailing domestic and international best practice. In addition, the modes of estimate of synthetic market parameters (i.e. volatility, correlations etc.) are also periodically subject to review and development.

OTC derivatives, inclusive of derivatives traded with the customers, like other technical forms, are subject to collective valuation in credit terms. This valuation, based on a Risk Management model, is made by homogeneous categories of exposures in terms of credit risk. The relative loss percentages are estimated in view of time series (based on elements which can be observed as of the date of valuation) which estimate the value of expected loss in each category. In particular, the risk parameters used in the collective valuation: Default Probability (DP) and Loss Given Default (LGD). The PD and LGD estimated by the internal models are used for Corporate and Retail counterparts, as provided for by circular no.263 issued by the Bank of Italy in December 2006.

535

(in thousands of EUR) Total 31 12 2007 12 Total 31 615.613.425 23.147.108 3.305.128 63.756.852 203.245.867 101.887.511 101.358.356 13.659.154 10.726.013 45.584.823 9.201.389 18.363.749 92.128.732 176.777.293 96.004.988 5.882.523 9.229.624 233.035.785 34.362.927 17.679.990 27.904.833 29.393.925 2.925.000 9.115.967 2.285.784 258.261 149.653 - 9.331.757 3.077.468 1.287.845 - 6.450 2.675 3.775 3.057.570 1.789.623 - 3.190.269 - 3.775 8.660.617 2.675 ------Total 31 12 2008 12 Total 31 12.258.886 302.642.768 20.456.553 5.354.845 900.643 17.549.390 7.083.682 10.465.708 16.779.881 6.990.103 71.215 - 23.922.075 4.029.585 142.232.088 2.302.316 4.781.366 6.436.123 220.963.314 452.671 35.747 35.468 447.972 - 8.111.605 1.559.077 324.343 116.277 - - 324.343 19.369.803 2.259.486 - 5.735 2.857 2.878 4.845.696 - 4.265.340 - Other currencies 324.343 ------116 . 2 7 7 8 . 111. 6 0 5 1.559.077 650.663 - - 1.608.823 2.878 240.000 - - - - 2.857 ------Texchange rates and gold 31.221.945 20.216.169 - 9.330.422 3.653.724 5.676.698 - 5.122.156 - - 6.982.408

138.936 33.046.963 - - - - 60.940 3.592.784 5.537.762 -

index Equities and stock exchange 749 18.493.311 749 16.346.542 -

32.425 18.218.731 - 2.146.020 1.222.487 41.425 923.533 - - 7.520 7.253 71.215 35.747 35.468 452.671 447.972 3.858.224 23.922.075 220.963.314 2.473 2.883.503 10.922 2.608.474 8.449 - 2.878 30.227

- 5.735 2.857 2.857 2.878 1.181.062 891.108 - -

- - - - - rate 648.190 4.235.113 1.600.374 2.248.564 2.237.222 12.000.514 Listed Non quotati Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted 16.486.300 Debt securities and interest 231.940 252.603.169 239.635 433.339 7.695 258.372 90.726.395 900.643 6.072.948 2.207.471 2.199.951 3.865.477 - vanilla Plain - Exotic - vanilla Plain - Exotic - Purchases - Sales - Currency - Purchased - Issued - Purchased - Issued - Purchased - Issued 1. Forw ard rate agreement rate sw Interest 2. ap sw ap currency Domestic 3. sw rate ap interest Currency 4. swap Basis 5. 6. Stock index sw ap Futures 8. options 9. Cap options 10. Floor 11. Other options 12. Forw ards 13. Other derivatives Total Average value A. FinancialA. derivatives A.1 Regulatory trading year-end book: and interim notional amounts ofType transaction/Underlying index sw 7. Real aps

536

(in thousands of EUR) Total 31 12 2007 12 Total 31 - - 1.058.949 6.787 168.011 - 25.000 ------25.000 ------25.000 - 1.258.747 ------2401299 ------Total 31 12 2008 12 Total 31

- 1.448.480 5.660.312 510.329 - - 25.000 - 8.003 - - - 8.003 - 25.000 1.448.479 ------25.000 - 7.652.123 ------Other values ------510.329 1.448.479 1.448.479 ------Exchange ratesExchange and gold - - - - - 1.958.808 ------index Equities and stock exchange ------3.405.483

------544352 3.949.835 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted 8.003 - 25.000 - 25.000 5.693.315 Debt securities and interest rate - Sales - Currency - vanilla Plain - vanilla Plain - Purchases - 25.000 - Exotic - Exotic -Purchased- Issued - Purchased- Issued- Purchased- Issued 8.003 - - - - 1. Forw ard rate agreement 2. Interest rate sw ap sw ap currency Domestic 3. Currency4. interest rate sw ap swap Basis 5. 6. Stock index sw ap Futures 8. options9. Cap 5.660.312 options10. Floor 11. Other options - - - 12. Forw ards - 13. Other derivatives Total Total - Average value A.2 Banking portfolio: Year-end and interim notional amounts A.2.1 Hedging ofType derivative/Underlying index sw 7. Real ap

537

(in thousands of EUR) Total 31 12 2007 12 Total 31 487.115 - 20.658 90.000 25.804.240 330.078 78.454 1.875.024 600.445 570.158 78.454 90.000 1.678.376 621.103 1.057.273 30.567.463 309.479 ------331 401.812 167.895 233.586 0 193.221.715 ------Total 31 12 2008 12 Total 31

34.557.243 100.000 64.800 9.900 - 10.246.148 53.018 148.424 2.374.644 410.204 381.032

148.424 64.800 901.136 420.104 481.032 14.083.199 295.029 ------Other values ------295.029 ------Exchange ratesExchange and gold - - 1.755 1.755 - 296.784 309.327 - 1.755 -

------index Equities and stock exchange 1.565.690 6.700 8.145 11.219 410.204 381.032 - - 806.081 418.349 387.732 817.300 - - 41.799 64.800 93.300 148.424 2.374.644 10.246.148 32.682.226 - - -

------rate Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Debt securities and interest 148.424 64.800 93.300 - 93.300 12.969.115 - vanilla Plain - Exotic - vanilla Plain - Exotic - Purchases - Sales - Currency - Purchased Issued - - Purchased Issued - - Purchased Issued - 1. Forw ard rate agreement rate sw Interest 2. ap sw ap currency Domestic 3. Currency4. interest rate sw ap swap Basis 5. 6. Stock index sw ap Futures 8. options 9. Cap options 10. Floor 11. Other options 12. Forw ards 13. Other derivatives Total Average values A.2 Banking portfolio: year-end and interim notional amounts A.2.2 Other derivatives Tipologia derivati/Sottostanti index sw 7. Real ap

538

(in thousands of EUR) Total 31 12 2007 12 Total 31 596.991.415 84.018.980 256.939.513 512.972.435 255.671.526 29.783.176 1.090.737 6.787 1.083.950 28.692.439 2.579.892 26.112.547 29.634.553 26.515.407 602.557 3.027.915 23.084.632 481.393 1.640.489 939.072 - - 27.869.020 331 - 6.787 361.396 - 9.331.757 6.679.832 63.433 2.651.925 2.588.492 ------3.622.930 3.056.902 ------Total 31 12 2008 12 Total 31 278.396.350 49.832.493 115.190.497 228.563.857 113.363.948 19.360.678 7.652.123 1.958.808 5.693.315 11.708.555 1.105.629 10.602.926 16.302.781 18.743.205 2.635.135 3.416.527 7.186.399 3.058.180 721.284 384.345 - 510.329 14.786.507 - - 1.448.479 9.412

- 19.369.803 7.904.850 999.293 11.464.953 ------Other currencies ------9.412 510.329 1.448.479 14.786.507 - 10.465.660 - 6.197.292 - - 1.707.558 ------Exchange ratesExchange and gold 31.221.945 30.871.210 350.735 2.255.592 1.958.808 1.958.808 - 296.784 295.029 1.755 - 426.255 384.345 - 147.839 - 8.246.392 193.484 - 7.838.311 - 1.755 ------295.029 - - index Equities and stock exchange 18.493.311 - 18.490.311 8.047.435 3.000 3.000 10.442.876 817.300 - - - 817.300 810.600 6.700 2.635.135 3.058.180 3.414.772 7.179.699 2.883.503 2.877 2.877.768 2.772.526 2.858 5.735 105.242 - 6.700 ------rate ------996.435 1.602.316 11.459.218 5.027.082 3.424.766 Listed 16.486.300 Unlisted Listed Unlisted Listed10.462.783 Unlisted Listed Unlisted Listed Unlisted Listed Unlisted Debt securities and interest 228.681.094 113.216.109 470.972 8.954 114.994.013 228.210.122 462.018 16.287.786 5.693.315 - 5.693.315 10.594.471 - 10.594.471 - Purchases - Sales - Currency - Purchases - Sales - Currency - Purchases - Sales - Currency - Purchases - Sales - Currency - Purchases - Sales - Currency - Purchases - Sales - Currency A. Regulatory trading book: trading Regulatory A. exchange1. With of capital exchange2. Without of capital Hedging B.1 exchange1. With of capital exchange2. Without of capital otherB.2 derivatives exchange1. With of capital exchange2. Without of capital A.3 Financial derivatives: purchase and sale of underlying asset ofType transaction/Underlying Banking portfolio: B.

539

customers by sector sector by customers erlying assets)that have a positive prior to fair settlement; value The ents. The "Gross settled" column states the positive fair value of the thestates positivecolumn of settled" fair the value "Gross ents. The ents aftersettlement by the counterparty. balances The settled by the ory purposes. he risk pertaining to possible default by the contractualthe counterparty. default to pertaining by possible he risk exposure are calculated according to the are calculatedto rules valid accordingexposure for regulat must be identified according to the classification criteria provided for by Banca d'Italia in the booklet “Classification ofthe booklet “Classification d'Italia in for Banca criteria by provided classification to the must be identified according counterparty trading portfolio.containedin the are and business activity groups". Settled fair value and credit credit and value fair Settled groups". activity business and "Different underlying assets - settled" columnstates the positivebalances net contracts settlement ofmixed subjectto agreem The table shows existing counterparty risk on financial derivatives with a positive fair value. In particular, this concerns thiscounterparty In value.financial particular, shows risk fair existing derivatives a positive The table with on t states of the column settlement fair derivatives positive not financial "Gross do not value that settled" The fall agreem under The business sectors to which the counterparties belong belong counterparties the which to sectors business The financial derivative fallcontracts under mixed settlement which agreements (agreements that concern contracts on different und

540

31 12 2008 12 31 Negative FV Negative (in thousands of EUR) thousands (in Other currencies Positive FV Positive Negative FV Negative Exchange ratesExchange and gold Positive FV Positive

Negative FV Negative index Positive FV Positive Equities and stock exchange stock exchange and Equities - - Negative FV Negative - 6.469 Positive FV Positive Debt securities and interest rate - - Portafolio/Underlying asset A.4.1 Over-the-counter financial derivatives with same underlying assetfair value subject to settlement agreements and having a positive book trading Regulatory A. portfolio: Banking B.

541

Future exposure

(in thousands of EUR) Settled Different assets underlying 10.974 Future exposure Gross settled Gross Other currencies settled - - - 59.133 301.867 - - - 277.312 76.959 Gross not not Gross 3 .490 .490 - - - - - 21.670 21.670 - - - - - Future exposure

59.133 290.893

8.704 142 102.909 Gross settled Gross Exchange ratesExchange and gold 5.278 settled Gross not not Gross 11.654 209 14.224 1.288 74.781 2.991 85.995 3.246 Future exposure 32.947 - - 26.390 1.738 890.586 11.853 331.502 135.754 Gross settled Gross Equities and stock interest exchange settled Gross not not Gross 613.359 6.074 1.778 31.032 5.062 38.103 Future exposure 106.684 9.862 - 10.499 126 771.825 296.511 1.908 273.683 63.928 3.738 - Gross settled Gross Debt securities and interest rate settled Gross not not Gross - 1.774.664 4.902.783 405.368 1.184.882 861.844 36.094 4.160.717 1.086.689 487.418 62.853 1.165.306 77.772 9.614 20.709 1.646.515 41.266 419.924 22.366 98.914 352.194 10.760 1.908 138.727 - 545.598 48.602 907.843 25.664 85.995 73.515 1 - 97.031 390.232 17.742 148 Counterparty/Underlying asset A.1 Governments and central banks entitiesA.2 Public A.3 Banks companiesA.4 Financial A.5 Insurance companies 12.835 A.6 Non-financial 100.378 companies 3.854 A.7 Other entities 116.980 322.212 1.539.970 4.580.571 13.014 647 53.690 GovernmentsB.1 and central 349 banks B.2 Public entities BanksB.3 companies Financial B.4 704 InsuranceB.5 companies Non-financialB.6 companies 1.696 880 Other entitiesB.7 27.556 77.981 324.638 18.357 40 6.982 A.5 Over-the-counter financial derivatives: negative fair value - financial risk book trading Regulatory A. Totale A 31/12/2008 Totale A 31/12/2007 Banking portfolio:B. Total 31/12/2008 B Total 31/12/2007 B

542 A.6 Over-the-counter financial derivatives residual life: notional values

(in thousands of EUR)

Up to Underlying asset/Residual life 1-5 Over 5 years Total 1 year years

A. Regulatory trading book 120.229.076 201.487.900 93.726.777 415.443.753

A.1 Financial derivative contracts on debt securities and interest rates 83.271.597 179.218.673 91.110.285 353.600.555 A.2 Financial derivative contracts on capital securities and share indices 4.920.676 17.201.832 2.608.492 24.731.000 A.3 Financial derivative contracts on exchange rates and gold 32.036.803 5.067.395 8.000 37.112.198 A.4 Financial derivative contracts on other underlying assets - -

B. Banking Book 27.696.326 5.027.545 7.154.086 39.877.957

B.1 Financial derivative contracts on debt securities and interest rates 8.208.874 4.959.393 6.288.644 19.456.911 B.2 Financial derivative contracts on capital securities and share indices 43.064 4.028 865.442 912.534 B.3 Financial derivative contracts on exchange rates and gold 19.444.388 64.124 19.508.512 B.4 Financial derivative contracts on other underlying assets

Total 31 12 2008 147.925.402 206.515.445 100.880.863 455.321.710 Total 31 12 2007 206.403.601 223.734.907 117.035.924 547.174.432

The table shows the remaining period of financial derivatives determined on the basis of the contractual maturity of the derivatives themselves.

543 B. CREDIT DERIVATIVES

B1. Credit derivatives: year-end and interim notional amounts

31 12 2008 (in thousands of EUR)

Regulatory trading book Other transactions

with single with more than one with single with more than one Transaction category counterpart counterpart (basket) counterpart counterpart (basket)

Notional amount Notional amount Notional amount Notional amount

1. Protection purchases

1.1 With exchange of capital 3.356.761 2.840.943 44.264

(with specific contractual instructions)

1.2 Without exchange of capital 45.000 5.000 - -

(with specific contractual instructions)

Total 31/12/2008 3.401.761 2.845.943 44.264 -

Average values 31/12/2008 654.137 943.419 52.082

Total 31/12/2007 2.753.064 2.005.201 262.000 616.000

2. Protection sales

2.1 With exchange of capital 3.265.969 2.477.283

(with specific contractual instructions)

2.2 Without exchange of capital 170.000 - - -

(with specific contractual instructions)

Total 31/12/2008 3.435.969 2.477.283 - -

Average values 31/12/2008 1.088.680 638.548

Total 31/12/2007 2.929.217 1.610.787 - 123.000

The table shows the notional amount of credit derivatives at 31 December 2008. The derivatives that fall under the regulatory trading book are those that fall under the calculation of regulatory capital for market risks, whilst the remaining credit derivatives are included under other transactions. In particular, other transactions also include certain CDS (credit default swaps) classified in the trading portfolio for balance-sheet purposes but which, from an operational point of view, are intended to cover a loan portfolio from the risk of insolvency and therefore are considered part of the banking book.

544 B2. Credit derivatives: positive fair value - counterparty risk

(in thousands of EUR)

Type of transaction/Value Notional amount Positive fair value Future exposure

A. Regulatory trading book 6.240.489 509.107 160.879

A.1 Purchases of protection with counterparty: 5.292.508 488.232 135.059 1. Governments and central banks 2. Other public entities 3. Banks 4.557.138 429.719 113.595 4. Financial companies 735.370 58.513 21.464 5. Insurance companies - - 6. Non-financial companies 7. Other entities A.2 Sales of protection w ith counterparty: 947.981 20.875 25.820 1. Governments and central banks 2. Other public entities 3. Banks 697.924 12.620 20.413 4. Financial companies 250.057 8.255 5.407 5. Insurance companies - - - 6. Non-financial companies 7. Other entities B. Banking portfolio - - - B.1 Purchases of protection with counterparty: - - - 1. Governments and central banks 2. Other public entities 3. Banks - 4. Financial companies - - 5. Insurance companies 6. Non-financial companies 7. Other entities

B.2 Sales of protection with counterparty: - - - 1. Governments and central banks 2. Other public entities 3. Banks 4. Financial companies 5. Insurance companies 6. Non-financial companies 7. Other entities

Total 31/12/2008 6.240.489 509.107 160.879

Total 31/12/2007 5.457.825 254.743 174.403

The table shows the existing counterparty risk on credit derivatives with a positive fair value. In particular, this concerns the existing risk for the Bank that pertains to possible default by the contractual counterparty.

The business sectors to which the counterparties belong must be identified according to the classification criteria provided for by Banca d'Italia in the booklet "Classification of customers by sectors and business activity groups". Future exposure is calculated according to the rules valid for regulatory purposes.

545 B3. Credit derivatives: negative fair value - financial risk

(in thousands of EUR)

Type of transaction/Value Notional amount Negative fair value

Regulatory trading book

1 Purchases of protection with counterparty: 1.1 Government and central banks 1.2 Other public entities 1.3 Banks 723.529 13.285 1.4 Financial companies 231.668 7.844 1.5 Insurance companies 1.6 Non-financial companies 1.7 Other entities

Total 31/12/2008 955.197 21.129

Total 31/12/2007 1.490.808 26.881

The table shows the financial risk on derivative contracts with a negative fair value. The business sectors to which the counterparties belong must be identified according to the criteria provided for by Banca d'Italia in the booklet "Classification of customers by sectors and business activity groups".

B4. Credit derivatives - residual life: notional amounts

(in thousands of EUR)

Type of transaction/Value Up to 1 year 1-5 years over 5 years Total

A. Regulatory trading book 2.190.742 6.766.922 3.203.292 12.160.956

A.1 Credit derivatives w ith "qualified" reference obligation 1.380.714 5.201.572 2.395.802 8.978.088

A.2 Credit derivatives w ith "not qualified" reference obligation 810.028 1.565.350 807.490 3.182.868

B. Banking portfolio - 16.400 27.864 44.264

B.1 Credit derivatives w ith "qualified" reference obligation 16.400 27.864 44.264

B.2 Credit derivatives w ith "not qualified" reference obligation -

Total 31/12/2008 2.190.742 6.783.322 3.231.156 12.205.220

Total 31/12/2007 760.701 6.051.422 3.487.147 10.299.270

The table shows the remaining period of credit derivatives determined on the basis of contractual maturity of the derivatives themselves.

546 Section 3 – Liquidity Risks

Qualitative Information

A. General aspects, processes of management and methods of measurement of liquidity risk

In 2007, before last August’s subprime mortgage loans crisis which considerably reduced the opportunities of access to the markets by the credit institutions, the Montepaschi Group undertook considerable and important market actions. Therefore, the domestic funding policy (i.e. use of the bank network for the placement of own products), the international funding policy and emphasis placed on the diversification of funding sources enabled the Group to face the current crisis quite confidently.

With reference to the organization policies and structure, the Montepaschi Group structurally copes with liquidity risk with a formal policy of management of this kind of risk, also for the purpose of compliance with the requirements of Basel II Pillar II.

The organization and operating framework incorporates:

- A liquidity policy which defines (i) the area and governance model of the Group liquidity which is centralized with the Treasury and Capital Management Area, (ii) the organization model in the short-term and medium-/long-term, (iii) the structure of the net financial position (maturity ladder) and short-term and medium-/long-term limits. The liquidity policy also includes the stress test policy which is targeted at simulating the effects of stress conditions and arranging any corrective measures. - A contingency plan which deals with the management of liquidity under abnormal conditions and sets the risk indicators and organization processes necessary for facing any crises.

The overall profile of structural liquidity is monitored on the basis of the quantification of the unbalances, by date of settlement, of expiring cash flows. Option-like items have representative models consistent with the models used for interest rate risk.

Specific emphasis was placed on expected liquidity flows for the purpose of optimizing the management of the financial flows. For the purpose of making the Group liquidity management more and more effective, the Group completed some activities oriented to increasing the available counterbalancing capacity (i.e. assignable reserve assets). Last year’s “Siena 07-05” securitization transaction in the amount of EUR 4.7 bn was followed in April 2008 by a second issue which increased the counterbalancing capacity by an additional EUR 3 bn.

Specific attention is focused on the planning of the Group funding policies (Funding Plan), coordinated and directed by the Treasury and Capital Management Area (in co-operation with the Planning Area), which:

- Submits the plan of action in the financial markets useful for achieving the objectives set by the Business Plan and capital management requirements to the Finance and Liquidity Committee for approval; - Co-ordinates access to domestic and international long- and short-term capital markets for all the Group banks, as well as access to the refinancing transactions with the European Central Bank and the centralized management of compulsory reserves; - Processes projections on future liquidity, by simulating different market scenarios.

547

31 12 2008

(in thousands of EUR) 14.679.650 7.686.316 1.486.839 245.742 217.578 - 14.674.253

6.987.937 28.164 13.370 734.961 79.172 6.685 5.397 1.161.925

1.486.016 1.472.646 737.685 6.685 -

477 49.829.732 44.076.612 11.427.079 770.614 31.080 2.579.672 44.203.187 427.495 126.575 739.534 1.360.413 1.899.855 163.930 726.076 - 10.492.535 2.619.378 9.859.844 8.499.431 6.599.576 634.337 - - 34.927.755 28.995.758 31.185.550 517.571 11.315 2.734.730 29.740.867 1.427.986 745.109 506.256 4.423.960 3.116.738 893.736 2.127.073 29.774.243 1.023.695 11.213.563 6.789.603 3.672.865 2.296.887 - - - 10.521.253 8.527.404 7.413.534 136.228 124.003 245.003 8.949.572 245.757 422.168 12.225 13.926.892 848.244 221.466 7.003.896 7.055.840 1.080.921 15.674.632 1.747.449 899.205 6.922.996 291 145 146 10.956.645 9.551.326 12.877.542 6.496.702 37.224 74.883 9.917.998 297.756 366.672 6.459.478 11.253.598 131.108 3.306.651 5.196.672 3.074.189 666.008 11.714.601 343.546 212.438 6.056.926 117.457 47.417 70.040 9.389.090 6.935.979 14.742.641 2.081.925 821.024 60.523 8.374.946 610.389 1.438.967 1.260.901 15.696.072 10.166 8.643.926 7.751.680 4.016.790 15.890.797 106.351 96.185 7.944.392 88.374 176 88.198 5.041.184 4.403.818 10.540.554 2.589.192 945.214 7.842 4.947.223 86.119 543.405 1.643.978 8.860.116 - 4.354.354 4.075.159

3.597.008 343.232 10.319.038 725.743 725.743 4.784.957 733.179 1.382 731.797 267.733 3.883.274 3.004.191 4.689.957 2.076.497 1.625.936 - 3.880.630 1.674 876.439 450.561 5.040.463 - 2.131.904 2.566.635 481.556 6.086.120 736 736 2.473.828 1.044.921 347.077 697.844 3 14 6 126.334 806.526 240.459 1.113.686 1. 19 1. 8 2 6 1. 19 1. 8 2 6 9.113.240 1.430.813 4.221.884 1.372.552 5.535.296 6.738.792 2.486.238 7.682.427 12.791.304 33.267.981 34.200.990 27.732.685 75.038.640 70.576.297 63.837.505 On demand days 1-7 days 7-15 days 15 mont - 1 h 1-3 mont hs 3-6 mont hs 6 mont hs year - 1 years 1-5 Over 5 years Indef init e 3.420.587 2.563.304 7.243.065 1.054.860 262.574 - 3.420.249 338 856.945 792.286 7.995.068 52.577 5.214.254 4.427.832 - 973.951 970 8.686.410 155.876 103.299 3.567.236 535.466 267.733 Account/Time period Account/Time - Banks - Customers - Banks - Customers - long positions - short positions - long positions - short positions - long positions - short positions Cash assets Cash liabilitiesFinancial sheet transactions Off-balance 1.3 Liquidity risk Liquidity 1.3 information Quantitative assets financial and liabilities of residual maturity contractual by Time breakdown 1. securities Government A.1 A.2 Listed debt securities A.3 Other debt securities A.4 Quotas of UCITS A.5 Loans IssuesB.1 securities Debt B.2 B.3 Other liabilities derivatives Financial C.1 w exchange ith of capital Deposits and borrowC.2 ings received be to IrrevocableC.3 commitments funds to lend

548

31 12 2007

(in thousands of EUR) 1.014.776

5.931

17.758 187.609 1.705.521 136.002

2.723 13.088.185 691.464 615.825 1.967.615 16.906.892 965.378 11.994.821 - 25.951 - 191.949 2.067.801 33.701.720 6.567.584 - 25.792.263 - 914.485 161.147 4.366.074 170.384.936 1.194.844 200.318.758 11.663 - 867.453 2.271.054 22.624.781 2.746.841 - 4.947.830 - 237.850 30.951 719.538 65.343.666 518.120 68.548.153 39.216 - 1.140.270 394.862 6.217.904 590.400 2.857 2.586.627 727 794.144 213.126 1.755.643 20.131.894 374.213 22.810.222 47.494 - 1.207.784 20.000 8.306.222 190.951 1.942 3.934.768 830 107.623 1.787.177 5.028.962 36.868.476 204.773 36.972.422 631.185 - 4.785.054 30.000 8.911.437 110.733 1.197 2.576.303 93 2.006 778.924 5.407.743 17.622.850 90.249 13.419.051

154.999 - 4.322.091 - 3.686.163 26.365 93 600.058 539.101 190.197 30.003 1.025.917 2.228.912 2.020.505 53.543 1.903.670 593.527 - 2.554.556 - 1.874.589 5.095 378.797 78 22.068 156.321 184.978 491.622 1.819.211 979.507 2.811.348 2.971.940 2.655.135 3.681.234 19.410.105 6.326.077 7.254.889 47.382.469 On demand days 1-7 days 7-15 days 15 mont - 1 h 1-3 mont hs 3-6 mont hs 6 mont hs year - 1 years 1-5 Over 5 years Indef init e 724.690 300.001 67.717 1.468.545 2.088.339 7.032.048 5.429 7.825.731 - 714.535 - 1.269.558 39.028 3.520.773 41.479 Account/Time period - Banks - Customers - Customers - long positions - short positions - long positions - short positions - long positions - short positions - Banks Cash assets Cash liabilitiesFinancial sheet transactions Off-balance A.1 Government securities Government A.1 IssuesB.1 A.2 Listed debt securities A.3 Other debt securities A.4 Quotas of UCITS A.5 Loans securities Debt B.2 B.3 Other liabilities derivatives Financial C.1 w exchange ith of capital Deposits and borrowC.2 ings received be to IrrevocableC.3 commitments funds to lend

549 2. BREAKDOWN OF FINANCIAL LIABILITIES BY BUSINESS SECTOR

(in thousands of EUR)

Governments Other public Financial Insurance Non-financial Exposure/Counterparties Other entities and central entities companies companies companies banks

1. Customer deposits 1.059.991 1.722.056 5.859.166 1.553.467 24.775.699 46.632.796

2. Outstanding securities 528 1.168 1.301.155 35.619 1.661.339 44.157.747

3. Financial liabilities held for trading 1.833.504 25.199 5.249.613 111.703 235.406 11.511.764

4. Financial liabilities designated at fair value 7 25.171 871.750 136.369 314.411 12.364.192

Totale 31/12/2008 2.894.030 1.773.594 13.281.684 1.837.158 26.986.855 114.666.499

Totale 31/12/2007 1.173.355 1.434.200 13.695.751 807.630 18.333.334 85.767.964

The business sectors to which the financial liabilities belong are identified according to the classification criteria provided for by Banca d'Italia in the booklet "Classification of customers by sectors and business activity groups".

3. BREAKDOWN OF FINANCIAL LIABILITIES BY GEOGRAPHIC AREA

(in thousands of EUR) OTHER REST OF THE Exposure/Counterparty ITALY EUROPEAN AMERICAS ASIA WORLD COUNTRIES

1. Customer deposits 73.506.950 7.351.606 321.917 112.768 309.936

2. Due to banks 11.275.361 14.816.050 161.100 821.436 138.237

3. Outstanding securities 28.793.327 17.168.504 1.191.918 823 2.983

4. Financial liabilities held for trading 9.070.167 9.106.030 770.145 3.907 16.939

5. Financial liabilities designated at fair value 11.267.871 2.101.238 341.688 499 605

Total 31/12/2008 133.913.676 50.543.428 2.786.768 939.433 468.700

Total 31/12/2007 100.953.665 38.766.414 3.094.584 1.331.322 450.860

550 Section 4

Operational risks

Qualitative information

A. General aspects, processes of management and methods of measurement of operational risk

On 12 June 2008 the Bank of Italy authorized the Montepaschi Group to use the internal models for the determination of capital requirements with respect to credit and operational risks.

The adoption of the advanced (AMA) model requires an organization and cultural revolution within the banks, which shall necessarily:

1) Be provided with an internal organization which defines the roles of the corporate bodies and units involved in the process of management of operational risks; 2) Be provided with a control unit for the collection and maintenance of data, the calculation of requirements, the valuation of risk profile and the reporting; 3) Review the quality of the management system and the adequacy of the regulatory provisions on an ongoing basis; 4) Instruct the Internal Auditors to conduct periodical reviews on the system of management of operational risks; 5) Ensure in the course of time that the system is actually used in corporate management (use test).

To this end, the Montepaschi Group is provided with an integrated system of management of operational risk, an internal framework built on a governance model which involves all the companies belonging to the scope of application of the AMA model. The approach sets the standards, methods and instruments which assess risk exposure and the effects of mitigation by business area.

The advanced approach is designed so as to homogeneously match all the main qualitative and quantitative (LDA-Scenario mixed Model) information sources (information or data).

The Loss Distribution Approach quantitative component is based on the collection, analysis and statistical modeling of historical internal and external loss data (supplied by the DIPO consortium – Italian Database of Operational Losses).

The qualitative component is focused on the valuation of the risk profile of each unit and is based on the identification of relevant scenarios. The companies included in the AMA area are involved in the identification of the processes and risks to be valued, the valuation of the risks by the risk Managers, the identification of possible mitigation plans, the sharing of the priorities and technical-economic feasibility of mitigation actions in scenario desks with the H.O. units.

This is followed by a stage of monitoring of the trend of the implementation of the planned initiatives and compliance with the objectives and maturities.

The Group Operational Risk Management (ORM) is the unit of control of operational risks (within the Parent Bank Risk Management).

The Unit calculates capital requirements covering operational risks through the use of different model components (internal data, external data, framework and control factors, qualitative analyses) and supports the Top Management decision making process in a logic of creation of value through the retention, mitigation and transfer of the risks measured.

The activities carried out by the Operational Risk Management are oriented to consolidating the System of Controls through the improvement of Risk monitoring.

551 The ORM arranged a reporting system ensuring prompt information in relation to operational risks to the Top Management which transforms the strategic principles of the management system into specific operating policies. The reports are regularly submitted to the Risk Committee.

In the course of time, the adoption of the AMA model ensured a more conscious management of operational risk and a gradual reduction of the Bank’s operational riskiness.

Changes in the last year

The collateral effect of the market crisis which affected the international economic and financial world is represented by the extremely volatile returns of the financial instruments sold to the customers. As a result of this situation, the Group might incur increasing claims and lawsuits, linked with the non-achievement of expected returns. The Operational Risk Management Unit is involved in all quantitative and qualitative analyses to assess the impact the deteriorating situation of the markets might have on the Group profile of operational risk.

Specific emphasis was placed on the expansion of the scenario analyses with publicly available Industry information. In the meantime, the Montepaschi Group supported - within the DIPO Consortium (an Industry initiative led by the Italian Bankers’ Association) – the creation of a qualitative flow which details the major events experienced by the participating members (but keeps their identities secret) and builds scenarios on the basis of specific aspects of riskiness.

In 2008 the Montepaschi Group executed two corporate transactions which determined major organization changes, namely the acquisition of Banca Antonveneta and the merger by incorporation of Banca Agricola Mantovana.

For the purpose of properly capturing the amendments to the profile of the Group operational risk associated with these changes, and implementing the necessary actions of mitigation, in 2008 the Group conducted scenario analyses to assess the risks linked with malfunctions or inadequacy in the processes, IT systems or human resources management, specifically oriented towards projects of integration.

Quantitative information

Following is the percentage breakdown of operational losses by kind of event according to the classification of the New Accord of Basel, which are defined hereunder out of completeness:

Internal Frauds: Losses due to unauthorized business, fraud, misappropriation, or breach of laws, regulations or corporate directives involving at least one employee of the bank;

External Frauds: Losses due to fraud, misappropriation, or breach of laws by individuals outside the bank;

Industrial Relations and Industrial Safety: Losses resulting from acts non compliant with the laws or the agreements in relation to employment, safety and security in the workplace, the payment of compensation for personal injury or acts of discrimination or non-application of equal terms;

Customers, products and operating practice: Losses resulting from non-compliance with professional obligations with respect to the customers or the nature or characteristics of the product or the service rendered;

Damage to tangible assets: Losses resulting from external events (i.e. natural disasters, terrorism and acts of vandalism);

Disruptions of operations and malfunctions in the systems: Losses due to disruptions of operations and malfunctions or unavailability of the systems;

552 Execution, delivery and management of the process: Losses due to deficiencies in the execution of the transactions or the management of processes, and losses due to relations with commercial counterparts, vendors and suppliers.

Breakdown of Events

The analysis was conducted on the basis of the losses and provisions posted in 2008 in an amount higher than EUR 50.

The kind of event with the most relevant economic impact is in relation to the breach of professional obligations with respect to the customers and accounts for 40% of operational losses. The prevailing losses in this category are associated with the following events:

1. Sale of Financial Plans (For You, My Way); Argentina, Cirio and Parmalat bonds, and structured products; 2. Application of compound interest (anatocism).

Most events of operational risk occurred prior to 2002, but still have an accounting impact on FY 2008.

The risk class of “External Fraud”, attributable to events linked with third party intermediaries, increased with respect to 2007. The Group promptly started actions of mitigation, and in particular a full review of the process of covenants, the centralization of selection activities and the control, development of the IT systems of management and monitoring. All these activities shall provide for an effective control of the quality of loans disbursed through such channel.

553 Major kinds and trends of the Group legal disputes

The legal actions taken against the Group companies can be divided into sub-categories, characterized by a common element represented by alleged factors of criticality of the products, transactions, services or relations where the companies played the role of disbursing or placing entities.

The main sub-categories are attributable to the issues concerning:

1. Anatocism; 2. The placement of bonds issued by countries or companies later in default (Argentina, Cerruti, Parmalat, Cirio bonds); 3. The placement of financial plans; 4. The placement of structured products.

The judgment of the Joint Chambers of the Court of Cassation in relation to default securities dated November 2007 stated the principle that the breach of the obligation to inform the customers and execute the transactions properly, which is imposed by law on the parties authorized to the presentation of the services of financial investment, might determine pre-contractual or contractual liability, but – failing any regulatory provisions in this direction – said breach can in no case determine the invalidity of the securities brokerage agreements, or any legal transaction. As a result of such judgment, the Group identified the disputes showing more critical aspects and is committed to settling them.

Amicable settlements for these kinds of disputes and the disputes resulting from the financial plans and structured products are increasing.

In addition, in view of the gradual expiration of the period of prescription, the weight of the disputes and the cases lost is supposed to decrease.

The cases listed, which account for almost the total of the “Customers, Products and Operational practice” risk class (70% in terms of amounts) are gradually reducing as shown in the chart, which illustrates the trend of the amounts of loss as a percentage of the overall amount in the last three years.

554

Major legal disputes

Disputes with the Special Administrator of Parmalat S.p.A.

In December 2004, the Special Administrator of Parmalat S.p.A. had served summons of bankruptcy revocation to the major Italian banks, including the banks of the Montepaschi Group, Banca MPS (BMPS), Banca Toscana and Banca Agricola Mantovana, with the objective of collecting the sums received by them as A/C remittances in the year before the start of the proceedings.

By a summons served in September 2005, the Special Administrator of Parmalat S.p.A. and Parmalat Finance Corporation B.V. had also summoned BMPS and MPS Finance BM before the Court of Parma to obtain compensation for damage from them in the amount of the bonded loans issued from 1999 to 2002 where BMPS participated as co-lead manager and co-manager, and MPS Finance BM as lead manager.

On 21 February 2008 Parmalat S.p.A. and Banca Monte dei Paschi di Siena S.p.A. stated they had settled the disputes in relation to the claims attributable to the period prior the notification of insolvency of the Parmalat group (December 2003) and waived all actions for revocation and compensation already started and possibly admissable against the Montepaschi Group. As a result, the Montepaschi Group shall pay a total amount of EUR 79.5 million to Parmalat and EUR 500,000 to the Special Administrator for the companies under special administration.

Amicable settlements were also made between the Montepaschi Group and the Special Administrator of the Special Administration of the Parmatour group and Parma Associazione Calcio and the other companies of the former Parmalat group, still under special administration. As agreed upon, the Special Administrator shall waive all and any started and admissible actions and the Montepaschi Group shall pay EUR 9.5 million and EUR 500,000 to the Special Administration of the Parmatour group and the Special Administration of Parma Associazione Calcio, respectively.

After the acquisition of Banca Antonveneta, the Montepaschi Group inherited two additional disputes with the Special Administration of Parmalat S.p.A. and Parmalat Finanziaria S.p.A., pursuant to art.67 II L.F. and with the objective of obtaining the revocation of the final remittances received by the Bank in the year prior to the notification of the company’s insolvency.

The companies under special administration and Banca Antonveneta have carried out negotiations for a long time for the amicable settlement of the pending disputes and, in general, all claims attributable to the period prior the notification of insolvency of the Parmalat group, with a waiver of all actions for revocation and compensation which were already started and are admissable against the Bank. So far, no agreement has been finalized yet and negotiations are still under way.

Disputes against the Ministry of Treasury

BMPS and other Banks appealed to the Regional Administrative Court of Latium to assert the unlawfulness of the regulation of enforcement of art.20 Law no.133 of 13 May 1999, and filed other petitions with all the Regional Administrative Courts, against the applications for renegotiation. The dispute concerns the renegotiation of the mortgage loans with expenses to be charged to the Government or other Public Authorities. The enforcement of said regulations would imply a considerable reduction of the Banks’ income. The Regional Administrative Court of Latium (judg. dd 22 March 2002) turned down the appeal. The banks appealed to the Council of State. In the meantime, the mortgage loans have been renegotiated and the General Accounting Unit follows a multiannual plan for posting the relevant expenses to the balance-sheet; At the end of an inspection of the Ministry of Treasury, Banca Monte dei Paschi – as the manager of cash services on behalf of Istituto Postelegrafonici – was charged with holding sums in excess of the percentage which could be held, with the risk of imposition of a penalty. The Bank appealed to the

555 Regional Administrative Court of Latium against this. This is expected to imply no charges for the bank due to the expiration of the prescription.

Civil suit registered under no.4806 08 RG of the Court of Florence

The suit consists of a claim for compensation of alleged/asserted damage for contractual liability lodged by Cooperativa Toscana Tabacchi against Banca Monte dei Paschi and other credit institutions. The Liquidator asserts that the credit institutions involved were prejudicial to the creditors in the bankruptcy.

Dispute with Banca Carige and Fondazione Cassa di Risparmio di Savona

The dispute is in relation to the acquisition in 1996/1997 of the controlling interest of Cassa di Risparmio di Savona – Carisa. It consists of three pending suits with the Court of Cassation, the Civil Court of Savona and the Criminal Court of Savona.

Pending suits started by the Receiver of Casillo Grani

In June 1999 the Receiver of the above-mentioned company started an action for compensation of damage for asserted illegal extension of credit, quantified as the non-bank loans included in the bankruptcy liabilities. The lawsuit came to an end and the action for compensation is expected not to be re-started. In the same period, the Receiver also started an action for revocation pursuant to art.67 II L.F. in relation to the final remittances. The course of the dispute was very complicated due to a few settled preliminary issues which the Receiver is expected to reopen. However, the suit has not been resumed as of today.

Other relevant cases

A few cases concerned claims raised by the Ministry of Economics and Finance in accordance with art.3 of Law 197/91 in relation to money-laundering. The claims pursuant to the above-mentioned article are based on the non-reporting of suspect transactions which can be identified as such, in compliance with the instructions issued by the Bank of Italy on 12 January 2001, and might determine both a criminal and an administrative penalty. The imposition of administrative penalties is regulated by the Ministry of Economics and Finance and, in relation to a few parties and specific breaches, by the Bank of Italy, Consob and the Ministry for Productive Activities. This issue is of great importance in light of the issue of Legislative Decree no.231/2007 which increased the number of kinds under penalty; Actions for compensation of damage for illegal reporting to Centrale Rischi.

556 FINANCIAL RISKS INHERENT IN INVESTMENT SERVICES (WEALTH RISK MANAGEMENT)

THE PROCESS AND METHODS OF WEALTH RISK MANAGEMENT

Wealth Risk Management consists of the whole of the activities of measurement and monitoring and the processes of control of the risks and returns of the investment services provided to the customers.

The Wealth Risk Management Unit of the Parent Bank, which reports directly to the Private Banking and Wealth Management Division, is in charge of the Group organization control of wealth management in compliance with internal and external regulations.

Therefore, all (Group and third parties’) investment products included in the product catalogue provided to the Group customers are subject to specific risk assessment within a codified production-distribution path. Briefly, the approach adopted consists in determining a synthetic risk indicator by financial instrument which summarizes qualitative considerations on the structure and financial complexity and the quantitative measurement (Value at Risk – VaR) of market, credit and liquidity risk factors.

Risk indicators are assigned to specific risk classes which are available to the customers under appropriate codes in the information sheets in relation to the securities being placed, and represent one of the guidelines on the basis of which the reviews of appropriateness and adequacy contemplated by the new MIFID regulations are conducted. The same quantitative assessment is also made for the financial instruments directly purchased by the customers and held under administration.

Specific risk classes and terms of assessment were defined in relation to OTC derivatives exclusively offered to corporate bodies on the basis of an advisory service for the purpose of hedging already existing and ascertained payable and/or receivable exposures.

The activities described cover the whole MPS Group, and specifically Banca Monte dei Paschi di Siena, Banca Toscana, Banca Antonveneta and MPS Banca Personale.

THE REVIEWS OF APPROPRIATENESS AND ADEQUACY

As a result of the enforcement in 2007 of the European MIFID Directive (subsequently adopted in Italy by Consob Regulations 16190 and 16191 and the joint Consob-Bank of Italy Regulation), the investors’ protection is today secured by the obligation of each bank to conduct a review of adequacy (in the case of advisory services or portfolio management) and appropriateness (services of trading, collection and transmission of orders and placement of financial instruments) of the investment services rendered to the customers on the basis of the information gathered through a specifically prepared questionnaire.

The review of adequacy (and, therefore, appropriateness) results from the comparison of the information gathered through the questionnaire in relation to the customers and the riskiness of the product offered to the customers, or required by them. Therefore, a financial instrument or an investment service is suitable for a customer only if the risk characterizing that instrument or service is admitted by the joint assessment of the indicators considered in the questionnaire.

THE MARKET CRISIS AND THE MONITORING OF CUSTOMERS’ RISKS

The crisis of the markets, originated in 2007 as a result of the exposure to sub-prime mortgage loans, exacerbated effective September 2008 when the investment bank of Lehman Brothers went bankruptcy. This international crisis had inevitable repercussions on the Italian banks, with specific reference to their relations with the customers, who – in the course of time - had been offered financial instruments which had been inevitably affected by the increasing volatility of the major risk factors.

For some time the MPS Group has put in place processes and applications targeted at measuring and monitoring the risk and performance of the financial instruments placed to the customers, or held under administration on behalf of the customers. As a result of such processes, it was possible to sell financial instruments with medium-high risk characteristics, in compliance with the appropriateness/adequacy scheme

557 introduced by the new MIFID regulations last year, only to the customers with risk profiles consistent with such characteristics. The systems of measurement and monitoring measured and assigned a value to the increasing market volatility and the issuers’ credit riskiness as well as the reduced liquidity of the secondary market. All these factors considerably characterized all markets and products.

With the objective of ensuring accurate and prompt controls and information to the customers, the Montepaschi Group has further consolidated the preliminary controls on a large range of counterparts subject to monitoring.

SECTION 5 – PUBLIC DISCLOSURE (PILLAR 3)

For the purpose of consolidating market regulations, Section IV of Circular no.263 dated 27 December 2006 of the Bank of Italy introduced a few obligations of disclosure of information concerning capital adequacy, risk exposure and the general characteristics of the systems for the identification, measurement and management of such risks.

In compliance with the provisions of the above Circular, the Montepaschi Group regularly issues this Public Disclosure on its website at www.mps.it/Investor+Relations.

558

PART F

INFORMATION ON CONSOLIDATED SHAREHOLDERS’ EQUITY

559

Section 1

Consolidated Net Equity

A. Qualitative information

Net equity management deals with policies and resolutions necessary to define net equity size as well as the best mix of capital adequacy options in order to guarantee that the Bank's net equity and ratios are consistent with risk profile and comply with regulatory requirements. From this point of view, consolidated net equity management has become increasingly important and strategic. Net equity quality and size of each bank of the Group are therefore defined in the framework of more general Group targets.

The Group must comply with capital adequacy requirements provided for the by the Basel Committee according to the regulations issued by Banca d'Italia, according to which for each bank the net equity/weighted risk assets ratio must amount to at least 8%; the individual compliance with regulatory requirements is verified by Banca d'Italia on a half yearly basis. The review of the compliance with regulatory requirements and of the resulting capital adequacy is dynamic, changing according to the targets of the Business Plan.

The first review takes place when assigning budget targets: in view of expected loan growth trends, of other assets and of economic aggregates, risks, such as credit, market and operating risks, are quantified and, as a result, ratio compatibilities for each bank and the Group as a whole are reviewed. Capital adequacy compliance is obtained through several means, such as pay out policies, definition of strategic finance transactions (capital increase, convertible loans, subordinated bonds, etc.) and loans management in view of counterpart risk level.

During the year, the compliance with regulatory ratios is monitored by governing and checking, if necessary, capital aggregates also through measures aimed at more adequately re-allocating capital resources within the Group. If extraordinary transactions, such as acquisitions, sales, etc., are carried out, capital adequacy is reviewed and analysed beforehand. In this case, the effect on ratios is estimated and any steps necessary to comply with regulatory rules, issued by Supervisory Authorities. Such measures were taken over the course of the year in relation to the acquisition of Banca Antonveneta S.p.A.

B. Quantitative information

For the composition of the Group's shareholders' equity, please refer to Section 14 – Liabilities in the Notes to the Financial Statements.

561 Section 2

Capital and ratios for regulatory purposes

2.1 Banking capital for regulatory purposes

A. Qualitative information

The capital for regulatory purposes and net equity ratios are computed on the basis of financial statement values calculated with the application of IAS/IFRS international accounting standards and taking into account regulatory instructions issued by Banca d'Italia with the latest update (No. 12) to Circular letter no. 155/91 "Instructions on reporting capital for regulatory purposes and prudential filters". The capital for regulatory purposes is calculated by adding positive and negative components according to the quality of their capital. Positive components must be fully available to the bank so that they can be used in capital absorption calculations.

- As of 2008 the Bank calculates prudential requirements according to Basel 2; furthermore, in June 2008 the Parent company received the authorisation to use internal models for calculating capital requirements, both at individual and Group levels, against credit and operating risks. The application of internal models is permitted in accordance with certain qualitative and quantitative limitations contained in the Regulations. More specifically, certain limitations were established (so-called "floors") whereby any capital savings obtained with internal models are subject to overall limitations according to requirements calculated on the basis of the previous Basel 1. Such limitations to the benefits are expected to be removed in future years considering the further fine-tuning and consolidation of the internal models adopted.

- The capital for regulatory purposes is made up of Tier I capital and Tier II capital net of certain deductions: in particular;

Tier I capital includes the paid-in capital, issue premiums, profit and capital reserves, innovative capital instruments and the profit of the financial period net of own portfolio shares, of intangible assets including goodwill as well as of losses, if any, registered in the previous financial statements as well as in the current one;

Tier II capital includes valuation reserves, hybrid capitalisation instruments, subordinate liabilities, net of the provisions for doubtful receivables on loans due to country risk and other negative elements.

The instructions contained in the aforementioned Circular letter are aimed at making the criteria used to determine capital for regulatory purposes and filters comply with international accounting standards. In particular, they refer to the so-called "prudential filters" indicated by the Basel Committee to regulate the criteria which the national supervisory authorities must adhere to in order to standardise statutory rules with the new financial statement principles.

Prudential filters aim at safeguarding the quality of the capital for regulatory purposes and reducing any potential volatility resulting from the application of the new principles; they are amendments of accounting data before their use for regulatory purposes. In particular, with reference to the most relevant aspects for Banca Monte dei Paschi di Siena, the new rules state that:

- for financial assets held for trading, both non-realised capital gains and losses posted to the income statement are fully relevant;

- for financial assets available for sale, non-realised capital gains and losses are recorded after being offset in a specific net equity reserve: if the balance of this reserve is negative, it reduces the Tier I capital; if it is positive, 50% of it contributes to the Tier II capital.

- for hedging transactions, non-realised capital gains and losses on cash flow hedges, recorded in the specific net equity reserve, are frozen while no prudential filters are applied to fair value hedges;

- for fair value option liabilities of natural hedges (fair value option), both unrealised capital gains and capital losses recorded in the profit and loss statement are of importance, except for the component due to changes in creditworthiness;

- the stake in the capital of Banca d'Italia is not considered in the quantification of capital and therefore the respective capital gain deriving from the valuation at fair value is not computed under the reserves of instruments available for sale.

- net tax benefits posted to the 2008 income statement, as a result of the accounting impact of the substitute tax for goodwill tax alignment, is calculated at 50%; thus 50% of the net benefit is deducted from the Tier I capital through a negative filter; as of 2009, this same filter will be progressively reduced by 1/8 p.a.

The above-mentioned update of Circular letter 155 involved, among other things, innovations to the elements to be deducted as reported below.

562 Equity investments and the other accounts (innovative capital instruments, hybrid capital adequacy instruments and subordinated assets) issued by banks and not fully or proportionally consolidated financial companies are deducted by 50% from Tier I capital and by 50% from Tier II capital. According to previous regulations, this aggregate was deducted from the sum of Tier I capital and Tier II capital.

The use of internal models to determine capital requirements against credit risk involves identifying, within the capital for regulatory purposes, the difference between expected losses and net value adjustments; if expected losses exceed net value adjustments, then the difference is deducted 50% from Tier I capital and 50% from Tier II capital; If expected losses are lower than net value adjustments, then the difference is calculated in the Tier II capital, up to 0.6% of credit risk-weighted assets.

Equity investments in insurance companies and the subordinated liabilities issued by such companies are deducted 50 % from the Tier I capital and 50% from the Tier II capital, if acquired after 20.07.2006; if, on the other hand, they were acquired prior to this date, they continue to be deducted from the sum of Tier I capital and Tier II capital up to 31.12.2012.

Banks are required to comply with capital requirements against risks generated by trading in the markets of financial instruments, currencies and goods. These market risks are computed on the entire portfolio of Trading for regulatory purposes for each type of risk, risk of position on debt securities and on capital securities, settlement risk, counterpart risk and concentration risk. In terms of the full balance-sheet, it is also necessary to calculate forex risk and the position risk on goods. Finally, within the new regulatory framework, capital requirements have also been introduced in relation to operating risks, ie. risk of losses resulting from the inadequacy or the improper functioning of procedures, human resources and internal systems, or from external events.

According to regulatory instructions, the Bank's net equity must amount to at least 8% of the total weighted assets (total capital ratio), in relation to the credit risk profile, assessed according to the category of debtors, to the period of validity, to the country risk and to the guarantees obtained.

The following tables report the main contractual features of innovative instruments which are included in the calculation of Tier I capital with capital and reserves as well as the features of the hybrid instruments of capital adequacy and subordinated liabilities which are included in Tier II capital. Tier III subordinated loans are not included in the calculation of Tier II capital but are deducted from capital requirements on market risks.

563

(a) F.R.E.S.H. instruments, with a nominal value of EUR 700 mln, are perpetual and neither repayment clauses nor step-up clauses are provided for. They are, however, convertible into shares. In September of each year from 2004 to 2009 inc. (and at any time from 1 September 2010) the instruments are convertible upon the investor's initiative. In addition, there is an automatic conversion clause if, after the seventh year from issue, the reference price of ordinary shares exceeds a pre-defined value. The return is not cumulative with the option of not paying the return itself if, in the previous financial year, the bank did not have any distributable profit and/or did not pay any dividend to the shareholders. The unpaid return is considered definitively lost. The rights of the holders of the instruments are guaranteed on a subordinated basis. In case of liquidation of the bank, the rights of the investors will remain subordinate to the rights of all BMPS creditors not equally subordinated, including the holders of securities of Tier Ii capital; however, they will have priority against the right of BMPS shareholders. As a result of these characteristics, the instruments can be computed under Tier I core. The structure provided for the establishment of a limited liability company and of a business trust which issued convertible preferred securities and convertible trust securities, respectively. The bank underwrote an on-lending contract as a contract of subordinated deposit. The conditions of the on-lending contract are substantially the same as the conditions of convertible preferred securities.

In 2008, there was a partial conversion for a nominal value of EUR 139.3 mln.

(b) Securities are non-redeemable. However, the issuer has the option of total or partial reimbursement of notes, which may be exercised after 21/12/2010 and 27/06/2011 respectively. Should the reimbursement option not be exercised, the spread on the basis of reference will be increased by 50%.

(c) Preference shares, (CPS), equal to a par value of EUR 350 mln, have a thirty/year term, unless a subsequent agreement is made to extend this, and may not be redeemed at the subscribers' request but only on the initiative of the issuer Banca Monte dei Paschi di Siena S.p.a., 10 years after the date of issue upon authorisation from Banca d’Italia. Added to this is EUR 300 mln, for a ten-year term, under the newly-acquired Group Antonveneta. The interest is paid yearly on the basis of a fixed rate of 7.59% until 2010; a step-up clause was included in the issue with effect 10 years after the issue.

564 2. Tier II capital

The tablebelow report the main characteristics of theinstruments included in thecalculation of Tier II capital .

Early Contribution to Characteristics of subordinated Original amount in Interest rate Issue date Maturity date redemption as Curr. regulatory capital (EUR instruments currency units of '000)

Subordinated bond loan N 31 05 2006 31 05 2016 EUR 750.000.000 743.285 4,875% fixed (*) Subordinated bond loan N 31 05 2006 30 09 2016 GBP 200.000.000 293.958 5,750% fixed (*) Subordinated bond loan Euribor 6m+2,50% N 15 05 2008 15 05 2018 EUR 2.160.558.000 2.108.960 (*) Convertible subordinated bond 1% fixed N 01 07 1999 01 07 2009 ITL 1.770.705.000.000 44.352 loan

Total hybrid instruments (Upper Tier II) 3.190.555

Subordinated bond loan 5% fixed N 12 03 1999 12 03 2009 (*) EUR 417.915.000 65.208 Subordinated bond loan CMS Convexity Notes N 07 07 2000 07 07 2015 (*) EUR 30.000.000 30.000 Subordinated bond loan CMS Volatility Notes N 20 07 2000 20 07 2015 (*) EUR 25.000.000 25.000 Subordinated bond loan 4,50% fixed until SI 24 09 2003 24 09 2015 24 09 2010 EUR 600.000.000 581.905 24/09/2010, then Euribor 3m+1,20%

Subordinated bond loan Euribor 3m + 0,45% SI 01 06 2004 01 06 2014 01 06 2009 EUR 250.000.000 244.751 until 01/06/2014, then Euribor 3m+1,05%

Subordinated bond loan Euribor 3m + 0,40 % SI 30 06 2005 30 06 2015 30 06 2010 EUR 350.000.000 347.513 until30/06/2010, then Euribor 3m+1%

Subordinated bond loan Euribor 3m+0,40 % SI 30 11 2005 30 11 2017 30 11 2012 EUR 500.000.000 494.401 until 30/11/2012, later Euribor 3m+1%

Subordinated bond loan Euribor 3m+0,40% SI 20 12 2005 15 01 2018 15 01 2013 EUR 150.000.000 149.032 until/01/13, then Euribor 3m+1%

Subordinated bond loan 7,44% fixed N 30 06 2008 30 12 2016 (*) EUR 250.000.000 247.468 Subordinated bond loan Euribor 3m+0,60% SI 01 11 2002 01 11 2012 01 11 2007 EUR 75.000.000 59.008 until 1/11/07, then Euribor 3m+0,90%

Subordinated bond loan Euribor 6m+1,10% fino SI 14 12 2007 14 12 2017 14 12 2012 EUR 50.000.000 4 until 29/06/2012, then Euribor 6m+0,93%

Subordinated bond loan Euribor 3m+1,40% fino SI 30 04 2008 30 04 2018 30 04 2013 EUR 450.000.000 28 untill 30/04/2013, then Euribor 3m+2%

Subordinated debt Euribor 3m + 2,8% N 10 10 2006 10 10 2016 10 10 2011 EUR 400.000.000 400.000

565 Subordinated bond loan 6,4% until31/10/2013, SI 31 10 2008 31 10 2017 31 10 2013 EUR 100.000.000 95.383 poi Euribor 3m + 3%

Bond loan floating N 30 09 2003 30 09 2013 30 09 2008 EUR 73.000.000 1.117

Bond loan floating N 30 09 2003 30 09 2013 30 09 2008 EUR 7.000.000 7.100

Bond loan flaoting N 22 12 2003 22 12 2013 22 12 2008 EUR 50.000.000 52

Bond loan 3,11 N 30 12 2002 30 12 2009 non previsto EUR 60.000.000 8.807

Bond loan Euribor 6m+1% N 28 06 2002 28 06 2009 non previsto EUR 7.784.900 7.632

Bond loan Euribor 6m+0,75% N 30 12 2004 30 12 2009 non previsto EUR 3.892.950 779

Bond loan Euribor 6m+0,60% N 07 12 2005 07 12 2015 non previsto EUR 7.785.900 7.796

Bond loan Euribor 6m+0,60% SI 15 04 2008 15 04 2018 15 04 2013 EUR 2.134.894 2.162

Bond loan Euribor 6m+0,60% SI 18 04 2008 18 04 2018 18 04 2013 EUR 2.823.686 2.857

Total: Subordinated bonds computable (Lower Tier II) 2.778.003

Total 5.968.558

3. Tier III capital

The table below shows the main characteristics of the instruments included in the computation of Tier III capital, also covering the Group's market risks.

Tier III capital may only be used to cover 71.4% of the required capital against the market risk of the trading portfolio, net of counterparty risk and settlement risk. Tier III capital effectively used at 31.12.2008 to cover this requirement came to EUR 344,395 mln.

566 B. Quantitative information

31 12 2008 31 12 2007 (in thousands of EUR) A. Tier I capital before prudential filters 8.005.478 7.193.267

B. Prudential filters of Tier I (679.653) (102.266)

B1 - Positive IAS/IFRS prudential filters 54 1.290 B2 - Negative IAS/IFRS prudential filters (679.707) (103.556)

C. Tier I capital before elements to be deducted (A+B) 7.325.825 7.091.001

D. Elements to be deducted from total Tier I (527.439) (175.300)

E. Total Tier I capital (TIER1) (C - D) 6.798.386 6.915.701

F. Tier II capital before prudential filters 6.058.695 3.386.620

G. Tier II prudential filters (6.069) (11.048)

G1. - Positive IAS/IFRS prudential filters G2. - Negative IAS/IFRS prudential filters (6.069) (11.048)

H. Tier II capital before elements to be deducted (F+G) 6.052.626 3.375.572

J. Elements to be deducted from total Tier I and Tier II (527.439) (175.300)

L. Total Tier II capital (TIER2) (H - J) 5.525.187 3.200.272

M. Elements to be deducted from total Tier I and Tier II (327.583) (538.285)

N. Capital for regulatory purposes (E+L - M) 11.995.990 9.577.688

O. Tier III c apital 344.395 486.386

P. Regulatory capital including Tier III TIER3 (N+O) 12.340.385 10.064.074

Capital for regulatory purposes of Banca MPS has been calculated in view of the effects resulting from the application of the IAS/IFRS international accounting standards and on the basis of the formats contained in the 12th update to Banca d'Italia's Circular letter no.155 "Instructions for reporting capital for regulatory purposes with prudential filters". The amount of capital for regulatory purposes came to EUR 11,995.9 mln. The amount shown in line O is the Tier III capital used to cover 71.4% of the capital requirements against the market risk of the trading portfolio, net of counterparty risk and settlement risk. Tier III capital effectively used to cover this requirement came to EUR 344.4 mln at 31.12.2008 and EUR 486.4 mln in 2007.

Consolidated Capital for regulatory purposes quantified at 31 December 2008 also considers the elements that were introduced for banks applying internal models to calculate capital requirements against credit and operating risks. Among these corrections, we report the adjustment to be carried out directly on the capital for differences resulting from the overall value adjustments on credit and relative expected losses quantified according to the criteria of internal models. With regard to the Group, since the expected loss exceeds net value adjustments, the difference was deducted 50% from Tier I capital and 50% from Tier II capital (lines D and J).

The decrease in Tier I capital of EUR 117.3 mln was positively impacted by the increase in share capital with share premium executed during the year for a total of EUR 5,990.2 mln in addition to the capitalisation (EUR 832.5 mln) of a significant portion of the profits for the year. On the other hand, there was a negative impact from the increase in goodwill mainly due to the acquisition and subsequent merger through incorporation of Banca Antonveneta S.p.A. for EUR 5,910 mln and the negative filter of 50% (EUR 462.8 mln) on the net tax benefits posted to the 2008 income statement resulting from the accounting of the substitute tax for the goodwill value realignment..

The increase in Tier II capital is mainly due to the issue of upper Tier II for EUR 2,108.9 mln.

The increase shown among the elements to be deducted which impact 50% on the Tier II capital is also due to the correction of doubtful outcomes carried out in accordance with new instructions issued for those applying internal models.

567 2.3 Capital adequacy A. Qualitative information B. Quantitative information Non-weighted amounts Weighted amounts/requirements Category/Value 31 12 2008 31 12 2007 31 12 2008 31 12 2007 A. Risk assets A.1 Credit and counterparty risk 357.576.902 208.831.010 128.883.975 101.927.060 1. Standard method 236.349.560 208.831.010 89.782.319 101.927.060 2. Method based on internal rating(1) 121.006.500 - 38.784.513 - 2.1 Basic

2.2 Advanced 121.006.500 38.784.513 3. Securitisation 220.842 317.144 B. Solvency requirements B.1 Credit risk and counterparty x 10.310.718 8.154.165 B.2 Market risk (2) x 482.346 757.255 1. Standardised methodology x 482.292 757.255 2. Internal models x x

3. Risk of concentration x x 54 B.3 Operating risk x x 756.197 - 1. Basic method x x 59.076 2. Standardised method x x 216.481 3. Advanced method x x 480.640 B.4 Other solvency requirements x x 159.357

B.5 Total solvency requirements (3) x x 10.592.667 9.070.777

C. Risk assets and solvency requirements x x

C.1 Risk-weighted assets x x 132.408.338 113.384.713 C.2 Tier I capital/risk weighted assets (Tier I capital ratio) x x 5,13 6,10 C.3 Capital for regulatory purposes incl. Tier 3/risk weighted assets x x 9,32 8,88

(Total capital ratio)

Total risk-weighted assets at 31 December 2008 amounted to EUR 132,408 mln, with a significant year-on-year growth (+16.8%) mainly due to the acquisition of Banca Antonveneta S.p.a.. It should be noted that, in addition to company events and subsequent to validation given by the Supervisory authorities in June 2008, the Parent company and certain banking subsidiaries adopted the internal model proposed for certain classes of assets subject to credit risk and the internal model proposed for operating risks. Against this, risk-weighted assets at 31 December 2007 were calculated in accordance with Basel 1 rules, under which no specific measures were foreseen for operating risks. Total solvency requirements, B.5, at 31 December 2008, also took into consideration the impact from the reduction related to intragroup activities towards non-resident companies and from "floors". "Floors" are limitations to capital savings obtained using internal models and calculated on the basis of the previous regulations (Basel 1). These limitations to such benefits may be removed in future years, bearing in mind further fine-tuning and consolidation of the internal models adopted.

Finally, it should be noted that line B.4, Other solvency requirements, in 2007 reported requirements relating to securitisations. In 2008, these requirements were broken down into the various risk items in compliance with the new regulations of Banca d'Italia. At the end of 2008, the Tier I capital ratio came to 5.13% while the total capital ratio came to 9.32%. Without the application of a floor at 95%, the Tier I capital ratio amounts to 5.4% while the total capital ratio amounts to 9.79%.

568

569

Section 1

Transactions carried out during the year

1.1 Business combinations

Description of transaction

On 30 May 2008, the acquisition of the total stake in Banca Antonveneta S.p.A. was completed for a total cost, inclusive of directly-posted sundry expenses, of EUR 10,138 mln.

Under IAS 27 the control of a company is obtained with the acquisition of (1) the majority of voting rights or the majority of directors, or 2) the power determine financial and operating policies, or (3) the power to appoint the majority of directors. In the case of the Banca Antonveneta acquisition, th conditions were met as of the closing date of the transaction.

A comparison between the purchase cost and the net equity of Banca Antonveneta which, considering consolidation adjustments, came to EUR 3.4 mln, resulted in a difference to be allocated of EUR 7,284 mln.

The table below reports the book values and fair values of the assets and liabilities acquired.

Assets/liabilities Book value Fair value

Assets

Financial assets 879.557 879.557 Loans 37.149.309 37.564.017 Equity investments 84.271 144.923 Tangible assets 672.414 857.460 Intangible assets 405 794.526 Goodwill 624.964 6.298.318 Other assets 2.593.636 2.676.804 Total assets 42.004.556 49.215.605

Liabilities

Due to banks 10.640.528 10.640.528 Due to customers 19.280.019 19.280.019 Outstanding securities 6.161.399 6.161.399 Financial liabilities 331.083 331.083 Other liabilities and risk provisions 2.132.720 2.621.856 Total liabilities 38.545.749 39.034.885

Net third-party equity 42.889 42.889 Net group equity /Cost of acquisition 3.415.918 10.137.831 Total liabilities and net equity/Cost of acquisition 42.004.556 49.215.605

The cost of the business combination is allocated to the assets, liabilities and to the non-tangible assets not posted to Banca Antonveneta's consolidated balance-sheet, within their fair value limits. Whatever remains after this allocation is recorded as goodwill.

In relation to the complexities of this process, which involves evaluating numerous and diversified assets and liabilities of the entities that make up the acquired group, the international accounting standards allow the definitive purchase price allocation to be carried out within twelve months of the date of acquisition. The MPS Group took the decision to exercise this option and thus the 2008 interim reports contained only preliminary estimates of the impacts from the purchase price allocation. The table below reports the differences between the preliminary results of the purchase price allocation supplied in the 2008 interim reports and the definitive allocation mentioned above and described analytically as follows.

571 Provisional allocation Definitive allocation

Revaluation of assets and liabilities already posted 771.222 629.460 Posting of new intangible assets - 794.121 Deferred taxes (230.447) (437.700) Goodwill 6.752.340 6.298.318

The differences are due to the identification of intangible assets and potential liabilities and to certain fine-tuning activities on the valuation of financial instruments.

Goodwill determined in this way was reviewed as a result of pre-existing contractual agreements and came to EUR 6,025 mln. It should also be noted that, following the impairment test, goodwill was reduced to EUR 5,910 mln.

Purchase price allocation

Assets and liabilities posted to the MPS Group's balance-sheet and not already designated at fair value are mainly attributable to:

• loans; • real estate; • potential liabilities; • equity investments

Loans have been designated at fair value through the discounting back - at current market rates - of cash flows expected on financial instruments. The difference between fair value and book value is amortised, along the remaining term of the loans, through the application of the amortised cost criterion. The market value of real estate and lands was determined through valuation tests conducted by independent experts. The difference between the fair value and the book value of real estate is amortised along their useful life, which is recalculated upon acquisition. The potential liabilities identified mainly regard personnel disputes and rescissions. Potential liabilities are possible liabilities that exist at the moment of acquisition, on the condition that they may be detected separately and their relative fair value may be reliably assessed. The fair value of equity investments was determined using the methods normally applied in the valuation processes. The following intangible assets were also identified in relation to the former Banca Antonveneta: • intangible assets linked to client relationship management, broken down into funding assets, lending assets and assets linked to management/administration of assets;

• intangible assets linked to the marketing, as represented by the “brand name”, i.e. a string of production conditions economically associated with the brand relational skills, distribution power. . Core deposits are intangible assets linked to client relationships. Their fair value is not equivalent to their face value but is, instead, lower since it has been reduced by a premium at the current value of the relative mark-down ie. the spread between the current interbank rate and the average rate of direct funding assumed by the bank.

Considering that the fair value assessment of intangible assets pursuant to IFRS 3 only gives a value to existing relationships and not new ones (which constitutes goodwill), the valuation perimeters which were identified included the technical forms of funding (c/a and savings deposits) and the counter-items which proved stable over time and for which it is therefore possible to estimate cash flows over several years. The assessment of fair value of client relationships is based upon the discounting back - for the expected remaining duration of existing relationships at the date of acquisition - of flows representing markdowns and commissions perceived, net of structure costs and discounted at a rate that takes account of the cost of capital.

In light of their strong reliance on client relationships, core deposits have, by definition, a defined useful life and therefore must be subjected to systematic amortisation; for this purpose, it was considered appropriate to amortise their value in regular quotas.

572 Core overdrafts are a more profitable investment compared with alternative investments at market interest rates (interbank rates). The valuation perimeter identified concerned credit on current accounts and the counterparties which proved stable over time and for which it is therefore possible to estimate cash flows over several years.

In this case, the assessment of fair value is based upon the discounting back - for the expected remaining duration of existing relationships at the date of acquisition - of flows representing mark ups, net of credit risk costs and structure costs, at a rate that takes account of the cost of capital. Core overdrafts also have a defined useful life and are therefore subjected to systematic amortisation; for this purpose, it was considered appropriate to amortise their value in regular quotas.

Assets under management/administration are a form of business that comes from existing customers. The value of such an intangible asset results from the flow of orders from which the bank benefits for the distribution of asset management products and asset administration services. For both these items, intangible assets were considered as having defined life since they were strictly linked to the relationship with the end-customer and the valuation was carried out exclusively in relation to existing relationships at the date of acquisition. In this case too, the valuation was carried out through the discounting back of flows from the income margins generated by assets for the expected remaining period of the relationships and a definite useful life was estimated, during which there will be systematic amortisation in regular quotas.

The brand name is a marketing-linked intangible asset, defined by IFRS 3a as a potential intangible asset identified upon purchase price allocation. It should be noted that the term "brand" is not used in accounting standards with the same limited meaning of "trademark" (logo and name). Instead, it is a general marketing term that defines a set of intangible assets that are complementary among themselves (in addition to the name and logo, the brand name involves skills, consumer loyalty, service quality etc.) which combine to form the so- called "brand equity". For this intangible asset, it was believed appropriate to consider a defined useful life. The "relief from royalty" method was used to evaluate the brand in addition to other control methods.

According to IAS 36 for intangible assets with defined useful life, it is necessary to carry out a periodic check that identifies and analyses any signs of deterioration; if such signs are detected then a new use value must be calculated using the same methodologies illustrated above and the recovery of the remaining amount posted to the balance-sheet.

The following table summarises the expected useful life of the intangible assets identified.

Intangible asset Life in years

Brand 10 Core deposits 11-15* Core overdraft 11 Assets under management/administration 9

* Variable according to the technical form

The following table summarises the purchase price allocation for Banca Antonveneta. (in thousands of EUR) Price paid 9.894.088 Sundry expenses 243.743 Cost of acquisition 10.137.831 Net equity* 3.415.918 Goodw ill recorded in Banca Antonveneta's consolidated financial statements 562.285 Difference to be allocated 7.284.198 Brand 38.020 Core deposits 648.797 Core overdraft 59.934 Asset under management/control 47.370 Tangible fixed assets 184.280 Loans 414.708 Equity investments 60.652 Other liabilities and risk provisions (30.180) Deferred taxes (437.700) Total difference allocated 985.880

General goodwill 6.298.318

*Net equity is adjusted according to consolidation entries.

573 The following table reports the impact on the 2008 consolidated income statement resulting from the calculation of the amortised cost of financial assets and liabilities subject to revaluation and from the amortisation of tangible assets (for the portion relating to the revaluation carried out) and intangible assets (subject to first recording in the 2008 balance-sheet).

(in thousands of EUR)

Income statement

Interest income (59.819) Value adjustments on tangible assets (701) Value adjustments on intangible assets (41.424) Income tax for the year 32.786 Profit (loss) for the year (69.158)

Banca Antonveneta's contribution to the MPS Group's results for the year - as of the date of acquisition and before the above- mentioned PPA impact - came to EUR 80 mln.

As required by IFRS 3, below are Group MPS's key highlights, recalculated according to acquisition on 01/01/2008.

Interest margin 4.168 Net commissions 1.667 Operating income 5.745 Operating costs (4.436) Profit (loss) for the period pertaining to the Parent Company 857

For the allocation of goodwill to the cash-flow generating units and for the impairment test, please refer to Part B, section 13 relative to goodwill.

Biverbanca – completion of PPA

At the end of 2007, the MPS Group completed the acquisition of 55% of the stake in Biverbanca S.p.A. (Cassa di Risparmio di Biella e Vercelli) from the Intesa-San Paolo Group; therefore the date to be considered for the business combination is 31 December 2007, with consequent consolidation of the capital alone.

In the consolidated balance-sheet at 31 December 2007, it was not possible to quantify the definitive fair value of assets, liabilities and potential liabilities identified and, consequently, the goodwill. Therefore, recourse was had to the provisions provided for by accounting standard IFRS 3, which states that it is possible to carry out a provisional allocation of amounts with the definitive accounting being completed within a twelve-month period.

The stake in Biverbanca acquired at the end of December 2007 came to 55% taking account of a put option contract sold by the Parent company to the Fondazione Cassa di risparmio di Vercelli, (exercised in February 2008) with which the Parent company agreed to acquire a further 5.78% shareholding in Biverbanca. The latter was consolidated at a stake of 60.78%, with the put option falling under the scope of application of IAS 32 and treated for accounting purposes as liabilities. As a cross-entry for the liabilities, goodwill was posted and net third-party equity was reduced.

For the purpose of providing full information, it should be noted that, in the meantime, the Parent company sold a call option at the same strike price as the put, also exercised in 2008, in which it undertook to sell 1.78% of the capital of Biverbanca to Fondazione Cassa di Risparmio di Biella.

Once these options were exercised, the stake in Biverbanca came to 59% at 31 December 2008.

In the course of 2008, the Biverbanca purchase price allocation was completed; below is the definitive Biverbanca S.p.A. acquisition capital standing prepared according to international accounting standards IAS/IFRS at 31 December 2007.

574 (in thousands of EUR) Assets/Liabilities Book value Fair value

Assets Financial assets 448.757 448.757 Loans 3.125.701 3.191.679 Tangible assets 26.363 43.776 Intangible assets 93 96.531 Goodw ill 229.150 Other assets 122.522 122.522 Total assets 3.723.436 4.132.415

Liabilities Due to banks 730.624 730.624 Due to customers 1.599.348 1.599.348 Outstanding securities 1.002.394 994.656 Financial liabilities 21.975 21.975 Other liabilities and risk provisions 145.059 207.560 Total liabilities 3.499.400 3.554.163

Net third-party equity 87.867 135.413 Biver net equity of Parent Company/Cost of acquisition 136.169 442.839 Total liabilities and shareholders' equity/Cost of acquisition 3.723.436 4.132.415

The table below reports the differences between the preliminary results from the purchase price allocation provided in the 2007 balance sheet and the definitive allocation.

Provisional allocation Definitive allocation

Re-evaluation of assets and liabilities already recorded 15.458 55.832 Recording of new intangible assets - 58.615 Deferred taxes 4.854 36.927 Goodw ill 300.221 229.150

Purchase price allocation

The assets and liabilities posted to the balance sheet of the MPS Group and not yet designated at fair value are mainly attributable to: • loans; • real estate; • outstanding securities.

The following intangible assets were also identified: • brand; • core deposits; • core overdrafts.

575 For a description of the allocations, please refer to the acquisition of Banca Antonveneta described above.

The following table summarises the definitive purchase price allocation for Biverbanca at 31 December 2007.

(in thousands of EUR) Price paid + commitment on put option sold 440.702 Sundry expenses 2.136 Cost of acquisition 442.838 Net equity (60.78%)* 136.169 Difference to be allocated 306.670 Brand 4.893 Core deposits 46.602 Core overdraft 7.120 Tangible fixed assets 10.584 Loans 40.101 Outstanding securities 4.703 Other liabilities and risk provisions 444 Deferred taxes (36.927) Total difference allocated 77.519 General goodwill 229.150 *Net equity is adjusted according to consolidation entries.

Below is a summary of the expected useful life of the intangible assets identified.

Intangible assets Duration Brand 10 Core deposits 12-14* Core overdraft 12

Variable according to the kind of deposit. The following table reports the impact on the 2008 consolidated income statement resulting from the calculation of the amortised cost of financial assets and liabilities subject to revaluation and from the amortisation of tangible assets (for the portion relating to the revaluation carried out) and intangible assets.

(in thousands of EUR) Income statement Interest income (9.897) Interest expenses (2.102) Value adjustments on tangible fixed assets (1.053) Value adjustments on intangible fixed assets (7.480) Income tax for the year 6.632

Profit (loss) for the year (13.901)

Biverbanca's contribution to the MPS Group's results for the year - as of the date of acquisition and before the above- mentioned PPA impact - came to EUR 30 mln (12 mln of which third-party). For the allocation of goodwill to the cash-flow generating units and for the impairment test, please refer to Part B, section 13 relating to goodwill.

576 PART H

TRANSACTIONS WITH RELATED PARTIES

577

Information on transactions with related parties

The Code of Conduct for related-party transactions ("Code") was modified in 2006 according to the new regulatory framework of reference; in fact Consob - with the implementation of Commission Regulation (EC) 2238/2004 of 19 December 2004 regarding International Accounting Standards - introduced changes to the Issuer's Regulations, referring to Commission Regulation (EC) 1606/2002 of the European Parliament and Council (later standard IAS 24). Transactions of this kind (ie. transactions set up by the Bank - also through its subsidiaries - with own related parties) were divided as follows: Ordinary transactions (which do not have any kind of particularity), Significant transactions (which involve specific information being provided to the market pursuant to Art. 71 bis of the "Issuer's Regulations" adopted by Consob with bylaw 11971), Relevant transactions (which, though not considered as Significant transactions, do contain atypical/unusual elements).

Within this context, it was decided that Ordinary transactions were to be approved through the authorisation process established by the current system of decision-making applied in the bank. Significant and Relevant transactions, on the other hand, were to fall under the authority of the Board of Directors (subject to urgent issues as contemplated by the Bank’s Articles of Association). Should the nature, the value or the further characteristics of the transactions deem it necessary, the Board may ask for its valuations to be supported by the opinions of one or more independent Advisors with regard to the economic conditions and/or the technical structure and/or the legal aspects of the transactions. It was also decided that, with regard to future related-party transactions, the Subsidiary companies implement the code adopted by the Parent company, adapting it according to the relative levels of approval and with the expectation that the same transactions be communicated to the Parent company using an appropriate and timely procedure.

In 2008 there were no Significant transactions carried out by the Montepaschi Group, that is to say transactions in which the subject, amount, execution methods and times could impact the safeguard of the company's assets or the completeness and accuracy of information (also accounting) relating to Banca MPS and to the MPS Group and which therefore, under Art.71 bis of Consob Regulation 11971, involve specific market information being provided.

Certain transactions were also carried out by the Montepaschi Group during the year which, according to the aforementioned Code, are to be considered Relevant. These transactions are listed below together with other transactions which, though classed as Ordinary, are worth being mentioned. Unless otherwise indicated, the following transactions were carried out by Banca MPS. In any case, all transactions were completed on the basis of reciprocal cost effectiveness evaluations and according to market conditions.

April 2008: authorisation upon completion of a repurchase agreement transaction, from 30 April 2008 to 19 May 2008, with the MPS Foundation for the amount of EUR 2.9 billion. The transaction was set up according to normal market conditions, verified also by leading financial institutions; nevertheless the transaction was considered Relevant in that it involved a significant amount. It should be pointed out that, under art.1, p.1-2 letter E) of the Code, the Monte dei Paschi di Siena Foundation is to be considered by BMPS as a Group-related party since it holds a stake in BMPS which, under art. 2539 of the Civil code, means it has significant influence on BMPS itself.

April 2008: extension to a transitory loan of EUR 9.5 mln in favour of Sansedoni S.p.A. at market conditions. The transaction is considered Ordinary. It should be noted that Sansedoni S.p.A. is an indirectly-related party to BMPS S.p.A. since it is a company upon which the MPS Foundation has significant influence according to art. 2359 Civil code (48% shareholding) and in which BMPS itself has a significant shareholding (16%). Due to the amount involved, the transaction was classed as Relevant and was completed by 30 June 2008.

June 2008: the subsidiary, Banca Toscana, approved the offer of €44 mln by Sansedoni S.p.A. for the sale of Palazzo Portinari Salviati, legal headquarters of Banca Toscana in Via del Corso in Florence and consequently went ahead with the relative negotiations in order to conclude the deed of sale, stipulated on 30 June 2008.

June 2008: credit lines granted by the subsidiary, MPS Capital Services Banca for Impresa S.p.A. to the future company, Palazzo Portinari Salviati (later Beatrice S.r.L.), owned in turn by Sansedoni S.p.A.: i) senior loan with real collateral for € 77,100,000. 7 year term, for the acquisition and conversion to residential use of Palazzo Portinari Salviati, historical headquarters of Banca Toscana, (ii) endorsement loan of € 9,500,000 7 year term with real collateral. The contracts relating to the aforementioned loans were stipulated by 30 June 2008. Regarding the nature of the related-party transaction - to be considered as Ordinary - the above considerations made for Sansedoni S.p.A. can be referred to.

June 2008: Banca Toscana approved an endorsement loan of €82 mln to Monte dei Paschi for issue of guarantees in favour of Equitalia Gerit S.p.A.. Due to the type of loan and its relative characteristics, the transaction was classed as Ordinary.

June 2008: the decision was taken by the subsidiary MPS Investments to sell its stake (100%) in Fontanafredda S.r.l. for € 90,000,000 to the MPS Foundation and to MPS Group third parties. Due to the amounts involved, the transaction was considered Relevant and was completed on 30 June 2008.

579 July 2008: renewal of credit line of €15.1 mln to Integra S.p.A. , a company that is 50% owned by the subsidiary Consumit S.p.A.. Due to the type of loan and relative characteristics, the transaction was classed as Ordinary.

August, September, October and December 2008: approval of the credit facilities stated below by the Montepaschi Group to Sansedoni S.p.A. and its subsidiaries. Due to the type of loan and relative characteristics, the transactions are considered Ordinary; the above-mentioned considerations for Sansedoni S.p.A. can be referred to.

• €32.45 mln – various types in favour of Sansedoni S.p.A. • €13.25 mln – a transitory loan in favour of Duccio Immobiliare 1 S.r.L.

October 2008: approval of mortgage loans for €120 mln in favour of Immobiliare Caltagirone S.p.A., a company owned by F.G.C. S.p.A. which, in turn, is owned by Mr. Francesco Gaetano Caltagirone, Vice-President of Banca MPS. In terms of related-party transactions, the characteristics and economic terms of these transactions leads them to be considered as Ordinary.

December 2008: renewal of credit lines in favour of Banca Popolare di Spoleto S.p.A. (“BPS”) for a total of €75 mln. BMPS holds 25.93% of the capital in BPS, while 51.03% is held by Spoleto Crediti and Servizi Scarl. Banca Popolare di Spoleto must be considered as a BMPS-related party since, pursuant to art.2359 of the Civil code, the shareholding under BMPS results as having significant influence and thus falls within the scope of IAS 28.

December 2008: approval of a mortgage by the subsidiary Banca Antonveneta S.p.A. for a total of €10 mln in favour of a fund administered by Fabrica Immobiliare S.G.R. (“Fabrica”), a company in which BMPS has significant influence, through the subsidiary MPS Asset Management SGR. At the same time, Mr. Francesco Gaetano Caltagirone, Vice-President of Banca MPS, indirectly holds a significant share of voting rights in Fabrica Immobiliare.

Intra-group related-party transactions have not been included in this report since they were eliminated at consolidated level.

1 Information on compensations of directors, auditors, executives and key management with strategic responsibilities

(in thousands of EUR) Total Total Item/Value 31 12 2008 31 12 2007

Short-term benefits 11.062 13.662 Post-retirement benefits Other long-term benefits Termination benefits 147 Share-based payments Other compensation 433 1.559

Total 11.642 15.221

580 2 Information on related-party transactions

2.b Associated companies

31 12 2008 (in thousands of EUR)

Item/Value Incidence %

Total financial assets 754.803 3,57 Total other assets 41.828 - Total financial liabilities 285.307 0,62 Total other liabilities 24.550 17,13 Guarantees issued 48.224 3,35 Guarantees received 110.243 -

2.c Transactions with key management personnel and other related parties

31 12 2008 (in thousands of EUR)

Key management Item/Value Other related parties Incidence % personnel

Total financial assets 4.070 460.802 1,76 Total financial liabilities 4.850 845.451 198,61 Total variable cost 11.642 520

Guarantees issued 53 289.432 11,46 Guarantees received 1.731 309.646

Transactions of particular importance

In the course of 2008, certain transactions were carried out which impacted both the economic and financial profiles of the Group. The main transactions related to: the acquisition of the Banca Antonveneta Group by Banco Santander and the subsequent merger through incorporation of Banca Antonveneta S.p.A.: the merger through incorporation of Banca Agricola Mantovana S.p.A.; the acquisition of the MPS AXA SIM shareholding by the AAXA Group;

Bancassicurazione’s framework agreement signed with the AXA Group aimed at the sale of the Quadrifoglio Vita S.p.A. shareholding. sale of the subsidiary MPS Finance S.p.A.; sale of the subsidiary Intermonte SIM S.p.A.; sale of the remaining shareholding in Finsoe S.p.A.; sale of Valorizzazioni Immobiliari S.p.A.; sale of Banca del Monte di Parma S.p.A; The main characteristics and effects of these "re-structuring" transactions aimed at improving the management of certain investments and services within the Group, are reported as follows:

581 The acquisition of the Banca Antonveneta Group from Banco Santander and the subsequent merger through incorporation of Banca Antonveneta S.p.A

Following the framework agreement signed with Banco Santander in November 2007, the transaction was completed on 30 May 2008 with the transfer of Shares by ABN AMRO Bank N.V. to Banca Monte dei Paschi di Siena S.p.a.. Using the contractual option contained in the Agreement, Banco Santander appointed ABN AMRO as seller of rights and duties deriving from the Agreement. Following the acquisition on 31 December, Banca Antonveneta S.p.A. was merged through incorporation as of 11.59 pm of the 31 December 2008 with regard to the civil effect, and 1 June 2008 with regard to the accounting/tax effects. Merger through incorporation of the subsidiary, Banca Agricola Mantovana S.p.A. On 21 September 2008 Banca Agricola Mantovana S.p.A. was merged through incorporation as of 12 am, 21 September 2008 with regard to the civil effects and 1 January 2008 with regard to accounting/tax effects.

Acquisiton of the MPS AXA SIM S.p.A. shareholding.

On 27 February 2008, the entire stake in AXA SIM S.p.A. was acquired for the amount of €40.2 mln; following the acquisition the Company name was changed to MPS AXA SIM S.p.A..

Sale of the Quadrifoglio Vita S.p.A. shareholding.

On 1 July 2008 the agreement was signed for the sale by Banca Monte dei Paschi di Siena S.p.A. of 31,500,000.00 ordinary shares, par value of EUR 1.00 each, equal to 100% of the share capital in Quadrifoglio Vita S.p.A. to AXA MPS Assicurazioni Vita S.p.A. for the amount of EUR 141.5 mln.

Sale of MPS Finance S.p.A

On 14 May 2008 MPS Finance S.p.A.'s s entire share packet was sold to Intesa Sanpaolo S.p.A. for the amount of EUR 329.4 million.

Sale of Intermonte SIM S.p.A.

On 2 September 2009 Intermonte SIM S.p.A.'s share packet was sold for the amount of EUR 46.9 million.

Sale of the remaining shareholding in Finsoe S.p.A.

The share packet, totalling 13% of Finsoe's share capital, was partly acquired by Holmo (95,044,750 shares) and partly by Finsoe (184,016,500 shares) on the 30 June 2008. The transaction was settled for the value of EUR 234.4 million. Since Banca Monte dei Paschi di Siena was no longer a shareholder Finsoe, the existing shareholders' agreement between Holmo and Banca Monte dei Paschi di Siena was terminated.

Sale of Valorizzazioni Immobiliari S.p.A

On 3 July 2008, the entire share packet was sold for the amount of EUR 97.2 million.

Sale of Banca del Monte di Parma S.p.A

On 9 July 2008 the agreement was signed for the sale by Banca Monte dei Paschi di Siena S.p.A. of 1,379,440.00 ordinary shares, totalling approximately 49.27% of Banca Monte Parma S.p.A.'s share capital to Banca Sella Holding S.p.A. (for an approximate 10% stake), CBA Vita S.p.A. (for an approximate 3% stake), HDI Assicurazioni S.p.A. (for an approximate 3% stake), Fondazione di Piacenza e Vigevano (for an approximate 15% stake) and Fondazione Monte Parma (for an approximate 18.27% stake), for the amount of EUR 191.8 million.

582 Disclosure of Auditing Firm fees

For purposes of rendering the reporting on relationships between the Bank and its own auditing firms more transparent, Consob, through resolutions 15915 of 3 May 2007 and 15960 of 30 May 2007, implemented the delegation contained in Art.160 of the Consolidated Finance Act (Rules on conflicts of interest) with the introduction in Part III, Title VI of the Issuer's Regulations of Paragraph I-bis (Conflicts of interest) which contains the Articles from 149-bis to 149-duodecies.

With this modification, Consob took the decision to include such information in documents accompanying the financial statements, making it mandatory to disclose the fees for auditing and other services by the Auditing firms and by the parties in their network.

The table below, therefore, reports all fees paid to the Auditing firm and to the parties in its network.

3 Fees paid to the auditing firms and to the parties in their network (pursuant to Art.149 duodecies of CONSOB resolution 15915 of 3 May 2007).

31 12 2008 (in thousands of EUR)

Type of service Service provider Financial company Total

Auditing KPM G S.p.A. BM PS 1.010,12

Auditing KPM G S.p.A. Banca Popolare di Spoleto SpA 121,00

Auditing KPM G S.p.A. Cirene Finance S.r.l. 22,24

Auditing KPM G S.p.A. M onte Paschi Banque S.A. 107,40

Auditing KPM G S.p.A. M P Conseil 4,30

Auditing KPM G S.p.A. M onte Paschi Assurance SpA 7,50

Auditing KPM G S.p.A. M onte Paschi Invest SpA 14,20 Auditing KPM G S.p.A. M PS Gestione Crediti S.p.A. 28,00

Auditing KPM G S.p.A. Banca Toscana S.p.A. 108,00

Auditing KPM G S.p.A. M PS Banca Personale S.p.A. 185,00

Auditing KPM G S.p.A. Consorzio Operativo M ps 153,00 Auditing KPM G S.p.A. Ulisse SpA 23,00

Auditing KPM G S.p.A. Ulisse 2 SpA 15,90

Auditing KPM G S.p.A. M onte Paschi Investments SpA 19,89

Auditing KPM G Dublin M P Ireland 48,00 Auditing KPM G Luxembourg M P Luxembourg 15,88

Auditing KPM G LLP - USA M P Preferred Capital LLCI 14,00

Auditing KPM G LLP - USA M P Preferred Capital LLCII 14,00

Activities connected to Banca Antonveneta KPM G S.p.A. BM PS 6.144,00 acquisition

Certification services KPM G S.p.A. BM PS 556,97

Certification services KPM G S.p.A. Banca Popolare di Spoleto SpA 34,00

Certification services KPM G S.p.A. Ulisse SpA 0,50 Certification services KPM G S.p.A. Ulisse 2 SpA 1,20

Certification services KPM G S.p.A. Banca Toscana S.p.A. 10,00

Certification services KPM G S.p.A. M PS Gestione Crediti S.p.A. 22,00

Certification services KPM G S.p.A. Consorzio Operativo M ps 254,00

Certification services KPM G S.p.A. M onte Paschi Banque S.A. 18,80

Certification services KPM G Dublin M P Ireland 27,00

Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. BM PS 69,22

Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. M PS Capital Services 61,00 Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. M P Asset M anagement SGR 31,90

Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. Consorzio Operativo M ps 40,00

Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. M onte Paschi Ireland Ltd 28,00

Other services:

Personnel Support Services KPM G Fides Servizi di Amministrazione S.p.A. BM PS 69,66

583 New credit risk model KPM G Advisory S.p.A. BM PS 354,00

E-Finance consulting KPM G Advisory S.p.A. BM PS 8,40

Fraud prevention project KPM G Advisory S.p.A. BM PS 143,40

Assistance project L.262/05 KPM G Advisory S.p.A. Banca Popolare di Spoleto SpA 29,00

Accounting advice for Roll Rate KPM G S.p.A. Consum.it 36,00 Verifica regolamentare e verifica su KPM G S.p.A. M onte Paschi Invest SpA 43,40 OPCVM /Fondi M onitoring of securitisation servicing and tax KPM G S.p.A. Banca Toscana S.p.A. 44,00 return signatures

Compenso M odello Unico e M odello 770 KPM G S.p.A. M PS Banca Personale S.p.A. 2,00

VAT notices KPM G Dublin M P Asset M anagement SGR 4,80

9.944,68

31 12 2007 (in thousands of EUR) Type of service Service provider Financial company Total

Auditing KPM G S.p.A. BM PS 847,22 Auditing KPM G S.p.A. Cirene Finance S.r.l. 15,00 Auditing KPM G S.p.A. Dipras S.p.A. 11,00 Auditing KPM G S.p.A. M onte Paschi Banque S.A. 140,30 Auditing KPM G S.p.A. M P Finance S.p.A. 232,00 Auditing KPM G S.p.A. Banca del M onte di Parma S.p.A. 55,00 Auditing KPM G S.p.A. M PS Gestione Crediti S.p.A. 41,00 Auditing KPM G S.p.A. Banca Toscana S.p.A. 110,00 Auditing KPM G S.p.A. M PS Banca Personale S.p.A. 182,00 Auditing KPM G S.p.A. Consorzio Operativo M ps 148,00 Auditing KPM G Dublin M P Ireland 60,50 Auditing KPM G Luxembourg M P Luxembourg 15,50 Auditing KPM G LLP - USA M P Preferred Capital LLCI 14,60 Auditing KPM G LLP - USA M P Preferred Capital LLCII 14,60 Certification services KPM G S.p.A. BM PS 650,80 Certification services KPM G S.p.A. M onte Paschi Banque S.A. 14,30 Certification services KPM G S.p.A. M P Finance S.p.A. 4,00 Certification services KPM G S.p.A. Banca del M onte di Parma S.p.A. 2,00 Certification services KPM G S.p.A. M PS Gestione Crediti S.p.A. 1,00 Certification services KPM G S.p.A. Consorzio Operativo M ps 254,00 Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. BM PS 7,44 Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. M P Asset M anagement SGR 34,10 Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. M P Finance S.p.A. 45,00 Tax consulting services Studio Ass. Consulenza Legale e Tributaria S.p.A. Consorzio Operativo M ps 41,00 KPM G Dublin M onte Paschi Ireland Ltd 10,80 Etude M IF KPM G S.p.A. M onte Paschi Banque S.A. 32,00 Other services: Accounting advice for Roll Rate KPM G S.p.A. Consum.it 30,00

Regulatory verification and auditing services KPM G S.p.A. M onte Paschi Banque S.A. 51,40 of UCITS/Funds

Audits on M AS and Siena M ortgages 03-04 KPM G S.p.A. BAM 28,40

M onitoring of Cirene Finance Srl accounts KPM G S.p.A. M PS Gestione Crediti S.p.A. 6,00

M onitoring of securitisation servicing and tax KPM G S.p.A. Banca Toscana S.p.A. 48,00 return signatures Securitisation accounting assistance KPM G Fides Servizi di Amministrazione S.p.A. BM PS 116,07 New risk management model KPM G Business Advisory Services S.p.A. BM PS 216,60 Retail market consulting KPM G Business Advisory Services S.p.A. BM PS 4,32 Consulting and support validating internal KPM G Business Advisory Services S.p.A. BM PS 45,00 rating systems Funds prevention project KPM G Business Advisory Services S.p.A. 330,00

Business continuity M anagement consulting Nolan Norton Italia Srl BM PS 70,80

VAT notices KPM G Dublin M P Asset M anagement SGR 4,40

3.934,15

584

Declaration of the consolidated financial statements pursuant to art. 154 of the Legislative Decree no. 58/1998

1. The undersigned, Giuseppe Mussari, as Chairman of the Board of Directors of Banca Monte dei Paschi di Siena S.p.A and Daniele Pirondini, as Officer in charge of the preparation of the corporate accounting documents of Banca Monte dei Paschi S.p.A, certify the following also taking into account the provisions of art. 154-bis, sections 3 and 4, of Legislative Decree no. 58 of 24 February 2008: - the adequacy in relation to the characteristics of the company and - the effective application of the administrative and accounting procedures for the preparation of the consolidated financial statements during the 2008 financial year.

2. The valuation of the adequacy of the administrative and accounting procedures for the preparation of the consolidated financial statements as at 31 December 2008 is based on an internal model defined by Banca Monte dei Paschi di Siena S.p.A., developed in keeping with the Internal Control-Integrated Framework models prepared by the Committee of Sponsoring Organizations of the Treadway Commission and for the IT component with the Cobit framework which are generally accepted standards of reference.

3. It is further certified that: 3.1 the consolidated financial statements: - are prepared in accordance with the applicable International Accounting Standards adopted by the European Union pursuant to Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of 19 July 2002 as well as with the provisions issued in implementation of Art. 9 of the Legislative Decree no. 38 of 28 February 2005; - are in keeping with the results of the accounting books and records; - are suitable for providing a true and accurate picture of the equity, economic and financial standing of the issuer and of all the companies included in the consolidation.

- 3.2 the report on operations includes a reliable analysis of trends and results of the business operations as well as of the standing of the issuer and of all the companies included in the consolidation, describing main risks and uncertainties they are exposed to.

Siena, 26 March 2009

For the Board of Directors The Officer in charge of the preparation The Chairman of the corporate accounting documents

Giuseppe Mussari Daniele Pirondini

585

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