CAPITALIA GROUP ANNUAL REPORT AT 31 DECEMBER 2006 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 2 3

CONTENTS

CAPITALIA GROUP ANNUAL REPORT 2006

Corporate officers and control bodies at 31 December 2006 5

Letters from the Chairman and the Managing Director 7

Group profile, strategies and Corporate Governance 10 Profile of the Capitalia Group 10 Group positioning and key Group indicators 11 Capitalia Group: financial highlights 12 Capitalia Group: key financial ratios 13 Financial highlights of the main Group companies 14 The Italian network 15 Capitalia S.p.A. management 18 Capitalia S.p.A. shareholders 19 Share price of Capitalia S.p.A. 20 Rating 20 Corporate governance 21 Delegation of powers at Capitalia S.p.A. 22

REPORT ON OPERATIONS 23

Technical note on reading the consolidated annual report 24

Economic and regulatory context 26 The macroeconomic background 26 Bank interest rates 27 Banking 29 Asset management 29 The regulatory framework 30

Group activities 35 Implementation of 2005-2007 Business Plan 35 Other significant events in 2006 38 Main consolidated balance sheet items 44 Funding 44 Funding from customers 45 Wealth management 45 Products and services 46 Lending 49 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONTENTS

Lending to customers 49 Impaired loans and contingent liabilities 53 Finance 56 Equity investments and shareholdings 57

Shareholders’ equity, solvency ratios and treasury stock 63

Results 64

The operating structure 69 Human resources 69 Organizational development 71 Technological infrastructure 71 The procurement system 72 The distribution network 73 Financial communication 74

Summary of the performance of the main Group companies 76

Significant post-period events 93

CONSOLIDATED FINANCIAL STATEMENTS 95

Consolidated balance sheet 96 Consolidated income statement 98 Statement of changes in Consolidate Shareholders’ equity 100 Consolidated Statement of cash flows 104

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107

PART A – Accounting policies 108 PART B – Information on the consolidated balance sheet 130 PART C – Information on the consolidated income statement 196 PART D – Segment information 223 PART E – Risks and the related hedging policies 227 PART F – Information on consolidated shareholders’ equity 310 PART G – Business combinations 316 PART H – Transactions with related parties 318 PART I – Payments based on own equity instruments 320

APPENDIX 321

ATTACHMENT 325

REPORT OF THE INDIPENDENT AUDITORS 329

LIST OF BRANCHES OF BANCA DI ROMA, BANCO DI SICILIA, BIPOP-CARIRE 333 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 4 5

CORPORATE OFFICERS AND CONTROL BODIES AT 31 DECEMBER 2006

CAPITALIA S.p.A.

BOARD OF DIRECTORS

Chairman Cesare Geronzi (*) Deputy Chairmen Paolo Savona (*) Paolo Cuccia (*) Managing Director Matteo Arpe (*)

Directors Silvio Bianchi Martini Pasquale Cannatelli Carlo Colaiacovo Roberto Colaninno Paolo Fresco Salvatore Mancuso Alfio Marchini Gabriel M. Marino Paolo Mariotti Ahmed A. Menesi Ernesto Monti (*) Massimo Pini (*) Alberto Rossetti Carlo Saggio Pierluigi Toti (*) Walter Vezzosi

Secretary Alberto Giordano

(*) Member of the Executive Committee.

BOARD OF AUDITORS

Chairman Umberto Bertini Auditors Franco Luciano Tutino Michele Galeotti Alternate auditors Francesco Colombi Stefano Ciccioriccio Marcello Mingrone

SENIOR MANAGEMENT

General Manager Carmine Lamanda Assistant General Manager Fabio Gallia Assistant General Manager Alberto Giordano Deputy General Manager Guido Bastianini Deputy General Manager Giuseppe Cannizzaro Deputy General Manager Jürgen Dennert Deputy General Manager Carmine De Robbio WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 67

Shareholders,

The year just completed marked the start of a phase of economic recovery after an extended period of stagnation. This recovery now shows signs of enduring.

Banks can play an important role in this cyclical turnaround, because they have supported the capacity of firms to respond and fostered the restructuring of the productive system. In the last few years, the supply of credit by Italian banks has been among the most advantageous in all of Europe in terms of availability, costs and quality of service.

The Group has played this role skillfully, identifying changes in the competitive context and the needs of business customers with the spirit of an organization whose “daily mission is change and innovation. Our commitment to this spirit is lent substance by a product range that offers an integrated response to the problems of growth, innovation and international expansion of enterprises. The goal is to ensure the stability of their financial structure and enable the changes in productive specialization and governance arrangements required by globalization.

In a context that is increasingly sensitive to competitiveness and consumer protection, banks are constantly being challenged to compete and ensure full customer mobility.

An innovative interpretation of this challenge that places the customer relationship at the center of a bank’s activity, together with initiatives to rationalize structures and strengthen operational arrangements, have made it possible to focus successfully on the Group’s specialist skills in offering products of excellence and innovative services, all of which are increasingly complete and easily accessible. The initiative to implement a “new concept of banking” is now a distinguishing feature of our operations, and the results we have achieved testify to the positive response of our customers, who have expressed their appreciation of the extraordinary scope of the transformation we have undertaken.

The ability to anticipate and interact successfully with the changing circumstances in the banking system has enabled us to transform constraints into opportunities.

The Group’s growth and results reflect the completion of the initiatives envisaged in the Business Plan. They enable us to regard the evolution of the competitive environment with confidence, sure of our ability to seize the opportunities that will be created with our future development projects, all directed exclusively at creating value for all of our stakeholders.

Rome, 19 March 2007

Cesare Geronzi C HAIRMAN

” WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf Shareholders,

We have completed a year of intensive work and excellent performance for the Capitalia Group.

The progress achieved by each company at the operational and structural levels and the effective guidance and control activity of the Parent Company have enabled us to expand our market share in Italy, raising revenue growth to the level of the leading market standards. At the same time, the risks we face are managed with great effectiveness, thanks in part to the upgrading of the risk assessment and management system.

The structural changes set out in the 2005-2007 Business Plan were completed “successfully, often ahead of schedule. The consolidation of the organizational and corporate restructuring with simpler, more streamlined governance arrangements, the centralization of common activities and technology infrastructure at the Group level, the further rationalization of processes in order to increase coordination and commercial effectiveness, the complete redesign of the range of projects by customer segment, and the expansion and renovation of distribution channels were all factors that played a role in increasing synergies among Group companies and raising overall service quality. The change and growth process has been accompanied by the full involvement of the trade unions, including participation in a major project to develop staff skills.

Performance in 2006 reflects these efforts: net interest income increased significantly; total revenues reached record levels; net income exceeded €1.1 billion. The targets for earnings per share and ROE set in the 2007 Business Plan have been revised upwards.

The customer-centered approach adopted by Capitalia at the end of 2005 is now fully incorporated within the Group’s way of doing business. It is a tangible reality, welcomed by customers, acknowledged by the financial community and imitated by competitors. With the “Cambia Tutto” project, which truly put the customer at the center of our attention, a network of professionals offers a broad range of relevant, innovative services, including on Saturday and at lunchtime. Services include tax, real estate and pension consulting, a consumer advice desk and event ticket sales. Once again, the improvement of our ability to satisfy customers was a key factor in achieving our growth goals.

The results achieved enabled Capitalia to post the largest gain in share price among the Italian banks and, for the fourth year in a row, made it one of the strongest performers in the European banking market.

Fitch Ratings increased its rating further and, with the issuing of a rating by Standard & Poor’s, Capitalia is now tracked by all of the leading international credit assessment agencies, with a consistent rating and stable outlook, confirming the recognition of the results achieved by the Group in terms of its capacity to generate profits and create value. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 89

The ultimate distinguishing feature of the Capitalia Group is the work of the more than 28,000 people who work here, and their daily effort to satisfy customer needs and outpace the competition.

The Capitalia Group has a clear cultural identity, a sound, competitive organization ready to face the challenges of the market. And we are determined to face them with the same passion and same pride that have inspired the restructuring, revival and change process of the past few years.

Rome, 19 March 2007

Matteo Arpe M ANAGING D IRECTOR ” WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

PROFILE OF THE CAPITALIA GROUP
two wholly-owned sub-holding companies, Capitalia Partecipazioni S.p.A. and Capitalia Merchant S.p.A., The Capitalia Group is composed of the Parent which are responsible for, respectively, the management Company, Capitalia S.p.A., and, in addition to many of strategic and non-strategic equity investments. other equity investments: Capitalia also directly owns stakes in the insurance
the retail banks (Banca di Roma, Banco di Sicilia companies CNP Capitalia Vita S.p.A. (the new name of and Bipop Carire, all wholly owned), which are entirely FinecoVita S.p.A. since 3 April 2006; 16.9%, total Group focused on customers and traditional banking holding of 38.8%) and Capitalia Assicurazioni S.p.A. (the activities through their local networks under their own new name of Fineco Assicurazioni since 29 November brands; 2006, of which it holds 49% following the transfer of 51% to Fondiaria-Sai).
the specialized banks and product development companies, which engage in more sophisticated credit The holding company structure for Capitalia S.p.A. set activities, including the new MCC (wholly owned) and out in the 2005-2007 Business Plan, which reinforced direct equity investments in banks and financial governance mechanisms even further, envisages that the companies under MCC, such as MCC Sofipa SGR S.p.A. Parent Company will directly guide the following new (renamed Capitalia Sofipa SGR S.p.A. as from 20 June lines of business: 2006); direct holdings in the banks and financial companies previously controlled by Fineco S.p.A., such
retail banks as FinecoBank S.p.A. (99.99%), Fineco Asset
specialized banks and product development companies Management SGR S.p.A. (renamed Capitalia Asset Management S.g.R. as from 1 January 2006) (100%),
corporate customers Fineco Investimenti Alternativi SGR S.p.A. (renamed Capitalia Investimenti Alternativi SGR as from 1 January as well as lending and finance policies and the 2006) (95%) and FinecoLeasing S.p.A. (99.99%); as well operational areas of Organization and Systems, Budget as Banca di Roma International SA (renamed Capitalia and Tax, Human Resources, Operations, and Legal and Luxembourg S.A. as from 15 June 2006) (99.99%, 1 Corporate Affairs. The Finance Area was strengthened share held by MCC) and Fineco Finance Ltd. (100%) with the transfer of MCC’s capital markets business abroad; (equity and fixed-income) to the Parent Company. Capitalia also has seven staff areas.
shared service companies (Capitalia Informatica, Capitalia Service JV, Capitalia Solutions), which provide A Management Committee has been established. Its specialized services to the entire Group; members are drawn from senior Group management and WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 10 11

they support the Managing Director in the development The indicator of the Group’s capital strength, the Tier of Group strategy. 1 ratio, stood at 6.2%. The total capital ratio was 9.2%.

The reorganization of operational functions involves Net borrowing from banks increased, rising from close guidance, coordination and monitoring of Capitalia €3,318 million at the end of December 2005 to €4,854 Solutions, which will be in charge of optimizing purchasing, million in December of last year. property and facility management, leveraging real estate holdings and supporting development plans at the Group Classified loans remained stable at €4,304 million in level. Similarly, Capitalia exercises governance functions December of 2006 (€4,298 million a year earlier). over Capitalia Partecipazioni and Capitalia Merchant.

Based upon the reclassified income statement, gross GROUP POSITIONING AND KEY GROUP income increased 7.2% with respect to 31 December INDICATORS 2005, benefiting from positive developments in almost all components of the item. This increase, despite a 2.5% At 31 December 2006, the Capitalia Group had rise in operating expenses, generated a gross operating shareholders’ equity of €9.7 billion, direct funding of € profit of €2,298 million, up 14.5%. 96.8 billion (6.7% of the domestic market), loans to customers of €96 billion (5.8%), assets under management Net writedowns and provisions amounted to €617 through Italian mutual funds of €31 billion (5%), more than million, compared with €591 million a year earlier. 2,000 branches in Italy, 5 million customers and more than Consolidated net income for the period was €1,162 28,000 employees. million, compared with €1,036 million in 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

CAPITALIA GROUP: FINANCIAL HIGHLIGHTS

Balance sheet (*) (millions of euros) at 31/12/2006 at 31/12/2005 % change Loans to customers 96,012 82,381 16.5% Financial assets 15,089 18,948 –20.4% Direct funding from customers 96,753 90,206 7.3% Net interbank borrowing (4,854) (3,318) 46.3% Shareholders’ equity (1) 9,717 8,780 10.7% Total assets 137,132 134,070 2.3%

Income statement (**) (millions of euros) at 31/12/2006 at 31/12/2005 % change Net interest income 2,837 2,534 11.9% Gross income 5,531 5,159 7.2% Total operating expenses (3,233) (3,153) 2.5% Gross operating profit 2,298 2,006 14.5% Provisions and adjustments (617) (591) 4.5% Net operating profit 1,680 1,415 18.7% Gains (losses) on disposals 143 83 72.6% Income tax (657) (461) 42.5% Net profit 1,162 1,036 12.2%

at 31/12/2006 at 31/12/2005 % change Number of employees (net of “other personnel”) 28,291 27,639 2.4% Branches in Italy and abroad 2,020 1,961 3.0%

(*) For the aggregation criteria adopted, please refer to the reconciliation table contained in the appendix. (**) Figures derived from the reclassified income statement; for the criteria adopted in preparing the reclassified statement, please refer to the reconciliation table contained in the appendix. (1) Shareholders’ equity at 31 December 2006 includes 1,593 million of goodwill arising primarily from the impact of the Capitalia Group reorganization operations authorized in 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 12 13

CAPITALIA GROUP: KEY FINANCIAL RATIOS

Performance indicators at 31/12/2006 at 31/12/2005 R.O.E. 15.4% 15.0% R.O.A. 0.8% 0.8% Net interest income/Gross income 51.3% 49.1% Total operating expenses/Gross income 58.5% 61.1% Total provisions and adjustments/Gross operating profit 26.9% 29.5%

Balance sheet indicators Bad debts/Loans to customers 3.5% 3.9% Classified loans /Loans to customers 4.5% 5.2% Direct funding with customers/Loans to customers 100.8% 109.5% Loans to customers / Total assets 70.0% 61.4% Financial assets/Total assets 11.0% 14.1% Shareholders’ equity/Loans to customers 10.1% 10.7% TIER 1 6.2% 6.1% Total capital ratio 9.2% 9.6%

Stock market indicators Earnings per share (euros) 0.45 0.41 Capitalia share price at end-period (closing price in euros at year end) 7.17 4.89 Shares in circulation at end-period (number) 2,595,439,085 2,511,134,376 Book value per share 3.7 3.5 P/E ratio 16.0 11.9 P/BV ratio 1.9 1.4

The performance ratios have been calculated on the basis of the figures derived from the reclassified income statement.

ROE was calculated based on net income and the book value of shareholders’ equity, net of goodwill and dividends.

The balance sheet ratios have been calculated on the basis of end-period book values. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

FINANCIAL HIGHLIGHTS OF THE MAIN GROUP COMPANIES

Balance sheet Capitalia Banca Banco Bipop-Carire MCC FinecoBank Fineco (millions of euros) S.p.A. di Roma di Sicilia Leasing Loans to customers 2,843 47,620 15,352 9,544 11,489 6,836 5,832 Financial assets 10,862 1,183 353 244 48 978 – Direct funding from customers 27,971 36,324 15,280 5,204 2,245 7,737 5,074 Net interbank position 11,206 (6,412) 1,560 (3,537) (8,412) 292 (526) Shareholders’ equity 8,683 5,092 1,347 1,001 954 313 131 Total assets 71,051 62,224 25,025 11,222 12,717 9,094 6,013

Income statement (millions of euros) Net interest income (265) 1,721 702 227 134 122 106 Gross income 1,821 2,804 1,062 444 248 290 118 Total operating expenses (405) (1,588) (698) (309) (105) (164) (26) Gross operating profit 1,416 1,216 363 135 143 126 92 Provisions and adjustments (183) (306) 2 (34) (38) (24) (36) Net operating profit 1,233 910 366 101 105 102 56 Gains (losses) on disposals 44 13 47 23 3 3 – Income tax 169 (411) (157) (50) (46) (40) (29) Net profit 1,447 514 256 74 62 65 27

Number of employees (net of inward secondments and “other personnel”) 1,196 12,932 6,565 2,794 746 763 127 Branches in Italy and abroad 1 1,157 531 325 2 1 –

The balance sheet figures were prepared in a manner consistent with the table contained in the appendix, The income statement figures derive from the reclassified income statement; for the criteria adopted in preparing the reclassified statement please refer to the reconciliation table contained in the appendix to the individual annual report. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 14 15

THE ITALIAN NETWORK

BANCA DI ROMA S.p.A., BANCO DI SICILIA S.p.A. AND BIPOP CARIRE S.p.A.

Banca di Roma S.p.A. Branches % 8 1 23 Total Italy 1,145 100.0 261 North 284 24.8 79 84 Center 553 48.3 151 South 308 26.9 58 65 29 10 Banco di Sicilia S.p.A. Branches % Total Italy 531 100.0 28 496 North 74 13.9 24 62 Center 29 5.5 144 South 428 80.6 14 5

Bipop Carire S.p.A. Branches % 6 Total Italy 325 100,0 North 307 94.5 Center 18 5.5 453 South – –

TOTAL Branches % Total Italy 2,001 100.0 North 665 33.2 Center 600 30.0 South 736 36.8 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

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GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

CAPITALIA S.p.A. MANAGEMENT (at 5 march 2007)

External CHAIRMAN Technical relations and Secretariat of communications the Chairman

Internal Auditing

MANAGING Risk DIRECTOR Measurement/ control G. Stinco

Investor Relations

Technical GENERAL Staff Research MANAGER V. Giacchè

Lending FinanceRetail Specialized Banks Corporate Organization Financial Human Operations Legal and Policies Banks and product and Systems Reporting Resources Corporate companies and Tax Affairs J. Dennert F. Candeli F. Geertman P. Peluso S. Sperzani G. Bastianini P. Rella G. Cannizzaro

Staff areas Business lines Operational areas WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 18 19

CAPITALIA S.p.A. SHAREHOLDERS

At 31 December 2006, the register of shareholders and other information showed that Capitalia S.p.A. had about 250,000 shareholders. The main shareholders are:

Number of shares % ABN-AMRO Bank (Luxembourg) S.A. (1) 117,133,575 4.51% ABN-AMRO Bank N.V. (1) 77,972,112 3.00%} 8.59% Algemene Bank Nederland B.V. (1) 28,114,964 1.08% Fondazione Cassa di Risparmio di Roma 130,409,704 5.02% Fondazione Manodori 107,072,401 4.13%

Fondiaria - Sai S.p.A. (2) 67,911,042 2.62% 3.51% Milano Assicurazioni S.p.A. (2) 23,184,363 0.89% } Regione Siciliana 73,746,225 2.84% Fondazione Banco di Sicilia 70,875,000 2.73% Libyan Arab Foreign Bank 66,873,409 2.58% Assicurazioni Generali S.p.A. (3) 60,997,877 2.35% Tosinvest S.A. (4) 54,633,051 2.10%

(1) Controlled by ABN-AMRO Holding N.V.. (2) Controlled by PREMAFIN FINANZIARIA S.P.A. Holding di Partecipazioni. (3) Indirect holding through: Agricola San Giorgio S.p.A., Augusta Assicurazioni S.p.A., BSI S.A., Genagricola-Generali Agricoltura S.p.A., Generali Vita S.p.A., Ina Vita S.p.A., Inf-Società Agricola S.p.A., Intesa Vita S.p.A., La Venezia Assicurazioni S.p.A., Nuova Tirrena S.p.A., and Toro Targa Assicurazioni S.p.A.. (4) Controlled by the SPA of Antonio Angelucci S.A.P.A. S.C.A.

At 31 December 2006 Capitalia S.p.A.’s share capital came to €2,595,439,085, divided into an equal number of ordinary shares with a par value of €1 each.

Please refer to the applicable section of the individual report for information on the Capitalia S.p.A. Shareholders’ Agreement. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

THE SHARE PRICE OF CAPITALIA S.p.A.

The following chart plots the performance of Capitalia shares in 2006 against the performance of the S&P/MIB index in the same period.

7.5

7

6.5

Capitalia 6

5.5

5 S&P/Mib Index 4.5

Jul-06 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06

RATING reflects the increased capacity of the bank to generate adequate revenues and the improvement in its risk The table below shows the ratings assigned to the management. The agency confirmed its individual and debt of Capitalia S.p.A. by the leading international support ratings at “B/C” and “2” respectively. rating agencies: At the same time, Fitch Ratings increased its rating Long Short IndividualOutlook term term of Banco di Sicilia, raising the long-term rating to “A” Fitch Ratings A F1 B/C stable from “A-” and the short-term rating to “F1” from Moody’s A2 P-1 C stable “F2”. The outlook is stable while the support rating is Standard & Poor’s A A-1 – stable equal to “1”.

On 13 November 2006 Fitch Ratings increased its Finally, Fitch assigned Banca di Roma and Bipop long-term rating of Capitalia (to “A” from “A-”) and its Carire ratings of “A” for the long term, “F1” for the short short-term rating (to “F1” from “F2”). The improvement term and “1” for support, with a stable outlook. The

WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 20 21

ratings assigned the banks reflect their close integration The governance model is based on the principles of within the Group’s risk management and funding policies, cohesion, collaboration and collegial decision-making. It as well as their strategic importance. encourages the exchange of information and analysis at all levels and fosters the creation of a shared corporate On 17 January 2007 Standard & Poor’s assigned culture, while respecting and leveraging the individual Capitalia S.p.A. a long-term rating of “A” and a short- features and specialist skills of all the Group companies. term rating of “A-1”, with a stable outlook. The ratings reflect the excellent diversification of its business model, The Parent Company is structured around Lines, Areas supported by the Group’s leadership position in central and Functions that, in each of their areas, perform Italy and Sicily, as well as the satisfactory level of governance for the structures of the Group companies, profitability. The agency also expressed its approval of enabling the dissemination of best practices and the strategy adopted to improve operating performance distinctive skills and maximizing synergies. The overall and enhance the risk profile. It also cited the steady coordination of the main Group companies is carried out growth in revenues, cost controls and the strengthening by specific Capitalia Lines/Areas. of the brand, underscoring the positive results achieved in loan management and monitoring and recovery The system of governance rules also emphasizes procedures. All these factors reflect management’s major collegial decision-making processes through a set of effort in the past four years to implement the ambitious operating committees: Management, Lending, Risk and plan for organic growth. Asset/Liability Management (ALM), Products, Expenditure, Special Finance, Privacy and Health and Safety. The stable outlook reflects Standard & Poor’s expectations of a further strengthening of the Group, in The Managing Director is also supported by a view of the significant growth potential in its customer Management Committee, whose members are drawn base and the improved perception of the brand. from senior Group management.

At the same time, Standard & Poor’s raised MCC’s On 24 July 2003 the Board of Directors of Capitalia long-term rating to “A” from “A-” and the short-term appointed Matteo Arpe, previously General Manager, as rating to “A-1” from “A-2“. The outlook remains stable. Managing Director and member of the Board of The new ratings are based on the company’s close Directors. The Managing Director is responsible for integration in the Group, its strategic role and the ensuring the implementation of the general operational positive results achieved by management. guidelines established by the Board, monitors operations at Group companies and the overall performance of the Group and verifies achievement of the objectives set out CORPORATE GOVERNANCE in the Business Plan. He submits operational projects and objectives, including medium-term goals, for the Group The activities and operational mechanisms of the and its companies to the Board. The Managing Director Capitalia Banking Group are based on a clear, consensus- also chairs the Management, Lending, Expenditure, driven governance model that ensures a balance Special Finance, and Risk and ALM committees. between the Parent Company’s guidance and coordination role and the independence and decision- The General Manager (Carmine Lamanda) oversees the making authority of each company. activities carried out by the Group structures that report to WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

GROUP PROFILE, STRATEGIES AND CORPORATE GOVERNANCE

him and assesses proposed decisions to be submitted to Pursuant to Article 17 of the bylaws, the Managing the Managing Director or other competent bodies. Director proposes the operations of corporate bodies, is head of human resources, shall decide on transfers and promotions – except as provided for in the second DELEGATION OF POWERS AT CAPITALIA S.p.A. paragraph of such article – and proposes such other measures concerning the Company’s personnel as have The Board of Directors is the central body within the not been delegated to him. Capitalia corporate governance system. In addition to the powers established in Article 17 of In application of Consob recommendation no. the bylaws, the Managing Director, within the framework 97001574 of 20 February 1997, the following specifies the of the strategies approved by the Board, is responsible delegation of powers attributed by the Board of Directors. for the guidance, coordination and control of the bank and the Group. The Managing Director is also The Executive Committee has been delegated responsible for: decision-making powers mainly regarding lending, operating expenditures and finance
proposing to the Board of Directors the general gui- delines for operations, the budget and the strategic plan Pursuant to Article 17 of the bank’s bylaws, in urgent of the bank and the Group; circumstances the Executive Committee may take decisions usually taken by the Board of Directors; upon a
monitoring operations and verifying the achievement recommendation of the Managing Director, the Chairman of the objectives established in the plan, including at the may take decisions usually taken by the Executive Group level; Committee or Board of Directors when these are unable to meet. The body that is normally responsible for such
proposing budget policy to the Board; decisions shall be informed at its next meeting.
overseeing the granting of credit and managing clas- The Board of Directors granted the Chairman and the sified loans; Managing Director the joint power to take decisions concerning the acquisition and disposal of equity
taking decisions in the manner and within the limits investments (meaning shareholdings classified in the of the powers established by the Board regarding len- “financial assets available for sale” and “financial assets ding, finance, spending and current operations; carried at fair value” portfolios) whose carrying amount in the most recent financial statements is less than 0.60% of
proposing to the Chairman the appointment of the Capitalia’s book equity, excluding transactions that would bank’s representatives on the management and control involve the recognition of the investment at a value bodies of subsidiaries. above that threshold. They were also delegated to carry out the other significant actions associated with The Managing Director reports periodically to the managing such investments. In addition, they were Board of Directors on operations and on the conformity granted the joint power to take decisions regarding the of results to budget forecasts and the Business Plan and, acquisition and disposal of companies or divisions with a at least every quarter, on activities carried out in the value of less than 0.60% of Capitalia’s book equity. performance of the duties delegated to him. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf REPORT ON OPERATIONS WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

TECHNICAL NOTE ON READING THE CONSOLIDATED ANNUAL REPORT

The consolidated annual financial statements of the letter no. 14824 of 5 January 2006. In this regard, taking Capitalia Group at 31 December 2006 have been further account of the fact that the insurance segment is prepared in conformity with the recognition and not represented in the Group and the negligible measurement criteria established by the International significance of the details concerning insurance Financial Reporting Standards (IFRS) and the International undertakings and other enterprises, the figures for 2005 Accounting Standards (IAS) issued by the International have not been broken down into the three segments. Accounting Standards Board (IASB) and endorsed by the European Commission under the procedure envisaged in In addition, the notes to the financial statements do Article 6 of Regulation (EC) No. 1606/2002 of the not contain the tables and columns regarding “insurance European Parliament and the Council of 19 July 2002 – undertakings” (except for a few concerning changes in and in accordance with the provisions of the Bank of Italy the year), since no insurance undertakings are fully circular no. 262 of 22 December 2005 containing consolidated at 31 December 2006. instructions on the format and rules of preparation of bank financial statements (1). The regulation has been fully The international accounting standards adopted are transposed into Italian law following the enactment of indicated in Part A “Accounting policies” of the Notes. Legislative Decree 38 of 28 February 2005, which came into force on 22 March 2005. The latter establishes, The report on operations contains the Group’s among other provisions, that companies whose financial balance sheet and income statement as well as the report instruments are listed on regulated markets must prepare on the performance of the principal subsidiaries. their consolidated financial statements in conformity with international accounting standards as from the 2005 At 31 December 2006 the Capitalia Group consisted financial year, and banks may also draft their statutory of Capitalia S.p.A. (the parent company) and the direct or accounts in conformity with those standards. indirect subsidiaries engaged in banking, finance and ancillary operations. The formats adopted comply with those set out in the Bank of Italy Circular no. 262 of 22 December 2005. The In order to ensure that the 2006 figures are as comparative figures are those already published for 2005 comparable as possible with those at 31 December 2006, and therefore do not include the tables for which the the reclassified income statement for 2005 was Group had chosen to apply the options permitted under reconstructed to take into account changes in the scope the transitional provisions contained in the Bank of Italy’s of consolidation that occurred in 2006.

(1) Account was also taken of the “Operating Guidelines for the Transition to IAS/IFRS” drafted by the Organismo Italiano di Contabilità (Italian Accounting Board). The final version of the guidelines was approved on 16 September 2005 and published on 6 October 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 24 25

Pursuant to Consob regulations (Communication Pursuant to Consob Notice DEM/6064293 of 28 July 91001574/97 and Resolution 10867/97) and in 2006, this report contains tables reporting the following: execution of the resolution of 20 April 2006 of the
transactions with related parties; Parent Company’s Shareholders’ Meeting, Reconta
significant, non-recurring events and operations. Ernst & Young S.p.A. has audited both the consolidated and statutory separate financial statements at 31 Detailed information on Group equity investments is December 2006. provided in an Annex to this report. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

ECONOMIC AND REGULATORY CONTEXT

THE MACROECONOMIC BACKGROUND the recovery in industry associated with the continuation of restructuring and selection of companies, while The world economy continued to expand in 2006. consumption was favored by low inflation, the partial The divergences in the rate of GDP growth in the major recovery of purchasing power in certain segments thanks to industrial areas narrowed: growth accelerated in the euro contract renewals and the positive trend in employment. area and the United Kingdom but slowed in the United States, reflecting the pronounced weakening in the Exports also performed well, but their contribution to property market, and consolidated in Japan. The growth was offset by an equivalent rise in imports, which emerging economies, especially China and India, made reflected the jump in the price of energy products. a substantial contribution to global development, Growth was fastest in the first and second quarters, expanding by close to 10%. slowing in the second half of the year. The deceleration was primarily attributable to the strengthening of the The persistence of the favorable phase of the euro and the slowing of growth in the world economy. business cycle and the rising prices of raw materials caused consumer price inflation to pick up in the main Last year ended on a positive note for the main stock industrial countries. In order to prevent inflationary exchanges, which consolidated the record levels pressures from impacting longer term expectations, the achieved in the last five and a half years and maintained central banks tightened their policy stances. their robust upward trend. European equity markets posted the largest rise (about 19.6%), while the S&P 500 In Italy, 2006 closed with the highest growth rate in five in the United States showed a gain of 12.2%. After a long years, with GDP expanding by 1.9%. Growth was driven period of uncertainty, Tokyo investors began to buy primarily by domestic demand, with strong performance of again, with a rally in the final weeks of the year that investment in the first half of the year and household erased earlier losses and enabled the stock market to consumption in the second. Investment was boosted by post a gain for the year of about 7.2%. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 26 27

FIGURE 1 – PERFORMANCE OF EQUITY MARKETS

1,600 500

1,500 450

1,400 400 1,300 350 1,200 300 1,100 250 900 200 800 S&P 500 COMPOSITE – PRICE INDEX 150 700 DJ EURO STOXX – PRICE INDEX 100 600

jun-98 jun-06 dec-97 dec-98 jun-99 dec-99 jun-00 dec-00 jun-01 dec-01 jun-02 dec-02 jun-03 dec-03 jun-04 dec-04 jun-05 dec-05 dec-06

Source: Datastream.

BANK INTEREST RATES ECB were raised by a quarter of a percentage point no fewer than five times, bringing the rates to 3.5% and In the United States, the Federal Reserve raised its 2.5% respectively. target for the federal funds rate by 25 basis points four times in the first half of 2006, bringing it to 5.25% in Over the course of the year, bank interest rates were June. With the emergence of signs of slowing growth gradually raised in line with the increase in official rates. In in the US economy, the Fed interrupted the series of December, the average 1-year lending rate applied by rate hikes in the second half of the year. In the euro banks to households and businesses was 5.92%, up from area, the strenthening of signs of recovery and the 5.26% at the end of 2005. The average deposit rate for intensification of price strains prompted the European households and businesses also rose, ending the year at Central Bank to continue the monetary tightening 1.45% (0.95% at the end of December 2005). The short- begun in December 2005. The minimum bid rate on term spread therefore widened to 4.47 percentage points main refinancing operations and that on deposits at the at the end of the year (4.31% at end-2005) (Figure 2). WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

FIGURE 2 – DEVELOPMENTS IN SPREADS ON SHORT-TERM BANK RATES (percentage points)

Bank rates Spread

9.5 5.2 1-year lending rate for households and non-financial firm deposit rate for households and non-financial firm 5.0 8.0 short-term interest rate spread 4.8 6.5 4.6 5.0 4.4 3.5 4.2

2.0 4.0

0.5 3.8 g f m a m j j a s o n d – g f m a m j j a s o n d – g f m a m j j a s o n d – g f m a m j j a s o n d 03 04 05 06

Source: Bank of Italy.

The wider differential is entirely due to the increase in the mark-down (73 basis points on December 2005), which more than offset the decrease of 57 basis points in the mark up (Figure 3).

FIGURE 3 – DEVELOPMENTS IN THE MARK-UP AND MARK-DOWN (percentage points)

6.0

mark up

5.0 mark down

4.0

3.0

2.0

1.0

0.0

g f m a m j j a s o n d – g f m a m j j a s o n d – g f m a m j j a s o n d – g f m a m j j a s o n d 03 04 05 06

Source: Bank of Italy, ABI. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 28 29

BANKING increased more rapidly in the South, although the pace was slower than in 2005. In line with developments in the euro area, direct Loan quality showed no signs of deterioration, funding (deposits and bonds) expanded rapidly, albeit benefiting in 2006 from the buoyancy of economic somewhat slower than in 2005 (an annual rate of 7.8% in activity and the low level of interest rates, with a further 2006, compared with 8.6% the previous year). The reduction in the mark-up. growth in funding was boosted by the enduring preference for liquidity, despite the rise in official rates, and the interest of investors in low-risk bonds. ASSET MANAGEMENT

One of the drivers of the growth in funding was the Last year ended with the worst performance of recovery in repurchase agreements, which offered higher investment funds in history. Despite the improvement in yields than current accounts, and the continued strong market performance in the second half, net annual growth of the bond segment (an annual rate of 10.4% in funding was sharply negative, with net redemptions of December 2006). more than €17,000 million.

The weakness of the investment fund segment was With lending expanding more rapidly than funding, in partly associated with the performance of the financial 2006 Italian banks increased their net external liabilities. markets, which in the first half penalized first the bond market and then equities, against a background of The recovery in economic growth in the first half uncertainty surrounding inflation expectations and the of 2006 fueled the expansion in bank lending: in tightening of monetary policy. The industry continued to December lending was up 11.2% year-on-year, register substantial net outflows, even during the compared with 8.6% in December 2005. The pick-up in subsequent revival of financial markets. bank lending was primarily connected with business demand, which more than offset the slight deceleration This performance affected net assets, which after the in lending to consumer households associated a strong growth registered between February and April number of securitizations, the slowdown in the real ended the year with annual growth of 4.2%, compared with estate market and the rise in interest rates. On a 8.7% at the end of 2005. Roundtrip funds posted positive geographical basis, loans to customers in Southern Italy (albeit less vigorous) performance (10.7% at end-2006, expanded especially rapidly, driven by business compared with 23% a year earlier), while Italian funds lending, which grew at nearly twice the pace of lending contracted sharply (down 7.7% in December, compared in the Center and North. Lending to households also with growth of 3.3% at the end of 2005) (Figure 4). WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

FIGURE 4 – DEVELOPMENTS IN INVESTMENTS FUND ASSETS (year-on-year of change)

30

20

10

0

Total total Italian funds –0 totale roundtrip funds

–20

Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 jun-06 Sep-06 Dec-06

Source: Assogestioni

THE REGULATORY FRAMEWORK the competitiveness of the Italian banking system and financial market within a context of a market open to The Interministerial Committee for Credit and Savings cross-border competition and characterized by rising partially repealed (with a resolution of 22 February 2006, “competition between legal systems”. On 28 March published in Gazzetta Ufficiale no. 68 of 22 March 2006) 2006, the Bank of Italy consequently approved the 11th the Treasury decree no. 242630 of 22 June 1993 update of its supervisory instructions for banks, repealing concerning medium/long-term operations, eliminating Chapters 6 and 7 of Title IV concerning, respectively, limits on maturity transformation, which had been “medium and long-term lending to enterprises” and established in order to restrict the use of the less stable “restrictions on maturity transformation”. However, the component of funding to finance medium/long-term repeal of these provisions does not exempt banks from lending. The repeal was motivated by the consideration having to establish appropriate arrangements to monitor that the development of financial markets, the and manage risks in respect of maturity mismatching and diversification and stabilization of sources of funding, as those implicit in lending to businesses at medium and well as more sophisticated techniques for the integrated long term. management of assets and liabilities enables banks to independently control the risks related to the maturity Law 52 of 24 February 2006 introduced reforms to the mismatch in cash flows and the financing of productive rules governing enforcement orders regarding moveable investments. The action also aims to eliminate binding assets and completed a series of legislative changes rules and regulations that are not based on harmonized relating to enforcement proceedings made in 2005. Community rules, which could have a negative impact on Published in Gazzetta Ufficiale no. 49 of 28 February WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 30 31

2006, the law strengthens the powers of initiative of the adopt national regulations implementing the European judge and court officials in enforcement proceedings legislation, whose rules will apply to banks and and, at the same time, introduces innovations to the legal investment firms as from 2007. For more advanced process. Important new elements introduced by the law methods the rules will enter force on 1 January 2008. include the cooperation of debtors in enforcement However, Directive 2006/48/EC grants the option of procedures; the right of the creditor to take part in the continuing to apply current prudential regulations until attachment of assets; and an expansion in the range of the end of 2007. In July 2006 The Bank of Italy initiated a assets liable to attachment. consultation with financial and bank intermediaries on the transposition of the European rules, publishing the The Bank of Italy’s Circular no. 155, “Instructions for draft supervisory instructions for the Advanced the compilation of supervisory reports on regulatory Measurement Approach (AMA), disclosure (the Third capital and capital ratios”, issued at the beginning of Pillar of Basle 2), the internal ratings method for April, completed the process of bringing the rules for calculating capital requirements for credit risk, regulatory capital and capital ratios into line with compliance, credit risk mitigation and securitization, the IAS/IFRS. Central to the modification of the rules was the supervisory review process and the determination of introduction of so-called “prudential filters”, the purpose adequate internal capital. of which is to safeguard the quality of regulatory capital and attenuate the potential volatility introduced by The activities of the ABI PattiChiari Consortium IAS/IFRS. The modifications accord with the included the start, on 15 June, of the ninth initiative recommendations made by the Basle Committee and the (Comparing financial investments: understanding and Committee of European Banking Supervisors (CEBS). choosing financial products) and, on 15 October, the tenth initiative on the procedure for closing current As regards the reorganization of the system for public accounts in the light of the ratification of Decree Law 233 incentives for firms, on 13 July Cassa Depositi e Prestiti, of 4 July 2006 concerning the unilateral alteration of the Ministry for Economic Development and the banks contractual terms and conditions. (which had already been assessing applications for capital grants, disbursing the funds and monitoring On 28 July, Consob, in response to the outcome of investments subsidized pursuant to the provisions of Law discussions of the document “International Accounting 488/1992 under an agreement with the Ministry) entered Standards: company financial statements. Company into agreements to manage and disburse ordinary and information” dated 10 March 2006, published a series of subsidized loans under this system. measures concerning the disclosures companies must supply in respect of transactions with related parties, The new international capital adequacy rules issued significant non-recurrent events, positions and by the Basle Committee on Banking Supervision (the transactions deriving from atypical and/or unusual Capital Accord) were transposed into EU law with operations, alternative performance indicators and press Directives 48 and 49 of 14 June 2006, which replace, releases. On 23 October Borsa Italiana’s update of the respectively, Directive 2000/12/EC relating to the taking instructions to the market rules concerning the format of up and pursuit of the business of credit institutions and announcements of price sensitive information entered Directive 93/6/EEC on the capital adequacy of into force. The changes take account of Consob’s July investment firms and credit institutions. By the end of communication concerning press releases issued in December 2006 the Member States are required to conjunction with the approval of periodic financial WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

reports. Specifically, modifications were made in the light Istat of the list of institutional entities that form part of the of the new IAS/IFRS regarding, for example, income public sector, the establishment of electronic money components generated by non-recurring events or institutions, and the recent classification of Cassa transactions. The request for information concerning the Depositi e Prestiti as a monetary financial institution. financial indicators used by companies (calculation method) was also eliminated, given that Consob – where Decree Law 297 of 27 December 2006, which entered a company uses alternative performance indicators – force on that date, transposed the Community directives requires compliance with the CESR recommendation of concerning the Basle Capital Accord. The decree contains November 2005. measures amending the 1993 Banking Law, with specific regard to disclosure, risk assessment and supervision on a Law 248 of 4 August 2006, which ratified Decree Law consolidated basis, as well as amendments of the 223 of 4 July 2006 containing urgent measures for Consolidated Law on Financial Intermediation. The economic and social revival, the containment and changes regard cases in which it is necessary to extend rationalization of public expenditure and actions involving the regulatory powers of the credit authorities and the tax revenues and countering tax evasion, also introduces new areas created with the directives, bringing existing tax measures concerning corporate income, corporate provisions into compliance with the new regulations. operations, taxation of employee compensation and Technical and prudential rules are to be established in others aimed at fostering greater competition and specific resolutions of the Committee for Credit and competitiveness. As regards consumer protection Savings and the instructions of the Bank of Italy. legislation, Article 118 of the 1993 Banking Law (unilateral alteration of contractual terms and conditions) was In this regard, the Bank of Italy issued Circular 263 of amended in a manner more favorable to customers. 27 December 2006 containing new regulations for the prudential supervision of banks, which have been in force On 28 August the Bank of Italy issued supervisory since 1 January 2007. With specific regard to disclosure regulations concerning prior authorizations that amend the concerning strategies, risk control and internal rules governing acquisitions of equity investments in banks organization, which had not previously been subject to and parent holding companies in implementation of prudential supervision, the relevant provisions of law have Article 19 of the Banking Law. It is no longer compulsory to been amended to give the regulatory authorities notify the Bank of Italy of planned acquisitions of a appropriate powers. As regards risk assessment systems, controlling interest before such plans have been submitted in order to increase the sensitivity of capital requirements for approval to the competent corporate bodies. In the to risk, banks may use internal measurement systems. case of operations to acquire control of a bank or a parent However, such use is subject to prior approval of the holding company, the request for authorization must be supervisory authorities. Banks and financial intermediaries submitted to the Bank of Italy in a timely manner once the may also use external rating agencies that meet certain decision to proceed with the operation has been taken by eligibility requirements. Finally, supervision on a the competent corporate bodies. consolidated basis has been expanded and strengthened, including at the international level, and asset The Bank of Italy, with the second update of 26 management companies have been included among September of circular no. 140/1991, revised the financial companies. Other changes include the extension classification of customers by sectors and groups of of consolidated supervision to cover electronic money economic activity in relation to the annual publication by institutions, the automatic attribution of the status of WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 32 33

banking group even where the parent undertaking is a published on 10 January 2007 in Ordinary Supplement financial company and the group contains at least one no. 5 of the Gazzetta Ufficiale, Serie Generale, no. 7. bank, and the establishment of specific regulations for coordinating the roles of supervisory authorities in The Savings Law introduced a range of major changes performing supervision of large international groups. to company law, the regulations governing supervisory authorities and those governing listed issuers. They Law 296 of 27 December 2006 containing measures include: the repeal of the limit of 30% on the voting rights for the formation of the annual budget and long-term of bank foundations in the ordinary and extraordinary budget projections of the State, passed on 21 December shareholders’ meetings of the banks spun off from the 2006, enacted the 2007 Finance Law, published in foundations in order to encourage this form of institutional Ordinary Supplement no. 244 to the Gazzetta Ufficiale investment and give banks a stable shareholder base; the no. 299 of 27 December 2006. The provisions concerning introduction of new corporate governance rules, such as tax matters include changes to personal income rates the elimination of secret voting in elections of corporate and brackets, a revision of tax deductions and allowances officers, an increased number of independent directors, and changes in the amount of family allowances. more stringent restrictions on the participation of minority interests in the election of directors, with a view to Among initiatives to improve the guarantee system of enhancing investor protection. As regards stock option the Eurosystem, the Governing Council expanded the plans, the information that the company must disclose is range of eligible assets for refinancing operations, specified, with Consob assigned responsibility for including bank loans. The new unified system is based on monitoring its completeness. Consob has been granted a common valuation scheme that will enter operation as new powers, including supervision of financial insurance from 2012. From 1 January 2007 an interim system has products. New rules have been introduced concerning the been operating, under which a number of national duties of “managers responsible for preparing corporate central banks grant eligibility to loans with a minimum accounting documents”, who are required to establish value of €500,000, while the Bank of Italy has raised this appropriate administrative and accounting procedures for threshold to €1 million. Counterparties are not subject the preparation of the statutory annual financial statements limits concerning the use of such instruments. Borrowers and, where applicable, the consolidated financial with eligible loans under the specified ECB criteria must statements as well as all other forms of financial also possess a high credit standing. communication”, in addition to rules concerning the activity of auditing firms, with a view to enhancing their On 25 January 2007 Legislative Decree 303 of 29 independence. December 2006 containing provisions coordinating the texts of the 1993 Banking Law and the Consolidated Law Among the various amendments made to the Savings on Financial Intermediation (the “Financial Services Law”) Law, the Coordination Decree shifted the deadline for with the provisions of Law 262 of 28 December 2005” implementing the changes to bylaws required under the (the “Coordination Decree”) entered force. The measure new regulations from 12 January to 30 June 2007 and sets brings the Banking Law, the Financial Services Law and 31 March 2007 as the deadline for Consob to issue other special laws into line with the regulations implementing regulations. Changes were also introduced introduced in the 2005 reform in order to ensure to the provisions of Article 53 of the 1993 Banking Law compatibility with Community legislation and the governing the granting of credit to shareholders, consistency of the system. The Coordination Decree was replacing – compared with the Savings Law – the detailed WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

list of persons considered to be connected with the bank As regards the regulations governing the obligations with the more generic definition of “persons in a position of bank officers, the Coordination Decree amends Article to exercise directly or indirectly an influence over the 136 of the Banking Law, narrowing with respect to the management of the bank or the banking group or persons Savings Law the range of actions requiring prior that are connected with them”. Paragraph 4-bis of Article authorization. Specifically, it removes obligations 53 was repealed. It had given the Bank of Italy the power between: i) associated companies and subsidiaries of to specify both the conditions for and limitations on the bank officers and companies in which bank officers acquisition of risk assets in respect of connected persons. perform administrative, managerial or control functions; The amendments also extended the provisions of ii) contracts between companies belonging to the same paragraph 4-quater of Article 53 to other types of financial banking group; and iii) contracts between banks in relationship in addition to banking activity. respect of transactions on the interbank market. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 34 35

GROUP ACTIVITIES

IMPLEMENTATION OF 2005-2007 BUSINESS PLAN assets under the centralized control of the Parent Company, by setting up Capitalia Solutions to handle In 2006, the Capitalia Group essentially concluded purchasing, logistics and property services and by the restructuring work envisaged in the Business Plan improving the quality of loans; 2005-2007, and achieved better-than-expected results ahead of schedule. 5. growth, with initiatives aimed at all customer segments. It was also a year that saw the Group take on a new challenge. In the light of the extremely good financial From the second half of 2005, the restructuring and and commercial results, the Group decided in September efficiency-improvement activities listed above were 2006 to adopt an even more ambitious Business Plan for begun and rapidly completed. Other initiatives for 2007, and, in particular, to raise its dividend target from structural revenue growth, the control of administrative €0.51 to €0.55 per share and its ROE from 16% (already costs, the reduction of lending costs and the continuous achieved 18 months ahead of schedule) to 18%. refining of lending policies are currently being developed and extended, and are generating excellent results. The five pillars or the 2005-2007 Business Plan are as follows: The most innovative component of the Business Plan is the “Delta2” project (which in December 2006 was 1. the organizational and corporate rationalization and incorporated into the new “Cambia Tutto” project). simplifying of the Group to achieve cost and revenue “Delta2” promotes an innovative marketing approach to synergies and streamline decision-making processes; meeting the needs of customers. Not only was it already fully operative from the end of October 2005, it has since 2. the reinforcement of the Group’s corporate become an integral part of the Group’s approach to governance capabilities, the improved distribution of business. Customers have shown their appreciation of this managerial skills through the Group and the injection of “new way of banking”, which caters to more than just the significant investments in human resources; financial needs of the members of the public. The project has radically changed customers’ perceptions of the Group. 3. the development of the local branch network with the opening of more than 300 new branches by 2008, and From the start of 2006, several key Group the rationalization of the bank’s presence in areas of the rationalization projects envisaged in the Business Plan country where it is less well established; were put into effect, most notably:

4. cost control, primarily through the reorganization of
the partial non-proportional transfer of MCC opera- the Group’s functional activities by putting real estate tions to Capitalia S.p.A.; WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

the merger of Capitalia L&F into MCC, resulting in any other not falling within the two groups described the creation of a “new MCC”, specializing in highly so- below; phisticated lending activities;
the concentration in Capitalia Partecipazioni S.p.A., a
the partial transfer to Capitalia of the real estate wholly-owned Group subsidiary, of strategic investments holdings of Banca di Roma, Banco di Sicilia, Bipop Carire in non-Capitalia Group companies (Mediobanca, Assicu- and Capitalia L&F; razioni Generali, Camfin, Pirelli & C., RCS Mediagroup, Gemina, Investimenti Infrastrutture). No change was ma-
the partial transfer to Capitalia Solutions (formerly de to the rule governing strategic equity investments gi- Immobiliare Quadro) of the procurement and property ving Capitalia S.p.A.’s Board of Directors authority over and facility management operations of Banca di Roma, transfers of shareholdings with a book value (as reported Banco di Sicilia and Bipop Carire. in the most recently approved financial statements) of greater than 0.60% of the book value of the Parent Com- These operations came in the wake of the merger of pany’s shareholders’ equity; Fineco into Capitalia, with effect for tax purposes as of 1 January 2005.
the concentration in Capitalia Merchant S.p.A., ano- ther wholly-owned subsidiary of the Group, of all non- Work was also completed on optimizing the Group’s strategic equity investments and its shares in closed-end equity investments, a process that got under way in late investment funds to be managed with a view to develo- 2005 and was largely complete by June 2006. For the ping and later selling them over the medium term. purpose of repositioning the Groups portfolio of investments, two special purpose vehicle companies The Group companies that transferred equity were formed, Capitalia Partecipazioni S.p.A. and investments are: Capitalia, Banco di Sicilia, Bipop Carire, Capitalia Merchant S.p.A., and assigned the task of Banca di Roma, Capitalia Luxembourg, FinecoBank and holding strategically important equity investments that Irfis. The operation will give a clearer picture of their do not consist of shares in Group companies, as well as results, which are no longer influenced by the volatility of non-core investments held for sale in the medium term. the performance of the financial markets, the impact of The rationalization, which was designed to exploit which is now concentrated within dedicated structures. operational synergies and tighten the focus on each Group company’s corporate mission, led to the following The Group moved forward during the year with organizational and investment structure: initiatives to improve the distribution of human resources with the aim of strengthening branch offices with
Capitalia S.p.A. and the Group banks retain their in- reference to the organizational and corporate vestments in subsidiaries and associates, “institutional” restructuring at a Group level set out in the Business Plan. (including Enciclopedia Treccani and IEO) or “system” The Group also advanced its professional training shareholdings, those with territorial importance or of an programs. The year saw a continuation of the drive to instrumental nature with regard to specific operations, rejuvenate the workforce through the targeted selection as well as equity investments in companies whose ope- of new employees. rations have been or are scheduled to be discontinued (due to bankruptcy or liquidation), shareholdings con- As regards the expansion of the bank network, Banca nected with significant credit exposures, in addition to di Roma, Banco di Sicilia and Bipop Carire opened a total WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 36 37

of 92 new branches and closed down 27. On 31 given to the development of an innovative range of December 2006, the number of Group bank branches in products for young people and ethnic groups. As regards operation was 2,001, giving Capitalia comprehensive and the corporate segment, the Group undertook new balanced coverage of the entire country with 665 initiatives mainly consisting of support and assistance to branches in the north, 600 in the centre and 736 in the small and medium-sized enterprises (SMEs). south. Including other Group companies and branches abroad (14 offices), the total number of branches in In 2006, the Group made significant improvements in operation was 2,020, plus 8 representative offices. The its market share of customer lending and customer expansion of the national branch network will continue in funding. 2007 in line with the Business Plan. With reference to highly innovative commercial The reorganization of the management of the Group’s activities, the “Cambia Tutto” project brought in functional activities is fully under way. The aim of the excellent results regarding both the company image and reorganization is to strengthen the Group’s operative financial yields. The project has allowed Group banks to control over its real estate assets and the cycle of offer customers a growing array of new service that are procurements. Governance and strategy responsibilities unique in the banking world. At the end of 2006, more have been transferred to the Parent Company and, since than 300 branches were offering customers advice on 1 January, Capital Solutions has been in charge of tax, social welfare and pensions, facilitating meetings providing Group banks and other companies with a with consumer associations and real estate agents, global solution for the supply of goods and services and distributing tickets and official forms and providing other real estate management. This initiative has made it services. More than 320 branches now remain open on possible to exert rigorous control over administrative Saturdays and at lunchtime. “Cambia Tutto” enabled the spending, and furthers the project to expand the national Group to attract new customers and deepen the loyalty branch network through the purchase, sale and of existing customers. restructuring of outlets. The collaboration with the consumer associations that The Group is engaged in the progressive application began in 2004 with the “Investment Protection” of internal rating systems based on the new Basle 2 rules program, continued in 2005 with the formation of a for its loan origination and management, which is in any permanent working group and, in July 2006, Capitalia case undergoing a complete overhaul. With regard to the became the first bank in Italy to adopt a Charter of monitoring and improvement of asset quality, Capitalia Commitments and a Conciliation Procedure for all continued to strengthen processes and the related customers of the retail banks. The number of information instruments used for the evaluation of performance risk. requests and suggestions made in the branches to the 14 The Group companies specializing in credit recovery Associations as part of the Dialogue Project increased. activities achieved considerable success in the The number of contacts (around 22,000 queries management of portfolios. registered by the IT system, the only of its kind in Italy, which Capitalia developed to offer advisory services to In the framework of the initiatives to boost organic around 20,000 customers) and the variety of the queries growth in Group revenues (Capitalia achieved revenue made, especially regarding hones, warranties on growth of more than 7% in 2006), and with reference to products, dealings with government offices and the retail customer segment, particular attention was insurance, all testify to the success of the “Cambia Tutto” WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

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project. No only does Cambia Tutto put the customer
a stronger macroeconomic environment in terms of first, it extends the benefits of advisory services from interest rates, broader short-term spreads and stronger specialist partners also to non-customers, and answers demand for credit; their non-banking needs.
lower lending costs, thanks both to the progressive In 2006, Capitalia’s further strengthened its improvement of asset quality by means of strict loan commitment to customers with the launch of several new management and to higher writebacks on assets. initiatives: These factors prompted us to raise our targets for 2007.
The “Consumers’ Desk Online” which allows people to post online questions to experts based in our Recognizing the results achieved by management over branches; the last four years in bringing an ambitious development plan to fruition, on 17 January 2007 Standard & Poor’s
Education Projects, involving meetings held on assigned Capitalia S.p.A. a long-term rating of “A” and a Saturday mornings in some bank branches with experts short-term rating of “A-1”. The ratings reflect the excellent from civic associations who provide advice on consumer diversification of its business model, supported by the affairs (homes, shopping, tourism). The projects were Group’s leadership position in central Italy and Sicily, as previously tried out in elementary and high schools as well as the satisfactory level of profitability. The agency well in several universities, and will continue in 2007; also expressed its approval of the strategy adopted to improve operating performance and enhance the risk
the placement of mailboxes in bank branches so that profile. It also cited the steady growth in revenues, cost customers may leave questions for experts if a meeting is controls and the strengthening of the brand, underscoring not possible on the same day; the positive results achieved in loan management and monitoring and recovery procedures. The stable outlook
the launch of the website www.cambiatuttogiovani.it, reflects Standard & Poor’s expectations of a further which is intended for young people under the age of 30, strengthening of the Group, in view of the significant whether or not bank customers. The portal, which growth potential in its customer base and the improved intensifies the bond between Capitalia and the world of perception of the brand. At the same time, Standard & young people provides useful tips about university, jobs, Poor’s raised MCC’s long-term rating to “A” from “A-” and the main cultural events taking place up and down the the short-term rating to “A-1” from “A-2“.The new ratings country. It also has exclusive offers for registered members. are based on the company’s close integration in the Group, its strategic role and the positive results achieved The success of “Cambia Tutto”, whose potential by management. The outlook remains stable. benefits were not included in the original Business Plan 2005-2007 (though the investment and other costs were), was one of the drivers behind the better-than-expected OTHER SIGNIFICANT EVENTS IN 2006 results for the year, along with other factors such as: On 14 February, the main companies in the Capitalia
lower funding costs, thanks partly to the policy of Group signed an agreement establishing which Group placing own bonds and partly to the higher rating financial indicators would be used to determine the awarded in September 2005 by Fitch; corporate bonus. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 38 39

On 22 February 2006, Fitch Ratings raised its rating acquisition of 2.02% of the ordinary share capital of for Class B Trevi Finance, Class B Trevi Finance 2 and Banca Intesa. In November, it disclosed that it had Classes A and B of Trevi Finance 3. Specifically, the reduced its interest to less than 2%. international agency raised the rating of: On 10 May, Capitalia completed the sale to Sanpaolo
Trevi Finance Class B from A to AAA; IMI S.p.A. of its entire equity investment in Banca Italo Albanese ShA, equal to 40% of capital and consisting of
Trevi Finance 2 Class B from A to a AAA; 62 shares. On the same date, the acquiring party, having already made an advance payment of $4,086,541.44 on
Trevi Finance 3 Class A from AA- to a AA; 7 December 2005, paid $18,116,092.08 in a second installment towards the settlement of the agreed sale
Trevi Finance 3 Class B from A- to A. price, inclusive of the net income accrued until 31 March 2006. As soon as the accounts of the investee at the As regards credit recover activities in 2006, the closing date have been finalized, the final price will be securitization operations managed by Capitalia Service adjusted to take account of the net income accrued JV increased by 11.5 % with respect to 2005. An between 31 March and 10 May. The capital gain for the independent report published in January 20007 by Group was around €10 million. Finanziaria Internazionale Securitization Group, indicates that total collections amounted to €508.2 million On 20 April, an Ordinary Shareholders’ Meeting compared with €455.6 million in 2005, and specifically: convened to examine, as required by law, the position of Group Chairman Cesare Geronzi who, on 21 February
Trevi Finance collected €137.4 million (+5.5 % on an 2006, was served with a writ temporarily disqualifying annual basis); him from the exercise of managerial functions on behalf of legal persons or companies by the office of the
Trevi Finance 2 collected €207.6 million (+12.7 % on magistrate for preliminary investigations of the Court of an annual basis); Parma. The writ refers to the Parmatour and Ciappazzi case, which dates back to 2002. Shareholders resolved
Trevi Finance 3 collected €163.2 million (+15.7 % on not to relieve Mr. Geronzi of his functions. The same an annual basis). meeting confirmed the appointment of Pasquale Cannatelli as a member of the Board of Directors to In addition, settlements were made for 1,916 replace Antonio Belloni, who resigned on 10 February Discounted Pay-Offs, an increase of 6% compared with 2006 after the Toro Group reduced its level of 2005. The real estate trading vehicles belonging to the participation in the Shareholders’ Agreement, and Group took part in 451 auctions, raising €100.8 million, renounced its right to be represented on the Capitalia 5% higher than in 2005. The profitability of credit Board. recoveries (percentage of their gross value on the date of securitization) remained at 61%, above the historical The Shareholders’ Meeting also voted to engage value of 58%. Reconta Ernst & Young S.p.A. to audit the financial statements for the current year and for the consolidated On 10 March, Capitalia announced that, pursuant to financial statements for 2006 to 2011, pursuant to Article the law, it had notified Consob and Banca Intesa of its 18 of Law 262/2005, and to carry out a limited audit of WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

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the semiannual financial reports, including the the Parent Company and the Group’s banks. The Report consolidated statements, dated 30 June, for the same is the final result of an open-door approach with years. The Shareholders’ Meeting confirmed its stakeholders in which important advances were made not authorization of the Board of Directors to purchase and only in relations with employees and customers but, sell company shares, in the manner prescribed by Article more generally, with the social fabric and the areas in 144-bis of Consob’s Regulation on Issuers, voting to which the Group operates. The Group is aware that an increase the reserve for the purchase of treasury stock to excellent company must necessarily be socially €390 million by reallocating funds from the share responsible: the maximization of shareholder value must premium reserve as reported at 31 December 2005. be achieved without neglecting the aspirations of those who work in the company and the social and With respect to the Keluma position, in April a environmental context in which the company operates so number of investors requested the advance conversion of that its success may be long-lasting and sustainable. an amount of €183 million of the “2.6% 2002-2007 Exchangeable and Convertible Unsubordinated Notes Capitalia, Unicredit and BNL announced on 6 due 2007. . Taking account of the conversion, Capitalia September that they would be joining the Rome reduced the notional of the cash-settled equity total Industrial and Business Union, in the full knowledge that, return swap involving Capitalia shares entered into with at a time at which banks are growing in size to match Lehman Brothers International in June 2005. The those elsewhere in Europe, they will have to devote an reduction referred to 41,070,040 shares, and the increasing amount of attention to the quality of their local outstanding remaining on the equity swap agreement presence and to enhancing their capacity to contribute was thus reduced to 28,127,305 Capitalia shares. constructively to processes of local development over a medium/long-term horizon. On 5 May, the Group and the City of Rome presented an agreement regarding subsidized mortgage loans for As regards the adoption of new risk measurement the purchase of a primary residence for young people methods introduced with Directive 2006/48/EC of 14 June resident in Rome without permanent jobs. The initiative is 2006, the Board of Directors of Capitalia decided on 7 intended to improve access to the product – already September to continue to use existing rules for calculating offered by Banca di Roma in three areas: the maximum capital requirements (Basle 1) until 1 January 2008. amount of loans has been raised from €200 thousand to €250 thousand; the ratio of the loan payment to income Following the sale in several tranches of 31,000,000 has been raised from 33% to 50%; and the extension of ordinary shares held in its AFS portfolio, at the end of eligibility to include couples in which one of the residents 2006 Capitalia remained in possession of 10,199,351 Fiat is more than 35 years old and workers who have worked shares, equal to 0.93 % of the ordinary capital and 0.80% for at least 24 months in the last 3 years (the previous of entire share capital. requirement was 30 months in the last 3 years). The initiative is also linked to the ethical credit card, which is Capitalia took part in operations for the corporate issued free of charge to the borrowers. restructuring and coverage of losses of Ipse 2000 through recapitalization, as approved by the Ordinary September saw the publication of the Capitalia Shareholders’ Meeting of Ipse 2000 on 9 October. At the Group’s first Sustainability Report, the result of a deep end of January, IPSE 2000 was informed that its individual and widely-shared conviction among the departments of license for the installation and running of third- WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 40 41

generation UMTS mobile telecommunications had been which lasts for three financial years, lapses on the date of revoked. As part of the restructuring of Ispe 2000, the Ordinary Shareholders’ Meeting called to approve Capitalia raised its equity investment in the company the financial statements for 2008. The Board members from 16.4814% to 37.774%. By means of the purchase, appointed by the shareholders are: Cesare Geronzi, made on 29 December, from another shareholder of Paolo Cuccia, Paolo Savona, Matteo Arpe, Gabriel M. 1,528,230 ordinary shares at the price of 0.001 euros Marino, Alberto Rossetti, Walter Vezzosi, Massimo Pini, each, Capitalia became the majority shareholder, with an Salvatore Mancuso, Ernesto Monti, Pierluigi Toti, Carlo equity investment of 50.00001% of the share capital, Saggio, Pasquale Cannatelli, Carlo Colaiacovo, Roberto equal to 6,250,001 ordinary shares. The Group also holds Colaninno, Alfio Marchini, Paolo Fresco, Paolo Mariotti, Class A equity instruments with a nominal value of Silvio Bianchi Martini and Ahmed A. Menesi. €625,000 issued by Ipse 2000. The new Capitalia Board of Directors that came into On 13 November 2006 Fitch Ratings increased its office as of 11 December appointed Cesare Geronzi as long-term rating of Capitalia (to “A” from “A-”) and its Chairman, Matteo Arpe as Managing Director and Paolo short-term rating (to “F1” from “F2”). The outlook Savona and Paolo Cuccia as Deputy Chairmen. The remains stable. The improvement reflects the increased meeting also appointed: the seven members of the capacity of the bank to generate adequate revenues and Executive Committee, namely, Cesare Geronzi, Paolo the improvement in its risk management. According to Savona, Paolo Cuccia, Matteo Arpe, Pierluigi Toti, Fitch Ratings, the results for the first nine months of 2006 Ernesto Monti and Massimo Pini; the members of confirm that the progress is continuing. The extensive Compensation Committee, namely Pasquale Cannatelli, distributive reach and the size of the bank network should Alfio Marchini, Walter Vezzosi, Silvio Bianchi Martini and pave the way to sustainable growth in loan origination Paolo Fresco; and the members of the Internal Control and funding, which will enable the bank to boost its Committee, namely Alberto Rossetti, Carlo Saggio and profits. The agency confirmed its individual and support Silvio Bianchi Martini. The appointees to the Ethics ratings at “B/C” and “2” respectively. Committee are: Matteo Arpe, Paolo Fresco, Carmine Lamanda, Giuseppina Baffi and Sebastiano Maffettone. Fitch Ratings also increased its rating of Banco di Finally, pursuant to the Corporate Governance Code for Sicilia, raising the long-term rating to “A” from “A-” and listed companies, the Board considered whether the nine the short-term rating to “F1” from “F2”. The outlook is Members of the Board meet the necessary standards of stable while the support rating is equal to “1”. Fitch independence. The nine members of the Board are: assigned Banca di Roma and Bipop Carire ratings of “A” Paolo Savona, Silvio Bianchi Martini, Paolo Fresco, for the long term, “F1” for the short term and “1” for Salvatore Mancuso, Paolo Mariotti, Ahmed A. Menesi, support, with a stable outlook. The ratings assigned the Alberto Rossetti, Carlo Saggio and Walter Vezzosi. banks reflect their close integration within the Group’s risk management and funding policies, as well as their On 7 December, the Court of Brescia passed strategic importance. judgment relating to the Bagaglino/Italcase case, in which the Chairman of Capitalia Cesare Geronzi and The Ordinary Shareholders’ Meeting on 5 December Roberto Colaninno, a director, were convicted of voted to renew the Capitalia Board of Directors whose fraudulent bankruptcy. The sentence entailed their term expired on 4 December. Shareholders confirmed suspension from the performance of any administrative the appointment of 20 members of the Board. The term, functions. Pursuant to Article 26 of the Banking Law and WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

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Article 6.1 (a) of Ministerial Decree 161 of 18 March for children affected by neoplasms and their families, run 1998, the Capitalia Board of Directors considered the by the not-for-profit association “Peter Pan”. The fund issue, and resolved to suspend Cesare Geronzi and raising drive on behalf of the “Trenta Ore per la Vita” Roberto Colaninno from their administrative functions, project continues. The project, which the Group has and convened a Shareholders’ Meeting for 18 January supported for years, continued until 28 February 2007, 2007, to be rescheduled to 19 January if the necessary with various initiatives to raise the awareness of quorum was not met. The Ordinary Shareholders’ customers. Meeting took place on 19 January 2007 and, pursuant to the law, considered the position of the Mr. Geronzi Thanks to the advisory services delivered in the and Mr. Colaninno, and resolved not to remove them course of 2006 to a number of major Italian industrial from office. As a result, both were reinstated with groups, Capitalia is now one of the top banks in Thomson immediate effect. Financial’s Advisory and M&A rankings by number of operations completed in Italy. At a meeting held on 2 January 2007, the Capitalia Board of Directors, with reference to the sentence issued In one of its most important operations in this area, on 19 December 2006 by the Court of Milan in Capitalia acted as advisor to the City of Genoa regarding connection with the “Gruppo Trevitex” case, in which the the merger of AEM Torino and AMGA, two municipal director Ernesto Monti was convicted of fraudulent utility companies, and provided financial support for the bankruptcy and embezzlement, suspended Mr. Monti public purchase offer made by Finanziaria Sviluppo from his administrative functions, pursuant to Article 26 Utilities for shares in the company resulting from the of the Banking Law and Article 6.1 (a) of Ministerial merger. Capitalia also acted as advisor for the sale of Decree 161 of 18 March 1998. The Board then resolved around 40% of Pirelli Tyre to a consortium of top-notch to raise the issue of Mr. Monti’s position at the Italian and international investors. Capitalia provided Shareholders’ Meeting already scheduled for 18 January assistance to Gruppo Grimaldi Compagnia di 2007 (to be adjourned to 19 January if a quorum was not Navigazione in its public purchase offer for the Finnlines, reached) and to add a “debate pursuant to Article 6 of a Finnish shipping company, and was involved in the Ministerial Decree 161 of 18 March” to the agenda. capital increase carried out by Investimenti Infrastrutture Meeting on 19 January, the Meeting resolved not to (formerly Miotir) with the acquisition of Gemina shares. relieve Mr. Monti of his office, and reinstated him in his Finally, Capitalia was one of the banks retained by the functions with immediate effect. Board of Directors of Autostrade to deliver a fairness opinion on the proposed merger, later suspended, On 13 December, the Bank of Italy authorized the between Autostrade and Abertis Infraestructuras S.A.. concentration in Capitalia S.p.A. of the depositary bank activities carried out by Banca di Roma and Bipop-Carire Capitalia developed the “Large Corporate” segment relating to CIUs and pension funds and, in response to a of its customer base by producing innovative products, request from the party concerned, further authorized solutions and services for some of the major industrial Capitalia to undertake new responsibilities relating to real groups in the country. Lending activity was rationalized to estate investment funds. bring creditworthiness ratings into line with the underlying profitability. In major operations carried out Among its charitable works, the Capitalia Group on the Italian market, Capitalia acted both as advisor and provided funding for the building of a third care centre as the chief lender. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 42 43

Capitalia led several leveraged finance operations India. Meanwhile, secondary branches of the bank in with a joint value of more than €3 billion by a number of Chicago and San Francisco were shut down and their private equity companies on the Italian market. The functions transferred to the New York office, and the operations included the US fund APAX’s acquisition of secondary branches of Tripoli, Dora, Hamra and Zouk in Farmafactoring, and Investitori Associati’s acquisition of Libya were shut down and their activities merged with Grandi Navi Veloci and Cisalfa. those at the Beirut main branch.

As regards institutional customers, Capitalia focused Cooperation agreements were finalized between on coordinating the products and services offered by the Capitalia and leading foreign banks (the Agricultural Group to ensure constant satisfaction of the needs of the Bank of China and HSBC Hong Kong & Shanghai Bank segment, also through the adoption of innovative Corporation) to enrich the range of services available to solutions. The Group’s operational activities with this its customers abroad, an ambition best achieved by customer segment were largely connected with offering them access to an extensive branch network in infrastructure projects (for example, the Group opened a the countries where they operate such as China and, line of credit for the City of Rome and negotiated a through HSBC, also Egypt, Mexico, Singapore, South financing package with the national railway company) Korea, Taiwan and Turkey. and with the health service, where the Group structured a loan securitization operation with the Region of Lazio. In one of the steps taken to strengthen the individual Also in the course of the year, Group banks made capital ratios of FinecoBank, the Bank of Italy authorized successful tenders for contracts to supply cashier/treasury Capitalia on 10 April to make advance repayments of two services. subordinated loans included in the supplementary capital of FinecoBank, a Capitalia subsidiary. They consisted of a The Group continued to operate subsidized financing ten-year loan of €51.6 million maturing on 31 March activities, mostly through MCC, and increased operations 2010 and a loan of €1 million from 29 December 2003. both in the distribution of investment incentives for small The Bank of Italy also authorized the inclusion in and medium-sized companies, where it acts on behalf of FinecoBank’s regulatory capital of new subordinated 11- regional governments, and in management of the year liabilities to be issued up to a maximum of €100 Guarantee Fund on behalf of the Ministry for Economic million. Development. MCC reaffirmed its leadership in the distribution of research funding. In a resolution issued on 26 May, the Bank of Italy authorized FinecoBank to buy back €64.7 million of As regards the main companies of the Group, on 20 residual receivables consisting of salary-backed loans to January, Banca di Roma approved a plan for the employees sold in March 2001 to Garda Securitization rationalization of its international branch network, with a Srl, a special purpose vehicle, in connection with the view to adapting its distribution channels to the new Garda II securitization. The original nominal value of the trend towards internationalization by Italian companies, loans was €248 million. by reducing its presence in areas with low growth potential and concentrating on areas to which FinecoBank maintained its position in 2006 as the manufacturing and commercial activities are being leading bank on the markets operated by the Italian relocated. As part of the rationalization drive, a decision Stock Exchange (Borsa Italiana), with a share of 6.04% of was made to open a Representative Office in Mumbai, the MTA market, 9.08% of the Mtax, 19.02% of the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

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Trading After Hours and 6.35% of S&P/Mib Futures (data will enable Capitalia to benefit from the technical and from Assosim). FinecoBank also won first place in the commercial know-how of Fondiaria-Sai, the leading non- Finance, Banking and Insurance category of the “WWW- life insurance company in Italy, and will help Capitalia il Web in pole position” prize organized by Il Sole 24Ore. develop new products and increase its level of The prize, which is based on the direct votes of visitors to penetration with the more than 4 million customers of the websites, is intended to inspire creativity and functional group. Capitalia can also make use of the acquiring excellence in Italian websites. Group’s extensive claims settlement network, of vital importance for providing efficient service to customers. With reference to the development of the non-life For the FonSai Group, the deal offers a further division of the Group’s bancassurance business and as opportunity to develop its business by leveraging the part of the process for the selection of a partner company distribution network of the banking group. for Fineco Assicurazioni, on 23 February, the Board of Directors of Capitalia considered several attractive On 25 August, Fitch Ratings announced improved binding offers made by leading insurance companies for special servicer ratings for the residential mortgages and 51% of Fineco Assicurazioni’s share capital. On 21 June, commercial loans of Capitalia Service JV to “RSS2IT” and the Capitalia Board decided to accept the offer made by “CSS2IT” from “RSS2-(minus)IT” and “CSS2-(minus)IT” Fondiaria-Sai, on the basis of which a long-term and respectively. This improvement is a result of ongoing exclusive agreement was reached for the development of investment in technology, a rationalization of external the bancassurance activities of the Capitalia Group in resources, and the extension of certain key processes general casualty business. On 29 June, Capitalia and regarding the non-securitized portfolio, including the use Fondiaria-Sai finalized an agreement for the sale to the of vehicles for the acquisition of property assets at latter of 51% of Fineco Assicurazioni, consisting of auction. The rating makes Capitalia the number one 2,652,000 shares, for a price of €56 million, which servicer among Italian banks. attributes a global value of around €110 million to the target company. With a decision issued on 4 August, ISVAP authorized the acquiring party to proceed with the MAIN CONSOLIDATED BALANCE SHEET ITEMS acquisition of 51% of the share capital of Fineco Assicurazioni S.p.A.. As a result of the operation, The balance sheet results of the Capitalia Group as of Capitalia was left with 2,548,000 shares with a par value 31 December 2006 confirm the growth achieved during of €1 each, equal to 49% of the share capital. the year and, compared with those for the end of 2005, display significant increases in lending to customers and Capitalia Assicurazioni S.p.A will have the exclusive funding from customers. The interbank debtor position of right to sell general casualty insurance products through the Group increased. the Capitalia Group’s banking and sales network across the country. Capitalia and FonSai also reached agreement on a series of corporate governance rules and FUNDING certain industrial aspects of their partnership, including a provision that the insurance company shall continue to Total funding amounted to €114,123 million; at the have access to the distribution network of Capitalia until end of 2005 it came to €112,102 million. Funding from 31 December 2016. The agreement may be extended customers totaled €96,753 million (€90,206 million at beyond that date if both parties agree. The partnership the end of 2005), while bank funding amounted to WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 44 45

€17,370 million (€21,896 million a year earlier). Net of WEALTH MANAGEMENT intragroup transactions, funding was distributed as follows among the Group banks: Banca di Roma 36.8%; Gross funding in wealth management products (asset Capitalia S.p.A. 32.4%; Banco di Sicilia 13.4%; management, life policies, own bonds and certificates) FinecoBank 6.8%; Bipop Carire 4.6%. amounted to €5,212 million compared with €7,007 million at end-2005.

FUNDING FROM CUSTOMERS The decline is ascribable to net redemptions of €1,687 million from asset management (compared with Direct funding from customers accounts for around net subscriptions of €494 million at the end of 2005). 84.8% of total funding and amounted to €96,753 million, This was in line with the general trend of the system, and increase of 7.3% with respect to the total of €90,206 which saw an outflow of €33,634 million (data from million at the end of December 2005. Assogestioni). With the purpose focusing asset management on products with a higher added value, the As regards medium- and long-term securities funding Capitalia Investment Management platform rolled out in 2006, the Group issued more than €9.1 billion, of three new segments, called “Navigatore”, that use which €8.3 billion in senior bonds and €800 million in innovative management techniques (€111 million in the subordinated loans. By market, the Group banking first fours months of placement activities). Late in the networks placed €2.9 billion in securities, as well as more year, Fimit S.g.r. rolled out a new real estate fund than €2.3 billion in respect of bonds mainly placed in distributed through Group banks. The “Delta” fund, as it respect of index-linked policies issued by CNP Capitalia is called, specializes in the tourism-hotel sector, and Vita, while €3.9 billion was raised through the raised a total of €207 million. international channel. Life insurance premium income amounted to €3,031 The growth in business, which rose by 47% with million, an increase of 12% with respect to 2005. The respect to 2005, referred in particular to the international period saw a rise in the relative importance of income market (from which the funds raised in 2005 came to €2 from unit linked premiums (from 14% to 20%), thanks to billion) where, thanks mainly to the Group’s heightened the introduction of new multimanager products revenue-generating capacities and its financial dedicated to the Private segment. Pure-risk policies soundness, two issues of €1 billion each were placed. In performed particularly strongly in the period, generating October, the documents relating to the Euro Medium- a premium income of €18 million in 2006 compared with Term Notes (EMTN) program were renewed at the €3 million in 2005. Luxembourg Exchange. With respect to non-life insurance, an area in which In January 2007, a 7-year issue of €1,250 million was Capitalia works in partnership with the Fondiaria-Sai placed on the international market. Group, the year brought in good results with gross premiums recognized amounting to €37 million, an At the end of 2006, the Group’s share of the domestic increase of 31% with respect to 2005. funding market amounted to 6.7% (6.4% in December 2005); its share of the bond market was 6.6% (6.1% in Bonds placed through the Group banks totaled December 2005). €3,515 million compared with €3,735 million in 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

Structured bonds contributed to a large part of the service available in more than 50 branches exceeded sale increase, and with subscriptions amounting to €2,805 expectations. In 7 months of operation in 2006, more million (around 80% of the total), they retained their than 7,500 tickets were sold, and the branches thus position as one of the chief components of the mix. The succeeded in drawing in people who are not customers. total also comprises almost €600 million in securities The range of non-banking services was enriched in 2006 placed for third parties. with the signing of partnership agreements with ENCAL to provide pension advice and with Gabetti Property Total net assets under management at 31 December Solutions for real estate services. These additional 2006 amounted to €34,110 million, net of the liquid services were also well received by customers. components of fund and securities portfolio products, and net of fund acquisition relations among companies in The launch of the “Cambia Tutto” brand name took the Capitalia Group. This compares with a total of place in December with a coordinated marketing and €37,575 million at 31 December 2005. communication campaign that involved all the “Delta2” branches as well as numerous shopping centers throughout the country. The initiative included a PRODUCTS AND SERVICES competition called “To Valencia with the Mascalzone Latino” and the possibility for instant prizes of cinema Group customers and the general public expressed tickets and a prepaid “Gift Mascalzone Latino” cash growing satisfaction with our new way of doing banking, card. More than 125,000 people, customers and not, as encapsulated in the “Cambia Tutto” Project. One took part. particular success has been Saturday opening, and the volume of transactions on that day have caught up with As part of a program to measure and increase the number for ordinary weekdays. The number of customer satisfaction by improving the organization of customers making use of our lunchtime opening is also services and upgrading the physical environment of increasing. These successes are reflected in the Saturday branches, a number of initiatives were undertaken for sales figures of current account and debit/credit card Banca di Roma, Banco di Sicilia and Bipop Carire products. Sales are running at 90% or more than the customers, including: average for standard working days. Likewise, branch transactions at lunchtimes and Saturdays are averaging
the creation of a specific commercial position around 60% of the volume for ordinary working hours dedicated to improving customer satisfaction in each and days. geographical area;

Demand remains high for non-banking services,
the activation of a system for the periodic assessment especially the advisory service with consumer of satisfaction levels in each branch (with the exclusion of associations and the tax advice desks, with an average of a number of internal branches and pledge desks) and for 1.5 appointments booked per branch per day. The the assessment of whether satisfaction percolates promotional initiative for the tax advice desks was through various levels; particularly successful in the period May-June, with bookings peaking at 6 per branch per day. Around
the delivery of a detailed training program for all 10,000 customers made use of the service to help them Group bank professionals holding key customer fill out their tax returns. Finally, “Box-office TicketOne” management positions; WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 46 47

the launch of internal communication campaigns; by vendors. The ethic program was expanded also in respect of all the other types of Capitalia cards: in
the redesign of the process of managing complaints response to customer preferences, 70% of the new cards and the various supporting tools, with the aim of issued were “ethical”, which enabled the bank raise more achieving greater transparency and improving service than €600,000 in 2006, of which €400,000 was already standards. earmarked for good causes in connection with planned initiatives. Capitalia plans to improve its customer satisfaction program with further initiatives, which will be extended For its retail customers, Capitalia relaunched its also to head office, and with the addition of new range of products designed for young people. infrastructure services. Specifically, Capitalia joined forces with Telecom Italia for a promotional campaign for its “Conto Giovani” The full range of Capitalia credit cards was rolled out current account package for young people. Capitalia in the year, and new products introduced for all customer distributed loans in connection with a project called “Un segments. The Group began the commercial distribution c@ppuccino per un PC.” The personal loans are of cards with embedded microchips. Taking advantage of intended for the purchase of a portable computer on the extension of the range of card types, the Group highly competitive terms. The loan is one of several banks were particularly active in placing new cards. At the available for people without permanent contracts of end of the year, around 670 thousand Capitalia cards employment including “Prestito Giovani” and “Mutuo were in circulation and the volume of credit card Giovani”, both of which are free of origination costs and transactions was around €1,300 million. The objective of available to the under 35s with “non-standard” contracts raising the quality of service was pursued by means of of employment. To respond to the needs of foreigners improvements to distribution and support processes and resident in Italy, Capitalia introduced “Conto Mondo”, a by means of new value-added services (such as text current account providing ad hoc services for this message alerts, online statements). customer class.

Capitalia introduced a number prepaid products Particular attention was given to the expansion of under its “Ethical” “Youth”, “Business” and “Gift” mortgage packages, with the launch of a new product categories, while the “e-card” remained very popular, offering a floating rate mortgage with fixed-rate with more than 100,000 distributed in 2006. “Capitalia payments, so that customers can enjoy the benefits both Mascalzone Latino gift card” is the name of a new of floating interest rates and fixed payments, with the disposable card sponsored by the Mascalzone length of the mortgage contract varying according to the Latino–Capitalia Team. It is charged with credit at the direction of interest rates. moment of purchase and automatically expires like a phone card. The card may be charged with various In the Mid Corporate segment, Capitalia expanded its amounts. Activation does not require a current account, range with the introduction of “Capitalia InPartnership”, and the card may be used at once on the MasterCard dedicated to small and medium-sized Italian companies, circuit, which gives access to more than 21 million retail which have to measure up to ever more complex and outlets throughout the world and on the internet. The global competitive environments. The project offers up card may also be used to top up telephone credit and to €2 billion loans at highly competitive prices, intended buy fuel, without any extra costs other than those applied to support companies that need to expand in size, build WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

up their capital, invest in technological innovation or Finally, the Group is refocusing on countries of expand into foreign markets. In addition to innovative strategic interest to Italian SMEs by rationalizing Banca di rating advisory services and technological rating, Roma’s network of foreign branches, opening new Capitalia also provides the following specific products: branches in countries such as India, and by negotiating commercial agreements with major local banks.
Irredeemable loans, Mezzanine loans, Capital loans, Equity One loans, loans using by EIB funds and The commercial activities of the Group’s banks have acquisition loans, to meet the needs of companies to received a strong boost from the continuing evolution expand and strengthen their finances and capital; of tools used for selling activities. The Ko–r® system was expanded in 2006 with the release of versions for the
R&D loans; Small Business, Corporate and Private segments. The Group also brought out its Customer Relationship
Loans for expansion abroad, backed by SACE Management platform. The distinguishing features of (Institute for Foreign Trade Insurance Services) these versions is that they give real-time access to data guarantees for companies seeking new international and offer methods, marketing tactics and specific suppliers or new international markets. toolkits for dealing with each customer segment. Similarly, the system of commercial reporting was The Group’s banks also offer an internet banking extended and perfected with the introduction of an service, “Capitalia Corporate Web”, which in 2007 will be improved platform capable of supporting further integrated with new competitive services of SMEs. developments.

Other initiatives for the Mid Corporate segment In accordance with Business Plan objectives regarding included: geographical presence, the project to bring the number of Group bank branches to around 370 by 2008
the redesign of the process of managing complaints proceeded apace during the year. The project follows a and the various supporting tools, with the aim of strategy based in the progressive partition of the country achieving greater transparency and improving service into separate areas in which just one of the Group banks standards. will operate. The strategy does not apply to certain areas such the capitals of regions and of some provinces where
the roll-out of new commercial planning methods in the presence of all the banks is considered necessary. all the Corporate Centers as was as the new CRM tool for The general tendency is to open medium-sized branches the segment (Kor Corporate); (with, roughly, 5-7 employees) for areas of commercial importance, and the establishment of “clusters” of
the holding of training sessions for professionals branches in previously uncovered zones adjoining zones working in Group banks, including an innovative where the Group has a strong presence. In 2006, the management training course for the heads of Corporate Group opened 92 new branches (36 Banca di Roma, 23 Centers that will be held in the first half of 2007; Banco di Sicilia e 33 Bipop Carire), and closed down 27 (11 Banca di Roma, 15 Banco di Sicilia and 1 Bipop
the activation of “Tempo Cliente Corporate”, a project Carire). At year-end, the Group has more than 2,000 for carrying out IT and organizational changes necessary for branches. The expansion plan envisages the opening of reducing the administrative work loan of fund managers. 150 new branches in 2007. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 48 49

A centerpiece of the Group’s development is the In the leasing sector in particular, the volume of lending refurbishment of all bank branches over the three-year remained substantially unchanged with respect to 2005, in period of the Business Plan, which will also be facilitated spite of a three-month downturn in the property market by the concentration of all the maintenance and facility resulting from new legislation that came into effect in July. management activities of the retail banks in Capitalia Factoring operations continued to show double-digit Solutions. The objective of raising the standards of growth. The average turnover at the end of December 2006 branches will be achieved by carrying out conversion and €6,242 million, an 18% annual increase that can be put renovation works, the extent of which will vary in down to the rising reputation of the Group on the market, accordance with the current state of repair of the the flexibility of its product and the adoption of a new model building. The Group has prioritized highly visible of closer cooperation between MCC and the retail banks. customer-centered initiatives and projects in areas of central commercial importance. In 2006, more than 420 In regard to the more general objective of improving restructuring projects were completed. relations between the banks and customers, the Group continued to operate in the “PattiChiari” consortium, and

In the area of consumer credit, all Group banks offer took active part in defining the content of the tenth initiative, which relates to the closing of current accounts. salary-backed loans for public-sector and certain other The initiatives was rolled out in the Group’s banks in categories of employee. Following the success of the October. Thanks to the attentive monitoring of the initiative “Un c@ppuccino per un Pc” (loans for PCs) and structures dedicated to applying the terms and conditions in keeping with the direction taken by the Group with the of the “PattiChiari” initiatives in the retail banks of the introduction of ethical cards, a new range of personal Capitalia Group, no instances of non-compliance were “ethical” loans are under development. In addition to reported by inspectors sent to audit services for which the channeling funds into current ethical projects, the loan banks had sought a “PattiChiari” certificate. package offers favorable interest rates to households with declared annual incomes of less than €15,000, and is backed by the Consumer Credit Fund. LENDING

With reference to medium/long-term lending, leasing At 31 December 2006, total lending came to and factoring, the progressive synergizing of the activities €108,528 million, compared with €100,959 million at 31 of the retail banks in these areas has enabled MCC to December 2005. Net of intragroup transactions, most establish a stronger local presence and to raise its lending referred to Banca di Roma (42.6%), followed by standards high enough to operate also with corporate Banco di Sicilia (14.2 %), Capitalia (11.8%), MCC (10.8%), banking customers. This is reflected in the more than Bipop Carire (8.4%) and FinecoBank (5.9%). Loans with 70% increase in the volume of industrial lending and banks amounted to €12,516 million, compared with structured financial operations both for large companies €18,578 million at end-June 2005. and for SMEs. To consolidate relations with corporate customers and be able to respond better to their most complex demands, Capitalia created a series of LENDING TO CUSTOMERS innovative products designed to help companies overcome the challenges of international expansion, Lending to customers amounted to €96,012 million, innovation and capitalization. an increase of 16.5% with respect to the total of €82,381 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

million at 31 December 2005. Net of bad debts, the the functional changes necessary to incorporate the Group’s share of the lending market at 31 December calculation methodology for expected loss in accordance 2006 was 5.8% (5.4% at the end of 2005). with Basle 2 rules were defined and implemented. In particular, the calculation of loss given default and the The Parent Company sets out the lending policies of procedures for treating exposure at default were the Group and advises subsidiaries on the most efficient engineered, and credit risk mitigation techniques were means of developing and expanding lending in defined at the applications level. The determination of accordance with their chosen risk profiles. The guidelines expected loss will make it possible manage delegated reflect the changes in the manner in which internal rating decision-making authority on the basis of this risk systems are developing and progressively enriched as measure as well, supplementing ratings, which are new tools are created for identifying and measuring risk. already used by the Group companies to differentiate The Group set out the underlying principles on which decision-making responsibilities. lending policies are based, such as treating expected loss as a cardinal element in the process of loan origination To strengthen still further lending policy transmission and commercial planning. It also set out lending mechanisms, the electronic lending procedure is strategies that are consistent with the vision of customer currently being equipped with a new credit policy section risk, especially as regards individual and sectoral risk that will generate opinions on lending positions and thus concentration. In determining commercial strategies for immediately inform the units responsible for proposing new customers, particular attention is given to and authorizing loans whether their decision is consistent counterparty risk and the need to plan with reference to with the portfolio vision of the bank and the Group. the expected loss in cases of counterparty default. A special section dealing with lending policies is dedicated Pursuant to Basle 2 rules, the rating assignment to sectoral loss, using appropriate risk-opportunity process envisages the complete separation of the matrices based on potential outcomes and the Group’s structures responsible for processing and granting loans risk exposure in certain economic sectors. from those that assign and verify the rating. The internal rating and pricing agencies operating within the Parent Work continued on the application of internal rating Company and within each bank are in charge of the systems for use in the lending process, an area that is rating assignment and are specialized by customer being completely overhauled. In particular, Capitalia segment. Specifically, the internal rating agency of began using internal rating models dedicated to its retail Capitalia is responsible for Large Corporate, Banks and customer segment, beginning with mortgage lending. Country Risk, while the internal agencies of the individual The new process of lending and the supporting IT tools banks are responsible for the Mid Corporate, Small were purpose-built in the course of a dedicated project Business and Retail segments. The opinions issued by coordinated by Capitalia, the aim of which was to internal agencies, complemented by spread risk adjusted develop a shared, uniform approach and standardize indicators, are used to back up decisions made by the processes throughout the Group. Release to the Lending Committees, and are also subjected to networks began in January 2007. continuous verification and backtesting.

The lending process and the use of electronic lending In 2006, new rating models were created specifically procedures for the Corporate and Small Business for farmers, non-profit organizations, financial companies, segments are in full operation at all retail banks. In 2006 holding companies, consortiums and start-ups. The WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 50 51

models will be progressively incorporated into the lending loan managers and loan monitoring specialists, these processes to increase the percentage of the loan portfolio operational guidelines are translated into targeted covered by this approach. The collection and processing actions for the control of credit risk at the local level; of time series for EAD and LGD continued. The enlargement of the database will make it possible to
ensure a uniform approach at various levels of the produce estimates that are both more granular and more Group in respect of operating processes and monitoring, representative. Work is ongoing on the IT engineering of consisting of the sharing of the criteria that will be used EAD and LGD parameters for loan positions. The when making any changes to the methodological model, supervisory authorities are continuing their pre-validation the IT system and the “systematic oversight system”. The of the overall rating system. Parent Company also shares projects for the development of the methodologies used for detecting and controlling In the area of Rating Advisory services, the Group helps anomalies in loan portfolios. Recommendations relating corporate customers by examining their positions with to governance practices are shared with the appropriate reference to the relevant Basle 2 parameters. The analysis, parties in the Group’s banks through the joint analysis of conducted using proprietary tools (Basilea II Corporate variables pertaining to the quality of assets included in AdvisorTM) is delivered along with suggestions to the loan portfolios, which form the basis of the performance company about how to improve its creditworthiness. reports issued by management;

In line with the objectives of the 2005-2007 Business
maintain loan performance evaluation tools in line Plan dealing with the monitoring and improvement of with innovations in operational processes, the results of asset quality, Capitalia continued to strengthen processes backtesting and the recommendations of supervisory for the management of loan portfolios and to fine-tune authorities and Basle 2; the instruments used for the evaluation of performance risk. The efforts in this direction form part of a general
check that the process of loan management/ series of activities aimed at progressively aligning the origination is consistent with the Group’s lending Group with Basle 2 recommendations. A specific Loan policies, and produce analyses on the performance of Monitoring Directive defines the activities, responsibilities loan portfolios with reference to the semiannual and methods of interaction between Capitalia’s loan monitoring of the credit policy recommendations also on monitoring function and analogous units of Group the basis of evidence produced by the loan monitoring subsidiaries. A “Coordination Group”, whose members functions of subsidiaries and reports on the risk level include the head of the loan monitoring function of associated with specific customer segments; Capitalia S.p.A. and the heads of lending and loan monitoring of each of the Group companies, exists to:
determine, by means of appropriate risk analysis methods, the single operational points and/or positions
issue governance instructions to subsidiaries on the to assess with reference to type of problem, rating grade, basis of information gathered through the consolidated percentage exposure with the system, exposure. and individual reporting system. The governance mechanisms are then disseminated from the top down to For Large Corporate customers, the Group monitors all the levels of the Group (the head offices of banks, risk by means of a “risk monitoring panel” which takes local credit centers, loan monitoring specialists). By readings of developments both in the overall loan means of systematic monitoring activity coordinated by portfolio and in the chief domestic counterparties. This WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

enables the Group to make systematic evaluations on a with customers and identified by the monitoring process, quarterly basis for the segment in question and refer to, assign performing loans to appropriate classes and define among other things, the signaling bank, technical form of what steps need to be taken to correct positions, and then the loan and the economic group of the customer, as well ensure that these steps are taken. In line with Basle 2, the as to distribution by rating class and to the most embedding of the rating in the process of loan monitoring significant performance irregularities. Furthermore, for and control is fully operative, and consists of the automatic individual Large Corporate counterparties for which activation of the electronic credit management procedure market information is available, the “risk monitoring whenever the internal rating agency significantly panel” permits systematic monthly analysis of: downgrades a counterparty’s rating.

the ratings and relative outlooks attributed by A performance monitoring panel for the portfolio of specialized agencies and the Capitalia rating agency; loans distributed by the Group’s branch network aboard is also fully operative. The monitoring task consists of
the measurement of the spreads on credit default three levels of analysis: swaps and bonds compared with developments in the reference segment;
a general quarterly overview of the loans and their division by technical form, maturity and associated risk
developments in equity prices with respect to a (rating); benchmark;
a quarterly branch-level view of loans by technical
the extent and nature of structured debt (bonds and form, maturity and associated risk; syndicated loans);
the identification of main counterparties, by means of
summary financial information for the past five years; a monthly review and analysis of risk indicators and creditworthiness ratings provided specialist agencies and
performance as reported by the Central Credit by the Capitalia rating agency, the measurement of the Register and performance control tools (credit signaling); spreads on credit default swaps and bonds compared with developments in the reference segment, developments in
developments in the lending relationship. equity prices with respect to a benchmark, the extent and nature of structured debt (bonds and syndicated loans), In the course of the year, the systematic oversight and summary financial information for the past five years. process already used by the Group’s retail banks for their the Mid-Corporate and Small Business customers to To tighten portfolio risk control in the retail segment, evaluate irregularities detected by the control procedures, improve the general quality of assets and provide was extended to include the Large Corporate segment. operational support to branches in managing customer The process, which is supported by a specific electronic loans, the Group banks are currently testing a credit management system (PEG) is designed to safeguard delinquency management system (Kor-DM). The process loan quality by observing the behavior of the key figures is aimed at: involved (position managers, specialists, groups) which, which beginning with a detailed assessment of the
standardization of relations with defaulting customers individual anomalies encountered in credit relationships by leveraging Group assets and structures (contact WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 52 53

centers, customer intelligence, sales support), thanks to up of the Head of the Restructured Loans Department of the effective use of information for the purposes of Capitalia S.p.A. and the loan managers of Group banks. demanding/recovering payment, and the extension of the “customer time” available to managers for The Group companies specializing in credit recovery commercial activities. activities (Capitalia Service JV and Sigrec) significantly improved their financial performance and their processes
accelerating payment flows; of loan recovery.

the progressive reduction in the number of new The application of IAS/IFRS from 1 January 2005 default positions (PD), in the level of exposure at default required an estimation of “recovery times” for non- (EAD) and in effective losses through an improved rate of performing loans, payment times for revocatory actions return to performing status (LGD – indirect effect). and guarantees. At first-time adoption and at the closure of each financial period, all impaired positions are As regards impaired positions, the ongoing move assessed by individual loan agreement, either specifically towards the adoption of a common set of criteria for loan or collectively (if the loan could be grouped with others recovery and the development of shared set of with similar credit risk characteristics), with estimated methodologies for the management of classified positions cash flows (maximum recoverable amount) being set between the Parent Company and its subsidiaries led against the time required for their recovery. Banca di Roma to issue new rules and to update major operating processes. The rules in force in other Group The principal Group-level impaired positions companies are currently being amended with reference to underwent specific analysis to compare and, where the new set of rules. permitted by the similarity of situations, to standardize the assessment of loan recovery times. With respect to the Group’s governance functions, criteria relating to the classification of loans were set out. The criteria accord with the instructions of the Bank of IMPAIRED LOANS AND CONTINGENT LIABILITIES Italy in this regards, and are valid for all the companies in the Group. Classified loans (bad debts and substandard loans) net of writedowns amounted to €4,304 million at the end Capitalia affirmed and continued to apply its of the year, broadly unchanged with respect to the figure governance functions at the loan classification stage, of €4,298 million recorded at the end of 2005. The both through the issuance of prior opinions that it portfolio of classified loans amounts to 4.5% of total formulates on the basis of information that subsidiaries lending compared with 5.2% at the end of 2005. are required to provide in a timely manner about their most significant classified positions, and through the Net bad debts amounted to €3,332 million, an management of positions following methods that vary in increase of 3.7% from 31 December 2005 when they accordance with the different categories of loan. totaled €3,214 million. Of the total, 26.2% (€874 million) relates to real estate lending backed by collateral. Net bad To centrality of the governance function of Capitalia is debts make up 3.5% of total lending (3.9% in December also evident in the periodic activities of its “Coordination 2005). On the operational front, Banco di Sicilia carried out Group”, which, to ensure sufficient coordination, is made a number of non-recourse assignments of bad debts and a WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

substantial writeback of a non-performing exposure countries in difficulty, written down on a general basis following the ruling of the appeals court. applying percentages at least equal to those agreed under the aegis of the Italian Banking Association, Substandard loans came to €971 million, a fall amounted to € 9 million. compared with €1,084 million at the end of 2005. Substandard loans relating to real estate lending backed Coverage ratios – defined as the ratio of total specific by collateral make up €290 million of the total. andgeneral writedowns undertaken (including default interest deemed irrecoverable) to gross exposures including Restructured exposures amounted to €468 million written-down default interest – are illustrated in the and past due exposures to €811 million. Loans to following table.

COVERAGE RATIOS FOR CLASSIFIED LOANS

Ordinary loans Real estate loans Total 31.12.06 31.12.05 31.12.06 31.12.05 31.12.06 31.12.05 Bad debts 71.0% 72.2% 49.9 51.3% 67.4% 68.6% Substandard loans 33.2% 32.8% 13.5 11.7% 28.4% 27.9% Classified loans 67.0% 67.5% 44.0% 44.7% 62.9% 63.4%

Subject to a resolution of the Board of Directors, Similarly, in connection with the bankruptcy of the between 1998 and 2002 the Parent Company and Banco Parmalat Group, a number of officers of the Capitalia di Sicilia wrote off bad debts (principal and interest) Group were placed under investigation with regard to the deemed unrecoverable, although not legally Eurolat and Ciappazzi cases, inquiries that have recently extinguished. They were written off without prejudice to been concluded. As regards the latter, a request for their eventual recovery. committal for trial for several Capitalia and Banca di Roma officers was notified. Between the end of 2003 and the first months of 2004, a number of criminal investigations were initiated The companies of the Parmalat Group under special that involve Capitalia officers, including members of top administration have joined the suit as aggrieved parties. management. The investigations, which mainly regard In addition, Capitalia, Banca di Roma, MCC and Banco di the bankruptcy of the Cirio Group, also involve other Sicilia were cited for civil liability between the end of banks that, like Capitalia, had provided financing to the 2006 and the start of 2007. group. In April 2006, a request for committal for trial for several Capitalia officers was notified. The special The officers involved maintain that they acted with administrator of Cirio and a number of bond holders utmost propriety and legitimacy in the sole interest of the joined the suit as aggrieved parties to recover Bank and its shareholders. As in all banking groups of its damages. At the preliminary hearing the court rejected size, every lending and investment decision is subject to the request to cite the parties, including Capitalia, for joint controls and checks by the competent corporate civil liability. bodies in accordance with internal regulations designed WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 54 55

to ensure the legitimacy and transparency of those In the civil case concerning the bankruptcy of the decisions. Accordingly, the companies involved, Parmalat Group, in December 2004 the Special supported by the opinion of legal counsel, have has not Administrator initiated revocatory actions pursuant to recognized any provision. Article 67.2 of the Bankruptcy Law against numerous banks, including Banca di Roma, Bipop Carire, MCC and In addition, during the first half of 2004, Capitalia, Irfis. The action against Irfis was abandoned on 20 Banca di Roma and other banks, as well as Sergio January 2006 by both parties. The revocation would Cragnotti, were served a summons by the special render ineffective payments made in the year prior to the administrators of Cirio Finanziaria S.p.A. as part of the declaration of bankruptcy by companies, if the conditions civil suit regarding the Cirio Group insolvency. The aim envisaged in the Bankruptcy Law should apply. In May of the summons was to ascertain whether an agreement 2005, the revocatory action was extended to include was in place between these banks and Cirio SpA. Banco di Sicilia, cited by Unipol Banca, to which some of According to the special administrators, such an Banco di Sicilia’s branches were sold. In view of the agreement would have been to the sole advantage of complete absence of factual and legal grounds for the the banks taking part, with consequent grave prejudice actions, as supported by the opinion of legal counsel, the to the interests of other creditors. In February 2005, the Group does not consider it necessary to make any presiding judge ruled that the case should be tried provisions for this case. under company law, and removed the suit from the calendar. The following March, the special In September 2005 Banca di Roma was served a administrators of Cirio Finanziaria SpA re-filed the suit summons by the special administrator in the Parmalat under company law procedures, and substantially SpA bankruptcy to ascertain the legal liability of the reiterated the claims made in the previous trial. With Bank in alleged concurrence in the collapse of the reference to this case, which is currently pending, it is Parmalat Group, with a consequent request for felt unnecessary to make a provision, because the claim, damages. In view of the complete absence of factual although reformulated, still appears to have no grounds and legal grounds for the request for damages and the in law or in fact, a position supported by the opinion of initial stage of the trial proceedings, which is examining legal counsel. preliminary matters, it is not considered necessary to make any provisions for this case. In the second half of 2004, Capitalia, Banca di Roma and other parties, including Sergio Cragnotti, were In January 2006, following the merger of Fineco issued a summons by Bombril SA and Bombril Overseas S.p.A., Capitalia became one of several defendants in a Inc., which are mainly seeking to ascertain the case brought by minority shareholders of the former involvement of the parties in a series of asset-stripping Bipop Carire before the Courts of Brescia and Milan for operations at Bombril SA. Once again, also in February an allegedly incorrect valuation of shares that were 2005, the judge ordered the case to be struck from the exchanged during the merger of Banca di Roma and trial list and tried under company law procedure. In Bipop Carire in 2002. The appraisal stage of the March 2005, the plaintiff re-filed the suit under company proceedings has been completed. law procedures, and substantially reiterated the claims made in the previous suit. In January 2007 the court ruled Finally, in February 2006, the Banca Popolare di Bari against the plaintiffs and ordered them to pay legal costs had a summons served on Capitalia in connection with a to Capitalia and Banca di Roma. case being held under company law procedures WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

concerning the loss allegedly incurred by the plaintiff In a context of modest growth and moderate inflation, arising from negligence in management and financial markets benefited from the considerable coordination activities by the parent company Banca di reduction in volatility. The year was marked by double- Roma, now Capitalia, during the time when Nuova Banca digit growth on equity markets, tight monetary policy to Mediterranea, now Banca Popolare di Bari, belonged to counter the inflation risk associated with rising energy the Group. Banca Popolare di Bari claims that Capitalia prices and strong domestic demand. The sharp rise in misclassified loans that, at the time of their transfer to the interest rates, especially short-term rates, as well as the plaintiff, already displayed irregularities that should have strong demand for long-term investments, flattened the led to their being classified as impaired. yield curve. Against this background, the portfolio of assets available for sale was managed with a view to In view of the complete absence of factual and legal reducing risks and limiting exposure, especially the bond grounds for the request for damages by Banca Popolare portfolio, which was penalized by the upward trend in di Bari and considering the outcome of the initial phase interest rates. The low market volatility made it possible of the trial, it is not considered necessary to make any to develop low-cost asset protection policies. provision for this case. In 2006, Capitalia maintained a strong presence in the trading of government bonds issued by countries in the FINANCE euro area. On the Italian primary market, Capitalia In line with the model of integrated treasury participated directly in share auctions and acquired management and payments systems, the funding 2.71% of total new issues for a nominal value of €361 activities of the Group are centralized under Capitalia. In billion. On the secondary market, for government bonds, the first half of 2006, net interbank borrowing increased Capitalia was one of the most active of the operators gradually. The net borrowing total progressively included on the “Specialist” list of the Ministry for the decreased in the second half of the year, and by the end Economy and Finance. of December stood at €4,854 million. The year was also marked by a large expansion in On 1 January 2006, MCC demerged part of its interest rate and exchange rate hedging derivatives in operations and transferred its Equity Capital Market and the Corporate segment, and, thanks also to the extensive Debt Capital Market activities to the Finance Line synergies between Capitalia and the retail banks of the department of Capitalia. Group, the volumes traded and net income generated both rose steeply. Of comparable importance in the year Repurchase agreements were used to re-finance was the expansion in the range of products offering securities portfolios and provide funding for the banks’ customers an increasingly generous array of more customer operations. dynamic, suitable and efficient solutions to their hedging needs. In the second half of the year, the Group’s Capitalia also took part in all major ECB refinancing business in this area expanded thanks in part to the operations: the average value of each allotment was €1.2 increase in interest rates, which prompted stronger billion, and the total in the year was €60.7 billion. Capitalia demand for hedging instruments. Work continued on the also took part in six of the 12 long-term transactions (with structuring of own securities placed with customers and three-month maturities) for a total of €994 million (and an institutional investors, and on the structuring of securities average of €165.7 million for each operation). issued by third parties. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 56 57

While expanding operations in derivatives and
the partial non-proportional transfer of MCC repurchase agreements with banks and international operations to Capitalia; investment companies, Capitalia also consolidated its policy of reducing legal and counterparty risk, and
the partial transfer to Capitalia of the real estate applied it also to the operations carried out by Banca di holdings of Banca di Roma, Banco di Sicilia, Bipop Carire Roma with bank, financial, corporate and public sector and Capitalia L&F; counterparties. The resulting reduction in risk was brought about by the use of new contracts that meet
the partial transfer to Capitalia Solutions of the ISDA, EMA and ICMA standards with new counterparties. procurement and property and facility management Having obtained authorization in March and April 2006 operations of Banca di Roma, Banco di Sicilia and Bipop from the Bank of Italy relating to 47 Credit Support Carire Annexes (CSA), Capitalia can utilize the benefits allowed by the law relating to bilateral netting agreements for as well as the merger of Capitalia L&F into the “new” 46 derivative contracts, as well as 7 ISDA Master MCC. The operations are considered at length in the Agreements which can enjoy the benefits of netting Annual Report for 2005 and the Semiannual report to 30 agreements. This has increased the benefits in terms of June 2006. reducing the capital that needs to be committed to meet regulatory requirements. Capitalia also uses 27 Global As a consequence of the partial transfer of MCC Master Repurchase Agreements (GMRAs) for repurchase assets to Capitalia, with effect as of 1 January, Capitalia operations. With a view to containing legal risk and became owner of equity in the following companies: harmonizing contracts across the Group, a further 45 Capitalia Sofipa S.G.R. S.p.A., formerly MCC-Sofipa ISDA contracts are outstanding, entered into by the S.G.R. S.p.A (100%), Mediotrade S.p.A. in liquidation Parent Company on behalf of Banca di Roma on the basis (100%), MCC Sofipa International S.A. in liquidation of a specific service contract. (100%), Tecnoservizi Mobili S.r.L. (49.00%), Bemm Gears S.r.L. in liquidation with composition with creditors In 2007, Capitalia S.p.A. will provide support for the (40.00%), Astrim S.p.A. (31.30%), Agitec S.p.A. in adoption of ISDA and EMA standards throughout the liquidation (25.00%), Euromezzanine 2 Sca (17.37%), entire Group for all contracts relating to OTC derivatives. Consorzio Roma Ricerche (16.67%), Colony Sardegna S.a.r.l. (13.22%, as well as a matching amount of At 31 December 2006, total financial assets preferred equity certificates issued by the company), la amounted to €15,090 million, compared with €18,948 Grande Cucina S.p.A. (12.50%), A.B.S. S.p.A. in million at the end of 2005. The net interbank borrowing bankruptcy (7.15%), Filse S.p.A. (1.26%), Mirbis (1.05%), of the Group totaled €4,854 million at the end of the Euroventures BV (1.18%), Colombus II LP in liquidation year, up from €3,318 million the previous year. (0.71%), Siel Elettronica S.r.L. bankrupt (1.00%) and Easdaq SA/NV (0.003%).

EQUITY INVESTMENTS AND SHAREHOLDINGS Again as a result of the non-proportional transfer of MCC operations, Capitalia increased its equity As of 1 January 2006, new arrangements and transfers investments in the following companies: Società approved at the end of 2005 as part of the Business Plan Gestione per il Realizzo (by 0.39%), Simest (by 9.95%), 2005-2007 came into effect. They entailed: Bic Lazio S.p.A. (by 1.86%), Agenzia Regionale per gli WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

Investimenti e lo Sviluppo – Sviluppo Lazio S.p.A. (by acquired by Consortium) and Mediobanca (9.620%, 1.31%), Banca UBAE S.p.A. (by 1.80%) and SIA Cedborsa including the shares previously acquired by Consortium). S.p.A. (by one share). As of 10 October, Capitalia Partecipazioni was entered in the general section of the list of financial intermediaries In 2006, the Group substantially completed the envisaged in Article 113 of Legislative Decree 385/93; rationalization of its portfolio of investments, as described in the section “Major Initiatives in 2006”. The
Capitalia Merchant received Banco di Sicilia’s equity reorganization of the portfolio, which was part of a drive investments in Istituto Immobiliare di Catania S.p.A. to leverage possible synergies, concentrated assets (0.388%), Finpiemonte S.p.A. (0.154%), Interporto di previously managed by several different companies, and Padova S.p.A. (0.561%), Centro Factoring S.p.A. (5.386%) enabled each company to focus more tightly on its and Nomisma S.p.A. (0.055%); Bipop Carire’s equity particular business mission. The configuration of Group investments in: Cedacri S.p.A. (6.099%), LineaPiù S.p.A. companies resulting from the reorganization is as follows: (1.467%), Siteba – Sistemi Telematici Bancari S.p.A. (0.411%), Bonatti S.p.A. (5.723%), Centro Factoring
Capitalia and the Group banks have retained their (0.444%); Fineco Bank’s equity investments in Agenzia di investments in subsidiaries and associates, in organizations Pollenzo S.p.A. (5.919%) and Capitalia Luxembourg’s and companies with an “institutional” or “systemic” role, equity investment in MB Venture Capital Fund I in companies with territorial importance or with an Participating Company ENV (10%). instrumental function in regard to specific company operations, as well as equity investments in companies no Capitalia transferred its equity investments in: longer operating (in bankruptcy, liquidation) and in Eurosanità S.p.A. (11.80%), Istituto Immobiliare di companies with significant borrowing positions; Catania S.p.A. (0.488%), Filse S.p.A. (1.255%), Nomisma S.p.A. (8.64%), C.RI.F. S.p.A. (2.394%), La Grande Cucina
non-Group strategic equity investments have been S.p.A. (12.676%), Porta di Roma S.r.L. (2.985%), Colony concentrated in Capitalia Partecipazioni S.p.A.; Sardegna S.a.r.l. (ordinary shares and preferred equity certificates for a total investment of 13.224% of share
the Group’s non-strategic equity investments and capital), and its units in the closed-end investment funds shares in closed-end investment funds destined for Investindustrial LP, EPTA Sviluppo, Clessidra Capital development sale in the medium term were Partners, Prudentia, Sofipa Equity Fund and Sofipa Equity concentrated in Capitalia Merchant S.p.A.. Fund II. At the start of 2007, Banca di Roma transferred its investment in Kartogroup (7.605%) to Capitalia The Group companies that transferred equity Merchant. investments are Capitalia, Banco di Sicilia, Bipop Carire, Banca di Roma, Capitalia Luxembourg, FinecoBank and Capitalia Merchant engaged in a series of typical merchant Irfis. In 2006, the following transfers took place: banking operations such as the acquisition of new equity interests in: Speed S.p.A. (19.189%), a company that
Capitalia Partecipazioni received the Capitalia’s acquired around 39% of Pirelli Tyre S.p.A.; H2i - Holding di equity investments in: Camfin S.p.A. (1.642%), Pirelli & C. Iniziativa Industriale S.p.A. (9.999%); Spazio Investment NV (1.521%), RCS Mediagroup (1.988%), Gemina (1.99%), (1.002%, which was then sold in an transaction completed Investimenti Infrastrutture S.p.A. (3.000%), Assicurazioni between 25 October and 2 November). In exchange for a Generali (2.261%, including the shares previously property it contributed to Fondo Immobiliare Sigma, an WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 58 59

investment fund run by its subsidiary Fimit S.p.A., Capitalia
on 13 April, FinecoBank transferred its entire equity received 76 units in the fund. Finally, Capitalia Merchant investment in Ktesios S.p.A., consisting of 720,000 shares sold its equity interest in Farmafactoring (10%). with a nominal value of €720,000.00 to Oakwood Italfinance S.r.l.. On 27 April, FinecoBank, also subscribed Capitalia also received: a restricted capital increase of Net Insurance S.p.A. and acquired shares from other companies to bring its total
Banco di Sicilia’s equity investments in: Cassa di investment to 13.043%; Compensazione e Garanzia S.p.A. (4.545%, bringing Capitalia’s total interest to 13.636%); Centrale dei Bilanci
Bipop Carire transferred its minority interests in S.r.l. (4.444%, bringing Capitalia’s total interest to Banca Popolare di Intra, Reti Bancarie S.p.A. (0.018%), 12.778%); Istituto per il Credito Sportivo (10.811%); Bank Bipielle Investimenti (0.0494%) and Banca Popolare of Valletta (14.552%, all the shares are classified as being Italiana (0.0097%); held for trading); CAAB – Centro Agro Alimentare di Bologna (0.188%);
on 21 April, MCC, relinquished its shares in Energy Lazio S.c.a r.l., following the ratification of the right of
Bipop Carire’s equity investments in: Class CNBC withdrawal, which MCC exercised to dispose of its S.p.A. (1.242%, bringing Capitalia’s total interest to investment in 0.09% of share capital; 2.485%); CentroBanca S.p.A. (0.030%); Bipitalia SGR S.p.A. (0.417%).
On 27 September, Capitalia and Fineco Finance sold their entire investment (10%) in, respectively, the Capitalia also took over the investments in SIA Luxembourg-registered private equity company, Società Interbancaria per l’Automazione – Cedborsa Development Capital 1 SCA and Development Capital S.p.A. previously held by Banco di Sicilia (0.187%), Bipop SA (a fund management company), to a group of Carire (0.141%) and Irfis (1 share). As a result, Capitalia’s qualified investors led by Partners Group; investment rose first to 1.91%, and then to 3.43%, corresponding to 1,195,346 shares, after Capitalia
On 21 November, Banca di Roma sold its 5% equity bought 529,793 SIA shares made available for sale by interest in G Invest B.V. (formerly Cofiri Invest B.V.) to ABI (the Italian banking association). The concentration of Galway Investments B.V.. the investments in SSB Società per i Servizi bancari S.p.A. held by Banco di Sicilia (2.216%), Bipop Carire (0.108%) Kyneste bought 1,800 shares in Communication and Irfis (3 shares) was completed. Capitalia’s interest in Valley S.p.A. from minority shareholders to raise its stake SSB share capital thus rose from 7.241% to 9.565%. from 82% to 100%.

In the first ten days of October, Capitalia transferred On 10 March, Capitalia announced that, pursuant to its investment of 7.984% in the share capital of the law, it had notified Consob and Banca Intesa of its Europrogetti e Finanza S.p.A to MCC, whose equity acquisition of 2.02% of the ordinary share capital of investment therefore increased to 39.786%. Banca Intesa. In November, it disclosed that it had decreased its interest to less than 2%. To streamline and rationalize the Group’s portfolio of equity investments, the following operations were also On 9 May, Capitalia, Banco di Sicilia and Bipop Carire carried out in 2006: sold San Paolo IMI their interests in S.I. Holding S.p.A., at WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

a price of €3.33 per share. The interests were as follows: September (of which €900,450,416 carried over from Capitalia, 2,320,553 shares (5.157%); Banco di Sicilia, previous financial years), a share capital of €150,500,000 1,998,900 shares (4.442%) and Bipop Carire 138,978 and an equity deficit of around €366 million, shares (0.309%). This operation eliminated the entire shareholders, acting pursuant to Article 2447 of the Civil investment of 9.908% in S.I. Holding, which was deemed Code, resolved to cover the entire loss and reconstitute no longer strategic owing to the Group’s direct activities the share capital. This required a restructuring of the in the area of credit card issuance and its future plans for company and a reduction in the number of shareholders credit card acquiring activities. The closing of the to five, one of them Capitalia. The shareholders operation generated receipts of €14.8 million and a participated in the rebuilding of the share capital which, capital gain of €12.2 million for the Group. after the capital decrease, amounted to €12,500,000, represented by an equal number of shares. On 10 May, Capitalia completed the sale to Sanpaolo IMI S.p.A. of its entire equity investment in Banca Italo Capitalia, in addition to its proportionate contribution Albanese ShA, equal to 40% of capital, at a price of $22.2 to the capital increase, also subscribed to the entire million. Payment, which was made in two installments, amount of unexercised options, which increased its stake included the net income accrued until 31 March 2006. in the Ipse 2000 from 16.481% to 37.774%. The entire The final price will be adjusted to take account of the net subscription was funded by canceling financial income accrued between 31 March and the closing date receivables from Ipse 2000. The Shareholders’ Meeting of the transaction, 10 May 2006. also resolved to issue equity financial instruments for a total nominal value of € 1,250,000 (Category A) and In June, Capitalia disposed of 17,054,625 €7,500,000 (Category B) that were distributed as options Assicurazioni Generali shares previously held in its to shareholders in proportion to their equity investment. portfolio of assets available for sale. It received around Again in exchange for the cancellation of receivables €471 million, realizing a capital gain of €100.7 million. from the company, Capitalia underwrote Class A equity instruments for a nominal value of €625,000 by With the sale in June of 9,000,000 ordinary Fiat exercising its rights on unexercised options. shares, and a further 22,000,000 in the following months, at the end of 2006 Capitalia remained in possession of On 29 December, Capitalia bought 1,528,230 Ipse 10,199,351 Fiat shares, equal to 0.93% of the ordinary 2000 ordinary shares from another shareholder at the capital and 0.80% of entire share capital. The income price of €0.001 per share, which raised its equity stake in from the sale amounted to around €379 million, and the the company to 50.00001%, equal to 6,250,001 shares. associated capital gain was €151.6 million. The value of the participating equity instruments held by Capitalia remained unchanged. In 2006, Capitalia made payments amounting to €831,825.05 to Ipse 2000 in a loan operation that During 2006, steps were taken to optimize the Capitalia and other Ipse 2000 shareholders carried out in management of the assets of Banca di Roma, Banco di proportion to the size of their equity investment in the Sicilia and Bipop Carire which, following the allocation of recipient company. On 9 October, Ipse 2000 net income from 2005 and the finalization of the shareholders approved the financial statements at 31 disposals of their property assets, reallocated their December 2005 and the balance sheet at 30 September balance sheet assets by carrying out free capital increases 2006. In the light of losses totaling €903,272,295 on 30 by using balance sheet reserves and by issuing new WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 60 61

shares. Irfis also reallocated its balance sheet assets and Riscossione S.p.A. shares for a total nominal value equal effected a capital increase by drawing on balance sheet to the agreed price. reserves and issuing new shares, which it distributed proportionately to shareholders. As of November, the liquidation of Milaris took effect. The company is a wholly-owned subsidiary indirectly MCC increased its capital increase by a total of controlled through Sofigère, an ancillary Capitalia Group €350,000,000 in two installments: the first, effective as of company operating in the area of credit recovery. 6 June 2006, for €150,000,000 and the second, effective as of 3 November for €200,000,000, in application of The increasingly integrated structure of the Group resolutions of the MCC board adopted on, respectively, was evidenced also in the completion of the process of 2 May 2006 and 10 October 2006, in application with the renaming companies to leverage the full benefits of the mandate granted to it by the shareholders’ meeting on strong Capitalia brand. Specifically: 25 November 2005. The increase, underwritten by MCC’s sole shareholder, Capitalia, was intended to strengthen
as of 1 January 2006, Fineco Asset Management the capital base of the company in preparation for an S.g.R., Fineco Investment Management S.A. (controlled expansion of its lending activities, as envisaged in the through Banca di Roma International S.A.) and Fineco 2005-2007 Business Plan, as well as in preparation for the Investimenti Alternativi S.g.R. became, respectively: possible increased absorption of capital from the leasing Capitalia Asset Management S.g.R., Capitalia Investment and factoring activities that MCC acquired from its Management S.A. and Capitalia Investimenti Alternativi merger with Capitalia L&F. S.g.R.;

FinecoBank reduced its share capital for a total of
as of 3 April, FinecoVita S.p.A. became CNP €2,442,000 by canceling 7,400,000 of own shares with Capitalia Vita S.p.A., also known as CNP Capitalia S.p.A.; effect as of 3 August 2006. By means also of the purchase of 7,760 shares, Capitalia’s raised its equity stake from
as of 15 June, Banca di Roma International S.A., a 98.78% to 99.99%. directly controlled subsidiary of Capitalia, became Capitalia Luxembourg S.A.; In the wake of the reform of the national revenue collection service as set forth in Decree Law 203/2005
an extraordinary shareholders’ meeting of MCC (ratified with Law 248/2005), in the second half of the Sofipa Società di Gestione del Risparmio (SGR) S.p.A. 2006, Capitalia went ahead with its plan to dispose its resolved, with effect from 20 June, to change the name controlling interests in tax collection entities. On 26 and of their company to Capitalia Sofipa Società di Gestione 29 September, Capitalia and Bipop Carire signed a final del Risparmio (SGR) S.p.A.; agreement for the sale to Riscossione S.p.A. of their entire equity investments in, respectively, SEM – Società
with effect as of 29 November, Fineco Assicurazioni Esattorie Meridionali S.p.A. (99.99%) and Riscoservice S.p.A. became Capitalia Assicurazioni S.p.A.. S.p.A. (100%). In a similar move, on 29 September, Banca di Roma signed an agreement for the sale of a tax At 31 December 2006, the item “equity investments” collection unit operating in the Province of Frosinone. (which in the consolidated financial statements covers According to the terms of sale, after the balance sheet of Group investments in associated companies and the transferee has been reviewed, payment will consist of subsidiaries not fully consolidated) showed a balance of WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

€482 million, compared with €777 million at 31 same in the Italian Civil Code and in IAS/IFRS rules) are December 2005. recognized under “financial assets available for sale”, “financial assets at fair value” or “financial assets held for Shareholdings in companies that are not subsidiaries trading”, depending on the characteristics of the or associated companies (the definition of which is the securities and the consequent management approach. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 62 63

SHAREHOLDERS’ EQUITY, SOLVENCY RATIOS AND TREASURY STOCK

The consolidated shareholders’ equity of the Capitalia following table reconciles the shareholders’ equity of the Group at 31 December 2006 was €9,717 million. The Parent Company with the consolidated equity.

RECONCILIATION OF SHAREHOLDERS’ EQUITY AND RESULTS FOR THE YEAR OF THE PARENT COMPANY AND CONSOLIDATED SHAREHOLDERS’ EQUITY AND RESULTS FOR THE YEAR.

Capital Net profit for Revaluation Shareholders’ and reserves the year reserves equity (millions of euros) (1) (*) At 31 December 2006 in the parent bank’s financial statements 7.182 1.447 54 8.683 Changes in shareholders’ equity after the date of first consolidation 210 – – 210 Results of companies consolidated: – on a full or proportionate basis – 1.165 – 1.165 – using the equity method – 133 – 133 Cash dividends 1.115 (1.116) – (1) Reversal of gains on AFS sales (17) (481) 481 (17) Suspended intercompany revenues and other consolidation adjustments (257) 27 – (230) Revaluation reserves of consolidated companies – – 192 192 Prior-year writedowns: – goodwill arising on consolidation and application of equity method (405) (13) – (418) At 31 December 2006 in the consolidated financial statements 7.828 1.162 727 9.717

(*) Net of minority interests. (1) Includes share capital, the share premium account, reserves, retained earnings and treasury stock.

Risk-weighted assets amounted to €101.6 billion at At 31 December 2006, the Capitalia Group had no 31 December 2006. The Tier 1 ratio amounted to 6.2%; own shares in portfolio. The changes in Capitalia S.p.A.’s the total capital ratio to 9.2%. The figures were calculated own share totals are described in the relevant section in on the basis of 11th update (approved on 3 April 2006) the Report on Operations of the Parent Company. In of Circular no. 155 of the Bank of Italy containing addition, at 31 December 2006 the Parent Company had instructions for the compilation of reports of regulatory no outstanding commitments for unsettled spot capital and capital ratios. purchases of its own shares. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

RESULTS

The following table shows the Capitalia Group’s consolidated reclassified income statement for 2006 (reconciliation provided in annex).

CAPITALIA GROUP CONSOLIDATED RECLASSIFIED INCOME STATEMENT

Changes

(thousands of euros) 2006 2005 (*) total % Net interest income 2,836,887 2,534,371 302,516 11.9 Net income (loss) on assets and liabilities at fair value 496,068 487,421 8,647 1.8 Dividends and income (loss) on equity investments carried at equity 204,142 151,328 52,814 34.9 Net commissions 1,723,438 1,665,193 58,245 3.5 Other operating income (expenses) 270,034 320,401 (50,367) (15.7) Income from insurance operations – – – – Gross income 5,530,569 5,158,714 371,855 7.2 Staff costs (1,988,184) (1,921,158) (67,026) 3.5 Other administrative expenses (1,045,957) (1,059,842) 13,885 (1.3) Net value adjustments of tangible and intangible assets (198,749) (171,593) (27,156) 15.8 Total operating expenses (3,232,890) (3,152,593) (80,297) 2.5 Gross operating profit 2,297,679 2,006,121 291,558 14.5 Net provisions for liabilities and contingencies (120,338) (134,630) 14,292 (10.6) Net impairment adjustments of loans and other financial transactions (483,527) (407,855) (75,672) 18.6 Net impairment adjustments of financial assets (13,254) (48,446) 35,192 (72.6) Value adjustments of goodwill (115) – (115) – Total provisions and adjustments (617,234) (590,931) (26,303) 4.5 Net operating profit 1,680,445 1,415,190 265,255 18.7 Gains (losses) on disposal of assets and from equity investments 142,531 82,565 59,966 72.6 Profit before tax 1,822,976 1,497,755 325,221 21.7 Income tax for the year on continuing operations (657,499) (461,284) (196,215) 42.5 Profit (loss) pertaining to minority interests (3,330) (6,405) 3,075 (48.0) Profit (loss) after tax from groups of assets being divested (174) 5,486 (5,660) – Net profit for the year pertaining to parent 1,161,973 1,035,552 126,421 12.2

(*) Figures reconstructed consistently with the Group’s scope of consolidation at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 64 65

NET INTEREST INCOME careful management of interest rate spreads. The figure reflects the portion of interest (about €249 million, Consolidated net interest income in 2006 amounted reported at item 130 under “Writebacks for impairment”) to €2,837 million, significantly higher (+11.9%) with associated with the time value effect produced by the use respect to 2005 The rise is mainly attributable to the of amortized cost at first-time adoption, mainly on positive developments in assets, as well as the fruits of impaired loans.

GROSS INCOME

Changes

(thousands of euros) 2006 2005 total % Net interest income 2,836,887 2,534,371 302,516 11.9 Net income (loss) on assets and liabilities at fair value 496,068 487,421 8,647 1.8 Dividends and income (loss) on equity investments carried at equity 204,142 151,328 52,814 34.9 Net commissions 1,723,438 1,665,193 58,245 3.5 Other operating income (expenses) 270,034 320,401 (50,367) (15.7) Income from insurance operations – – – – Gross income 5,530,569 5,158,714 371,855 7.2

The other components of gross income generally shares on the market by Consortium Srl (€33 million) in showed gains in the year. Net gains on assets and the first quarter of the year. liabilities carried at fair value amounted to €496 million, an increase of 1.8% on an annual basis. The figure Net commissions rose by 3.5% to reach €1,723 includes the gain of around €17 million from the sale of million. They include about €12 million – following the Assicurazioni Generali shares (€100.7 million), €31 classification of Capitalia Assicurazioni under companies million from the sale of Fiat shares (€151.6 million) and accounted for using the equity method – in respect of the €131.7 million from the sale of Immobiliare Lombarda release to income of previously suspended commissions. S.p.A. shares (€3.7 million). Dividends and income from Other net operating income declined to €270 million equity investments carried at equity totaled €204 million, (–15.7%) owing to non-recurrent items recognized in a considerable increase with respect to the total of €151 2005. Gross income came to €5,531 million, an increase million for 2005, thanks also to the sale of Mediobanca of 7.2% compared with 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

OPERATING EXPENSES AND THE GROSS OPERATING PROFIT

Changes

(thousands of euros) 2006 2005 total % Staff costs (1,988,184) (1,921,158) (67,026) 3.5 Other administrative expenses (1,045,957) (1,059,842) 13,885 (1.3) Net value adjustments of tangible and intangible assets (198,749) (171,593) (27,156) 15.8 Total operating expenses (3,232,890) (3,152,593) (80,297) 2.5 Gross operating profit 2,297,679 2,006,121 291,558 14.5

Total operating expenses amounted to €3,233 million showed a fall of 1.3%. Net writedowns of tangible and (+2.5%). Staff costs (€1,988 million) rose by 3.5%, partly intangible assets amounted to €199 million, an increase owing to the increase in the number of employees. Other of 15.8%. The gross operating profit was €2,298 million administrative costs, which came to €1,046 million, (+14.5%).

PROFIT BEFORE TAX

Changes

(thousands of euros) 2006 2005 total % Net provisions for liabilities and contingencies (120,338) (134,630) 14,292 (10.6) Net impairment adjustments of loans and other financial transactions (483,527) (407,855) (75,672) 18.6 Net impairment adjustments of financial assets (13,254) (48,446) 35,192 (72.6) Value adjustments of goodwill (115) – (115) – Total provisions and adjustments (617,234) (590,931) (26,303) 4.5 Net operating profit 1,680,445 1,415,190 265,255 18.7 Gains (losses) on disposal of assets and from equity investments 142,531 82,565 59,966 72.6 Profit before tax 1,822,976 1,497,755 325,221 21.7

Total writedowns and provisions amounted to €617 Net operating profit came to €1,680 million (+18.7% million, compared with €591 million a year earlier. Net compared with the end of 2005). Including net gains from impairment adjustments of loans and other financial sales of €143 million (of which €50 million from the sale of transactions amounted to €484 million (+18.6%); net Capitalia Assicurazioni, €23 million for Farmafacotring, provisions for liabilities and contingencies came to €120 €12 million for S.I. Holding, €11 million for Development million (compared with €135 million a year earlier), of Capital I SCA, €10 million for Banca Italo Albanese and which €45 million regarding residual commitments €17 million from the repayment of a securities issue), associated with the Ipse investment. Net impairment compared with €83 million in 2005, profit before tax adjustments of financial assets totaled €13 million amounted to €1,823 million. The result at 31 December (compared with €48 million at 31 December 2005). 2005 was €1,498 million (+21.7%). WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 66 67

NET PROFIT FOR THE YEAR

Changes

(thousands of euros) 2006 2005 total % Income tax for the year on continuing operations (657,499) (461,284) (196,215) 42.5 Profit (loss) pertaining to minority interests (3,330) (6,405) 3,075 (48.0) Profit (loss) after tax from groups of assets being divested (174) 5,486 (5,660) – Net profit for the year pertaining to parent 1,161,973 1,035,552 126,421 12.2

After income taxes of €657 million (compared with €461 million in 2005), income pertaining to minority interests of €3 million (€6 million a year earlier), the consolidated net profit at 31 December 2006 amounted to €1,162 million, an increase of 12.2% compared to the reconstructed net income of €1,036 million at 31 December 2005.

The following table reports the effects at the Group level of major non-recurring operations in 2006:

(millions of euros) Impact on income statement gross of tax Accrual to provision for liabilities and contingencies - Ipse –45,4 Gain on disposal of Capitalia Assicurazioni 49,6 Gain on disposal of Farmafactoring 22,9 Gain on disposal of Banca Italo Albanese 9,9 Gain on disposal of S.I. Holding 12,2 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

RECONCILIATION OF NET INCOME OF PARENT COMPANY AND CONSOLIDATED NET INCOME AT 31 DECEMBER 2006

(millions of euros) CAPITALIA S.p.A. 1,447 BANCA DI ROMA S.p.A. 514 BANCO DI SICILIA S.p.A. 256 BIPOP CARIRE S.p.A. 74 FINECOBANK S.p.A. 65 MCC S.p.A. 62 CAPITALIA ASSET MANAGEMENT S.p.A. SGR 38 FINECO LEASING S.p.A. 27 FINECO FINANCE Ltd 24 CAPITALIA INFORMATICA S.p.A. 5 CAPITALIA LUXEMBOURG S.A. 6 FONDI IMMOBILIARI ITALIANI SGR S.p.A. 5 IRFIS - Mediocredito della Sicilia S.p.A. 2 Other 90 2,615 Income (loss) on equity investments 133 Adjustments on intercompany sales (525) Adjustment for dividends: – Parent Company (1,102) – other Group companies (14) (1,116) Other consolidation adjustments 58 Consolidated net income 1,165 Minority interests (3) Group net income 1,162 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 68 69

THE OPERATING STRUCTURE

HUMAN RESOURCES
FinecoBank, 763 employees;

The number of Group employees (net of “other
MCC, 746 employees; personnel”) at 31 December 2006 was 28,291 (of whom 27,802 in Italy) divided as follows: (2)
Capitalia Service J.V., 388 employees;

Capitalia, 1,196 employees;
Capitalia Solutions, 379 employees;

Banca di Roma, 12,932 employees (of whom 403
Capitalia Asset Management, 240 employees; abroad);
Irfis, 134 employees;
Banco di Sicilia, 6,565 employees;
Fineco Leasing, 127 employees;
Bipop Carire, 2,794 employees;
other companies, 381 employees (of whom 86
Capitalia Informatica, 1,646 employees; abroad).

Some 2.2% of the workforce are senior executives; 15.1% are in the 3rd and 4th middle management grades, 24.5% in the 1st and 2nd management grades and 58.2% in other grades. Employees are distributed by sector as follows:

Change 31/12/2006 31/12/2005 (*) total % Banking sector 25,199 24,622 577 2.3 Financial sector 492 460 32 7.0 Other 2,600 2,557 43 1.7 Total 28,291 27,639 652 2.4

(*) Figures rendered comparable with scope of consolidation of Group in 2006.

Staff training activities were focused on expanding professional skills in furtherance of the Group’s organizational design and in line with the 2005-2007 Business Plan. The training was particularly geared towards supporting the “Cambia Tutto”, “Mid Corporate” and “Customer Satisfaction” programs.

(2) The figures for the individual companies are reported net of “other personnel” and inward secondments. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

For the “Cambia Tutto” project, management and As regards industrial relations, in addition to the marketing staff in the retail banks of the Group and developments described in the section of the Parent those appointed to the new post of Branch Assistant Company Report, agreements were reached with the received instruction and training in operating the new Group’s retail banks for the implementation of the customer information and advisory services and in “Cambia Tutto” Project. The agreements are intended to contributing to specific marketing campaigns. For the facilitate members of staff who are involved in change of Mid Corporate project, the training was one part of an branch opening hours with the introduction of lunchtime, integrated series of instruments to improve the Saturday and Sunday opening. At the same time, commercial performance and the profitability of this initiatives for monitoring and developing customer segment. These activities, coupled with other satisfaction were undertaken. educational courses on lending methods, accounted for more than 18% of all Group training activities in With reference to the company bonus scheme, on 14 2006. The mapping of the competences through the February a Group-wide agreement was signed giving most Group was updated, and a training catalogue was members of staff access to the same bonus which is linked prepared, with particular reference to professionals in to results at the consolidated level and was increased by charge of customers and other staff members in around 30% compared with the bonus for the prior year. positions of responsibility or with coordinating Employees also received a special bonus in recognition of functions. the effort required for the implementation of the “Cambia Tutto”, project. The Customer Satisfaction project, meanwhile, is designed to endow staff with customer management To combat crime on bank premises, the Group, skills and continuously raise the level of customer working also with other bodies, addressed the question satisfaction. The activities were focused on maintaining of security and prevention. The main banks in the Group the professional competencies of the Customer signed agreements with unions for the application of Satisfaction Manager, a new post formed to oversee the security measures to be adopted in specific risk project in retail banks. Other training activities, both situations. traditional and innovative, were provided for staff in the retail banks, including branch heads and loan managers, As regards the employment concerns expressed by with a view to raising the capacity of the staff to manage the staff of Roma Servizi Informatici and the consequent organizational and commercial initiatives aimed at raising union action that threatened to have repercussions on the level of customer satisfaction. the functioning of the network, the special arrangements made for the protection of the jobs and professional The “employees’ children recruitment” initiative was posts of staff transferred from Banca di Roma were launched at the Group level. It has the dual objective of reconfirmed. achieving the 2005-2007 Business Plan’s objective for staff turnover and of responding to many requests for On 26 April, an agreement was signed for the reform of such an initiative submitted by employees. The the supplementary pension arrangements for Banco di recruitment phase ended in December 2006. In the first Sicilia staff, whereby personnel previously without pension few months of 2007, the phase of hiring new suitable coverage, were offered the possibility of coverage through resources, in parallel with the termination of contract by membership in the Pensionepiù open pension fund of their parents, will be concluded. Capitalia Asset Management S.p.A.. The reform, which WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 70 71

refers to around 13,200 active and retired employees, capital charges on lending risk, and began activities for harmonizes supplementary pension arrangements across the management of operational risk. the Group, with particular regard to the transfer of large numbers of Banco di Sicilia employees to other Group The year saw the roll-out of the activities envisaged by companies. The Group lent assistance to Bipop Carire to the Business Continuity Plan prepared by the banks and amend the rules of the supplementary pension fund of the the other Group companies in order to ensure the former Gruppo Bipop Carire, so that employees stability of core businesses and systemically important transferred elsewhere in the Group might be able to retain processes in the event of a crisis. Other initiatives begun their membership of the fund. during the year included:

The complexities of the recent changes in the law
the consolidation of IT governance processes for the regulating the use of employee termination funds (TFR) appropriate management of Capitalia Informatica’s and the presence of several different pension systems operations and those of other Group companies not within the Group obliged the Group to coordinate its served by Capitalia Informatica. A specific Directive setting compliance efforts and provide explanatory information out rules for the IT governance of the Group was issued; packs for all Group employees.
the centralization in Capitalia of depository bank functions, in pursuance of the plan to merge the function ORGANIZATIONAL DEVELOPMENT of controlling fund operations with the function of calculating NAV using an integrated IT application; All the initiatives developed in 2006 focused on the continual updating of Group structures and processes to
the progressive rationalization of the commercial ensure regulatory compliance and meet management processes continued with the aim of strengthening value and operational requirements. added activities in the Group’s retail banks and redistributing resources more efficiently. In furtherance of these goals, the Group issued new rules to regulate the operational functions of the Group TECHNOLOGICAL INFRASTRUCTURE and govern relations between the Parent Company and the other Capitalia companies. To comply with new The development of IT systems was concentrated on statutory provisions on market abuse relating to suspect the priority areas of individual business lines. One of the transactions, the Group introduced appropriate most important projects to be done in the year was the management and operational practices in the relevant construction of an IT subsystem to help the Group companies, and took steps to ensure compliance with the comply with Basle 2 regulations. Specifically, new IT Savings Law (Law 262/2005 and Legislative Decree solutions were made available to facilitate loan granting 303/2006) and with bank oversight rules (Presidential and monitoring processes, as well as the rating and Decrees 600/1973 and 633/1972). capital requirement calculation system. One of the solutions consisted in the extension of the electronic In respect of the project for Basle 2 compliance, the lending procedure to other customer segments (Retail Group proceeded with its activities for the and Large Corporate – Italy); another consisted in a implementation of an internal rating system with a view delinquency management application for the systematic to adopting advanced IRB methods for the calculation of monitoring of Retail customers. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

The development of the Kor commercial information
a plan for the renewal of the Group’s POS network system to the Corporate segment continued, and new was launched in connection with scheduled introduction transactional functions were introduced to integrate and of microchip cards and with the deadlines set in the rationalize the activities of commercial managers. A new COGEBAN project for large-scale distribution outlets. support procedure for company operations was The project involved the upgrading of 28,000 POS by the released, and the task of upgrading the Interbank end of 2007. The plan to modernize the Group’s ATMs is Corporate Banking system to the new requirements already under way and more than 900 ATMs are completed. expected to be upgraded during the first half of 2007.

The switch to microchip credit cards began in 2006. The new information system designed to facilitate The first microchip cards were issued as part of the and expand leasing operations will shortly be brought FinecoBank product range. Other advances in the year into service in MCC and Finecoleasing. included:

in connection with the Risk Advisory project, work THE PROCUREMENT SYSTEM was completed on a customer support system that is designed to enhance the banks’ quality of service by The reorganization of the management of the Group’s analyzing investment risk in connection with the delivery functional activities is fully under way. The aim of the of financial advice to customers and increasing the reorganization is to strengthen the Group’s operative sophistication of the methods used for measuring the control over its real estate assets and over the cycle of suitability of financial instruments with reference to a procurements. Governance and strategy responsibilities portfolio risk indicator, as recommended by Consob; have been transferred to the Parent Company and, since 1 January 2006, Capital Solutions has been in charge of
the Group introduced an electronic procedure that, providing Group banks and other companies with a in accordance with new regulations on market abuse, global solution for the supply of goods and services and generates alerts when it detects potentially suspect real estate management. operations; The actions put into effect in 2006 consisted on the
following the successful integration of the IT systems one hand in cost containment efforts and, on the other, in used by the Group banks, a review was made of the the development and restructuring of the local branch range of services outsourced in full to the EDS company, network, both objectives set out in the 2005-2007 and a new organizational model was configured that will Business Plan. give Capitalia Informatica direct control of the technological components; To reduce administrative costs, several framework agreements were negotiated for the supply of goods and
the testing of the Disaster Recovery software used for services to all the companies in the Group. As part of this the central computing systems was completed; program, Capitalia made regular use of its e- procurement platform, which is more efficient and
a site for the Business Continuity Plan, to be acted transparent thanks to the speed with which negotiation upon in the case of a calamitous event for the banks, was and the securing of supply contracts is carried out on line, set up in the Capitalia offices of Rome; and thanks also to the simplification of communications WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 72 73

between buyer and supplier. This enabled Capitalia to As regards the renovation of head offices, reduce its costs by around 10-20% of base contract value. restructuring and rationalization work for a value of more than €40 million began in many Group The Group also introduced a supply-control companies, most notably in the head offices of Banca di mechanism that aims to monitor the consumption of Roma in Rome, Banco di Sicilia in Palermo, Bipop Carire goods and services by Group companies and take the in Brescia, Fineco in Milan and Capitalia Solutions in necessary action to reduce consumption. The first items Rome. Important restructuring work was begun on the to be subjected to monitoring were the costs managed historic buildings that house Capitalia S.p.A. in Rome directly by Capitalia Solutions, such as rent, utility bills (such as Palazzo della Galleria Sciarra, where there are and cleaning costs. In 2007, the monitoring will be also plans to restore the frescos on the outside of the gradually extended to other categories of expenditure. building) and in Milan. The aim is both to preserve the Already the monitoring has enabled the Group to reduce value of the buildings and rationalize the use of the the unit cost of acquisition. The analysis and monitoring spaces. of consumption patterns also led to changes, including organizational changes, being made to the spending In line with the Group strategy for the maintenance processes of Group banks. The purpose is to optimize and acquisition of ownership of property used in the management of specific items of expenditure. operations by the retail banks and other companies, during 2006 a total of 35 property acquisitions were In the area of real estate assets, the main changes completed for a value of around €35 million (including were: tax charges) as the Group opened new branches and bought premises that had previously been used under
the expansion of the branch network and the lease. The most significant property investments in early restructuring of exiting branches; 2007 consisted in the purchase of 28 branches previously occupied under lease for a cost of €54 million (plus tax
the restructuring of head offices; charges).
property buying/selling.

As regards the expansion of the branch network, in THE DISTRIBUTION NETWORK addition to new openings, the Group started putting the plan for the restructuring of current branches into effect At 31 December 2006, the Group had 2,020 branches and carried out around 100 “hard” and around 350 in operation. Including the 8 representative offices, the “medium” and “light” renovation works. total comes to 2,028, divided as follows: WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

BRANCH NETWORK

31 December 2006 Italy abroad Representa- total 31 December Changes tive offices 2005 Capitalia S.p.A. 1 – – 1 1 – Banca di Roma S.p.A. 1,145 12 4 1,161 1,146 15 Banco di Sicilia S.p.A. 531 – – 531 523 8 Bipop Carire S.p.A. 325 – – 325 293 32 MCC S.p.A. 2 – 3 5 4 1 IRFIS S.p.A. 1 – 1 2 2 – Capitalia Luxembourg S.A. – 2 – 2 2 – FinecoBank S.p.A. 1 – – 1 1 – Total 2,006 14 8 2,028 1,972 56

FINANCIAL COMMUNICATION improvements made by the Group in its operations, Financial communication activities, the aim of which is structure and risk management. Capitalia currently to foster a proper and transparent flow of information enjoys a consistent rating from the three international about the Group’s strategies and operations to the agencies, Fitch Ratings, Moody’s Investors Service and markets, entailed several corporate reorganization Standard & Poor’s Corporation (respectively, A/A2/A), operations, the launch of new products/services in with a stable outlook. The Standard & Poor’s rating connection with the “Delta2” project, now called enables the Group to turn to a broader range of “Cambia Tutto” and the announcement that the targets investors when making bond placements, with set in the Business Plan 2005-2007 are to be raised. consequent benefits in terms of funding costs and in the value of the bonds placed. Numerous meetings with the markets took place in 2006: in particular, the Group organized 7 roadshows for The Capitalia website rapidly published the main European and American financial exchanges, 2 communications relating to operations or corporate market presentations, 2 conference calls to illustrate events in line with corporate governance best interim financial results, more than 300 one-on-one practices (press releases, documents relating to meetings with institutional investors and participation in Shareholders’ Meetings, communications relating to an international banking conference. Internal Dealing). The website makes it possible for investors to email information requests and to take Capitalia steeped up its communication activities for active part in webcasts of presentations of financial investors in fixed-yield securities and organized, among results. On line communication was further enriched in other things, a roadshow that traveled to the main 2006 by two new interactive systems opened to European exchanges. visitors to the site: browsable financial reports and the Online Analyst: the first gives immediate access to the Capitalia devoted particular attention to relations most salient results in the consolidated financial with rating agencies, which duly recognized the statements; the second allows visitors to examine and WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 74 75

compare economic aggregates with reference to 16% in the same period in the S&P MIB index, 23.4%, different time horizons. in the Milan Banking index and 22% in the European banking index (DJ Eurostoxx Banks). Since 30 The results achieved by the Group, its constant December 2002, Capitalia shares have risen in value commitment to turning its Business Plan into reality, by 491%. and its effective financial communication, helped ensure that Capitalia shares outperformed all others in Leading financial brokers and international investors the Italian banking sector (those included on the Milan remain interested in the Group: the presence of Banking index) in 2006, and that, for the fourth year in managed saving funds in the shareholder base of a row, Capitalia was one of the best performing of the Capitalia rose from 14.5% in October 2002 to around major European banks. The year 2006 ended with a 50% in December 2006. Foreign-based investors account rise of 47%, in the share price, compared with a rise of for 38.7% of the shareholder base. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

SUMMARY OF THE PERFORMANCE OF THE MAIN GROUP COMPANIES

ITALY relating to Capitalia Leasing & Factoring reclassified as interbank lending), achieved principally thanks to the strong performance of mortgages (at €13,471 million, up Banking sector(3) €3,341 million) and the €2,278 million increase in loans.

Impaired positions amounted to 4.9% of net loans to BANCA DI ROMA S.p.A. customers, an improvement on the 6% registered in 2005. Of this total, net bad debts were equal to €821 Direct funding from customers at 31 December stood million (compared with €694 million at 31 December at €36,324 million, higher than the €31,914 million at the 2005). This represents 1.7% of total lending to customers, end of 2005, thanks to the positive trend both in current compared with 1.6% at the end of 2005. Substandard accounts and deposits (+14.5%) and repurchase loans were €595 million, a reduction of €120 million, operations (+39.6%). representing 1.2% of total lending, compared with 1.7% in 2005. Restructured loans totaled €426 million, €123 Indirect funding rose by 13.5% on an annual basis, million less than a year earlier. mainly due to the strong performance of assets under administration, which increased 20.2%. This increase was With regard to the income statement,(4) net interest due both to depositary services, which rose 25.7% due to income totaled €1,721 million, an increase of 6.3%; this the acquisition of new funds chiefly administered by figure includes €67.3 million from the time value effect on other Group companies, and collections from the bank impaired positions (€81.8 million at the end of 2005). network (+20.4%). Bancassurance also showed an Gross income was €2,804 million, largely unchanged from increase of 9.3%. the €2,810 million figure a year earlier. Net commissions amounted to €884 million (+4.6%). Gains on assets and The net interbank debtor position of €6,412 million liabilities carried at fair value totaled €64 million, marked a decline compared with the €7,052 million compared with €197 million at the end of 2005. Other net registered 12 months earlier. operating income declined from €147 million to €133 million, while dividends remained stable at €1 million. Lending to customers reached €47,620 million, up 13.2% compared with a year earlier (in spite of the Operating expenses came to €1,588 million, just outflow of around €2,667 million in intercompany loans 0.7% higher than in 2005. Gross operating profit totaled

(3) In analyzing the financial data of the bank network and MCC, reconstructed data was used for 2005 in accordance with the scope of consolidation at 31 December 2006. Factors of importance included partial spin-offs to Capitalia Solutions, partial spin-offs of real estate assets to Capitalia S.p.A., the merger of Capitalia L&F into MCC and the sale of the tax collection concession for the province of Frosinone and Riscossione S.p.A. (4) Earnings figures for 2005 have been readjusted to facilitate a like-for-like comparison with the 31 December 2006 figures. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 76 77

€1,216 million, a decline of 1.3% compared with 31 2.6%; at the end of 2006 indirect funding accounted for December 2005. 58% of the total, up from 55.7% 12 months earlier.

Net provisions for liabilities and contingencies of €35 Indirect funding totaled €21,070 million. Among million were principally due to ongoing legal disputes. wealth management products (€10,266 million, +12.8%) Writedowns of loans totaled €272 million compared with there were significant increases in Capitalia bonds. €161 million in 2005. Considering €13 million in gains on Assets under management – almost exclusively sale of assets, profit before tax equaled €923 million, consisting of Group products – amounted to €5,177 11.8% lower than at the end of 2005. Profits from assets million (+6.6%). This upwards trend can be ascribed to being divested (€1 million net of current taxes) came from good performance by investment funds, which the tax collection concession in Frosinone. After income tax amounted to €4,719 million (+3.3%) and portfolio of €411 million (compared with €378 million in 2005), net products, which came to €457 million (+60.5%). profit totaled €514 million, a decline of 23.2% compared Insurance products rose from €2,641 million to €2,908 with the readjusted result for the 2005 financial period. million as the range of products on offer continued to expand, and customers became increasingly At 31 December 2006 the bank had 1,145 outlets in appreciative of index-linked policies that reconciled the Italy, (+25) and 12 foreign branches (–7). The bank had desire for guaranteed returns with the chance to seize 12,932 employees, compared with 13,196 at the end of opportunities afforded by the recovery of the markets. 2005, a reduction of 264, of whom 194 were transferred Total securities in custody declined 5.5% to €10,804 to Capitalia Solutions and 80 were involved in the million year-on-year. divestment of the tax collection concession in Frosinone. Net loans to customers amounted to €15,352 million, up from €12,542 million at the end of 2005. In particular, BANCO DI SICILIA S.p.A. performing loans rose 22.4% to €14,506 million, driven by an increase in mortgages: in residential mortgages to Direct funding from customers, which totaled households alone, lending exceeded €1,700 million in €15,280 million, showed a decline of €1,056 million due 2006. to a reduction of €885 million (–21.3%) in funding from securities, which totaled €3,263 million, in addition to a Net bad debts increased 21.3% to €489 million, with drop in short-term funding (–€170 million, –1.4%). In the coverage ratio at 76.5%, while net substandard loans particular, current accounts fell €259 million to €9,458 rose 2.7% to €193 million, with the coverage ratio at million and savings deposits fell €89 million to €1,810, 27.3%. Performing loans accounted for 94.5% of all partially offset by an increase of €230 million in loans, bad debts 3.2% and substandard loans 1.3%. repurchase agreements which reached €441 million (+109.6%). The development of current account Financial assets declined 56% compared with 2005 to overdrafts was entirely due to the relationship with the €353 million, of which €316 million available for sale and Treasury of the Region; net of this effect, there would the remainder held for trading. The total decrease of have been an increase of €314 million for the period. €449 million is the result of divestments, chiefly of intragroup assets. Specifically, shareholdings in the Bank The reconversion of direct funding to indirect funding of Valletta and Credito Sportivo were transferred, as well continued during the period, posting an increase of as 10 minority shareholdings, while the shareholding in SI WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

Holding S.p.A. was transferred to companies outside of operating income of €363 million, almost €50 million the Group. lower than at the end of 2005.

At 31 December 2006 the bank posted a net interbank Total provisions and writedowns improved from a creditor position of €1,560 million, predominantly as a negative result of €78 million at the end of 2005 to a result of relations with the Parent Company. The €2,676 positive result of €2 million at the end of 2006, due million reduction compared with 31 December 2005 was principally to a large writeback posted under loan associated with growth in lending to customers and the writedowns. Profit before tax, which includes €47 million reconversion of direct funding reaching maturity to Group in net gains on the sale of assets, totaled €413 million. company wealth management products. The figure was also impacted by flows arising from the settlement of After €157 million in income taxes, net profit was disposals to Capitalia during the year. €256 million, a decline of 9.8% compared with the reconstructed result for 2005. Net interest income(5), including the time value effect of €52 million (compared with €46 million at 31 The bank has 531 branches, in addition to 15 special December 2005) came to €702 million. The 11.5% rise branches, of which 443 in Sicily and 103 on the mainland. was due principally to increased lending to customers, an A total of 24 branches were opened, 2 of which in Sicily, improvement in the overall spread and a reduction in within the framework of the rationalization of the bank’s charges on medium- and long-term funding channeled network in Sicily and commercial expansion on the into wealth management products. mainland.

Gross income was €1,062 million, largely unchanged At 31 December 2006 the bank employed 6,565 from 31 December 2005. Of this total, net gains on assets people. The increase of 22 members of staff since carried at fair value declined to €16 million, which in December 2005 was the result of 259 new hirings and 2005 had benefited from profits of around €55 million 237 departures, including transfers to other Group from Bank of Valletta securities, which were then companies. transferred during 2006, in addition to other operating income (€58 million) which had included €21 million in reductions in liabilities in 2005. Increases were registered BIPOP CARIRE S.p.A. in net commissions, which reached €275 million, and dividends, which totaled €10 million. Total bank and customer funding was €9,642 million, an increase of 11.5% compared with the end of 2005; Operating expenses increased 6% to €698 million, amounts due to customers totaled €5,138 million, up driven by a rise in personnel costs at €422 million and from €4,721 million. administrative costs at €269 million, including costs incurred for Capitalia Informatica and Capitalia Solutions Indirect funding amounted to €14,069 million services. Net writedowns of property, plant and (+3.8%). While there was a reduction in funding from equipment came to €7 million. This resulted in gross assets under management (-12.5%) and insurance

(5) Earnings figures for 2005 have been readjusted to facilitate a like-for-like comparison with the 31 December 2006 figures. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 78 79

products (-10.5%), assets under administration rose 18% On the basis of the reclassified income statement, net to €8,363 million. In particular, placement of Capitalia interest income(6) amounted to €227 million, a substantial bonds reached approximately €500 million. advance thanks to the generalized increase in the volumes of lending to customers and banks. Amounts due to banks came to €4,504 million, a 14.7% increase year-on-year. Lending to banks rose from Gross income rose 7% compared with 31 December €870 million to €966 million. The net interbank debtor 2005 to €444 million. Net commissions stood at €188 position was €3,537 million, compared with €3,055 million. Other net operating income came to €21 million; million at 31 December 2005, funded principally by dividends equaled €5 million (compared with €1 million). Capitalia S.p.A.. Operating expenses came to €309 million, up from Net loans to customers amounted to €9,544 million, €285 million at 31 December 2005, mainly as a result of an increase of 15.3% over the year. Increases were ongoing investments in the Delta2 project and new branch posted in mortgages (+30.5%) and other financing to openings. In particular, staff costs rose to €159 million; other ordinary customers (+32.7%). administrative costs came to €147 million. Consequently, gross operating income came to €135 million, an increase Net bad debts amounted to €78.9 million, an of 4.3% compared with 31 December 2005. increase of 3.9%; net substandard loans were €10.9 million, a reduction of almost half compared with the end After net provisions and writedowns of €34 million of 2005. and gains on sale of assets of €23 million, profit before tax was €124 million. After income tax of €50 million, net Financial assets came to €244 million, of which €108 profit totaled €74 million, a reduction of 13.2% million available for sale and €135 million held for compared with the reconstructed figure from 2005. trading. The bank’s distribution network consists of 325 Provisions for liabilities and contingencies of €35 branches, 32 more than at 31 December 2005. million included, among other elements, accruals made against the risk of compensation claims received for The number of employees increased from 2,523 to various reasons by the bank for which, under appropriate 2,794. circumstances, the bank has gone to court. These included certain residual positions worth around €20 MCC S.p.A. million concerning fund portfolio products (GPFs) acquired in the context of the transfer of banking With the merger of Capitalia Leasing & Factoring on operations from FinecoGroup S.p.A. on 1 July 2002, 1 January 2006, MCC has broadened its skills and some accompanied by atypical side letters. On the basis strengthened its market positioning. MCC has become of the opinions of legal counsel and internal assessments, the Group’s corporate lending specialist with a diversified the provisions reflect the best possible estimate of the range of financial tools and services on offer, including risk associated with the compensation claims. corporate, export and project finance lending and

(6) Earnings figures for 2005 have been readjusted to facilitate a like-for-like comparison with the 31 December 2006 figures. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

acquisition finance, as well as factoring and leasing coverage ratio was 25%. As a proportion of customer products. The bank is also continuing to administer loans, net substandard loans were 0.8%, unchanged from national and regional business incentives. the previous year. Past-due exposures (180 days delinquent) declined to €56 million from €76 million. Growth in volume had not yet filtered through to the earnings level as of 31 December 2006, predominantly Lending to banks reached €715 million, up from due to fiercer competition which has squeezed spreads, €488 at 31 December 2005. Net of assets in current as well as a lack of commissions from the administration accounts (temporary deposits associated with year-end of public incentive programs (Law 488 and e-commerce). payments) lending totaled €505 million at 31 December The impact of these factors on net profit has been 2006, compared with €476 million at the end of 2005. mitigated by prudent cost management. Shareholders’ equity at 31 December 2006 came to A like-for-like comparison of year-end 2006 results €954 million. Of the change from 2005, around €90 with readjusted data for 2005 shows total funding at million was generated by an increase in the company’s €11,372 million, an increase of 13%. This result includes equity from retained earnings (including the net profit subordinated loans of €95 million. In particular, liabilities from operations that were spun off), plus €350 million with banks rose from €7,690 million to €9,127 million. from capital increases during 2006. Amounts due to customers of €1,127, compared with €1,097 million, consisted principally of cash collateral on In light of the reclassified net income(7), net interest loans for which MCC is the fronting bank, and against income totaled €134 million, an increase of almost 7% on guarantees issued. an annual basis. This growth is primarily due to increased volumes, mitigated by a squeeze on spreads. Lending to customers totaled €11,489 million, an increase of 14% compared with the €10,088 million Net commissions totaled €95 million, compared with registered at 31 December 2005. Performing loans were €87 million at 31 December 2005. Substantial growth up 16% on an annual basis to €10,949 million, divided was registered for development services (+31% almost equally between the different business lines: compared with 2005) and structured finance (+17%). leasing accounted for 24% of the total; factoring accounted for 19%; corporate finance accounted for Gains and losses on assets and liabilities carried at fair 23%; industrial credit accounted for 21%; foreign credit value came to €2 million, essentially due to trading and project finance accounted for the remaining 13%. activities. Other net operating income came to €16 million, compared with €27 million in 2005. This decline Net bad debts came to €178 million, down from the is predominantly due to non-recurring income in 2005 €181 million registered at 31 December 2005. The such as insurance refund for a leasing operation and a tax coverage ratio stood at 61%. The ratio of net bad debts rebate. Dividends (which did not appear in 2005) to total customer loans was 1.5%, (1.8% at 31 December amounted to €1 million, distributed by the subsidiary 2005). Net substandard loans amounted to €88 million, Immobiliare Piemonte. Gross income came to €248 down from €94 million at 31 December 2005. The million, compared with €240 million in 2005.

(7) Earnings figures for 2005 have been readjusted to facilitate a like-for-like comparison with the 31 December 2006 figures. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 80 81

Operating costs totaled €105 million. Of this total, staff S.p.A. insurance company, and signed a deal to develop costs were largely unchanged from 2005 at €59 million. its activities in the loans backed by salaries segment. The Other administrative expenses were €39 million, bank sold its entire 4.5% stake in Ktesios S.p.A. for a €2.5 compared with €55 million at 31 December 2005. This million gain on the disposal, while maintaining its reduction can be attributed both to synergies arising from ongoing commercial agreement with the company. the merger and from the ongoing cost containment policy and a reduction in consulting for Law 488-related On 20 June 2006 the bank bought back the portfolio purposes. Net writedowns on property, plant and of loans backed by salaries, sold on 30 March 2001 to the equipment and intangible assets came to €6 million, Garda Securitization S.r.l. vehicle. Though there was no compared with €7 million in 2005. Gross operating income formal obligation to exercise the optional redemption was €143 million in 2006, up from €119 million in 2005. clause in the contract, it was deemed advantageous to close the transaction in advance in order to minimize costs Total provisions and writedowns amounted to €38 that would otherwise have been incurred in maintaining million (compared with €28 million in 2005). Net the securitization, as these costs were not proportionate writedowns of loans came to €37 million; net to the limited amount of bonds in circulation. adjustments for the impairment of other financial transactions totaled €1 million. The balance of A subordinated loan totaling €100 million was allocations and reversals in net provisions for liabilities launched, entirely subscribed in three tranches by Fineco and contingencies was €0.5 million. Finance Ltd.

Profits made on sales amounted to €3 million, The Bank has continued to invest in developing its resulting mainly from proceeds from the sale of proprietary technology platform in order to offer new securitized health sector debts in the Region of Lazio. services to customers. This includes enhancing the Profit before tax came to €108 million. After income tax “news” section through the addition of the News Center of €46 million, net profit reached €62 million, up 23% and Google Research, and improving equity market compared with the pro forma result in 2005. access by including the Dutch and Portuguese markets. Furthermore, new spot operations have been added to The number of employees was 746 at 31 December Forex currency market transactions, and new fund sectors 2006, compared with 743 a year earlier. are now online.

Total funding (direct and indirect) reached €13.6 FINECOBANK S.p.A. billion (+26.2%). Direct retail funding (current accounts and repurchase agreements) was 41% higher than at 31 FinecoBank focuses almost exclusively on retail December 2005, reaching €5.4 billion. The number of customers and operates in online finance, securities current accounts rose 5.8% to over 363,000. investment, mortgages and consumer credit. FinecoBank is highly innovation-oriented, particularly in online The number of credit cards in circulation jumped from banking and trading services. 857,188 at 31 December 2005 to 1,307,501 at 31 December 2006. This 52.5% increase is attributable to During the first half of 2006 FinecoBank paid new cards issued on behalf of Capitalia banks, for which €7,500,000 for a 13.04% stake in the Net Insurance FinecoBank provides processing and servicing services. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

FinecoBank emerged as Italy’s top broker for the the range of products available on the domestic market number of trading orders handled. It expanded its market more distinctive and innovative. A total of 4,460 share to 7.44% of all orders executed, up from 7.19% the mortgage contracts were signed with a value of €500 previous year, according to Assosim. Volumes traded million. on the securities market registered a considerable improvement thanks to the increase in volumes traded on Gross income grew by 20.8%, reaching €290 million. behalf of Group companies and to a consolidation of This reflected an improvement in net interest income and volumes generated by new clients acquired in recent years. increased commissions, particularly in online trading and intermediation activities. Gross operating income also Progress was achieved in overhauling the network of improved, reaching €126 million, while net profit at 31 financial advisors. Sales outlet rationalization continued December 2006 reached €65 million. (128 financial service shops throughout the country, as well as 41 outlets managed directly by financial advisors) while the organizational structure and the commissions IRFIS - MEDIOCREDITO DELLA SICILIA S.p.A. system underwent review. New remote computer links for the network streamlined the production process, Irfis-Mediocredito della Sicilia registered loan increased the loyalty of brokers and brought down costs. approvals worth €400 million, compared with €275 At 31 December 2006 the distribution network consisted million at 31 December 2005 (+45.2%). Finalized loan of 1,142 people, all of whom are licensed financial sales agreements amounted to €170 million, a fall of 7.9% in professionals (a decline of 219, of which 168 financial terms of volumes. The value of applications increased salesmen) compared with 31 December 2005. 28.1% to €505 million; the value of loans disbursed was €160 million, 0.4% higher than at the end of 2005. With more than €9.5 billion in funds under management and administration at FinecoBank and As regards the management of portfolio operations, other Group banks, network assets increased by 22.9% loans approved awaiting finalization registered a compared with 31 December 2005. Asset management substantial increase of 61.1% to €215 million. rose by 15.2%, accounting for €4.8 billion of the total. In 2006 the new system of subsidies was introduced Lending to customers, including securitized loans, under Law 488/92, based on the coexistence of ordinary came to €7.2 billion. Loans to retail customers rose 4.4% and subsidized financing and capital account to €6.2 billion. FinecoBank is the market leader in the contributions, which has led to a review of its role as an segment of loans backed by salaries: loans totaled €1.5 “processing/financing” bank. Working in conjunction billion and net disbursements increased by 24% with Banco di Sicilia for the tenders issued (industry, compared with 31 December 2005. A total of 34,364 new tourism and commerce), a total of 143 applications were contracts were signed. evaluated, of which 104 were successful, for a total of €353 million in investments. Residential mortgages showed continued growth in 2006 through the subsidiary Fineco Mutui S.p.A., thanks The bank continued to handle female to the inclusion of new agents, constant expansion into entrepreneurship funding, negotiated planning new regions, the redefinition of the product portfolio and instruments, subsidies provided under Agenda 2000 and the improvement of business processes, in order to make the incentive package relating to the separate WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 82 83

management of regional funds, as well as endorsement rationalization of the Capitalia Group continued in 2006. activities in respect of economic and financial plans under The effort is aimed at strengthening governance, focusing Law 109/1994 (the “Merloni ter” law on public works). the companies on their respective missions, further streamlining processes and pursuing additional cost and Medium-term funding, calibrated to match inflows revenue synergies. The Group pursued the reorganization and outflows and minimize the risk of market fluctuations of the ownership structure of Group companies in order to through the use of derivative instruments, amounted to optimize the management of equity investments not €244 million, down from €279 million at 31 December belonging to the banking Group and free the operating 2005. This consists mainly of non-security funding (€180 companies from tasks and managerial decisions beyond million) acquired almost entirely from banks in the Group. the scope of their own corporate missions. In The remaining portion, which is being run down, consists implementation of the decisions of the Capitalia Board of of bond issues (€64 million). Directors of 16 December 2005 and 21 June 2006, two sub-holding companies – Capitalia Partecipazioni S.p.A. e Lending to customers amounted to €473 million, Capitalia Merchant S.p.A. – were made responsible for compared with €483 million at 31 December 2005. Net ownership and management, respectively, of strategic bad debt increased to €26 million from €18 million as a and non-strategic holdings. result of the deterioration of positions classified as substandard. Bad debts accounted for 5.5% of loans The activities of Capitalia Partecipazioni in 2006 must (3.6% at 31 December 2005). The coverage ratio stood at be viewed in terms of two separate phases. In the first around 53%, compared with 62% a year earlier. phase, until 22 June, it assisted CFT Finanziaria S.p.A., a company that in October 2005 had acquired all residual Shareholders’ equity at 31 December 2006 stood at debt of the former Akros Casa S.p.A. at that date, and €110 million net of profit for the period, compared with also handled its liquidation. On 22 June Capitalia S.p.A. €108 million at the end of 2005. acquired Akros Casa S.p.A. in liquidation from Bipop Carire S.p.A., and having noted the substantial closure of Earnings indicators registered a fall in margins, owing to the liquidation activities due to exhaustion of legally lower returns on new loans compared with the older loans entitled parties, it revoked the liquidation. The company’s they have replaced and a lack of commissions on subsidies name was changed to Capitalia Partecipazioni S.p.A., a due to delays for new calls for applications in 2006. After new board of directors was appointed, the company’s tax provisions of €1.9 million, net profit came to €2.1 corporate purpose and Articles of Incorporation were million, compared with €3.9 million at 31 December 2005. modified and a capital increase was authorized. At the end of 2006 shareholders’ equity totaled €1,436 million. The company employed 134 people, unchanged from 31 December 2005. From 22 June 2006 Capitalia Partecipazioni undertook its new activity as holding company for strategic shareholdings, acquiring shares worth a total of Other sectors €2,112,879,178. In particular, it acquired directly from Capitalia S.p.A. the shareholdings in Assicurazioni Generali CAPITALIA PARTECIPAZIONI S.p.A. S.p.A., Mediobanca S.p.A., Camfin – Cam Finanziaria In line with the forecasts set out in the 2005-2007 S.p.A., Pirelli & C. S.p.A., RCS Mediagroup S.p.A. e Business Plan, the organizational and corporate Gemina S.p.A. and Investimenti Infrastrutture S.p.A.. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

Capitalia Partecipazioni is registered in the list of The concentration of intragroup equity investments intermediaries operating in the financial sector governed was completed in February 2007 with the acquisition by Article 106 et. seq. of Legislative Decree 385/93 in the from Banca di Roma of the 7.6% holding in Kartogroup corresponding section provided for by Article 113 of the S.p.A. for €10 million. Banking Law. Its traditional activity of managing equity investments Profit in 2006 came to €38 million, compared with generated €17 million in dividends and €12 million in €863 thousand in 2005, for which the principal source of gains from the sale of financial assets available for sale. revenues was dividends received from the aforementioned shareholdings. The company’s equity, including profit for the period, stood at €327.4 million, of which €10 million in share capital. CAPITALIA MERCHANT S.p.A.

Capitalia Merchant S.p.A already belonged to the CAPITALIA ASSET MANAGEMENT SGR S.p.A. Capitalia Group under the name Fin-Eco Merchant and was one of the main vehicles for reorganizing the Capitalia Asset Management handles the asset portfolio of equity investments that started at the end of management and administration of Group products. 2005. The company became 100% owned by Capitalia Together with Capitalia Investimenti Alternativi and the S.p.A. on 13 June 2006 and adopted its current name Luxembourg-based Capitalia Investment Management, it from 11 July. Its registered office is now located in Rome. forms the Group’s asset management arm. Owned directly by Capitalia, the company adopted its new name During 2006 the sole shareholder Capitalia subscribed on 1 January 2006. and fully paid in a capital increase totaling €303.4 million, of which €7.4 million at face value and €296 million at a In 2006 the company completed the process of asset premium, in order to provide the company with its own and resource integration and rationalization that started at resources to conduct its new activities. the end of 2004 when Fineco Gestioni was merged into Fineco AM. The company’s new orientation has led to a The company’s first year of operations came to an end revised internal organizational structure designed to foster on 31 December 2006, during which time it pursued its operating synergies and increase the company’s overall new mission to take on and enhance the value of the managerial and commercial effectiveness. The range of Group’s non-core equity investments. In addition to products on offer has also been updated. Some funds intragroup acquisitions, three further investments were have merged, others have changed name; investment made totaling 21 shareholdings and 6 units of closed- policies have been amended and new legislation on end securities or real estate funds, with a value of €199 incentive commissions has been incorporated. New million. Equity investments in Farma factoring and Spazio prospectuses providing information on newly launched Investment were sold in the last quarter of 2006, products were published on 17 March 2006. generating gross profits on sale of assets totaling €12 million. At the end of 2006 the company held The portfolio revision was undertaken in order to investments in 34 companies and 6 closed-end securities simplify the range of products, rationalize the and/or real estate funds, worth a total of €230 million. commission structure and leverage Capitalia AM’s WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 84 85

management skills. The number of funds in the portfolio
BdS Arcobaleno funds of funds worth €775 million; has been reduced from 53 to 39 by eliminating overlaps, merging similar funds and renovating the entire range.
Vitamin funds of funds worth €1,460 million; Products are now divided into four Investment Systems: Sistema Capitalia, Sistema Vitamin, Sistema Etico
free sub-funds of Luxembourg-based Capitalia Capitalia, and Sistema Bds Arcobaleno. Investment Management fund with net assets of €2,144 million, of which €107 million in the innovative new Further rationalization initiatives underway on funds in Navigatore 20, Navigatore 35 and Navigatore 70 sub- the US, Pacific and European regions will provide access funds; to a renewed range of products from 4 May 2007: this will allow customers to benefit from the fund picking skills in
“Pensionepiù” pension fund with net assets of €88 areas outside of Europe, thanks also to agreements with million; over 40 worldwide investment firms, providing managers with a range of over 1,800 funds.
Fund portfolios worth €6,531 million, of which €1,184 million referring to multibrand fund management The Capitalia Ethical System and BdS Arcobaleno and €599 million in unit linked funds; Ethical System funds, which periodically donate 20% of management commission revenues to charitable bodies
Securities portfolios with net assets of €4,127 million. and associations, have completed their first year in operation. Net profit at 31 December 2006 stood at €38 million, compared with €57.4 million at 31 December 2005. Net At 31 December 2006 the company had a portfolio of performance commissions stood at €2 million, €12 products consisting of 22 Italian investment funds, two million lower than in the previous year. This result was multibrand funds of funds, two reserved funds, three impacted by changes to distribution agreements: from 1 ethical funds, four mono-brand funds, one open pension April 2006, the percentage of fees paid to Group banks fund with six lines of investment, over 100 portfolio was increased. management products and 32 sub-funds from Luxembourg-based Capitalia Investment Management Capitalia AM employed 240 people, up from 235 at managed under delegation. In particular, the Pensione the end of 2005. Più open pension fund, which was reformulated in order to take advantage of new pension laws, now has four new investment lines (three called “Objective” and one CAPITALIA INVESTIMENTI ALTERNATIVI SGR S.p.A. “Guarantee”). Capitalia Investimenti Alternativi SGR S.p.A. The total value of assets under management, net of concentrates solely on setting up and managing hedge Group collective investment undertakings, came to funds. The company took its current name on 1 January €33,167 million, and breaks down as follows: 2006, resulting in a consequent change to the names of the funds under management.
Capitalia AM investment funds with net assets of €18,041 million (a market share of 4.96%), of which €104 The company launched two new hedge funds: in June million in ethical funds; 2006 it launched Capitalia Low Volatility II, a new fund WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

offering the same risk and return as Capitalia Low Volatility, management of the MCC portfolio was cancelled with and in September it launched Capitalia High Volatility, effect from 1 January 2006. which received Bank of Italy approval on 13 July 2006. Experience in the hedge fund sector has enabled the asset Total assets under management amounted to more management company to become an investment than €311 million. At 31 December 2006 the funds had consultant for CNP Capitalia Life, an Irish associated made investments in 16 unlisted shareholdings worth a company specializing in unit linked insurance products. The total of €144.4 million. companies signed an investment advisory contract in April. Net commission income came to €6 million, largely The Capitalia Low Volatility fund registered gains of unchanged from 31 December 2005. Net interest 3.11%, and has grown by 8.65% since it started operations income, similar revenues and other operating income in April 2004, with annualized gains of 3.06%. In terms of rose to €229.3 thousand euros from €180 thousand monthly performance, the loss in May is attributable to the euros. Staff costs came to €4 million, compared with €3 Long/Short Equity (down 3.59%), Global Macro (down million twelve months earlier. Other administrative 3.17%), Equity Market Neutral (up 0.5%) and Managed expenses came to almost €1 million. Futures (down 3.6%). This negative performance, which was most accentuated in August with a loss of 3.0%, came After income tax of €0.8 million, net profit for the year to an end in December, which posted the first net value was €706 thousand (€1.5 million at 31 December 2005). higher than that for April. A careful reformulation of strategies, initiated in June, saw an improvement in performance in the last quarter of 2006. FONDI IMMOBILIARI ITALIANI S.G.R. (FIMIT)

Substantial improvements were registered in the Fimit S.g.r. is specialized in the management of gross operating margin and operating income. Net profit closed-end property investment funds. The company is in 2006 was €148 thousand euros, compared with a loss controlled directly by Capitalia S.p.A.. of €23 thousand at 31 December 2005. At 31 December 2006 Fimit managed six property investment funds, of which two are “publicly seeded” CAPITALIA – SOFIPA SGR S.p.A. funds established in accordance with Article 14-bis of Law 86/94, three are restricted to qualified institutional Formerly known as MCC - SOFIPA SGR, this company investors and one is open both to the general public and came under direct Capitalia ownership on 1 January qualified institutional investors. Total assets under 2006. It changed its name in June as part of the process management amount to around €1.4 billion. In of rebranding Capitalia Group companies. The company particular: is active primarily in the management and placement of closed-end mutual funds Sofipa Equity Fund (a retail fund
the “Alpha Immobiliare” fund, placed on the market quoted on the Mercato Telematico Fondi of the Borsa in June 2002 and listed as of 4 July 2002 on the Mercato Italiana S.p.A.) and Sofipa Equity Fund II, restricted to Telematico Fondi of Borsa Italiana S.p.A.. The net asset qualified institutional investors. It is also managing the value of the fund at 31 December 2006 was €394.8 final phase of the sale of assets in the Mezzogiorno million. The fund has distributed total earnings of €131 Impresa fund. The contract for the individual million, of which €26.2 million in 2006. The market value WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 86 87

of each unit at 31 December 2006 was €3,070.59, The fund duration is thirty years. The first subscription compared with the placement value of €2,600; period ended on 19 December 2006, raising a total of €50.2 million, corresponding to 201 units each valued at
the “Beta Immobiliare” fund, placed on the market in €250 thousand. The net asset value at 31 December 2006 October 2005 and quoted from 24 October 2005. The was €50.2 million and the value of units was €249,608.009. net asset value at 31 December 2006 was €320.7 million.

The fund distributed its first earnings to investors in 2006 Fimit introduced two new funds in 2005, the “UK € totaling around 50 million. The market value of each Property n. 1” fund and the “Omicron Immobiliare” fund, € unit at 31 December 2006 was 1,075, compared with and in 2006 it introduced the “Eta Immobiliare” fund. € the placement value of 1,100; None of these funds has commenced activities.

the “Gamma Immobiliare” fund, restricted to On 9 June 2006 the international agency Fitch institutional investors, commenced activities on 10 June Ratings confirmed Fimit’s REAM+3 rating, reflecting the 2005. The fund’s net asset value at 31 December 2006 sound financial footing of the company and its expertise was €166.4 million, and the value of units was in the sector. €25,654,599. Fund rules provide for minimum net assets of €80 million and maximum assets of €250 million as At 31 December 2006 pretax profit was €9.1 million. further units are issued to investors; Net profit amounted to €5.4 million, compared with €8.9
the “Sigma Immobiliare” fund, restricted to qualified million at the end of 2005. Shareholders’ equity, investors, commenced activities on 1 September 2005. including earnings for the period, rose to €24.2 million. The fund’s net asset value as of 31 December 2006 was €215.2 million and the value of units was €27,474,499. The company employed 36 people, up from 28 at the Fund rules provide for minimum net assets of €100 end of 2005. million and maximum assets of €500 million. A new contribution of real estate assets was made at the beginning of 2006 worth a total of €32.6 million. All units ROMAFIDES – FIDUCIARIA E SERVIZI S.p.A. in the fund are owned by the Capitalia Group. Romafides operates in the trust administration sector.
the “Delta Immobiliare” fund, open to the general public and qualified investors, which commenced At 31 December 2006, assets under administration activities in December 2006. The fund’s duration is eight came to €850 million, compared with €800 million at 31 years; investments center principally on real estate in the December 2005. The increase was generated by a major hotel, accommodation and tourism-leisure areas. The new contract with the Parent company, which is expected placement, which took place from 13 November 2006 to to conclude in 2007. Commissions accrued during the 15 December 2006, determined a value of €210.5 year reached €1,448 thousand, compared with €1,493 million, with 2,105,323 units issued at a face value of thousand in 2005. €100. The net asset value at 31 December 2006 was €210.6 million and the value of each unit was €100.028; Net profit at 31 December 2006 rose from €88 thousand to €145.7 thousand.
the “Theta Immobiliare” fund, restricted to qualified The company employed 14 people, compared with investors, which commenced activities in December 2006. 15 in 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

FINECO LEASING S.p.A. its sole shareholder, Capitalia, aimed at strengthening the company’s role as the Group’s technology unit. Fineco Leasing S.p.A. is active in the leasing of real Kyneste has become an ancillary company supporting estate and capital equipment. Clients include firms, the Group’s operations, while maintaining a presence on professionals and private customers. Sales activities are the market. The company became part of the Capitalia carried out by external networks of agencies. These banking group on 27 September 2005. In September agents operate on the basis of specific orders and are 2006 the company retained its ISO 9000:2000 quality strictly monitored by the company, and Fineco Leasing certification. provides them with ample support in order to guarantee levels of service to customers. The company caters to Capitalia Group IT requirements by building and managing infrastructure at In 2006 the company negotiated 13,258 new the department level. It also manages IP networks and contracts with a total value of €1,255 million, provides IT security services. In particular, a multi-year corresponding to a year-on-year decrease of 10.54% program has been introduced with Capitalia Informatica compared with 2005 in the amount financed. Contracts in order to improve and simplify operational and financial relating to the real estate sector accounted for around programming and accounting activities. Active orders in 55% of new leases. The network was expanded as eight the company’s portfolio total around €25 million, up from new agencies were opened in Veneto, Piemonte and around €22 million in 2005. Umbria, with more due to be opened in Lombardy, Emilia Romagna and Tuscany. Net income drawn up in line with IAS requirements for the purposes of the consolidated financial statement Lending amounted to €5,860 million, 0.50% lower on registered a profit of €1.5 million. an annual basis. The proportion of net bad debts was low at 1.49% of lending, compared with 1.33% at 31 December 2005. S.I.G.RE.C. S.p.A.

In light of the reclassified net income, net interest S.I.G.RE.C. S.p.A. performs loan management and income was €106 million. Total revenues came to €118 collection services for Group companies. Work million and gross operating income was €92 million. continued on integrating operations with Capitalia Service JV, set up in 2005, through the implementation Net profit was equal to €26.7 million, after net of the shared IT management system and the provisions and writedowns of €36 million and tax identification of synergies based on the similar structure provisions of €29 million. This compares with €29.3 of the two companies. million in December 2005. At 31 December 2006 it was managing 61,830 positions. New positions secured in 2006 numbered KYNESTE S.p.A. 11,423.

Kyneste S.p.A., an application service provider, Collections amounted to €72 million (up 6% supplies Internet-based applications and services. The compared with 2005). Commissions reached €10.8 company operates under the guidelines established by million (up 8%). Net profit in 2006 was €88 thousand. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 88 89

CAPITALIA SERVICE J.V. S.R.L. single hardware and application platform, in 2006 the company continued working on new Group projects Capitalia Service JV was set up in 2003 as a joint including IT governance. Investments in 2006 totaled venture between Capitalia and Archon Group Italia €176 million. (Goldman Sachs Group) for the Group’s debt collection operations. Revenues in 2006 totaled €445 million and total costs were €427 million (of which €119 million in staff costs, The completion of fine-tuning of the structure and the €202 in administrative expenses and €107 million in introduction of new tools and methodologies made it amortization and depreciation). The net profit before tax possible to achieve considerable improvements in was €17 million. performance. In 2006 the international agency Fitch Ratings raised its special servicer ratings from “RSS2- After accounting for €12 million in taxes, net profit at (Minus)IT” and “CSS2-(Minus)IT” to “RSS2 IT” and “CSS2 31 December 2006 was €5 million, up from around €2 IT”, relating to the mortgages and commercial loan million at the end of 2005. segments respectively. These upgrades, a year after the first assignments, reflect continued investments in At 31 December 2006 the company employed 1,646 technology, a rationalization of external resources and employees. the extension of certain key processes regarding the non- securitized portfolio, including the use of vehicles for the acquisition of property assets at auction. These ratings CAPITALIA SOLUTIONS S.p.A. also take into account collection performance on three securitizations, which made further progress in 2006. Capitalia Solutions is an ancillary company that handles the management and administration of real In 2006, total collections came to around €744 estate and procurement of goods and services for the million, an increase of 7% compared with 2005, with the retail banks. The company commenced operations on 1 settlement and finalization of around 5,100 positions. January 2006 after the partial spin-off of parts of Banca di Roma, Banco di Sicilia and Bipop Carire, involving around Net income at 31 December 2006 was around 350 employees. The company has premises in Rome, break-even. Palermo, Brescia and Reggio Emilia.

The company employed 388 people, compared with The company focuses on the efficient and integrated 379 at 31 December 2005. management of proprietary real-estate assets, including the rationalization of spaces; reducing costs for the acquisition of goods and services by concentrating CAPITALIA INFORMATICA S.p.A. on prices and the quantities purchased, after a careful evaluation of the stated needs of the network banks; Capitalia Informatica is an ancillary company which and improving the level of services provided to the manages back-office processes and IT tools and network banks and in turn to clients. Finally, the application for the Group’s banks. company provides centralized, direct and specialized After completing a project for the convergence of IT management of a series of non-core activities for the systems of the retail bank network and the adoption of a network banks. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

Within its own scope of operations the company FINECO MUTUI S.p.A. made purchases on behalf of the banking network Fineco Mutui S.p.A., formerly Cofiri Capital S.p.A., totaling €615.7 million, of which €270.6 million was acquired in its entirety from Capitalia S.p.A. by regarding investments, and supported the development FinecoBank S.p.A. in 2004. The company’s corporate of the sales network. purpose is the provision of financial services to the public as defined by Article 106 of the 1993 Banking Law. Revenues for the first period of operations came to €329 million and total costs were €325 million. The company has pursued its strategy based on growth in the residential mortgage sector by expanding its agents, Net profit reached €0.3 million after income tax of developing regional bases, redefining the product portfolio €4.1 million. and improving business processes. The distribution model directly links a network of financial advisors with the The company employed 379 people at 31 December company in order to organize and coordinate the network 2006. and maintain loyalty. The multi-channel distribution model consists of around 220 financial sales professionals, 9 back- COFIRI S.p.A. office departments, some 70 units spread throughout the entire country and a website that facilitates telephone and Having restructured its Group in accordance with the computer access to banking services. indications provided by its new owner, Capitalia, in 2004, as of 1 July 2005 Cofiri S.p.A. no longer had any The network of agents is able to sell mortgages from employees. After modifications to its by-laws, which FinecoBank, recommend current accounts and place eliminated the provision of financial activities to the insurance products linked with mortgages, exploiting public from its corporate purpose, in the first half of 2005 distribution synergies with the bank’s other channels (financial Cofiri was removed from the special register provided for sales professionals and the online system) and contributing by Article 107 of the 1993 Banking Law, and on 11 July to boosting the FinecoBank’s and the Group’s share of the 2005 it was included in the special register provided by mortgage market. This strategy led to the disbursement of Article 113 of the Banking Law. €530 million and over 4,800 contracts signed.

Throughout 2006 the company concentrated Net profit for the year came to €1.6 million, exclusively on managing residual assets following the spin- compared with €313 thousand at 31 December 2005. off of operations to Banca di Roma and Capitalia L&F, which took effect from 1 July 2004. The Assembly of 2 March 2007 decided approved the winding up of the company. ABROAD

At 31 December 2006 gross operating income Banking sector showed a loss of €600 thousand. Inclusive of €7.8 million in writebacks, net profit from ordinary activities came to CAPITALIA LUXEMBOURG S.A. €7.1 million. Formerly known as Banca di Roma International S.A., Net profit amounted to €4.1 million, compared with the company took on its new name on 15 June 2006 as €1.1 million at 31 December 2005. part of the process of rebranding Capitalia group WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 90 91

companies. The Luxembourg-based company operates In view of the ongoing state of the international in the private banking and corporate lending sectors. markets, activity in 2006 focused on strengthening the balance sheet. The company has undertaken a restructuring process which has included strengthening the employees, signing At 31 December 2006 net profit came to €8.5 million, contracts for the support of commercial activities, compared with €4.9 million in 2005. This result, which strengthening IT systems as well as training and benefited from tax rebates from the 2002-2005 financial promotional activities. The process is designed to shift periods, was mainly due to the payment of €7.33 million the focus onto private banking and corporate consulting in dividends by CNP Capitalia Vita S.p.A. for 2005. and intensify synergies with the Group. As part of this process, investments in securities were reduced (down CAPITALIA INVESTMENT MANAGEMENT S.A. 45.5% compared with 2005) and funding from customers and banks was reinvested principally within the Group. In Registered in Luxembourg and formerly known as the loans sector, precedence was given to direct Fineco Investment Management S.A., the company financing to customers. changed its name to Capitalia Investment Management S.A. with effect from 1 January 2006. The company’s Direct funding from private and corporate customers corporate purpose is the management and administration rose 41% to €755 million, compared with €537 million at of the Luxembourg-registered fund known as Capitalia 31 December 2005. Investment Management (formerly Fineco Investment Management), which consisted of 31 sub-funds as of 31 Total funds under administration increased 17% from December 2006. €1,543 million to €1,799 million. The balance sheet total was €1,427 million, 12.7% higher than in 2005. In April 2006 the company and the fund received “UCITS III” (Dir. 107/EC and Dir. 108/EC) compliance Net interest income decreased to €15 million after certificates from the Luxembourg authorities with regard the securities portfolio was streamlined. Net commissions to Community regulations governing investment funds. came to €4 million, largely unchanged from 31 December 2005. Total revenues amounted to €20 At 31 December 2006 assets under management million. came to €3,764 million, compared with €2,212 million at 31 December 2005. The 70% increase since the Net profit for the year was €6 million. beginning of the year is principally the result of the positive trend in net funding.

Other sectors Net profit amounted to €4.2 million, almost unchanged from the result posted at 31 December 2005 FINECO VERWALTUNG AG (€4.4 million).

Fineco Verwaltung AG, formerly known as Entrium FINECO FINANCE LTD Direct Bankers AG, which became a financial company after its entire banking business was sold in July 2003, Headquartered in Dublin, the company specializes in continued managing the assets remaining after sale. securities investment and associated intragroup treasury WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

operations. In 2006 the company continued to orient its financing costs for investments and increasing the level of investments towards the management of short- and medium- efficiency of activities conducted within the Group term securities in sectors that are less exposed to volatility. The net profit at 31 December 2006 amounted to The company’s associated treasury management €23.6 million, up from €15.9 million at the end of the activities are targeted at the ongoing optimization of previous year. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 92 93

SIGNIFICANT POST-PERIOD EVENTS

Confirming the results achieved by management in MCC will be used, before gradually expanding to include the last four year in implementing the ambitious plan for the portfolios of the other Group banks. In view of the organic growth, on 17 January 2007 Standard & Poor’s fact that the validation of the internal ratings systems by assigned Capitalia S.p.A. a long-term rating of “A” and a the Bank of Italy is still under way, the project will be short-term rating of “A-1”. The ratings reflect the divided into two stages: excellent diversification of its business model, supported by the Group’s leadership position in central Italy and
in the first stage, until the Bank of Italy validates the Sicily, as well as the satisfactory level of profitability. The internal rating models, only loans to supranational bodies, agency also expressed its approval of the strategy sovereigns, public sector entities and non-financial adopted to improve operating performance and enhance companies with external ratings can be used as collateral; the risk profile. It also cited the steady growth in revenues, cost controls and the strengthening of the
subsequently, the eligibility of exposures to the same brand, underscoring the positive results achieved in loan entities can be assessed on the basis of internal ratings. management and monitoring and recovery procedures. The stable outlook reflects Standard & Poor’s In order to maximize intercompany synergies, the expectations of a further strengthening of the Group, in Parent Company has established a centralized call center view of the significant growth potential in its customer to provide services to the customers and employees of base and the improved perception of the brand. At the the three retail banks via telephone using inbound and same time, Standard & Poor’s raised MCC’s long-term outbound procedures. The call centers will initially handle rating to “A” from “A-” and the short-term rating to “A- help services for customers and then those for the 1” from “A-2“. The outlook remains stable. The new employees of Banca di Roma, Banco di Sicilia and Bipop ratings are based on the company’s close integration in Carire, which had previously been delivered in part by the Group, its strategic role and the positive results structures at the three banks. achieved by management. In order to make services even simpler and more Capitalia, considering it highly important to maintain transparent, all Group branches will be offering a new its access to the Eurosystem’s refinancing operations, as current account, which was released in conjunction with well as the possible expansion of current operations, in the start in early 2007 of the Kor Station application for conjunction with a reduction in interbank deposits and opening current accounts. This single Group contract will the containment of its proprietary securities portfolio increase the efficiency of the process for opening current used to secure Eurosystem transactions, has launched a accounts and enhance the customer experience thanks to project to adjust procedures in line with the new unified the rationalization of the contract content and layout and system for eligible collateral with the ECB, which new the simplification of the language, clauses and includes bank loans. Initially, loans by Banca di Roma and procedures adopted. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

REPORT ON OPERATION

In February 2007 Fimit – Fondi Immobiliari Italiani million. The shareholders also approved the reached an agreement with Lehman Brothers FV LLC for distribution of all “Other reserves”, equal to the acquisition of “Forte Village” in Santa Margherita di €176,848,000, established with capital contributions Pula, one of the world’s leading tourist complexes. from shareholders. With a value date of 23 February 2007 Banca di Roma received a repayment of On 22 February 2007 the shareholders’ meeting of €44,212,000. Meeting in extraordinary session, the Synesis Finanziaria S.p.A. approved the financial shareholders’ meeting voted to place the company in statements for 31 December 2006 after the exercise, at liquidation with effect from 1 March 2007. the end of 2006 by Fiat Auto of the call option on 51% of Fidis Retail Italia, with the consequent elimination of In 2007 we expect the rapid growth in lending the corporate purpose for which Synesis Finanziaria aggregates to continue, which should lead to an had been established. The shareholders’ meeting additional increase in revenues from business with approved the distribution of a dividend of €0.58 per ordinary customers. The performance of revenues will be share. Accordingly, with a value date of 23 February affected by developments in the stock markets. Costs are 2007 Banca di Roma received a dividend of €29 expected increase moderately. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CONSOLIDATED FINANCIAL STATEMENTS WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEET

Assets (thousands of euros) 31 December 2006 31 December 2005 10. Cash and cash equivalents 991,211 962,433 20. Financial assets held for trading 9,370,374 12,197,553 30. Financial assets designated at fair value 56,458 176,999 40. Financial assets available-for-sale 4,722,212 5,470,243 50. Financial assets held-to-maturity 940,373 1,103,585 60. Loans to banks 12,515,539 18,578,005 70. Loans to customers 96,012,214 82,381,327 80. Hedging derivatives 322,347 544,521 90. Value adjustments of financial assets hedged generically (19,694) 3,830 100. Equity investments 481,533 776,874 110. Reinsurers’ share of technical reserves – 2,255 120. Tangible assets 2,907,267 2,741,399 130. Intangible assets 1,739,201 1,538,674 of which: – goodwill 1,507,951 1,294,318 140. Tax assets 4,060,876 4,224,063 a) current 2,019,305 2,017,318 b) deferred 2,041,571 2,206,745 150. Non-current assets and groups of assets being divested 22,232 14,896 160. Other assets 3,009,530 3,352,972 Total assets 137,131,673 134,069,629 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 96 97

Liabilities and shareholders’ equity 31 December 2006 31 December 2005 10. Due to banks 17,369,602 21,896,278 20. Due to customers 65,550,274 62,139,921 30. Debt securities issued 31,202,746 28,066,387 40. Financial liabilities held for trading 4,852,153 5,063,434 60. Hedging derivatives 176,319 123,605 80. Tax liabilities 862,023 673,910 a) current 325,321 321,446 b) deferred 536,702 352,464 100. Other liabilities 5,198,966 4,860,776 110. Staff severance pay 843,122 834,484 120. Provisions for liabilities and contingencies 1,304,508 1,430,641 a) retirement and similar liabilities 597,708 781,392 b) other provisions 706,800 649,249 130. Technical reserves – 19,969 140. Revaluation reserve (*) 727,157 729,129 170. Reserves 1,849,970 688,445 180. Share premium account 3,382,774 3,828,187 190. Share capital 2,595,439 2,511,134 200. Treasury stock (–) – (3,307) 210. Minority interests (+/–) 54,647 178,676 220. Profit for the year 1,161,973 1,027,960 Total liabilities and shareholders’ equity 137,131,673 134,069,629

(*) Includes minority interests. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT

(thousands of euros) 2006 2005

10. Interest income and similar revenues 5,572,878 5,017,780

20. Interest expense and similar charges (2,984,997) (2,771,114)

30. Net interest income 2,587,881 2,246,666

40. Commission income 1,989,942 1,924,562

50. Commission expense (266,504) (242,378)

60. Net commissions 1,723,438 1,682,184

70. Dividends and similar income 125,325 104,552

80. Net gain (loss) on trading activities 231,669 551,543

90. Net gain (loss) on hedging activities (15,723) (17,471)

100. Gains (losses) on the disposal or repurchase of: 367,840 18,511

a) loans 6,828 167

b) available-for-sale financial assets 338,900 64,492

c) held-to-maturity financial assets 84 73

d) financial liabilities 22,028 (46,221)

110. Net adjustments of financial assets and liabilities at fair value 2,075 (330)

120. Total revenues 5,022,505 4,585,655

130. Net impairment adjustments of: (247,775) (182,180)

a) loans (187,667) (89,348)

b) available-for-sale financial assets (15,585) (50,811)

c) held-to-maturity financial assets 2,331 2,365

d) other financial transactions (46,854) (44,386)

140. Income from financial operations 4,774,730 4,403,475

150. Net premiums – 14,538

160. Other income/charges from insurance operations (net) – (11,918)

170. Income from financial and insurance operations 4,774,730 4,406,095

180. General and administrative expenses: (3,077,392) (2,999,801)

a) staff expenses (1,988,184) (1,932,244)

b) other administrative expenses (1,089,208) (1,067,557)

190. Provisions for liabilities and contingencies (net) (120,338) (132,040)

200. Net adjustments of tangible assets (104,226) (85,192)

210. Net adjustments of intangible assets (94,523) (86,725)

220. Other operating income (expenses) 313,285 319,422

230. Operating expenses (3,083,194) (2,984,336) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 98 99

(thousands of euros) 2006 2005

240. Income (loss) on equity investments 77,928 53,089

250. Net gain (loss) from fair value measurement of tangible and intangible assets – _

260. Writedowns of goodwill (115) –

270. Gains (losses) on disposal of investments 53,627 17,833

280. Profit (loss) before tax on continuing operations 1,822,976 1,492,681

290. Income tax for the year on continuing operations (657,499) (460,311)

300. Profit (loss) after tax on continuing operations 1,165,477 1,032,370

310. Profit (loss) after tax from groups of assets being divested (174) 1,512

320. Profit (loss) for the period after tax 1,165,303 1,033,882

330. Profit (loss) pertaining to minority interests (3,330) (5,922)

340. Net profit for the year pertaining to parent 1,161,973 1,027,960 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY IN 2006

Balance at 31/12/2005 Balance at 1/1/2006 Allocation of result for previous period Group Minority Change in Group Minority Reserves Reserves Dividends interests opening interests Group minority and other balance interests uses (milions of euros) Share capital: 2,511 129 2.511 129 (a) ordinary shares 2,511 129 2,511 129 b) other shares

Share premium account 3,828 10 3,828 10

Reserves: 689 34 689 34 503 5 (a) income 567 34 567 34 503 5 (b) other 122 122

Revaluation reserves: 727 2 727 2 (a) available for sale 693 1 693 1 (b) cash flow hedges (2) (1) (2) (1) (c) other 36 2 36 2 – Special revaluation laws and deemed cost of land and buildings 36 2 36 2

Treasury stock (3) (3)

Net profit for the year 1,028 6 1,028 6 (503) (6) (525)

Shareholders’ equity 8,780 181 8,780 181 (1) (525)

For information on the main changes in shareholders equity, please see the notes to the corresponding table in the individual financial statements. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 100 101

Changes during the year Changes Changes New share New share Purchase Purchase of Extraordinary Change Derivatives Stock Net profit Net profit Group Minority in reserves in reserves issue issue of treasury treasury stock dividend in equity on own option for 2006 for 2006 shareholders’ interests at Group minority (Group) (minority stock (minority distributioninstruments shares (Group) (Minority equity at31.12.2006 interests interests) (Group) interests) interests) 31.12.2006 (110) 84 2,595 19 (110) 84 2,595 19

(746) (8) 301 3,383 2

646 (8) 12 1,850 31 (98) (8) 972 31 744 12 878

(2) 727 7 (1) 700 11 (1) (8) (2) 28

(8) (2) 28

450 (447) –

1,162 3 1,162 3

(100) (128) 835 (447) 12 1,162 3 9,717 55 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS’ EQUITY IN 2005

Balance at 31/12/2004 (*) Balance at 1/1/2005 (**) Allocation of result for previous period Group Minority Change in Group Minority Reserves Reserves Dividends interests opening interests Group minority and other balance interests uses (milions of euros) Share capital: 2,210 331 26 2,210 357 (a) ordinary shares 2,210 331 26 2,210 357 b) other shares

Share premium account 3,112 119 31 3,112 150

Reserves: 947 7 (1,405) (308) (143) 44 189 (a) income 851 7 (1,404) (403) (143) 44 189 (b) other 96 (1) 95

Revaluation reserves: 627 13 391 1,012 19 (a) available for sale 395 388 7 (b) cash flow hedges (4) (3) (1) (c) other 627 13 627 13 – Special revaluation laws and deemed cost of land and buildings 627 13 627 13

Treasury stock (15) (15)

Net profit for the year 226 277 (10) 226 267 (44) (267) (182)

Shareholders’ equity 7,107 747 (967) 6,237 650 (78) (182)

(*) Excluding Ias 39. (**) Including Ias 39.

The change in own shares is represented in line with the change carried out in the table for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 102 103

Changes during the year Changes Changes New share New share Purchase Purchase of Extraordinary Change Derivatives Stock Net profit Net profit Group Minority in reserves in reserves issue issue of treasury treasury stock dividend in equity on own option for 2005 for 2005 shareholders’ interests at Group minority (Group) (minority stock (minority distributioninstruments shares (Group) (Minority equity at 31.12.2005 interests interests) (Group) interests) interests) 31.12.2005 (228) 301 2,511 129 (228) 301 2,511 129

(415) (140) 1,131 3,828 10

1,204 (12) (238) (13) 689 34 1,164 (12) (238) 567 34 40 (13) 122

(285) (17) 727 2 305 (6) 693 1 1 (2) (1) (591) (11) 36 2

(591) (11) 36 2

926 (914) (3)

1,028 6 1,028 6

504 (397) 2,358 (1,152) (13) 1,028 6 8,780 181 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF CASH FLOWS

Indirect method (thousands of euros) 31 December 2006 31 December 2005 A. Operating activity

1. Operations 2,367,991 908,690 – Profit for the year (+/-) (1) 1,165,303 1,033,882 – Capital gains/losses on financial assets held for trading and assets/liabilities carried at fair value (+/-) (871,840) (611,173) – Capital gains/losses on hedging assets (+/-) 15,721 17,471 – Writedowns/writebacks for impairment (+/-) 391,338 453,554 – Net value adjustments to property, plant and equipment and intangible assets (+/-) 198,749 171,917 – Net provisions for liabilities and contingencies and other costs/revenues (+) 628,288 199,450 – Net uncollected premiums (-) 0 0 – Other uncollected insurance income/charges (+/-) 0 0 – Unsettled taxes and duties (+) 657,499 460,311 – Net value adjustments of groups of assets being divested net of tax effects (+/-) 0 (1,512) – Other adjustments (+/-) 182,933 (815,210)

2. Liquidity generated/absorbed by financing activity 1,310,712 537,036 – Financial assets held for trading 7,545,949 4,257,195 – Financial assets designated at fair value 122,397 191,558 – Financial assets available for sale 480,016 (355,282) – Claims on central banks: demand (70,445) (2,934,823) – Loans to banks: other loans 6,194,943 2,190,504 – Loans to customers (13,682,511) (3,196,774) – Other assets 720,363 384,657

3. Liquidity generated/absorbed by financial liabilities (3,022,340) (1,576,621) – Due to banks: demand (564,145) 1,681,980 – Due to banks: other payables (4,060,570) (7,852,557) – Due to customers 3,379,933 7,045,933 – Securities outstanding 3,000,974 712,037 – Financial liabilities held for trading (4,108,341) (3,216,887) – Financial liabilities carried at fair value 0 (1,083) – Other liabilities (670,191) 53,956

Net liquidity generated/absorbed by operating activity 656,363 (130,895) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 104 105

(thousands of euros) 31 December 2006 31 December 2005 B. Investing Activity 1. Liquidity generated by: (2) 514,888 1,245,856 – Sales of equity investments 14,026 46,742 – Dividends received on equity investments 3,000 1,033 – Sale of financial assets held to maturity (3) 290,553 996,566 – Sales of property, plant and equipment 145,025 66,449 – Sales of intangible assets 6,284 38,745 – Sales of subsidiaries and business units (4) 56,000 96,321

2. Liquidity absorbed by: (2) (643,540) (874,344) – Purchases of equity investments (7,436) (106,660) – Purchases of financial assets held to maturity (110,069) (369,155) – Purchases of property, plant and equipment (431,028) (153,270) – Purchases of intangible assets (89,656) (245,259) – Purchases of subsidiaries and business units (5) (5,351) 0 Net liquidity generated/absorbed by investing activities (128,652) 371,512

C. Funding – Issue/purchases of own shares 865 11.703 – Issue/purchases of capital instruments 25,092 13,259 – Distribution of dividends and other (524,890) (182,388) Net liquidity generated by funding (498,933) (157,426)

D = A+/-B+/- C Net liquidity generated/absorbed during the year 28,778 83,191

RECONCILIATION

31 December 2006 31 December 2005 E) Cash and cash equivalents at start of period 962,433 879,242 D) Total net liquidity generated/absorbed during the year 28,778 83,191 F) Cash and cash equivalents: effect of exchange rate variations 0 0 G= E+/-D+/-F Cash and cash equivalents at end of period 991,211 962,433

(1) Includes minority interest. (2) The liquidity generated and absorbed by sales and purchases, respectively, also includes other decreases and increases. (3) Also includes redemption of debt securities. (4) Represents payment received for the sale of the subsidiary Capitalia Assicurazioni S.p.A.. (5) See Part G of the notes to the financial statements. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART A – ACCOUNTING POLICIES

A.1 – GENERAL INFORMATION no. 262 of 22 December 2005 issued by the Director General of the Bank of Italy containing instructions on the format and rules of preparation of bank financial Section 1 – DECLARATION OF COMPLIANCE WITH statements. The comparative figures are those already INTERNATIONAL ACCOUNTING STANDARDS published for 2005 and therefore do not include the tables for which the Group had chosen to apply the options As permitted under the optional regime introduced permitted under the transitional provisions contained in the with Article 4.2 of Legislative Decree 38/2006 for Bank of Italy’s letter no. 14824 of 5 January 2006. In this companies whose securities are listed on regulated regard, taking further account of the fact that the insurance markets of European Union member states, the segment is not represented in the Group and the negligible consolidated financial statements at 31 December 2006 significance of the details concerning insurance have been prepared in accordance with the International undertakings and other enterprises, the figures for 2005 Financial Reporting Standards (IFRSs) and International have not been broken down into the three segments. Accounting Standards (IASs) issued by the International Accounting Standards Boards (IASB), as well as the In addition, the notes to the financial statements do related interpretations issued by the International not contain the tables and columns regarding “insurance Financial Reporting Interpretations Committee (IFRIC), as undertakings” (except for a few concerning changes in endorsed by the European Commission in accordance the year), since no insurance undertakings are fully with the procedure envisaged in Article 6 of Regulation consolidated at 31 December 2006. (EC) no. 1606/2002 of 19 July 2002. The accounting policies described below have been The regulation has been fully transposed into Italian applied in preparing the statements for all of the periods law following the enactment of Legislative Decree 38 of presented in this report. 28 February 2005, which came into force on 22 March 2005. The latter establishes, among other provisions, that The presentation currency for these financial companies whose financial instruments are listed on statements is the euro, and the financial statements and regulated markets must prepare their consolidated related notes are expressed in thousands of euros unless financial statements in conformity with international otherwise indicated. accounting standards as from the 2005 financial year, and banks may also draft their statutory accounts in conformity with those standards. Section 2 – GENERAL PREPARATION PRINCIPLES

The consolidated financial statements at 31 December The financial statements have been prepared in 2005 have also been prepared in accordance with circular accordance with the general principles called for within the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 108 109

framework for the preparation and presentation of financial financial and operating policies. Joint ventures are those statements endorsed by the IASB in April 2001. As such, companies in which control is shared with other parties as they have been prepared on an accruals basis and based established by formal agreements. on the assumption of the organization as a going concern. The preparation of the financial statements also took In order to determine whether the parent company is account of the general principles of the materiality of able to govern the financial or operating policies of an information and the priority of substance over form. Each entity, we have considered the existence or effect of significant category of similar items is shown separately in potential voting rights that are actually exercisable or the financial statements, as are items of dissimilar nature or convertible. function, unless they are of insignificant entity. Neither assets and liabilities nor revenues and costs have been Subsidiaries have been consolidated on a line-item offset, with the exception of cases in which it is expressly basis, while joint ventures have been consolidated on a required or allowed by a standard or related interpretation. proportionate basis. Consolidation begins on the date on which sole or joint control begins. The financial statements include the balance sheet, the income statement, the statement of changes in Control, joint control or other connections are equity, the statement of cash flows, and related notes, considered to have ceased in cases in which and are accompanied by the director’s report on responsibility for determining the financial and operating operations. The balance sheet and income statement are policies of the entity is taken away from the governing made up of accounts, sub-accounts, and further details. bodies and is assigned to a government body, to the Items that have zero balances in both periods presented courts or in similar situations. In such cases, the are not shown. In the income statement, revenues are investment is subject to the provisions of IAS 39. presented as positive numbers without signs and costs as negative numbers in parentheses. In accordance with the general principles of the materiality of information, subsidiaries and associates The notes to the financial statements include the which are considered irrelevant for the purposes of the information required by Bank of Italy circular no. consolidated financial statements have not been 262/2005, as well as the additional information required consolidated, but have been shown under “100 – Equity by the IASs and IFRSs. investments” of the balance sheet.

The accounts of companies consolidated on a line- Section 3 – SCOPE AND METHOD item or proportionate basis have been prepared in OF CONSOLIDATION accordance with uniform accounting policies.

The consolidated financial statements include the For line-item consolidation, all the assets, liabilities, accounts of Capitalia S.p.A. and its directly and indirectly revenues and expenses of the consolidated companies held subsidiaries, in accordance with the provisions of have been included in the consolidated financial IAS nos. 27, 28 and 31. statements, eliminating intragroup transactions and account balances, with the exception of those which are Subsidiaries are those companies over which the deemed to be irrelevant to the purposes of the group parent has the direct or indirect power to govern consolidated accounts. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Minority interests in equity and net income are shown sheet date at the lesser of their carrying amount and the separately in the consolidate balance sheet and income fair value net of disposal costs. statement. For the purposes of presenting the Group’s accounting information as if it related to a single entity, The figures for Ipse 2000 S.p.A., control of which was the carrying amount of equity investments has been offset acquired on 29 December 2006, are reflected in the by the corresponding portion of equity. The differences balance sheet. That company’s result for the year is also emerging from this process have been treated in reflected in the balance sheet as it was included in the accordance with IFRS 3 for goodwill. Accordingly, positive purchase cost. differences are shown under intangible assets. They are not amortized and undergo impairment tests at the end of The financial statements of foreign investments that each financial year. Negative differences are recognized in use a different presentation currency from the euro have the income statement. been translated at the exchange rate as of the balance- sheet date. Exchange differences in the assets of Controlling investments held for sale have been consolidated investments are shown in the balance sheet consolidated on a line-item basis and shown separately under reserves and recognized in the income statement on the financial statements, measured as of the balance- only in the period in which they are actually sold. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 110 111

1. EQUITY INVESTMENTS IN SUBSIDIARIES AND JOINT VENTURES (PROPORTIONATE CONSOLIDATION)

Equity investment Name Registered office Type of Investor % % share relationship: (1) holding of votes A Companies A.1 Full consolidation 1 CAPITALIA S.p.A. ROME 2 BANCA DI ROMA S.p.A. ROME 1 A1.1 100,00 3 BANCO DI SICILIA S.p.A. PALERMO 1 A1.1 100,00 4 BDR ROMA PRIMA IRELAND LTD DUBLIN 1 A1.1 99,90 5 BIPOP CARIRE S.p.A. BRESCIA 1 A1.1 100,00 6 BOX 2004 S.p.A. ROME 1 A1.1 100,00 7 CAPITALIA ASSET MANAGEMENT S.p.A. Società di gestione del risparmio ROME 1 A1.1 100,00 8 CAPITALIA INFORMATICA S.p.A. ROME 1 A1.1 100,00 9 CAPITALIA INVESTIMENTI ALTERNATIVI Società di Gestione del Risparmio S.p.A. MILAN 1 A1.1 95,00 A1.26 5,00 10 CAPITALIA INVESTMENT MANAGEMENT S.A. LUXEMBOURG 1 A1.11 99,997 A1.1 0,003 11 CAPITALIA LUXEMBOURG S.A. LUXEMBOURG 1 A1.1 99,9999 A1.33 0,0001 12 CAPITALIA MERCHANT S.p.A. ROME 1 A1.1 100,00 13 CAPITALIA PARTECIPAZIONI S.p.A. ROME 1 A1.1 100,00 14 CAPITALIA SERVICE J.V. S.r.l. ROME 1 A1.1 51,00 15 CAPITALIA SOFIPA Società di Gestione del Risparmio (Sgr) S.p.A. ROME 1 A1.1 100,00 16 CAPITALIA SOLUTIONS S.p.A. ROME 1 A1.1 100,00 17 COFIRI S.p.A ROME 1 A1.1 100,00 18 COMMUNICATION VALLEY S.p.A. PARMA 1 A1.32 100,00 19 ENTASI S.r.l. ROME 1 A1.1 100,00 20 EUROFINANCE 2000 S.r.l. ROME 1 A1.1 98,97 21 EUROPEAN TRUST Società Fiduciaria per azioni BRESCIA 1 A1.1 100,00 22 FINECO FINANCE Limited DUBLIN 1 A1.1 100,00 23 FINECO LEASING S.p.A. BRESCIA 1 A1.1 99,99 24 FINECO MUTUI S.p.A. MILAN 1 A1.26 100,00 25 FINECO VERWALTUNG AG FRANKFURT AM MAIN 1 A1.1 100,00 26 FINECOBANK S.p.A. MILAN 1 A1.1 99,99 27 FONDI IMMOBILIARI ITALIANI Società di Gestione del Risparmio S.p.A. ROME 1 A1.1 51,55 28 F.R.T. FROSINONE RISCOSSIONE TRIBUTI S.p.A. ROME 1 A1.2 100,00 29 IMMOBILIARE PIEMONTE S.p.A. ROME 1 A1.33 100,00 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity investment Name Registered office Type of Investor % % share relationship: (1) holding of votes 30 IPSE 2000 S.p.A. ROME 1 A1.1 50,00001 31 IRFIS - MEDIOCREDITO della SICILIA S.p.A. PALERMO 1 A1.3 76,26 32 KYNESTE S.p.A. ROME 1 A1.1 100,00 33 MCC S.p.A. ROME 1 A1.1 100,00 34 NITHER S.p.A. ROME 1 A1.1 100,00 35 REIMMOBILIARE S.p.A. ROME 1 A1.1 100,00 36 ROMAFIDES - Fiduciaria e Servizi S.p.A. ROME 1 A1.1 100,00 37 SOCIETÀ ITALIANA GESTIONE ED INCASSO CREDITI S.p.A. ROME 1 A1.1 95,00 A1.33 5,00 38 SOFIGERE Société par Actions Simplifièe PARIS 1 A1.1 100,00 39 TREVI FINANCE N. 2 S.p.A. CONEGLIANO (TV) 1 A1.1 60,00 40 TREVI FINANCE N. 3 S.r.l. CONEGLIANO (TV) 1 A1.1 60,00 41 TREVI FINANCE S.p.A. CONEGLIANO (TV) 1 A1.1 60,00

Key (1) Type of relationship: 1 = majority of voting rights in ordinary shareholders’ meeting WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 112 113

2. OTHER INFORMATION Section 5 – OTHER ISSUES

Associates are those companies in which the group In 2006, as in previous years (in accordance with parent directly or indirectly holds at least 20% of the Article 82.2 of CONSOB resolution no. 11971 of 14 voting rights, resulting in significant influence over the May 1999 as amended), Capitalia has provided company. Conversely, if the parent company directly or shareholders and the market with the company’s draft indirectly holds less than 20% of the voting rights that can individual and consolidated financial statements be exercised at the investment’s annual general meeting, within 90 days of the close of the financial year in it is assumed that there is no significant influence unless place of a specific financial report for the fourth such influence can be clearly demonstrated. Associates quarter of 2006. are recognized using the equity method. Full copies of the latest annual reports of subsidiaries With the equity method, the investment is initially and associates at 31 December 2006, which will be recorded at cost, and the carrying amount is increased or submitted by their boards of directors to their respective decreased in order to recognize the share of profit or loss shareholders’ meetings by 18 April 2007, will be available attributable to the group following the acquisition date. at the parent company’s head office. The related reports Differences between the value of the equity investment of the Board of Auditors and the independent auditing and its shareholders’ equity are included in the firm, if applicable, will also be available, as will these shareholding’s carrying amount. If the portion any losses companies’ individual financial statements for the attributable to the group exceeds the carrying amount of previous year. the investment in the associate, further losses are not recognized. Further losses are provisioned and Information regarding the operations and performance recognized as liabilities only to the extent to which there for 2006 of the most important shareholdings is included in are legal or constructive obligations or in the event of the report on operations accompanying the consolidated payments made on behalf of the associate. financial statements.

Investments in associates and joint ventures that are The consolidated financial statements have been held for sale are shown separately and measured at the audited by Reconta Ernst & Young. lesser of their carrying amount and the fair value net of disposal costs.

A.2 – INFORMATION ON THE MAIN ITEMS OF THE Section 4 – EVENTS SUBSEQUENT FINANCIAL STATEMENTS TO THE BALANCE-SHEET DATE This section presents the accounting policies In the period between the close of 2006 and the adopted by Capitalia in preparing the 2006 approval of these consolidated financial statements, no consolidated financial statements, broken down into significant events other than those described in the sections concerning the recognition, classification, section “Significant post-period events” have occurred measurement, and derecognition of the various items. that could have a significant effect on the Group’s Each of these phases also includes an indication of the operations and financial performance. related financial effects, where significant. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1 – Financial assets held for trading financial assets and liabilities is based on the official prices as of the balance-sheet date for financial instruments that RECOGNITION are listed on active markets. For financial instruments, including equity securities, that are not listed on active Initial recognition of financial assets takes place on markets, fair value is determined by making use of valuation the settlement date for debt and equity securities and on techniques and information available in the market, such as the signing date for derivatives, the prices of similar instruments traded on active markets, discounted cash flows, option pricing models, and values Initial recognition is at fair value, which is normally equal observed in recent comparable transactions. to the amount paid or received. In cases in which the price is not equal to the fair value, the financial asset is For equity securities and related derivatives, if the fair recognized at fair value, and the difference between the value obtained by these valuation techniques cannot be price paid and fair value is recognized through profit or loss. reliably measured, the financial instruments are measured at cost and adjusted for impairment losses. Derivatives that are embedded in financial instruments or other contract forms, and which have financial characteristics and risks that are not correlated with the DERECOGNITION host instrument or which have other features that qualify them as derivative contracts, are recognized separately in Financial assets held for trading are removed from the the category of financial assets held for trading, except in balance sheet when the rights to the cash flows have cases in which the host instrument in which they are expired or in the event of other transactions in which the embedded is measured at fair value through profit or loss. risks and rewards of ownership of the asset are Following the separation of an embedded derivative, the transferred. Conversely, if a substantial portion of the host contract is treated in accordance with the accounting risks and rewards related to the financial asset is retained, rules for its own category. the asset remains on the balance sheet even though legal ownership of the asset has been transferred.

CLASSIFICATION In cases in which it is not possible to determine whether substantially all the risks and rewards have been This category includes financial assets that are held transferred, the financial asset is derecognized when there for trading over the short term, regardless of their actual is no longer any control over it. Conversely, if even partial form. This includes derivatives with a positive value, control is retained the asset remains on the balance sheet including embedded derivatives that have been in proportion to the remaining involvement, measured as separated from another instrument, that are not part of the exposure to changes in the value of the asset sold and an effective hedging relationship. to changes in the related cash flows.

MEASUREMENT RECOGNITION OF PROFIT AND LOSS

Subsequent to their initial recognition, financial assets The results of the measurement of financial assets held for trading are measured at fair value. The fair value of held for trading are recognized through profit or loss. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 114 115

2 – Available-for-sale (AFS) financial assets DERECOGNITION

RECOGNITION AFS financial assets are removed from the balance sheet when the rights to the related cash flows have Initial recognition of available-for-sale financial assets expired or in the event of other transactions in which the takes place on the settlement date for debt and equity risks and rewards of ownership of the asset are securities and on the disbursement date for loans, and is transferred. Conversely, if a substantial portion of the done at fair value, which is normally equal to the amount risks and rewards related to the financial asset is retained, paid or received. In cases in which the price is not equal the asset remains on the balance sheet even though legal to the fair value, the financial asset is recognized at fair ownership of the asset has been transferred. value, and the difference between the price paid and fair value is recognized through profit or loss. The initially In cases in which it is not possible to determine recognized amount includes income and charges directly whether substantially all the risks and rewards have been attributable to the transaction. transferred, the financial asset is derecognized when there is no longer any control over it. Conversely, if even partial control is retained the asset remains on the balance sheet CLASSIFICATION in proportion to the remaining involvement, measured as the exposure to changes in the value of the asset sold and This category includes non-derivative financial assets to changes in the related cash flows. not classified as financial assets held for trading, financial assets measured at fair value, financial assets held to Financial assets that are transferred are derecognized maturity, loans to banks and loans to customers. in the event in which the contractual rights to receive the related cash flows are retained, with the simultaneous More specifically, it includes: equity interests other assumption of a related obligation to pay out these flows, than investments in subsidiaries, associates and joint and only these flows, to third parties. ventures that are not held for trading; shares in unlisted investment funds or funds with limited trading volumes; certain bonds, decided on a case-by-case basis RECOGNITION OF GAINS AND LOSSES depending on the purpose for which they are purchased/held. Gains or losses resulting from the fair value measurement of an asset are recognized in a specific equity reserve until the asset is derecognized, while the MEASUREMENT value corresponding to the amortized cost of AFS financial assets is recognized in the income statement. Subsequent to their initial recognition, AFS financial assets are measured at fair value, which is based on the AFS financial assets undergo impairment testing in criteria described in the section on financial assets held order to determine whether there is objective evidence for trading (see above). For equity securities, if the fair of impairment. If such evidence exists, the amount of the value obtained by these valuation techniques cannot be loss is measured as the difference between the carrying reliably measured, the financial instruments are measured amount of the asset and the present value of the at cost and adjusted for impairment losses. estimated future cash flows discounted at the original WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

effective interest rate, or by using specific valuation CLASSIFICATION techniques for equity securities. Held-to-maturity financial assets are non-derivative If the reasons for the impairment should cease to financial assets that have fixed or determinable obtain following an event occurring after its recognition, contractual payments and fixed maturity that an entity in the case of loans or debt securities, the impairment has the positive intention and ability to hold until loss is reversed through the income statement, while for maturity. If, following a change in intentions or ability, it equity securities, the amount is reversed to equity. In any should no longer be appropriate to continue to recognize event, the amount of the writeback shall not result in the the investment as held until maturity, it is reclassified to carrying amount exceeding the amortized cost that the AFS financial assets. financial asset would have had in the absence of these impairment adjustments. MEASUREMENT In addition to the recognition of a loss resulting from impairment, gains or losses accumulated in the equity Subsequent to initial recognition, held-to-maturity reserve are, as mentioned above, recognized in the financial assets are measured at amortized cost and income statement when the asset is sold. undergo impairment testing.

Dividends on an AFS equity instrument are The amortized cost of a financial asset is equal to the recognized through profit or loss when the right to initially recognized value minus principal repayments, receive payment is acquired. plus or minus the cumulative amortization using the effective interest rate method of any difference between that initial amount and the maturity amount, minus any 3 – Held-to-maturity financial assets reductions (either directly or using an allowance account) for impairment or uncollectibility. RECOGNITION

Held-to-maturity financial assets are initially DERECOGNITION recognized on the settlement date at fair value, which is normally equal to the amount paid or received. In cases Financial assets are derecognized upon expiration of in which the price is not equal to the fair value, the the contractual rights to the related cash flows or when financial asset is recognized at fair value, and the the financial asset is sold and substantially all related risk difference between the price paid and fair value is and rewards are transferred. Conversely, if a substantial recognized through profit or loss. The initially recognized portion of the risks and rewards related to the financial amount includes income and charges directly attributable asset is retained, the asset remains on the balance sheet to the transaction. even though legal ownership of the asset has been transferred. The financial assets transferred to this category from AFS financial assets are recognized at amortized cost, In cases in which it is not possible to determine which is deemed equal to the fair value as of the date of whether the substantially all the risks and rewards have reclassification. been transferred, the financial asset is derecognized when WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 116 117

there is no longer any control over it. Conversely, if even calculate the impairment loss, are recognized as partial control is retained the asset remains on the balance writebacks in the specific account for net sheet in proportion to the remaining involvement, writedowns/writebacks for impairment. measured as the exposure to changes in the value of the asset sold and to changes in the related cash flows. 4 – Loans and receivables Financial assets that are transferred are derecognized in the event in which the contractual rights to receive the RECOGNITION related cash flows are retained, with the simultaneous assumption of a related obligation to pay out these flows, Loans are recognized in the balance sheet as of the and only these flows, to third parties. disbursement date or, in the case of debt securities, the settlement date. The initially recognized value is equal to the amount disbursed or the subscription price, including RECOGNITION OF GAINS AND LOSSES marginal costs and income directly attributable to the transaction and measurable as of the date of recognition, Gains and losses are recognized in the income even if paid at a later date. The initially recognized value statement at the moment in which the asset is does not include costs that are to be repaid by the derecognized. Interest is recognized in accordance with borrower or internal administrative costs. the amortized cost method using the effective interest rate for the asset. In cases in which amortized cost The initially recognized value of any loans disbursed method is not applied, interest is recognized in the at non-market terms is the fair value of the loan as income statement using the linear method. determined by specific valuation techniques, and the difference between the fair value and the amount At the balance-sheet date, given objective evidence disbursed or the subscription price is recognized through of an impairment loss, the amount of the loss recognized profit or loss. in the income statement is equal to the difference between the carrying amount of the asset and the Carryover transactions and repurchase agreements present value of estimated future cash flows discounted with the obligation of forward repurchase or sales are at the original effective interest rate. recognized as lending or funding transactions. Spot sales and forward repurchases are recognized as liabilities for If the reasons for the impairment should cease to the amount received spot, while spot purchase forward obtain following an event occurring after its recognition resale transactions are recognized as receivables for the impairment loss is reversed through the income amount paid spot. statement. In any event, the amount of the writeback shall not result in the carrying amount exceeding the amortized cost that the financial asset would have had in CLASSIFICATION the absence of these impairment adjustments. Loans disbursed directly or purchased from third Writebacks related to the passing of time, parties that are not listed on active markets and that have corresponding to the interest accrued during the year at fixed, determinable payments are classified among loans the original effective interest rate previously used to to banks and loans to customers, with the exception of WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

those that are classified among the following categories: The amount of the loss is calculated as the difference financial assets held for trading; financial assets between the carrying amount of the asset and the measured at fair value; and AFS financial assets. The present value of the future cash flows discounted at the category also includes any securities with characteristics original effective interest rate of the financial asset. The similar to loans. loan valuation process takes account of the following aspects: It includes operating loans, repurchase agreements, and receivables recognized by lessors on finance leases.
the maximum recoverable amount, which is the best estimate of the expected cash flows from the loan and Also included among loans are assets acquired for the related interest; where collection is deemed likely, non-recourse factoring for which the risks and rewards this also includes default interest and the realizable value related to the asset are transferred. of any collateral, net of collection costs;

collection times, estimated based on contractual due MEASUREMENT dates, if available, or on reasonable estimates in the absence of specific contractual agreements; After initial recognition, loans are measured at amortized cost as described above in the section
the discount rate, which is equal to the original regarding the measurement of held-to-maturity financial effective interest rate; for impaired loans outstanding at assets. the transition date, for which determination of the figure was deemed to be excessively difficult, reasonable The amortized cost method is not applied to loans estimates have been used, such as the average interest with a maturity of less than short-term, loans with an rate for loans during the year in which the loan was undefined maturity, and lending agreements that are classified as a bad debt or the restructuring rate. valid until cancelled, for which the effect of the amortized cost method is deemed to be insignificant. Such loans As part of the detailed valuation process, cash flows are measured at cost. for which collection is expected over the short term are not discounted to present value. The original effective The loan portfolio is subject to impairment testing at interest rate for each loan remains constant over time the end of each financial year in order to determine if even if the loan is restructured at a different contractual there is cause to recognize impairment losses. Bad debts, interest rate or if the loan no longer bears interest by substandard loans, restructured debt and past-due contract. positions are considered impaired. The impairment loss is only recognized in the event in which, subsequent to Loans that do not present objective evidence of initial recognition of the loan, there is objective evidence impairment are subject to collective valuation by creating of events that have resulted in a deterioration in the groups of positions with similar risk profiles. The valuation loan’s value such that it would result in a change in is then based on historical loss trends for each group. In reliably estimated cash flows. constructing the time series, the positions that have undergone individual valuation are removed from the Loans that decrease in value as a result of objective loan population. Impairment losses calculated in this evidence of impairment are subject to specific valuation. manner are recognized in the income statement. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 118 119

Guarantees are also subject to impairment testing in accounting standards for securitizations carried out up to a manner similar to that of the loans measured the 2001 financial year. collectively.

RECOGNITION OF GAINS AND LOSSES DERECOGNITION After initial recognition, loans are measured at amortized Transferred loans are derecognized only if the transfer cost, which is equal to the initially recognized value plus or results in the transfer of substantially all the related risks minus repayments of principal, value adjustments and and rewards. Conversely, in the event that a significant amortization – calculated using the effective interest rate portion of the risks and rewards related to the loan is method – of the difference between the amount disbursed retained, the asset remains on the balance sheet even and the amount to be repaid upon maturity, which is though legal ownership of the asset has been transferred. typically related to the costs and income allocated directly to the individual loan. The effective interest rate is In cases in which it is not possible to determine determined by calculating the rate that exactly discounts the whether substantially all the risks and rewards have been loan’s future cash flows in respect of both principal and transferred, the loan is derecognized when there is no interest to the amount disbursed, including costs and longer any control over it. Conversely, if even partial income related to the loan. This method of recognition control is retained the loan remains on the balance sheet distribute the financial effect of the costs and income across in proportion to the remaining involvement, measured as the expected remaining life of the loan. the exposure to changes in the value of the loan sold and to changes in the related cash flows. The amortized cost method is not used for short-term loans for which discounting to present value is deemed Loans that are transferred are derecognized in the to have an insignificant effect. Such loans are measured event in which the contractual rights to receive the at cost. The same method is used for loans that have no related cash flows are retained, with the simultaneous defined maturity or that are valid until revoked. assumption of a related obligation to pay out these flows, and only these flows, to third parties. As described in the section regarding the measurement of loans above, impairment losses are recognized in the IFRS 1 includes a specific exception to the application income statement. of the derecognition rules for financial assets transferred, including securitization transactions, if carried out prior to If, following an event occurring after the recognition of 1 January 2004. For securitization transactions initiated the impairment, the reasons for the loss should cease to before this date, a company may elect to continue obtain, the amount is reversed through the income applying the previous accounting standards or to apply statement. The amount of the writeback shall not result in the provisions of IAS 39 retrospectively from a date the carrying amount exceeding the amortized cost that the established by the company itself, on the condition that loan would have had if the impairment had never occurred. the information needed to apply IAS 39 to previously derecognized assets was available at the time of initial Writebacks related to the passing of time, recognition of these transactions. In that regard, the corresponding to the interest accrued during the year at Capitalia Group has opted to apply the previous the original effective interest rate previously used to WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

calculate the impairment, are recognized as writebacks have expired or in the event of other transactions in for impairment. which the risks and rewards of ownership of the asset are transferred.

5 – Financial assets measured at fair value RECOGNITION OF GAINS AND LOSSES

RECOGNITION The result of the fair value measurement is recognized Initial recognition of financial assets measured at fair through profit or loss. value takes place on the settlement date for debt and equity securities. 6 – Hedging transactions Initial recognition is at fair value, which is normally equal to the amount paid or received. In cases in which the price RECOGNITION is not equal to the fair value, the financial asset is recognized at fair value, and the difference between the Hedging derivatives and the financial assets and price paid and fair value is recognized through profit or loss. liabilities that are part of an effective hedge are recognized in accordance with the rules of hedge accounting.

CLASSIFICATION Hedging transactions for which the relationship between the hedged item and the hedging instrument is Financial assets measured at fair value include assets formally documented are considered effective if, at the which, regardless of their type, are designated from the inception of the hedge and throughout the duration of moment of recognition as measurable at fair value. the hedging relationship, the changes in fair value or in the cash flows of the hedged item are nearly fully offset by the changes in the fair value or cash flows of the MEASUREMENT derivative hedging instrument. At each balance-sheet date, the effectiveness of the hedge is tested on both a Subsequent to their initial recognition, these financial prospective and retrospective basis, and the hedge is assets continue to be measured at fair value, which is considered effective if the relationship between the based on the criteria described in the section on financial changes in value remains within the range of 80 to 125%. assets held for trading (see above). For equity securities and related derivatives, if the fair value obtained by these valuation techniques cannot be reliably measured, the CLASSIFICATION financial instruments are measured at cost and adjusted for impairment. Derivatives for hedging purposes are used in order to protect against one or more types of risk (interest-rate risk, exchange rate risk, price risk, credit risk, etc.). DERECOGNITION Specifically, fair value hedges are performed in order to hedge exposure to changes in fair value, while cash flow Financial assets measured at fair value are removed hedges are carried out in order to hedge exposure to from the balance sheet when the rights to the cash flows changes in cash flows. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 120 121

The “hedging derivatives” items shown on the asset 7 – Equity investments and liability sides of the balance sheet correspond to the positive and negative values of the effective hedging RECOGNITION derivatives. Equity investments are initially recognized at cost as of the settlement date. MEASUREMENT AND RECOGNITION OF GAINS AND LOSSES CLASSIFICATION

Hedging derivatives are measured at fair value and This category includes investments in associates, as changes in fair value, for fair value hedges, are well as investments in subsidiaries and associates that are recognized through profit or loss. Changes in the fair not consolidated because they are deemed to be value of cash flow hedges are posted to equity for the immaterial for the purposes of the consolidated effective portion of the hedge and are only recognized accounts. through profit or loss when, in relation to the hedged item, there is a change in the cash flow being hedged. MEASUREMENT Changes in the fair value of fair value hedges attributable to the risk hedged for the asset or liability is Investments in associates are measured using the recognized through profit or loss. In the case of hedges equity method. The carrying amount also includes any of a specific asset or liability, the hedged asset or liability, goodwill, which is not amortized but undergoes recognized among the related item on the balance sheet, impairment testing at the end of each financial year. is adjusted up or down for the amount of the change in fair value attributable to the risk being hedged. In the Investments in subsidiaries and joint ventures that are case of macro hedging, this change is shown on the not consolidated because they are deemed to be balance sheet among adjustments to the value of the immaterial for the purposes of the consolidated accounts assets or liabilities subject to macro hedging. are measured at cost.

DERECOGNITION DERECOGNITION

Equity investments are derecognized upon expiration If the tests performed fail to confirm the hedge’s of the rights to the related cash flows or when the effectiveness, the hedge is derecognized in accordance financial asset is sold and substantially all related risks with the criteria described above, and the accounting and rewards are transferred. treatment for the given category is applied. The derivative is then reclassified as a trading instrument, and subsequent changes in fair value are recognized through RECOGNITION OF GAINS AND LOSSES profit or loss. In the case of cash flow hedges, if the transaction being hedged no longer takes place, the Dividends received on investments measured using cumulative value of gains and losses posted to the equity the equity method are posted directly as a reduction in reserve is recognized through profit or loss. the carrying amount of the investment. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The portion of earnings of associates attributable to losses. As of 1 January 2004, the date of transition to the Group are recognized through profit or loss, as are IFRSs, the buildings were measured at fair value, and this impairment losses on the goodwill included in the fair value was adopted as deemed cost. investment’s carrying amount. Writebacks of the value of goodwill are not recognized in the income statement. Assets are depreciated systematically based on their residual useful life. The following depreciation rates are used for the main asset categories: furnishings, 12%; 8 – Tangible assets ordinary office machines, 20%; machinery and other equipment, 15%; alarm, video and television systems, RECOGNITION 30%; electronic equipment, 20%; lifting equipment and Tangible assets are initially recognized at cost, systems, 7.5%. The depreciable value is equal to the cost including all directly related costs necessary to purchase of the asset, as the residual value after depreciation is the asset and to bring it into working condition. deemed to be insignificant. Buildings are depreciated at Extraordinary maintenance that results in an increase in the a rate of 2% per year, which is deemed to appropriately future economic benefits are recognized as an increase in represent the deterioration of the asset over time as a the value of the asset, while other costs of routine result of use, taking account of the costs of extraordinary maintenance are recognized as an expense when incurred. maintenance that result in an increase in the asset’s value.

Tangible assets also include assets used under Land, either purchased separately or together with a finance leases for which substantially all the risks and building, is not depreciated. rewards of ownership have been assumed. These assets are initially recognized at a value that is equal to the lesser of fair value and the present value of the minimum DERECOGNITION lease payments. This value is then subject to depreciation. Tangible assets are derecognized upon disposal or when the asset is withdrawn from use and no future economic benefits are expected from their disposal. CLASSIFICATION

This category includes land, buildings used in RECOGNITION OF GAINS AND LOSSES operations, investment property, technical systems, furniture, furnishings and equipment. It also includes Depreciation is recognized in the income statement. assets held for use in production and in the provision of When there is an indication of a potential impairment of goods and services, for administrative purposes, or that an asset, a comparison is made between the asset’s are to be rented out to third parties, and that are carrying amount and its recoverable value, the latter expected to be used for more than one financial year. being the greater of the value in use (i.e. the present value of the future cash flows generated by the asset) and its fair value net of disposal costs. Any negative MEASUREMENT difference between the carrying amount and the Tangible assets, including investment property, are recoverable value is recognized in the income statement. measured at cost less depreciation and impairment If the reasons for the impairment should cease to obtain, WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 122 123

the writeback is recognized in the income statement. rights. This includes software and goodwill arising on Following a writeback, the carrying amount may not consolidation. exceed the value that the asset would have had, net of depreciation, had there been no impairment. Costs for the restructuring of leased buildings without their own independent function and use are classified among other assets in accordance with Bank of Italy 9 – Intangible assets circular no. 262, and the related depreciation, which is charged over a period that is not to exceed the duration RECOGNITION of the lease contract, is recognized under other operating Intangible assets are recognized at cost and adjusted costs. for any incidental expenses only if it is likely that the future economic benefits attributable to the asset will flow to the company and the cost of the asset itself can MEASUREMENT be reliably measured. Otherwise, the cost of the intangible asset is recognized in the income statement in Intangible assets initially measured at cost are period in which it is incurred. amortized on a straight-line basis in accordance with the estimated residual useful life of the asset, which for Intangible assets may also include the goodwill software is no more than 5 years. Goodwill is not related to business combinations (acquisitions of amortized and is subject to impairment tests as of the controlling interests, consolidated on a line-item basis, or transition date. joint control, measured proportionately, or of business units). Goodwill related to business combinations subsequent to 1 January 2004 is initially measured at the DERECOGNITION positive difference between the net fair value of the assets and liabilities acquired and the cost of the business Intangible assets are derecognized on disposal and combination, including related costs, assuming that this when future economic benefits from their use or disposal positive difference is representative of future earning are no longer expected. capacity. The difference between the cost of the business combination and the net fair value of the assets and RECOGNITION OF GAINS AND LOSSES liabilities acquired is recognized through profit or loss if negative or if not representative of future earning Amortization is recognized in the income statement. capacity. Goodwill related to business combinations When there is evidence of impairment of an intangible taking place prior to the IFRS transition date are asset, and at the end of each financial year for goodwill, measured at cost, which is the same value recognized in a comparison is made of the carrying amount and the accordance with Italian accounting standards. recoverable value. If the reasons for the impairment should cease to obtain for intangible assets other than goodwill, the writeback is recognized in the income CLASSIFICATION statement. This writeback may not result in a carrying amount that exceeds the value that the asset would Intangible assets are recognized when they are have had, net of amortization, had there been no identifiable and they arise out of legal or contractual impairment. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10 – Non-current assets held for sale MEASUREMENT and discontinued operations When the results of a transaction are posted directly to equity, current taxes, as well as deferred tax assets and RECOGNITION AND CLASSIFICATION liabilities, are also posted to equity.

This category includes non-current assets held for sale Deferred tax assets and liabilities are periodically and the assets and liabilities of operations that are to be remeasured in order to take account of any changes in discontinued within 12 months of the date of tax legislation or tax rates. classification, such as equity investments in subsidiaries, associates, and joint ventures, property, plant and equipment and intangibles and the assets and liabilities RECOGNITION OF GAINS AND LOSSES of business units that are to be sold. Income taxes are recognized in the income statement, with the exception of those that are related to items to be MEASUREMENT AND RECOGNITION posted directly to equity. Current income taxes are OF GAINS AND LOSSES calculated based on the taxable income for the period. Amounts payable and receivable for current taxes are These assets and liabilities are measured at the lesser recognized at the amount that is expected to be paid or of carrying amount and fair value net of disposal costs. received and in accordance with the prevailing tax rates The related income and charges, net of tax effects, are and tax legislation. Deferred tax assets and liabilities are shown separately in the income statement. calculated based on the temporary differences between the carrying amount of assets and liabilities and their corresponding values for tax purposes. 11 – Current and deferred taxes

12 – Provisions for liabilities and contingencies RECOGNITION Provisions for pensions and similar obligations Income taxes are recognized in the income statement, with the exception of those that are related to items to be RECOGNITION AND CLASSIFICATION posted directly to equity. Deferred tax assets are recognized when their recovery is deemed probable. Post-employment benefit plans are classified as Deferred tax liabilities are recognized in all cases in which defined contribution plans when fixed contributions are the related liability is likely to be incurred. made into a fund, but there is no obligation to make further payments if the fund does not have sufficient assets to pay all of the employees’ benefits; all other CLASSIFICATION types of post-employment benefit plans being defined benefit plans. Internal pension funds are established in Deferred tax assets and liabilities are shown accordance with company agreements and are classified separately in the balance sheet without being offset. as defined benefit plans. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 124 125

MEASUREMENT AND RECOGNITION OF GAINS AND These provisions are recognized at the best estimate LOSSES of the amount required to settle the obligation or to transfer it to a third party as of the balance-sheet date. The liability in respect of the (defined benefit) internal pension funds and the related current service costs are Where the effect of the time value of money is measured based on actuarial assumptions and applying material and the dates for paying the obligation can be the projected unit credit method, which projects future reliably estimated, the provisions are discounted at the cash outflows based on statistical analyses and the market rates current at the balance-sheet date. demographic curve based on a market rate.

The carrying amount of the liability as of the balance- MEASUREMENT AND RECOGNITION sheet date is also adjusted for the fair value of any plan OF GAINS AND LOSSES assets. Actuarial gains and losses are recognized through profit or loss using the “corridor” approach, i.e. limited to Provisions are reassessed at the end of each financial the portion of actuarial gains or losses not recognized at year and adjusted to reflect the best estimate of the the end of the previous year that exceeds the greater of expense required to settle the obligations as of the 10% of the present value of the plan’s benefits and 10% balance sheet date. The effects of the time value of of the fair value of any plan assets. This excess is money and changes in interest rates are recognized recognized in accordance with the expected average through profit or loss under net provisions for the period. remaining working lives of the participating employees.

For the (external) defined contribution funds, the DERECOGNITION contributions made by the companies of the Group are expensed in the income statement and measured in Provisions are only used for the purpose for which accordance with the services rendered by employees. they were originally recognized. If it is no longer deemed Each year the obligation is determined on the basis of probable that an outflow of resources will be required to contributions due for that year. settle the obligation, the provision is reversed to income.

Other provisions for liabilities and contingencies 13 – Debt and securities issued

RECOGNITION RECOGNITION AND CLASSIFICATION Initial recognition is carried out at the fair value of the Provisions for liabilities and contingencies are liability, which is normally equal to the amount received recognized in the income statement and as a liability on or the issue price plus or minus any marginal costs or the balance sheet when there is a present legal or income directly attributable to the transaction and not constructive obligation as a result of a past event for which repaid by the creditor, excluding any internal it is probable that an outflow of economic benefits will be administrative costs. Financial liabilities issued at required to settle the obligation, on the condition that the anything other than prevailing market terms are loss associated with the liability can be estimated reliably. recognized at estimated fair value, and the difference WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

with respect to the amount paid or the issue price is The replacement of these securities on the market recognized through profit or loss. after being repurchased is considered to be the same as a new issue and therefore results in the recognition of a new placement price without any income effect. CLASSIFICATION

Debt and securities in issue includes financial 14 – Financial liabilities held for trading liabilities not held for short-term trading purposes, including the various forms of interbank funding and RECOGNITION funding from customers, as well as funding through certificates of deposit and the issue of other debt Initial recognition of financial liabilities takes place securities, net of any amounts repurchased. on the settlement date for debt and equity securities and on the signing date for derivatives, and is carried The category also includes any amounts payable by out at fair value, which is normally equal to the amount the leasee for finance leases. received.

Also recorded among debts are the financial liabilities In cases in which the price is not equal to the fair to the selling party for receivables purchased for non- value, the financial liability is recognized at fair value, and recourse factoring transactions. the difference between the price paid and fair value is recognized through profit or loss.

MEASUREMENT AND RECOGNITION OF GAINS Derivatives that are embedded in financial AND LOSSES instruments or other contract forms, and which have financial characteristics and risks that are not correlated After initial recognition, these items are measured at with the host instrument or which have other features that amortized cost using the effective interest rate method, qualify them as derivative contracts, are recognized with the exception of short-term liabilities, which are separately, if negative, in the category of financial measured at the amount received in accordance with the liabilities held for trading, except in cases in which the general principle of materiality. For information on the instrument in which they are embedded is measured at determination of amortized cost, see the section above fair value through profit or loss. regarding held-to-maturity financial assets.

DERECOGNITION CLASSIFICATION

Financial liabilities included in this category are This category includes the negative value of non- removed from the balance sheet both following settlement hedging derivative contracts, as well as the negative or maturity and following a repurchase of the previously value of derivatives embedded in other contracts. issued securities. In the latter case, the difference between Liabilities that result from uncovered positions related to the carrying amount of the liability and the amount paid for securities trading are also recognized as financial the repurchase is recognized through profit or loss. liabilities held for trading. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 126 127

MEASUREMENT
monetary items are translated at the exchange rate on the balance sheet date; Subsequent to their initial recognition, financial liabilities held for trading are measured at fair value,
non-monetary items measured at historical cost are which is based on the criteria described in the section on translated at the exchange rate prevailing on the date of financial assets held for trading (see above). the transaction;

non-monetary items measured at fair value are DERECOGNITION translated at the exchange rate prevailing on the balance-sheet date. Financial liabilities held for trading are derecognized when settled or at maturity. Exchange rate differences that result from the settlement of monetary items or the translation of monetary items at a rate different from that of the initial RECOGNITION OF GAINS AND LOSSES translation, or of the translation of the previous year’s financial statements, are recognized through profit or loss

The results of the measurement of financial liabilities in the period in which they occur. held for trading are recognized through profit or loss. When a gain or a loss related to a non-monetary item is recognized in equity, the exchange rate difference 15 – Financial liabilities measured at fair value related to that item is also recognized in equity. Similarly, when a gain or a loss is recognized in income, the This category is not shown, given that the Capitalia related exchange rate difference is also recognized in Group does not make use of the fair value option for income. liabilities.

17 – Insurance assets and liabilities 16 – Foreign currency transactions Technical reserves charged to reinsurers, shown in the RECOGNITION balance sheet, and net premiums, shown in the income statement, are related to consolidated insurance Foreign currency transactions are initially recognized companies. in the functional currency using the exchange rate in effect as of the date of the transaction. Insurance contracts include all contracts through which the insurer assumes a material insurance risk by agreeing to compensate another party, whether the RECOGNITION OF GAINS AND LOSSES policyholder or other beneficiary, if a specific, uncertain event causes a loss to the policyholder or other As of the balance-sheet date, items denominated in a beneficiary. Reinsurance contracts are insurance contracts foreign currency are measured as follows: between two insurers. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Gross premiums written (and incidental expenses) on inward reinsurance is recognized on the basis of the insurance contracts are recognized when they accrue, notices received from the ceding company. The portion regardless of the date they are actually collected, and are of the claims reserve charged to reinsurers is calculated recognized net of technical and premium cancellations. on the basis of the actual recovery amount for each Net accrued premiums include the change in the individual cession. premium reserve.

Losses in respect of claims on insurance contracts are 18 - Other information recognized when actual payment is made and include direct and indirect settlement expenses. The item also EMPLOYEE SEVERANCE PAY includes changes in the technical reserves of insurance contracts. The Italian employee severance pay (or “TFR”, for Trattamento di Fine Rapporto) is recognized at an amount calculated using the actuarial methods specified NON-LIFE TECHNICAL RESERVES in IAS 19 for employee defined benefit plans.

This category includes the premium reserve and the Accordingly, the amount of the liability recognized on claims reserve. The premium reserve can be broken down the balance sheet is subject to actuarial valuation and into the following two items: takes account of such things as future developments in the employment relationship.
the reserve for unexpired risks: this reserve consists of amounts set aside to cover indemnities and expenses Future TFR cash flows are discounted using the that exceed the reserve for unearned premiums on projected unit credit method. Actuarial gains and losses contracts outstanding at the end of the period; are recognized through profit or loss using the “corridor” approach: i.e. the portion of actuarial gains or losses that
the reserve for unearned premiums: this reserve exceeds 10% of the present value of the plan’s benefits, consists of gross premiums recognized but accruing in recognized at the previous reference date and divided by future periods. the expected average remaining working lives of the participating employees. The claims reserve represents the prudent valuation of claims settlements and estimated direct and The liability represents the present value of the settlement expenses for claims under primary insurance obligation, plus any unrecognized actuarial gains and contracts that have not been paid in whole or in part, or minus any unrecognized actuarial losses. claims closed without settlement as of the balance-sheet date. Valuation takes account of the special features of each line of business and the criteria for calculating the RECOGNITION OF REVENUES related premiums, bearing in mind all objective factors that contribute to determining the required coverage of Revenues are recognized when they are realized or, in the final cost of the claim The claims reserve for primary the case of the sale of goods or other products, when it business is calculated on an analytical basis for all lines by is likely that the future benefits will be received and these analyzing all outstanding claims. The claims reserve for benefits can be reliably measured. In the case of services, WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 128 129

revenues are recognized when the service is provided. ownership of the leased asset are transferred. All other Specifically: leases are considered operating leases.

interest is recognized on a pro rata temporis basis The leaseholder in a finance lease agreement using the contractual interest rate, or the effective interest recognizes the contract as both an asset and a liability at rate in the case the amortized cost method is applied; the lesser the fair value of the asset being leased and the
dividends are recognized as income when the present value of the minimum lease payments due. Any dividend distribution is approved; initial direct costs for the leaseholder are added to the amount recognized as an asset. The minimum lease
commissions on service revenues are recognized in payments due are broken down in to finance costs and the period in which the service is provided and based on principle, and the finance costs are distributed across contractual agreements; financial years so as to obtain a constant interest rate on
revenues from intermediation in financial instruments the remaining liability. Potential lease payments are held for trading, which are calculated as the difference recognized as a cost in the periods in which they are between the price of the transaction and the fair value of incurred. the instrument, are recognized as income when recognizing the transaction if the fair value can be measured based on recently observable transactions or TREASURY SHARES, STOCK OPTIONS, parameters in the same market on which the instrument AND STOCK GRANTING is traded. In the absence of such conditions, the Treasury shares are recognized posted in a specific estimated difference with fair value is recognized through account as a reduction to equity. profit or loss throughout the life of the transaction;

revenues from the sale of non-financial assets are The original cost of the shares repurchased, as well as recognized when the sale is finalized, unless the bank retains gains or losses on the purchase, sale, issue, or the majority of the risks and rewards related to the asset. cancellation of treasury shares, are not recognized through profit or loss, but rather are recognized in equity in the share premium reserve account. FINANCE LEASES Stocks and stock options granted to employees are A lease contract is considered a finance lease when recognized as staff costs and in equity at their fair value substantially all risks and rewards resulting from as of the date on which they are granted. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART B – INFORMATION ON THE CONSOLIDATED BALANCE SHEET

ASSETS

Section 1 - CASH AND CASH EQUIVALENTS - ITEM 10

1.1 CASH AND CASH EQUIVALENTS: COMPOSITION

Banking Other Total 2006 Total 2005 group entities a) Cash 894,930 13 894,943 760,627 b) Free deposits with central banks 96,268 – 96,268 201,806 Total 991,198 13 991,211 962,433

Section 2 – FINANCIAL ASSETS HELD FOR TRADING – ITEM 20

2.1 FINANCIAL ASSETS HELD FOR TRADING: COMPOSITION BY TYPE Banking group Other entities Total 2006 Total 2005 Listed Unlisted Listed Unlisted A.Non-derivative assets 1. Debt securities 1,133,807 147,052 – – 1,280,859 1,788,882 1.1 Structured securities 18,704 2,353 – – 21,057 7,772 1.2 Other debt securities 1,115,103 144,699 – – 1,259,802 1,781,110 2. Equity securities 2,008,748 22 5,995 – 2,014,765 1,596,479 3. Units in collective investment undertakings 98,133 614,843 1,852 – 714,828 722,769 4. Loans – – – – – – 4.1 Repurchase agreements – – – – – – 4.2 Other – – – – – – 5. Impaired assets – 2 – – 2 – 6. Assets assigned but not derecognized 1,125,194 1,209 – – 1,126,403 4,699,871 Total (A) 4,365,882 763,128 7,847 – 5,136,857 8,808,001 B.Derivatives 1. Financial derivatives 338 4,232,341 – – 4,232,679 3,385,923 1.1 trading 338 4,079,408 – – 4,079,746 3,120,974 1.2 associated with fair value option – – – – – – 1.3 other – 152,933 – – 152,933 264,949 2. Credit derivatives – 838 – – 838 3,629 2.1 trading – 838 – – 838 3,629 2.2 associated with fair value option – – – – – – 2.3 other – – – – – – Total (B) 338 4,233,179 – – 4,233,517 3,389,552 Total (A+B) 4,366,220 4,996,307 7,847 – 9,370,374 12,197,553 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 130 131

2.2 FINANCIAL ASSETS HELD FOR TRADING: COMPOSITION BY DEBTOR/ISSUER

Banking group Other entities Total 2006 Total 2005 A. Non-derivative assets 1. Debt securities 1,280,859 – 1,280,859 1,788,882 a) Governments and central banks 806,059 – 806,059 1,082,510 b) Other government agencies 1,831 – 1,831 1,829 c) Banks 239,726 – 239,726 309,888 d) Other issuers 233,243 – 233,243 394,655 2. Equity securities 2,008,770 5,995 2,014,765 1,596,479 a) Banks 491,861 – 491,861 406,041 b) Other issuers 1,516,909 5,995 1,522,904 1,190,438 – insurance undertakings 240,596 – 240,596 – – financial companies 29,095 – 29,095 37,113 – non– financial companies 344,161 – 344,161 19 – other 903,057 5,995 909,052 1,153,306 3. Units in collective investment undertakings (*) 712,976 1,852 714,828 722,769 4. Loans – – – – a) Governments and central banks – – – – b) Other government agencies – – – – c) Banks – – – – d) Other – – – – 5. Impaired assets 2 – 2 – a) Governments and central banks – – – – b) Other government agencies – – – – c) Banks – – – – d) Other 2 – 2 – 6. Assets assigned but not derecognized 1,126,403 – 1,126,403 4,699,871 a) Governments and central banks 688,181 – 688,181 4,060,651 b) Other government agencies – – – – c) Banks 16,198 – 16,198 – d) Other issuers 422,024 – 422,024 639,220 Total (A) 5,129,010 7,847 5,136,857 8,808,001 B. Derivatives a) Banks 3,807,097 – 3,807,097 2,793,231 b) Customers 426,420 – 426,420 596,321 Total (B) 4,233,517 – 4,233,517 3,389,552 Total (A+B) 9,362,527 7,847 9,370,374 12,197,553

(*) Consisting of equity funds (€120 million), money market funds (€168 million), bond funds (€330 million), foreign funds (€66 million), hedge funds (€27 million) and real estate funds (€4 million). WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.3 FINANCIAL ASSETS HELD FOR TRADING: TRADING DERIVATIVES

2.3.1 OF WHICH: BANKING GROUP

Interest Foreign Equity Loans Other Total Total rates currencies securities 2006 2005 and gold A. Listed derivatives 1) Financial derivatives 293 2 43 – – 338 1,680 a) with exchange of principal 293 2 43 – – 338 1,331 – options purchased – – – – – – – – other derivatives 293 2 43 – – 338 1,331 b) without exchange of principal – – – – – – 349 – options purchased – – – – – – – – other derivatives – – – – – – 349 2) Credit derivatives – – – – – – – a) with exchange of principal – – – – – – – b) without exchange of principal – – – – – – – Total (A) 293 2 43 – – 338 1,680 B. Unlisted derivatives 1) Financial derivatives 2,571,528 354,870 1,239,811 – 66,132 4,232,341 3,384,243 a) with exchange of principal 188 351,356 937,983 – – 1,289,527 949,166 – options purchased 185 27,343 931,027 – – 958,555 558,629 – other derivatives 3 324,013 6,956 – – 330,972 390,537 b) without exchange of principal 2,571,340 3,514 301,828 – 66,132 2,942,814 2,435,077 – options purchased 754,522 – 301,828 – – 1,056,350 669,647 – other derivatives 1,816,818 3,514 – – 66,132 1,886,464 1,765,430 2) Credit derivatives – – – 838 – 838 3,629 a) with exchange of principal – – – 838 – 838 3,629 b) without exchange of principal – – – – – – – Total (B) 2,571,528 354,870 1,239,811 838 66,132 4,233,179 3,387,872 Total (A+B) 2,571,821 354,872 1,239,854 838 66,132 4,233,517 3,389,552

2.3.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 132 133

2.4 NON-DERIVATIVE FINANCIAL ASSETS HELD FOR TRADING OTHER THAN THOSE ASSIGNED BUT NOT DERECOGNIZED AND IMPAIRED ASSETS: ANNUAL CHANGE

2.4.1 OF WHICH: BANKING GROUP

Debt Equity Units inLoans Total securities ecurities collective investment undertakings A. Opening balance 1,768,602 1,596,479 713,965 – 4,079,046

B. Increases 115,607,634 8,471,540 732,251 – 124,811,425 B.1 Purchases 111,284,967 8,145,648 705,725 – 120,136,340 B.2 Positive changes in fair value 6,741 255,527 17,402 – 279,670 B.3 Other changes 4,315,926 70,365 9,124 – 4,395,415

C. Decreases 116,095,377 8,059,249 733,240 – 124,887,866 C.1 Sales 112,480,164 7,963,558 727,737 – 121,171,459 C.2 Redemptions 1,584,956 1 – – 1,584,957 C.3 Negative changes in fair value 7,282 14,397 751 – 22,430 C.4 Other changes 2,022,975 81,293 4,752 – 2,109,020 D. Closing balance 1,280,859 2,008,770 712,976 – 4,002,605

By convention, sub– items B.3 and C.4 include amounts in respect of technical overdrafts at the end and start of the period, respectively, as well as the annual change in assets assigned but not derecognized.

2.4.2 OF WHICH: INSURANCE UNDERTAKINGS

Debt Equity Units inLoans Total securities ecurities collective investment undertakings A. Opening balance 20,282 – – – 20,282

B. Increases – – – – – B.1 Purchases – – – – – B.2 Positive changes in fair value – – – – – B.3 Other changes – – – – –

C. Decreases 20,282 – – – 20,282 C.1 Sales – – – – – C.2 Redemptions – – – – – C.3 Negative changes in fair value – – – – – C.4 Other changes 20,282 – – – 20,282 D. Closing balance – – – – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2.4.3 OF WHICH: OTHER ENTITIES

Debt Equity Units inLoans Total securities securities collective investment undertakings A. Opening balance – – 8,804 – 8,804

B. Increases – 7,055 48 –7,103 B.1 Purchases – 7,000 – – 7,000 B.2 Positive changes in fair value – – 32 – 32 B.3 Other changes – 55 16 – 71

C. Decreases – 1,060 7,000 – 8,060 C.1 Sales – 1,060 7,000 – 8,060 C.2 Redemptions – – – – – C.3 Negative changes in fair value – – – – – C.4 Other changes – – – – – D. Closing balance – 5,995 1,852 – 7,847

Section 3 - FINANCIAL ASSETS DESIGNATED AT FAIR VALUE - ITEM 30

3.1 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 listed unlisted listed unlisted 1. Debt securities 1,248 – – – 1,248 121,923 1.1 Structured securities –––––– 1.2 Other debt securities 1,248 – – – 1,248 121,923

2. Equity securities – 55,210 – – 55,210 53,526

3. Units in collective investment undertakings –––––1,550

4. Loans –––––– 4.1 Structured –––––– 4.2 Other ––––––

5. Impaired assets ––––––

6. Assets assigned but not derecognized –––––– Total 1,248 55,210 – – 56,458 176,999 Cost 1,274 55,120 – – 56,394 176,473 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 134 135

3.2 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE: COMPOSITION BY DEBTOR/ISSUER

Banking group Other entities Total 2006 Total 2005 1. Debt securities 1,248 – 1,248 121,923 a) Governments and central banks 1,248 – 1,248 88,367 b) Other government agencies –––– c) Banks – – – 31,029 d) Other issuers – – – 2,527

2. Equity securities 55,210 – 55,210 53,526 a) Banks –––– b) Other issuers 55,210 – 55,210 53,526 – insurance undertakings –––– – financial companies –––– – non-financial companies 55,210 – 55,210 53,526 – other ––––

3. Units in collective investment undertakings – – – 1,550

4. Loans –––– a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other ––––

5. Impaired assets –––– a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other ––––

6. Assets assigned but not derecognized –––– a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other –––– Total 56,458 – 56,458 176,999 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3.3 FINANCIAL ASSETS DESIGNATED AT FAIR VALUE OTHER THAN THOSE ASSIGNED BUT NOT DERECOGNIZED AND IMPAIRED ASSETS: ANNUAL CHANGE

3.3.1 OF WHICH: BANKING GROUP

Debt Equity Units inLoans Total securities securities collective investment undertakings A. Opening balance 121,923 53,526 1,550 – 176,999

B. Increases 157,725 3,368 – – 161,093 B.1 Purchases 157,541 129 – – 157,670 B.2 Positive changes in fair value 178 3,239 – – 3,417 B.3 Other changes 6 – – – 6

C. Decreases 278,400 1,684 1,550 – 281,634 C.1 Sales 242,725 – 1,550 – 244,275 C.2 Redemptions 33,529 – – – 33,529 C.3 Negative changes in fair value 178 1,684 – – 1,862 C.4 Other changes 1,968 – – – 1,968 D. Closing balance 1,248 55,210 – – 56,458

3.3.3 OF WHICH: OTHER ENTITIES

None.

Section 4 - FINANCIAL ASSETS AVAILABLE FOR SALE - ITEM 40

4.1 FINANCIAL ASSETS AVAILABLE FOR SALE: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted 1. Debt securities 521,088 687,140 – – 521,088 687,140 584,159 1,714,961 1.1 Structured securities – – – ––––– 1.2 Other debt securities 521,088 687,140 – – 521,088 687,140 584,159 1,714,961

2. Equity securities 1,714,768 645,112 – – 1,714,768 645,112 1,975,288 573,424 2.1 Measured at fair value 1,714,768 401,327 – – 1,714,768 401,327 1,974,514 276,872 2.2 Measured at cost – 243,785 – – – 243,785 774 296,552

3. Units in collective investment undertakings 34,198 83,062 – – 34,198 83,062 33,962 43,901

4. Loans – – – ––––80,049

5. Impaired assets – – – – – – 1,470 –

6. Assets assigned but not derecognized 30,293 1,006,551 – – 30,293 1,006,551 –463,029 Total 2,300,347 2,421,865 – – 2,300,347 2,421,865 2,594,879 2,875,364 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 136 137

4.2 FINANCIAL ASSETS AVAILABLE FOR SALE: COMPOSITION BY DEBTOR/ISSUER

Banking group Other entities Total 2006 Total 2005 1. Debt securities 1,208,228 – 1,208,228 2,299,120 a) Governments and central banks 130,334 – 130,334 220,804 b) Other government agencies – – – 128,803 c) Banks 162,701 – 162,701 148,869 d) Other issuers 915,193 – 915,193 1,800,644

2. Equity securities 2,359,880 – 2,359,880 2,548,712 a) Banks 1,402,161 – 1,402,161 1,117,001 b) Other issuers 957,719 – 957,719 1,431,711 – insurance undertakings 8,189 – 8,189 503,453 – financial companies 157,280 – 157,280 214,719 – non-financial companies 608,330 – 608,330 696,582 – other 183,920 – 183,920 16,957 3. Units in collective investment undertakings (*) 117,260 – 117,260 77,863 4. Loans – – – 80,049 a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other – – – 80,049 5. Impaired assets – – – 1,470 a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other – – – 1,470 6. Assets assigned but not derecognized 1,036,844 – 1,036,844 463,029 a) Governments and central banks 30,292 – 30,292 – b) Other government agencies –––– c) Banks –––– d) Other 1,006,552 – 1,006,552 463,029 Total 4,722,212 – 4,722,212 5,470,243

(*) Consisting of real estate funds (€37 million), foreign funds (€23 million) and equity funds (€57 million).

4.3 FINANCIAL ASSETS AVAILABLE FOR SALE: HEDGED ASSETS

4.3.1 OF WHICH: BANKING GROUP

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.3.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006.

4.4 FINANCIAL ASSETS AVAILABLE FOR SALE: ASSETS HEDGED SPECIFICALLY

None at 31 December 2006.

4.5 FINANCIAL ASSETS AVAILABLE FOR SALE OTHER THAN THOSE ASSIGNED BUT NOT DERECOGNIZED AND IMPAIRED ASSETS: ANNUAL CHANGES 4.5.1 OF WHICH: BANKING GROUP

Units Debt Equity in collective Loans Total securities securities investment undertakings A. Opening balance 2,299,120 2,548,712 77,863 80,049 5,005,744 B. Increases 261,865 829,998 53,092 – 1,144,955 B.1 Purchases 103,793 314,299 51,831 – 469,923 B.2 Positive changes in fair value 3,667 364,686 1,261 – 369,614 B.3. Writebacks 46,308 – – – 46,308 – taken to income statement 46,308 X – – 46,308 – taken to equity ––––– B.4 Transfers from other portfolios ––––– B.5 Other changes 108,097 151,013 – – 259,110 C. Decreases 1,352,757 1,018,830 13,695 80,049 2,465,331 C.1 Sales 271,126 965,855 7,190 79,853 1,324,024 C.2 Redemptions 245,951 4,424 2,195 – 252,570 C.3 Negative changes in fair value 140,080 9,611 4,310 – 154,001 C.4 Writedowns for impairment 55,664 6,229 – – 61,893 – taken to income statement 55,664 6,229 – – 61,893 – taken to equity ––––– C.5 Transfers to other portfolios ––––– C.6 Other changes 639,936 32,711 – 196 672,843 D. Closing balance 1,208,228 2,359,880 117,260 – 3,685,368

By convention, the “other changes” items also include annual changes in assets assigned but not derecognized.

4.5.3 OF WHICH: OTHER ENTITIES

None. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 138 139

Section 5 - FINANCIAL ASSETS HELD TO MATURITY - ITEM 50

5.1 FINANCIAL ASSETS HELD TO MATURITY: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 Book Fair Book Fair Book Fair Book Fair value value value value value value value value 1. Debt securities 481,432 493,076 – – 481,432 493,076 867,087 897,064 1.1 Structured securities –––––––– 1.2 Other debt securities 481,432 493,076 – – 481,432 493,076 867,087 897,064 2. Loans –––––––– 3. Impaired assets –––––––– 4. Assets assigned but not derecognized 458,941 466,071 – – 458,941 466,071 236,498 244,771 Total 940,373 959,147 – – 940,373 959,147 1,103,585 1,141,835

5.2 FINANCIAL ASSETS HELD TO MATURITY: COMPOSITION BY DEBTOR/ISSUER

Banking group Other entities Total 2006 Total 2005 1. Debt securities 481,432 – 481,432 867,087 a) Governments and central banks 209,021 – 209,021 402,459 b) Other government agencies 7,680 – 7,680 9,803 c) Banks 179,780 – 179,780 252,362 d) Other issuers 84,951 – 84,951 202,463 2. Loans –––– a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other –––– 3. Impaired assets –––– a) Governments and central banks –––– b) Other government agencies –––– c) Banks –––– d) Other –––– 4. Assets assigned but not derecognized 458,941 – 458,941 236,498 a) Governments and central banks 300,996 – 300,996 127,510 b) Other government agencies –––– c) Banks 144,709 – 144,709 94,186 d) Other 13,236 – 13,236 14,802 Total 940,373 – 940,373 1,103,585 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

5.3 FINANCIAL ASSETS HELD TO MATURITY: HEDGED ASSETS

None at 31 December 2006.

5.4 ASSETS HELD TO MATURITY OTHER THAN THOSE ASSIGNED BUT NOT DERECOGNIZED AND IMPAIRED ASSETS: ANNUAL CHANGE

Debt securities Loans Total A. Opening balance 867,087 – 867,087 B. Increases 115,073 – 115,073 B.1 Purchases 72,913 – 72,913 B.2 Writebacks 2,331 – 2,331 B.3 Transfers from other portfolios – – – B.4 Other changes 39,829 – 39,829 C. Decreases 500,728 – 500,728 C.1 Sales ––– C.2 Redemptions 267,711 – 267,711 C.3 Writedowns ––– C.4 Transfers to other portfolios – – – C.5 Other changes 233,017 – 233,017 D. Closing balance 481,432 – 481,432

By convention, the “other changes” items also include annual changes in assets assigned but not derecognized. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 140 141

Section 6 - LOANS TO BANKS - ITEM 60

6.1 LOANS TO BANKS: COMPOSITION BY TYPE

6.1.1 OF WHICH: BANKING GROUP

Total 2006 Total 2005 A. Claims on central banks 464,425 611,987 1. Tied deposits 15,515 18,761 2. Reserve requirement 432,637 570,866 3. Repurchase agreements –_ 4. Other 16,273 22,360 B. Loans to banks 12,050,883 17,966,018 1. Current accounts and free deposits 3,287,952 2,778,980 2. Tied deposits 3,640,897 2,883,850 3. Other financing 5,000,905 12,127,457 3.1 repurchase agreements 4,157,333 11,252,720 3.2 finance leases 3,779 9,255 3.3 other 839,793 865,482 4. Debt securities 101,595 175,665 4.1 Structured securities 838 – 4.2 Other debt securities 100,757 175,665 5. Impaired assets – 66 6. Assets assigned but not derecognized 19,534 – Total (book value) 12,515,308 18,578,005 Total (fair value) 12,600,853 18,589,374 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

6.1.3 OF WHICH: OTHER ENTITIES

Total 2006 A Claims on central banks – 1. Tied deposits – 2. Reserve requirement – 3. Repurchase agreements – 4. Other – B Loans to banks 231 1. Current accounts and free deposits 186 2. Tied deposits 24 3. Other financing 21 3.1 repurchase agreements – 3.2 finance leases – 3.3 other 21 4. Debt securities – 4.1 Structured securities – 4.2 Other debt securities – 5. Impaired assets – 6. Assets assigned but not derecognized – Total (book value) 231 Total (fair value) 231

6.2 LOANS TO BANKS: ASSETS HEDGED SPECIFICALLY 6.2.1 OF WHICH: BANKING GROUP

Total 2006 Total 2005 1. Loans covered specifically by fair value hedges 698,522 709,867 a) interest rate risk 698,522 709,867 b) exchange rate risk –– c) credit risk –– d) multiple risks –– 2. Loans covered specifically by cash flow hedges – – a) interest rate risk –– b) exchange rate risk –– c) other –– Total 698,522 709,867

6.2.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 142 143

6.3 FINANCE LEASES

Total 2006 Minimum payments Explicit Gross of which Interest Gross of which credit investment unguaranteed investment guaranteed residual value residual value Up to 1 year 233 592 – 121 713 1 From 1 to 5 years – 2,370 – 245 2,615 207 Beyond 5 years – 476 – 9 485 3 Past due 112––––– Gross total 345 3,438 – 375 3,813 211

No significant lease contracts or lease–back contracts are recognized.

The amounts in respect of explicit credit and the gross principal amount are reconciled with the value of the receiva- bles in respect of finance leases from banks considering 4 thousand in value adjustments.

Section 7 - LOANS TO CUSTOMERS - ITEM 70

7.1 LOANS TO CUSTOMERS: COMPOSITION BY TYPE 7.1.1 OF WHICH: BANKING GROUP

Total 2006 Total 2005 1. Current accounts 9,673,606 9,853,047 2. Repurchase agreements 1,123,315 1,272,569 3. Mortgage loans 33,702,978 25,391,517 4. Credit cards, personal loans and loans backed by salaries 2,808,499 2,084,178 5. Finance leases 5,773,567 6,101,168 6. Factoring 1,916,934 1,843,338 7. Other 30,297,541 25,061,720 8. Debt securities 129,238 116,376 8.1 Structured securities 1,346 – 8.2 Other debt securities 127,892 116,376 9. Impaired assets 5,534,754 5,736,872 10. Assets assigned but not derecognized (*) 5,051,782 4,920,542 Total (book value) 96,012,214 82,381,327 Total (fair value) 98,731,084 84,266,334

(*) Includes €48 million in impaired assets. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

7.1.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006.

7.2 LOANS TO CUSTOMERS: COMPOSITION BY TYPE OF DEBTOR/ISSUER 7.2.1 OF WHICH: BANKING GROUP

Total 2006 Total 2005 1. Debt securities: 129,238 116,376 a) Governments 9,358 – b) Other government agencies 18,500 19,690 c) Other issuers 101,380 96,686 – non-financial companies 41,565 46,257 – financial companies 11,234 2,934 – insurance undertakings 45,319 45,003 – other 3,262 2,492

2. Loans to: 85,296,440 71,607,539 a) Governments 1,112,290 1,642,416 b) Other government agencies 2,886,177 4,057,843 c) Other 81,297,973 65,907,280 – non-financial companies 52,249,380 40,300,150 – financial companies 7,466,065 8,383,335 – insurance undertakings 219,964 242,964 – other 21,362,564 16,980,831

3. Impaired assets: 5,534,754 5,736,872 a) Governments –439 b) Other government agencies 25,601 21,704 c) Other 5,509,153 5,714,729 – non-financial companies 4,095,346 4,038,019 – financial companies 194,288 350,476 – insurance 95 123 – other 1,219,424 1,326,111

4. Assets assigned but not derecognized: 5,051,782 4,920,540 a) Governments –– b) Other government agencies 427 658 c) Other 5,051,355 4,919,882 – non-financial companies 2,232,142 1,899,992 – financial companies 94,045 94,749 – insurance undertakings –– – other 2,725,168 2,925,141 Total 96,012,214 82,381,327

7.2.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 144 145

7.3 LOANS TO CUSTOMERS: ASSETS HEDGED SPECIFICALLY 7.3.1 OF WHICH: BANKING GROUP

Total 2006 Total 2005 1. Loans covered specifically by fair value hedges 643,175 393,349 a) interest rate risk 643,175 393,349 b) exchange rate risk –– c) credit risk –– d) multiple risks ––

2. Loans covered specifically by cash flow hedges 1,514 105 a) interest rate risk –– b) exchange rate risk 1,514 105 c) other ––- Total 644,689 393,454

7.3.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006.

7.4 FINANCE LEASES

Total 2006 Minimum payments Explicit Principal of which Interest/ Gross of which credit guaranteed deferred investment guaranteed residual financial residual value income value Up to 1 year 295,834 1,203,013 – 288,516 1,491,529 50,723 From 1 to 5 years – 3,300,469 – 697,270 3,997,739 403,517 Beyond 5 years 90,431 2,483,514 – 373,007 2,856,521 1,092,696 Past due 231,878 183,787 – – 183,787 – Other 1,012,871––––– Gross total 1,631,014 7,170,783 – 1,358,793 8,529,576 1,546,936

The amounts in respect of explicit credit and gross principal reconcile with the value of receivables for finance leases from customers considering: a) 208 million in writedowns; b) 221 million in impaired positions; c) 2,576 million in assets assigned but not derecognized; d) 23 million in other receivables for leasing transactions. The Capitalia Group companies that carry out finance lease operations have outstanding leases classified as finance leases since they are based on the transfer of the risks and rewards associated with ownership of the leased asset to the leasee. The companies purchase the asset from the supplier (seller or builder) and transfer them for use to the customer for an agreed period that does not exceed the eco- nomic life of the asset. The customer makes periodic payments and normally, at the end of the contract period, exercises the option to purchase the asset, paying the amount established at the start of the lease. The amount of the final payment is normally small, so that customer has an interest in acquiring the asset. The gross value of sale and leaseback operations amounts to 774 million. Sale and leaseback operations, which mainly regard real estate, are governed by contracts with standard terms. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 8 - HEDGING DERIVATIVES - ITEM 80

8.1 HEDGING DERIVATIVES: COMPOSITION BY TYPE OF CONTRACT AND UNDERLYING 8.1.1 OF WHICH: BANKING GROUP

Interest Foreign Equity Loans Other Total rates currencies securities and gold A Listed 1) Financial derivatives 119 ––––119 a) with exchange of principal –––––– – options purchased –––––– – other derivatives –––––– b) without exchange of principal 119 ––––119 – options purchased –––––– – other derivatives 119 ––––119 2) Credit derivatives –––––– a) with exchange of principal –––––– b) without exchange of principal –––––– Total (A) 119 ––––119 B Unlisted 1) Financial derivatives 303,623 15,126 – – 3,479 322,228 a) with exchange of principal – 15,126 – – – 15,126 – options purchased –––––– – other derivatives – 15,126 – – – 15,126 b) without exchange of principal 303,623 – – – 3,479 307,102 – options purchased 25 ––––25 – other derivatives 303,598 – – – 3,479 307,077 2) Credit derivatives –––––– a) with exchange of principal –––––– b) without exchange of principal –––––– Total (B) 303,623 15,126 – – 3,479 322,228 Total (A+B) 303,742 15,126 – – 3,479 322,347 Total (A+B) 2005 525,104 15,642 – 3,775 – 544,521 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 146 147

8.1.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006.

8.2 HEDGING DERIVATIVES: COMPOSITION BY HEDGED PORTFOLIOS AND TYPE OF HEDGE (BOOK VALUE) 8.2.1 OF WHICH: BANKING GROUP

Fair value Cash flow Specific Generic Specific Generic Interest exchange credit price multiple rate risk rate risk risk risk risks 1. Financial assets available for sale –––––X–X 2. Loans 39,305 – – X – X 20 X 3. Financial assets held to maturity X – – X – X – X 4. Portfolio XXXXX16,755 X – Total assets 39,305 ––––16,755 20 – 1. Financial liabilities 251,162 5,829 – X 9,276 X – X 2. Portfolio XXXXX –X – Total liabilities 251,162 5,829 – – 9,276–––

8.2.3 OF WHICH: OTHER ENTITIES

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 9 - VALUE ADJUSTMENTS OF FINANCIAL ASSETS HEDGED GENERICALLY - ITEM 90

9.1 VALUE ADJUSTMENTS OF HEDGED ASSETS : COMPOSITION BY HEDGED PORTFOLIO

Banking group Other entities Total 2006 1. Positive adjustments – – – 1.1 of specific portfolios – – – a) loans ––– b) available-for-sale financial assets – – – 1.2 general ––– 2. Negative adjustments 19,694 – 19,694 2.1 of specific portfolios 19,694 – 19,694 a) loans 19,694 – 19,694 b) available-for-sale financial assets – – – 2.2 general –– Total (19,694 ) – (19,694 )

9.2 ASSETS HEDGED GENERICALLY FOR INTEREST RATE RISK: COMPOSITION

Hedged assets Total 2006 1. Loans 1,342,212 2. Assets available for sale – 3. Portfolio – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 148 149

Section 10 - EQUITY INVESTMENTS - ITEM 100

10.1 EQUITY INVESTMENTS IN JOINT VENTURES (ACCOUNTED FOR WITH EQUITY METHOD) AND IN COMPANIES SUBJECT TO SIGNIFICANT INFLUENCE: INFORMATION ON INVESTMENTS

Equity investment: Name Registered Type of Investor % % office relationship:(1) holding of votes B. Companies 1 Agenzia per l’innovazione Tecnologica - AGITEC S.p.A. (in liquidazione) ROME 8 CAPITALIA S.p.A. 25.00 2 ATHENA PRIVATE EQUITY S.A. LUXEMBOURG 8 CAPITALIA S.p.A. 23.88 3 CAPITALIA ASSICURAZIONI S.p.A. MILAN 8 CAPITALIA S.p.A. 49.00 4 CISIM FOOD S.p.A. (in liquid.) ROME 8 CAPITALIA MERCHANT S.p.A. 45.45 5 CNP CAPITALIA VITA S.p.A MILAN 8 CAPITALIA S.p.A. 16.92 FINECO VERWALTUNG AG 21.88 6 COMPAGNIA ITALPETROLI S.p.A. ROME 8 BANCA DI ROMA S.p.A. 49.00 7 CONSORTIUM S.r.l. MILAN 8 CAPITALIA S.p.A. 31.24 8 EUROPROGETTI & FINANZA S.p.A. ROME 8 MCC S.p.A. 39.79 9 FIDIA -FONDO INTERBANCARIO D’ INVESTIMENTO AZIONARIO SGR S.p.A. MILAN 8 CAPITALIA S.p.A. 25.00 10 G.B.S. General Broker Service S.p.A. ROME 8 CAPITALIA S.p.A. 20.00 11 ISTITUTO PER L’EDILIZIA ECONOMICA E POPOLARE DI CATANIA S.p.A. (in liquid.) CATANIA 8 BANCO DI SICILIA S.p.A. 20.00 12 MILANO EST S.p.A. MILAN 8 CAPITALIA S.p.A. 34.63 13 NUOVA TEATRO ELISEO S.p.A. ROME 8 CAPITALIA S.p.A. 41.01 14 QUANTA S.p.A. Agenzia per il Lavoro MILAN 8 CAPITALIA MERCHANT S.p.A. 25.00 15 SE.TE.SI. Servizi Telematici Siciliani S.p.A. PALERMO 8 BANCO DI SICILIA S.p.A. 40.49 16 SOCIETA’ GESTIONE PER IL REALIZZO S.p.A. ROME 8 CAPITALIA S.p.A. 15.742 BANCO DI SICILIA S.p.A. 4.233 BIPOP CARIRE S.p.A. 0.079 IRFIS - MEDIOCREDITO della SICILIA S.p.A. 0.047 17 SOCIETA’ ITALIANA DI MONITORAGGIO S.p.A. ROME 8 CAPITALIA MERCHANT S.p.A. 33.33 18 SOCIETA’ PER L’INGEGNERIA D’IMPRESA S.r.l. a) ROME 8 CAPITALIA S.p.A. 33.33 19 SYNESIS FINANZIARIA S.p.A. TURIN 8 BANCA DI ROMA S.p.A. 25.00 20 TECNOSERVIZI MOBILI S.r.l. ROME 8 CAPITALIA S.p.A. 49.00

Key: (1) Type of relationship 8 = Associated company

a) As a result of a capital increase at the start of 2007 in which Capitalia S.p.A. did not participate, Capitalia’s holding decreases to 10.786%. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10.2 EQUITY INVESTMENTS IN JOINT VENTURES AND COMPANIES SUBJECT TO SIGNIFICANT INFLUENCE: ACCOUNTING DATA

Name Total Total Profit Shareholders’ Consolidated Fair assets revenues (loss) equity book value value

A. Companies accounted for with equity method A.1 Joint ventures A.2 Companies under significant influence ATHENA PRIVATE EQUITY S.A. 150,298 22,501 31,000 157,683 37,662 X CAPITALIA ASSICURAZIONI S.p.A. 39,085 16,009 433 10,042 4,920 X CNP CAPITALIA VITA S.p.A. 13,943,107 3,219,943 53,698 422,214 251,839 X COMPAGNIA ITALPETROLI S.p.A. 307,115 42,754 (606) 21,052 21,272 X CONSORTIUM S.r.l. 11,019 376 – 10,358 3,236 X EUROPROGETTI E FINANZA S.p.A 17,749 6,602 – 8,487 3,377 X FIDIA - FONDO INTERB. INVEST.AZIONARIO SGR S.p.A. 12,964 2,744 (632) 10,825 2,706 X G.B.S. GENERAL BROKER SERVICE S.p.A 9,972 8,458 – 1,194 240 X MILANO EST S.p.A 14,938 11 (380) 6,095 2,110 X NUOVA TEATRO ELISEO S.p.A 5,626 6,720 – 1,516 622 X QUANTA S.p.A. Agenzia per il lavoro 24,696 56,908 (187) 6,960 2,949 X SE.TE.SI Servizi Telematici Siciliani S.p.A. 8,049 12,461 518 2,914 1,181 X SOCIETÀ GESTIONE PER IL REALIZZO S.p.A 61,620 41,453 31,043 55,430 11,144 X SOCIETÀ ITALIANA DI MONITORAGGIO S.p.A 4,560 4,808 (481) 199 67 X SOCIETÀ PER L’INGEGNERIA D’IMPRESA S.r.l. 55,098 316 (20,713) 7,302 2,433 X SYNESIS FINANZIARIA S.p.A. 502,456 122,230 118,270 499,001 124,750 X TECNOSERVIZI MOBILI S.r.l. 2,341 3,908 (746) (6,814) – X B. Companies consolidated proportionately None.

The figures for shareholders’ equity and profit or loss for the period are those used for the application of the equity method. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 150 151

10.3 EQUITY INVESTMENTS: CHANGES FOR THE YEAR

Banking group Other entities Total 2006 Total 2005 A. Opening balance 776,874 – 776,874 693,420

B. Increases 172,835 – 172,835 287,197 B.1 Acquisitions 17,621 –17,621 1,299 B.2 Writebacks – – – – B.3 Revaluations – – – _ B.4 Other changes 155,214 – 155,214 285,898

C. Decreases 468,176 – 468,176 203,743 C.1 Sales 4,252 – 4,252 104,677 C.2 Writedowns 12,392 – 12,392 1,158 C.3 Other changes 451,532 – 451,532 97,908

D. Closing balance 481,533 – 481,533 776,874 E. Total revaluations – – – – F. Total writedowns 5,768 – 5,768 5,817

10.4 COMMITMENTS IN RESPECT OF JOINT VENTURES

At 31 December 2006 there were no joint ventures.

10.5 COMMITMENTS IN RESPECT OF EQUITY INVESTMENTS IN COMPANIES SUBJECT TO SIGNIFICANT INFLUENCE

At 31 December 2006 there were no commitments in respect of companies subject to significant influence. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 11 - REINSURERS’ SHARE OF TECHNICAL RESERVES - ITEM 110

11.1 REINSURERS’ SHARE OF TECHNICAL RESERVES: COMPOSITION

Total 2006 Total 2005 A. Non-life insurance – 2,255 A1. Unearned premiums reserves –664 A2. Claims reserves – 1,591 A.3 Other reserves ––

B. Life insurance –– B1. Mathematical reserves –– B2. Reserves for outstanding claims –– B3. Other reserves ––

C. Technical reserves where investment risk is borne by the insured – – C1. Reserves for contracts whose performance is linked to investment funds and market indices – – C2. Reserves from the operation of pension funds – – D. Total reinsurers’ share of technical reserves – 2,255

11.2 CHANGE IN ITEM 110 “REINSURERS SHARE OF TECHNICAL RESERVES”

The amount reported under “Technical reserves charged to reinsurers” at 31 December 2005 (€2,255 thousand) falls to zero in 2006 following the removal of Capitalia Assicurazioni from the scope of consolidation. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 152 153

Section 12 – TANGIBLE ASSETS – ITEM 120

12.1 TANGIBLE ASSETS: COMPOSITION OF ASSETS CARRIED AT COST

Banking group Other entities Total 2006 Total 2005 A. Assets used in operations 1.1 owned 2,508,654 497 2,509,151 2,210,266 a) land 773,428 – 773,428 669,186 b) buildings 1,415,483 – 1,415,483 1,288,159 c) furnitures 37,528 33 37,561 35,074 d) electrical plant 40,934 102 41,036 92,017 e) other 241,281 362 241,643 125,830 1.2 acquired under finance leases 508 148 656 105,406 a) land – – – 56,034 b) buildings – – – 48,451 c) furnitures –––– d) electrical plant 500 148 648 880 e) other 8 – 8 41 Total (A) 2,509,162 645 2,509,807 2,315,672 B. Assets held for investment 2.1 owned 331,240 66,220 397,460 425,201 a) land 130,758 – 130,758 177,323 b) buildings 200,482 66,220 266,702 247,878 2.2 acquired under finance leases – – – 526 a) land – – – 526 b) buildings –––– Total (B) 331,240 66,220 397,460 425,727 Total (A+B) 2,840,402 66,865 2,907,267 2,741,399

12.2 TANGIBLE ASSETS: COMPOSITION OF FAIR VALUE OR REVALUED ASSETS

None at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.3 TANGIBLE ASSETS USED IN OPERATIONS: CHANGE FOR THE YEAR 12.3.1 OF WHICH: BANKING GROUP

Land Buildings Furnitures Electrical plant Other Total A. Opening gross balance 725,220 1,392,954 152,876 361,083 764,476 3,396,609 A.1 Total net writedowns – 56,344 117,836 304,329 603,172 1,081,681 A.2 Opening net balance 725,220 1,336,610 35,040 56,754 161,304 2,314,928 B. Increases 52,128 119,413 10,262 8,007 135,849 325,659 B.1. Purchases 2,288 58,134 9,559 7,351 134,941 212,273 B.2 Capitalized expenses for improvements – 32,089 – – – 32,089 B.3. Writebacks –––––– B.4 Positive changes in fair value recognized in –––––– a) equity ––––_– b) income statement –––––– B.5 Positive exchange rate differences –––––– B.6 Transfers from land and buildings held for investment –––––– B7. Other changes 49,840 29,190 703 656 908 81,297 C. Decreases 3,920 40,540 7,774 23,328 55,864 131,426 C1. Sales 384 2,900 118 36 1,849 5,287 C.2 Depreciation – 28,427 7,112 22,872 40,050 98,461 C3. Writedowns for impairment recognized in – – 193 72 20 285 a) equity –––––– b) income statement – – 193 72 20 285 C.4 Negative changes in fair value recognized in –––––– a) equity –––––– b) income statement –––––– C.5 Negative exchange rate differences 529 1.203 27 95 – 1.854 C.6. Transfers to 1,144 4,070 – – – 5,214 a) tangible assets held for investment 1,144 3,531 – – – 4,675 b) assets being divested – 539 – – – 539 C.7 Other changes 1,863 3,940 324 253 13,945 20,325 D. Closing net balance 773,428 1,415,483 37,528 41,433 241,289 2,509,161 D.1 Total net writedowns – 88,315 124,796 308,786 646,840 1,168,737 D.2 Closing gross balance 773,428 1,503,798 162,324 350,219 888,129 3,677,898 E. Valuation at cost 773,428 1,415,483 37,528 41,433 241,289 2,509,161 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 154 155

12.3.2 OF WHICH INSURANCE UNDERTAKINGS

Land Buildings Furnitures Electrical plant Other Total A. Opening gross balance – – 12 – – 12 A.1 Total net writedowns –––––– A.2 Opening net balance – – 12 – – 12 B. Increases –––––– B.1. Purchases –––––– B.2 Capitalized expenses for improvements –––––– B.3. Writebacks –––––– B.4 Positive changes in fair value recognized in –––––– a) equity –––––– b) income statement –––––– B.5 Positive exchange rate differences –––––– B.6 Transfers from land and buildings held for investment –––––– B.7. Other changes –––––– C. Decreases – – 12 – – 12 C.1. Sales –––––– C.2. Depreciation –––––– C.3. Writedowns for impairment recognized in –––––– a) equity –––––– b) income statement –––––– C.4. Negative changes in fair value recognized in –––––– a) equity –––––– b) income statement –––––– C.5 Negative exchange rate differences –––––– C.6. Transfers to –––––– a) tangible assets held for investment –––––– b) assets being divested –––––– C.7 Other changes – – 12 – – 12 D. Closing net balance – – – ––– D.1 Total net writedowns –––––– D.2 Closing gross balance –––––– E. Valuation at cost –––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.3.3 OF WHICH: OTHER ENTITIES

Land Buildings Furnitures Electrical plant Other Total A. Opening gross balance – – 23 414 411 848 A.1 Total net writedowns – – 1 112 3 116 A.2 Opening net balance – – 22 302 408 732 B. Increases – – 16 73 63 152 B.1. Purchases – – 16 73 63 152 B.2 Capitalized expenses for improvements –––––– B.3. Writebacks –––––– B.4 Positive changes in fair value recognized in –––––– a) equity –––––– b) income statement –––––– B.5 Positive exchange rate differences –––––– B.6 Transfers from land and buildings held for investment –––––– B7. Other changes –––––– C. Decreases – – 5 124 109 238 C1. Sales – – – 2 – 2 C.2 Depreciation – – 5 93 96 194 C3. Writedowns for impairment recognized in –––––– – equity –––––– – income statement –––––– C.4 Negative changes in fair value recognized in –––––– a) equity –––––– b) income statement –––––– C.5 Negative exchange rate differences –––––– C.6. Transfers to –––––– a) tangible assets held for investment –––––– b) assets being divested –––––– C.7 Other changes – – – 29 13 42 D. Closing net balance – – 33 251 362 646 D.1 Total net writedowns – – 6 205 99 310 D.2 Closing gross balance – – 39 456 461 956 E. Valuation at cost – – 39 456 461 956 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 156 157

12.4 TANGIBLE ASSETS HELD FOR INVESTMENT: CHANGE IN YEAR

Banking group Other entities Total 2006 Land Buildings Land Buildings Land Buildings A Opening gross balance 177,849 260,964 – – 177,849 260,964 A.1. Total net writedowns – 13,086 – – – 13,086 A.2 Opening balance 177,849 247,878 – – 177,849 247,878 B. Increases 4,000 8,078 – 66,220 4,000 74,298 B.1 Purchases – 124 – – – 124 B.2 Capitalized expenses for improvements – 736 – 1,215 – 1,951 B.3 Positive changes in fair value –––––– B.4. Writebacks –––––– B.5 Positive exchange rate differences –––––– B.6 Transfers from land and buildings used in operations 1,144 3,531 – – 1,144 3,531 B.7 Other changes 2,856 3,687 – 65,005 2,856 68,692 C. Decreases 51,091 55,474 – – 51,091 55,474 C1. Sales 5,505 10,973 – – 5,505 10,973 C.2 Depreciation – 5,095 – – – 5,095 C.3 Negative changes in fair value –––––– C.4 Writedowns for impairment – 191 – – – 191 C.5 Negative exchange rate differences –––––– C.6 Transfers to other asset categories – 22,611 – – – 22,611 a) land and buildings used in operations –––––– b) non-current assets being divested – 22,611 – – – 22,611 C7. Other changes 45,586 16,604 – – 45,586 16,604 D. Closing net balance 130,758 200,482 – 66,220 130,758 266,702 D.1 Total net writedowns – 18,344 – – – 18,344 D.2. Closing gross balance 130,758 218,826 – 66,220 130,758 285,046 E. Valuation at fair value 131,974 223,761 – 66,220 131,974 289,981

12.5 COMMITMENTS TO PURCHASE TANGIBLE ASSETS

At 31 December 2006 the Parent Company had contractual commitments to acquire property in the amount of about €76 million, of which €67 million in respect of 29 units owned by the Banca di Roma employee pension fund, the sale of which was completed in January 2007.

In addition, MCC S.p.A. has entered into a preliminary agreement with Europrogetti & Finanza to acquire a property for €16.5 million: a deposit of €15.7 million has been made. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 13 - INTANGIBLE ASSETS - ITEM 130

13.1 INTANGIBLE ASSETS: COMPOSITION BY CATEGORY

Banking group Other entities Total 2006 Total 2005 Limited Unlimited Limited Unlimited Limited Unlimited Limited Unlimited life life life life life life life life A.1 Goodwill X 1,507,951 X – X 1,507,951 X 1,294,318

A1.1 pertaining to group X 1,507,951 X – X 1,507,951 X 1,294,318

A1.2 minority interests X – X – X – X –

A.2 Other intangible assets 231,241 – 9 – 231,250 – 244,356 –

A.2.1 Assets carried at cost231,241 – 9 – 231,250 – 244,356 –

a) intangible assets developed in-house – – – ––––– b) other assets (*)231,241 – 9 – 231,250 – 244,356 –

A.2.2 Assets carried at fair value: – – – –––––

a) intangible assets developed in-house – – – –––––

b) other assets – – – ––––– Total 231,241 1,507,951 9 – 231,250 1,507,951 244,356 1,294,318

(*) This includes deferred costs mainly regarding software depreciated at a rate of 20% with a useful life of 1 year (€48.8 million), 2 years (€1.8 million), 3 years (€2.2 million), 4 years (€90.2 million) and five years (€63 million); at other rates with a useful life of 1 year (€0.6 million), 2 years (€2 million), 3 years (€11.9 million), 6 years (€0.8 million) and awaiting release (€10 million). WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 158 159

13.2 INTANGIBLE ASSETS: CHANGE FOR THE YEAR 13.2.1 OF WHICH: BANKING GROUP

Other intangible assets: Other intangible assets: developed in-house other Goodwill limited life unlimited life limited life unlimited life Total A. Opening balance 1,300,473 – – 315,561 – 1,616,034 A.1 Total net writedowns 6,155 – – 71,733 – 77,888 A.2 Opening net balance 1,294,318 – – 243,828 – 1,538,146 B. Increases 213,748 – – 87,701 – 301,449 B.1. Purchases 319 – – 86,557 – 86,876 B.2 Increases in internal intangible assets X ––––– B.3. Writebacks X ––––– B.4 Positive changes in fair value –––––– – equity X ––––– – income statement X ––––– B.5 Positive exchange rate differences –––––– B6. Other changes 213,429 – – 1,144 – 214,573 C. Decreases 115 – – 100,288 – 100,403 C1.Sales –––––– C.2 Writedowns 115 – – 94,513 – 94,628 – Amortization X – – 94,513 – 94,513 – Writedowns 115 ––––115 + equity X ––––– + income statement 115 ––––115 C.3 Negative changes in fair value –––––– – equity X ––––– – income statement X ––––– C.4 Transfers to non-current assets being divested –––––– C.5 Negative exchange rate differences – – – 26 – 26 C6. Other changes – – – 5,749 – 5,749 D. Closing net balance 1,507,951 – – 231,241 – 1,739,192 D.1 Total net writedowns 6,270 – – 83,173 – 89,443 E. Closing gross balance 1,514,221 – – 314,414 – 1,828,635 F. Valuation at cost 1,507,951 – – 231,241 – 1,739,192 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

13.2.2 OF WHICH: INSURANCE UNDERTAKINGS

Other intangible assets: Other intangible assets: developed in-house other Goodwill limited life unlimited life limited life unlimited life Total A. Opening balance – – – 31 – 31 A.1 Total net writedowns –––––– A.2 Opening net balance – – – 31 – 31 B. Increases –––––– B.1. Purchases –––––– B.2 Increases in internal intangible assets X ––––– B.3. Writebacks X ––––– B.4 Positive changes in fair value – equity X ––––– – income statement X ––––– B.5 Positive exchange rate differences –––––– B6. Other changes –––––– C. Decreases – – – 31 – 31 C1.Sales –––––– C.2 Writedowns – Amortization X ––––– – Writedowns + equity X ––––– + income statement –––––– C.3 Negative changes in fair value –––––– – equity X ––––– – income statement X ––––– C.4 Transfers to non-current assets being divested –––––– C.5 Negative exchange rate differences –––––– C6. Other changes – – – 31 – 31 D. Closing net balance –––––– D.1 Total net writedowns –––––– E. Closing gross balance F. Valuation at cost –––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 160 161

13.2.3 OF WHICH: OTHER ENTITIES

Other intangible assets: Other intangible assets: developed in-house other Goodwill limited life unlimited life limited life unlimited life Total A. Opening balance – – – 516 – 516 A.1 Total net writedowns – – – 19 – 19 A.2 Opening net balance – – – 497 – 497 B. Increases –––––– B.1. Purchases –––––– B.2 Increases in internal intangible assets X ––––– B.3. Writebacks X ––––– B.4 Positive changes in fair value – equity X ––––– – income statement X ––––– B.5 Positive exchange rate differences –––––– B6. Other changes –––––– C. Decreases – – – 488 – 488 C1.Sales –––––– C.2 Writedowns – – – 10 – 10 – Amortization X – – 10 – 10 – Writedowns – + equity X ––––– + income statement –––––– C.3 Negative changes in fair value – equity X ––––– – income statement X ––––– C.4 Transfers to non-current assets being divested –––––– C.5 Negative exchange rate differences –––––– C6. Other changes – – – 478 – 478 D. Closing net balance – – – 9 – 9 D.1 Total net writedowns – – – 10 – 10 E. Closing gross balance 19 19 F. Valuation at cost – – – 9 – 9

13.3 OTHER INFORMATION

There is no other material information concerning intangible assets. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 14 – TAX ASSETS AND LIABILITIES - ITEM shares, bonds and other securities and provisions for 140 OF ASSETS AND ITEM 80 OF LIABILITIES liabilities and contingencies.

The item “tax assets”, equal to €4,060.88 million is 14.2 DEFERRED TAX LIABILITIES: COMPOSITION composed of “current tax assets” of €2,019.31 million and “deferred tax assets” of €2,041.57 million. The item The balance at 31 December 2006 of deferred tax “tax liabilities”, equal to €862.02 million, is composed of liabilities mainly regards capital gains taxed over more “current tax liabilities” of €325.32 million and “deferred than one year, writebacks of shares, bonds and other tax liabilities” of €536.70 million. securities and default interest accruing but not collected during the year. As described in section 13 of the corresponding part of the notes to the individual financial statements, the calculation of these asset and liability items also reflects 14.3 CHANGES IN DEFERRED TAX ASSETS the adoption of the national consolidated taxation (WITH CONTRA–ITEM IN INCOME STATEMENT) mechanism and the application of IAS/IFRS. The main changes in deferred tax asset recognized in the income statement regard loan writedowns and writedowns DEFERRED TAX ASSETS AND LIABILITIES of equity investments deductible over more than one year, provisions for liabilities and contingencies and related uses, The criteria used by the Group companies for the and writedowns of shares, bonds and other securities. recognition of deferred tax assets and liabilities are substantially the same as those used by the Parent Decreases recognized in income also reflect the Company. The criteria are described in the corresponding reversal of assets in respect of prior–year tax losses, which section of the notes to the latter’s individual financial were full offset by the consolidated tax result for the year. statements. Deferred tax assets decreased by €167.53 million. The 14.1 DEFERRED TAX ASSETS: COMPOSITION change does not correspond to that indicated at point 4 of Table 20.1 “Income tax for the period on income from The balance at 31 December 2006 of deferred tax continuing operations: composition” because it includes assets essentially regards loan writedowns deductible the effects of deferred tax assets in respect of over several years, writedowns of equity investments extraordinary corporate events carried out during the year deductible over more than one year, writedowns of and equity components relevant for tax purposes. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 162 163

CHANGES IN DEFERRED TAX ASSETS (CONTRA-ITEM IN INCOME STATEMENT)

Banking Insurance Other Total 2006 Total 2005 group undertakings entities 1. Opening balance 2,143,498 7 2,875 2,146,380 1,475,245 2. Increases 647,866 – – 647,866 1,744,213 2.1 Deferred tax assets arising during the year 415,856 – – 415,856 1,725,824 a) in respect of previous periods 1,031 –– 1,031 10,426 b) due to change in accounting policies ––––1,140,496 c) writebacks 3,915 – – 3,915 10,020 d) other 410,910 – – 410,910 564,882 2.2 New taxes or increases in tax rates ––––– 2.3 Other increases 232,010 – – 232,010 18,389 3. Decreases 814,399 7 988 815,394 1,073,078 3.1 Deferred tax assets reversed during the year 577,455 – 663 578,118 1,055,301 a) reversals 577,455 – 498 577,953 1,053,270 b) writedowns for supervening non-recoverability – – 165 165 2,031 c) due to change in accounting policies ––––– 3.2 Reduction in tax rates 3,031 – – 3,031 404 3.3 Other decreases 233,913 7 325 234,245 17,373 4. Closing balance 1,976,965 – 1,887 1,978,852 2,146,380

14.4 CHANGES IN DEFERRED TAX LIABILITIES but not collected in the period and writebacks of shares, (WITH CONTRA-ITEM IN THE INCOME STATEMENT) bonds and other securities.

Deferred tax liabilities increased by €135.06 million. The primary changes recognized during the period in The change does not correspond to that indicated at point the income statement mainly regard the disposal of 5 of Table 20.1 “Income tax for the period on income from shares on which non-taxable writebacks were previously continuing operations: composition” because it includes recognized, capital gains realized in previous periods on the effects of deferred tax liabilities in respect of which tax is paid in installments, default interest accruing extraordinary corporate events carried out during the year. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CHANGES IN DEFERRED TAX LIABILITIES (CONTRA-ITEM IN INCOME STATEMENT)

Banking Insurance Other Total 2006 Total 2005 group undertakings entities 1. Opening balance 264,218 9 171 264,398 369,427 2. Increases 256,161 – – 256,161 306,617 2.1 Deferred tax liabilities arising during the year 188,559 – – 188,559 288,830 a) in respect of previous periods ––––2,296 b) due to change in accounting policies ––––188,639 c) other 188,559 – – 188,559 97,895 2.2 New taxes or increases in tax rates ––––– 2.3 Other increases 67,602 – – 67,602 17,787 3. Decreases 120,925 9 171 121,105 411,646 3.1 Deferred tax liabilities reversed during the year 72,025 – – 72,025 361,254 a) reversals 71,751 – – 71,751 360,394 b) due change in accounting policies ––––852 c) other 274 – – 274 8 3.2 Reduction in tax rates 93 – – 93 64 3.3 Other decreases 48,807 9 171 48,987 50,328 4. Closing balance 399,454 – – 399,454 264,398

14.5 CHANGES IN DEFERRED TAX ASSETS (WITH CONTRA-ITEM IN EQUITY)

The changes essentially regard writedowns of available-for-sale securities as well as the disposal of shares from the same segment on which non-deductible writedowns were previously recognized.

The item increased by €2.35 million in the period. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 164 165

CHANGES IN DEFERRED TAX ASSETS (CONTRA-ITEM IN SHAREHOLDERS’ EQUITY)

Banking Insurance Other Total 2006 Total 2005 group undertakings entities 1. Opening balance 60,353 12 – 60,365 227,300 2. Increases 51,975 – – 51,975 31,751 2.1 Deferred tax assets arising during the year 46,451 – – 46,451 8,085 a) in respect of previous periods ––––2,013 b) due to change in accounting policies ––––4,490 c) other 46,451 – – 46,451 1,582 2.2 New taxes or increases in tax rates ––––– 2.3 Other increases 5,524 – – 5,524 23,666 3. Decreases 49,609 12 – 49,621 198,686 3.1 Deferred tax assets reversed during the year 33,162 – – 33,162 195,954 a) reversals 33,162 – – 33,162 16,360 b) writedowns for supervening non-recoverability ––––– c) due to change in accounting policies ––––179,594 3.2 Reduction in tax rates ––––– 3.3 Other decreases 16,447 12 – 16,459 2,732 4. Closing balance 62,719 – – 62,719 60,365

14.6 CHANGES IN DEFERRED TAX LIABILITIES (WITH CONTRA-ITEM IN EQUITY)

The changes in this item primarily regard writebacks of available-for-sale securities as well as the disposal of shares from the same segment on which non-taxable writebacks were previously recognized.

The item increased by €49.18 million in the year. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

CHANGES IN DEFERRED TAX LIABILITIES (CONTRA-ITEM IN SHAREHOLDERS’ EQUITY)

Banking Insurance Other Total 2006 Total 2005 group undertakings entities 1. Opening balance 87,938 128 – 88,066 11,021 2. Increases 153,576 – – 153,576 95,164 2.1 Deferred tax liabilities arising during the year 147,322 – – 147,322 92,125 a) in respect of previous periods ––––– b) due to changes in accounting policies ––––40,452 c) other 147,322 – – 147,322 51,673 2.2 New taxes or increases in tax rates ––––7 2.3 Other increases 6,254 – – 6,254 3,032 3. Decreases 104,266 128 – 104,394 18,119 3.1 Deferred tax liabilities reversed during the year 59,603 – – 59,603 16,252 a) reversals 59,603 – – 59,603 16,249 b) due to change in accounting policies ––––– c) other ––––3 3.2 Reduction in tax rates ––––– 3.3 Other decreases 44,663 128 – 44,791 1,867 4. Closing balance 137,248 – – 137,248 88,066

14.7 OTHER INFORMATION

There is no other material information concerning deferred tax assets and liabilities. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 166 167

Section 15 - NON-CURRENT ASSETS AND GROUPS OF ASSETS BEING DIVESTED AND ASSOCIATED LIABILITIES - ITEM 150 OF ASSETS AND ITEM 90 OF LIABILITIES

15.1 NON-CURRENT ASSETS AND GROUPS OF ASSETS BEING DIVESTED: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 A.Individual assets A.1 Equity investments – – – 7,286 A.2 Tangible assets 22,008 – 22,008 7,610 A.3 Intangible assets –––– A.4 Other non-current assets –––– Total A 22,008 – 22,008 14,896 B. Groups of assets being divested (divested operating units) B.1 Financial assets held for trading –––– B.2 Financial assets designated at fair value –––– B.3 Financial assets available-for-sale –––– B.4 Financial assets held to maturity –––– B.5 Loans to banks: –––– B.6 Loans to customers –––– B.7 Equity investments –––– B.8 Tangible assets – 224 224 – B.9 Intangible assets –––– B.10 Other assets –––– Total B – 224 224 – C.Liabilities in respect of individual assets being divested C.1 Debt and payables –––– C.2 Securities –––– C.3 Other liabilities –––– Total C –––– D. Liabilities in respect of groups of assets being divested D.1 Due to banks –––– D.2 Due to customers –––– D.3 Securities outstanding –––– D.4 Financial liabilities held for trading –––– D.5 Financial liabilities designated at fair value –––– D.6 Provisions –––– D.7 Other liabilities –––– Total D –––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15.2 OTHER INFORMATION

There is no other information.

15.3 INFORMATION ON EQUITY INVESTMENTS IN COMPANIES SUBJECT TO SIGNIFICANT INFLUENCE NOT ACCOUNTED FOR USING EQUITY METHOD

Breakdown not present.

Section 16 - OTHER ASSETS - ITEM 160

16.1 OTHER ASSETS: COMPOSITION

Total 2006 Current account checks drawn on third parties and other assets held by cashier 272,847 Current account checks drawn on reporting entity 100,637 Transit items 52,609 Inward credit transfers 97,211 Other customer items 320,792 Accrued income/prepaid expense 106,388 Amount to settle for direct interbank bill collection 96,680 Costs for improvements and expansion incurred on third party assets not attributable to item 120 59,335 Coupons and securities traded or drawn to be settled 19,222 Due from government for contributions on subsidized loans 66,663 Unpaid or protested bills and checks to be posted 23,031 Writedowns to own portfolio for illiquid items 172,583 Interest and fees pending charge to customers 5,104 Tax collection services 48,708 Trade receivables 161,437 Sundry borrowers - other items 1,405,188 Portfolio discounting 1,095 Total 3,009,530 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 168 169

LIABILITIES

Section 1 - DUE TO BANKS - ITEM 10

1.1 DUE TO BANKS. COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 1. Due to central banks 1,020,971 – 1,020,971 1,787,585 2. Due to banks 16,348,630 1 16,348,631 20,108,693 2.1 Current accounts and free deposits 2,721,943 1 2,721,944 2,769,225 2.2 Tied deposits 11,657,873 – 11,657,873 10,092,967 2.3 Loans 1,640,174 – 1,640,174 5,150,378 2.3.1 finance leases –––– 2.3.2 other 1,640,174 – 1,640,174 5,150,378 2.4 Liabilities in respect of commitments to repurchase own equity instruments 235,214 – 235,214 237,890 2.5 Liabilities in respect of assets assigned but not derecognized 51 – 51 1,837,260 2.5.1 repurchase agreements 51 – 51 1,837,260 2.5.2 other –––– 2.6 Other payables 93,375 – 93,375 20,973 Total 17,369,601 1 17,369,602 21,896,278 Fair value 17,449,982 1 17,449,983 21,863,116

1.2 BREAKDOWN OF ITEM 10 “DUE TO BANKS”: SUBORDINATED LIABILITIES

Subordinated loans including accrued interest rate coupon maturity 25,814 6-month euribor + 0.60 six-monthly 30-6-2009 5,234 6-month euribor +0.50 six-monthly 1-3-2008

1.3 BREAKDOWN OF ITEM 10 “DUE TO BANKS”: STRUCTURED LIABILITIES

No liabilities at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.4 BREAKDOWN OF ITEM 10 “DUE TO BANKS”: LIABILITIES HEDGED SPECIFICALLY

Total 2006 Total 2005 1. Liabilities covered by specific fair value hedges 825,110 239,482 a) interest rate risk –– b) exchange rate risk 825,110 239,482 c) multiple risks –– 2. Liabilities covered by generic cash flow hedges – – a) interest rate risk –– b) exchange rate risk –– c) other –– Total 825,110 239,482

1.5 LIABILITIES IN RESPECT OF FINANCE LEASES

No liabilities at 31 December 2006.

Section 2 - DUE TO CUSTOMERS - ITEM 20

2.1 DUE TO CUSTOMERS: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 1. Current accounts and free deposits 50,023,542 – 50,023,542 44,912,770 2. Tied deposits 2,746,661 – 2,746,661 2,810,120 3. Third-party funds under administration 120,859 – 120,859 117,473 4. Loans 5,490,320 3,268 5,493,588 5,739,652 4.1 finance leases – – – 56,690 4.2 other 5,490,320 3,268 5,493,588 5,682,962 5. Liabilities in respect of commitments to repurchase own equity instruments –––– 6. Liabilities in respect of assets assigned but not derecognized 5,628,577 – 5,628,577 7,403,643 6.1 repurchase agreements 584,570 – 584,570 2,458,604 6.2 other 5,044,007 – 5,044,007 4,945,039 7. Other payables 1,537,047 – 1,537,047 1,156,263 Total 65,547,006 3,268 65,550,274 62,139,921 Fair value 65,589,640 3,268 65,592,908 62,188,960 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 170 171

2.2 BREAKDOWN OF ITEM 20 “DUE TO CUSTOMERS”: SUBORDINATED LIABILITIES

No liabilities at 31 December 2006.

2.3 BREAKDOWN OF ITEM 20 “DUE TO CUSTOMERS”: STRUCTURED LIABILITIES

No liabilities at 31 December 2006.

2.4 BREAKDOWN OF ITEM 20 “DUE TO CUSTOMERS”: LIABILITIES HEDGED SPECIFICALLY

Total 2006 Total 2005 1. Liabilities covered by specific fair value hedges 19,453 22,404 a) interest rate risk 19,453 22,404 b) exchange rate risk –– c) multiple risks –– 2. Liabilities covered by generic cash flow hedges – – a) interest rate risk –– b) exchange rate risk –– c) other –– Total 19,453 22,404

2.5 LIABILITIES IN RESPECT OF FINANCE LEASES

No liabilities at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 3 - DEBT SECURITIES ISSUED - ITEM 30

3.1 DEBT SECURITIES ISSUED: COMPOSITION BY TYPE

Banking group Other entities Total 2006 Total 2005 book fair book fair book fair book fair value value value value value value value value (*) A. Listed 13,062,615 12,825,825 – – 13,062,615 12,825,825 8,903,068 8,034,138 1. bonds 13,062,615 12,825,825 – – 13,062,615 12,825,825 8,903,068 8,034,138 1.1 structured 5,691,130 5,500,928 – – 5,691,130 5,500,928 5,305,738 4,427,355 1.2 other 7,371,485 7,324,897 – – 7,371,485 7,324,897 3,597,330 3,606,783 2. other –––––––– 2.1 structured –––––––– 2.2. other –––––––– B. Unlisted 18,140,131 16,410,886 – – 18,140,131 16,410,886 19,163,319 18,236,129 1. bonds 16,629,901 14,910,663 – – 16,629,901 14,910,663 17,107,868 16,180,826 1.1 structured 5,977,451 5,057,626 – – 5,977,451 5,057,626 5,825,367 4,609,747 1.2 other 10,652,450 9,853,037 – – 10,652,450 9,853,037 11,282,501 11,571,079 2. other 1,510,230 1,500,223 – – 1,510,230 1,500,223 2,055,451 2,055,303 2.1 structured –––––––– 2.2 other 1,510,230 1,500,223 – – 1,510,230 1,500,223 2,055,451 2,055,303 Total 31,202,746 29,236,711 – – 31,202,746 29,236,711 28,066,387 26,270,267

(*) The figure does not include the fair value of embedded derivatives (1.2 billion in 2006 and 0.66 billion in 2005)

The portfolio of structured securities breaks down as follows: 55% equity linked securities; 25% securities linked to interest rates; 9% convertible securities; 5% fund linked securities; and 6% inflation linked securities. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 172 173

3.2 BREAKDOWN OF ITEM 30 ”DEBT SECURITIES ISSUED”: SUBORDINATED SECURITIES (CURRENT LEGISLATION)

Subordinated loan book interest rate coupon maturity date early redemption (1) value option Eur 230,000,000 173,074 Fixed rate 3.50% gross annual. From second year: floating coupon equal to 75% of annual swap rate on euros at ten years. annual 30 March 2016 from 30 March 2011 Eur 300,000,000 272,214 First 2 years: nom. 3% annual . 6-month euribor + 0.20% thereafter half-yearly 3 August 2014 3 August 2009 Eur 300,000,000 254,500 First year: 2.65%. From 2nd to 5th year: 0.80% + any positive change in European consumer price index. 6-month euribor +0.20% thereafter. half-yearly 2 December 2014 2 December 2009 Eur 300,000,000 300,547 3-month euribor + 0.55%. From August 2009: 3-month euribor + 1.15%. quarterly 11 August 2014 from 11 August 2009 Eur 500,000,000 502,230 3-month euribor +0.45%. From October 2011: 3-month euribor +1.05%. quarterly 21 October 2016 from 21 October 2011 Eur 400,000,000 279,362 Fixed rate 3% gross annual. From second year: floating coupon equal to 75% of annual swap rate on euros at ten years. annual 30 June 2015 from 30 June 2010 Eur 300,000,000 294,943 Until June 2010 3-month euribor + 0.45%. 3-month euribor + 1.05% thereafter quarterly 23 June 2015 from 23 June 2010 Euro 170,000,000 130,833 Fixed rate 4% gross annual. From second year: floating coupon equal to 65% of annual swap rate on euros at ten years. annual 30 March 2016 from 30 March 2011 Eur 150,000,000 150,955 3-month euribor +0.45%. From October 2011: 3-month euribor +1.05%. quarterly 21 October 2016 from 21 October 2011 Eur 400,000,000 402,419 3-month euribor + 0.30%. From April 2011: 3-month euribor + 0.90%. quarterly 7 april 2016 from 7 April 2011 Eur 165,000,000 (2) 159,264 3% annual fixed annual 13 June 2007 none Eur 177,000,000 (2) 174,160 3% annual fixed annual 30 June 2007 none Eur 300,000,000 (2) 297,764 3-month euribor + 0.23%. quarterly 30 May 2008 none Total 3,392,265

(1) Loans reported in the original currency and issue amount. (2) Tier 3 subordinated loan issued against market risk.

Subordinated loans can count towards supplementary regulatory capital up to a total of 2,761 million calculated on IAS-compliant basis. The subordination is ordinary in all cases. There are no provisions allowing the conversion of the loans into equity or other types of liabilities.

3.3 BREAKDOWN OF ITEM 30 “DEBT SECURITIES ISSUED”: SECURITIES HEDGED SPECIFICALLY

Total 2006 Total 2005 1. Securities covered by specific fair value hedge 5,550,895 5,181,696 a) interest rate risk 5,439,836 5,181,696 b) exchange rate risk –– c) multiple risks 111,059 – 2. Securities covered by generic cash flow hedge – 51,933 a) interest rate risk – 51,933 b) exchange rate risk –– c) other –– Total 5,550,895 5,233,629 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 4 - FINANCIAL LIABILITIES HELD FOR TRADING - ITEM 40

4.1 FINANCIAL LIABILITIES HELD FOR TRADING: COMPOSITION BY TYPE

Banking group Other entities Fair value Fair value Par Listed Unlisted FV (*) Par Listed Unlisted FV (*) value value A. Non-derivative liabilities 1. Due to banks 799 1,079 – 1,079–––– 2. Due to customers 273,291 285,495 73 285,564–––– 3. Debt securities –––––––– 3.1 Bonds –––––––– 3.1.1 structured – – – X –––– 3.1.2 other bonds – – – X –––– 3.2 Other securities –––––––– 3.2.1 structured – – – X –––– 3.2.2 other – – – X –––– Total A 274,090 286,574 73 286,643–––– B. Derivatives 1. Financial derivatives X 1,253 4,562,041 X X – – X 1.1 trading X 1,253 3,247,779 X X – – X 1.2 associated with fair value option X – – X X – – X 1.3 other X – 1,314,262 X X – – X 2. Credit derivatives X – 2,212 X X – – X 2.1 trading X – 2,212 X X – – 2.2 associated with fair value option X – – X X – – X 2.3 other X – – X X – – X Total B X 1,253 4,564,253 X X – – X Total A+B 274,090 287,827 4,564,326 286,643–––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 174 175

Total 2006 Total 2005 Fair value Fair value Par Listed Unlisted FV (*) Par Listed Unlisted FV (*) value value

799 1,079 – 1,079 – – – – 273,291 285,495 73 285,564 1,305,525 1,446,386 14,375 – ––––621547– ––––621547– –––X–––X – – – X621547X –––––––– –––X–––X –––X–––X 274,090 286,574 73 286,643 1,305,587 1,446,401 14,422 –

X 1,253 4,562,041 X X 10,622 3,584,518 X X 1,253 3,247,779 X X 10,235 2,710,854 X X – –XX387–X X – 1,314,262 X X – – X X – 2,212 X X – 7,471 X X – 2,212 X X – 7,471 X X––XX––X X––XX––X X 1,253 4,564,253 X X 10,622 3,591,989 X 274,090 287,827 4,564,326 286,643 1,305,587 1,457,023 3,606,411 –

FV (*) = Fair value calculated excluding changes in value due to changes in the creditworthiness of the issuer with respect to the issue date.

4.2 BREAKDOWN OF ITEM 40 “FINANCIAL LIABILITIES HELD FOR TRADING”: SUBORDINATED LIABILITIES

No liabilities at 31 December 2006.

4.3 BREAKDOWN OF ITEM 40 “FINANCIAL LIABILITIES HELD FOR TRADING”: STRUCTURED LIABILITIES

No liabilities at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.4 FINANCIAL LIABILITIES HELD FOR TRADING: DERIVATIVES 4.4.1 OF WHICH: BANKING GROUP

Interest Foreign Equity Loans Other Total 2006 Total 2005 rates currencies securities and gold A Listed 1) Financial derivatives 1,221 – 30 – – 1,251 10,622 a) with exchange of principal 1,221 – 30 – – 1,251 1,331 – options sold ––––––– – other derivatives 1,221 – 30 – – 1,251 1,331 b) without exchange of principal ––––––9,291 – options sold ––––––– – other derivatives ––––––9,291 2) Credit derivatives ––––––– a) with exchange of principal ––––––– b) without exchange of principal ––––––– Total (A) 1,221 – 30 – – 1,251 10,622 B Unlisted 1) Financial derivatives 2,532,248 377,180 1,650,322 – 2,309 4,562,059 3,584,517 a) with exchange of principal 793 374,162 1,292,753 – – 1,667,708 1,130,233 – options sold 791 29,450 1,290,792 – – 1,321,033 749,572 – other derivatives 2 344,712 1,961 – – 346,675 380,661 b) without exchange of principal 2,531,455 3,018 357,569 – 2,309 2,894,351 2,454,284 – options sold 757,195 – 356,985 – – 1,114,180 756,934 – other derivatives 1,774,260 3,018 584 – 2,309 1,780,171 1,697,350 2) Credit derivatives – – – 2,196 – 2,196 7,472 a) with exchange of principal – – – 2,196 – 2,196 7,443 b) without exchange of principal ––––––29 Total (B) 2,532,248 377,180 1,650,322 2,196 2,309 4,564,255 3,591,989 Total (A+B) 2,533,469 377,180 1,650,352 2,196 2,309 4,565,506 3,602,611 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 176 177

4.4.3 OF WHICH: OTHER ENTITIES

No liabilities at 31 December 2006.

4.5 FINANCIAL LIABILITES HELD FOR TRADING (EXCLUDING TECHNICAL OVERDRAFTS: CHANGES FOR THE YEAR)

No data at 31 December 2006.

Section 5 – FINANCIAL LIABILITIES MEASURED AT FAIR VALUE – ITEM 50

Item 50 “Financial liabilities measured at fair value” is not present in the financial statements for 2006 and 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 6 - HEDGING DERIVATIVES - ITEM 60

6.1 HEDGING DERIVATIVES: COMPOSITION BY TYPE OF CONTRACT AND UNDERLYING 6.1.1 OF WHICH: BANKING GROUP

Interest Foreign Equity Loans Other Total rates currencies securities and gold A Listed 1) Financial derivatives –––––– a) with exchange of principal –––––– – options sold –––––– – other derivatives –––––– b) without exchange of principal –––––– – options sold –––––– – other derivatives –––––– 2) Credit derivatives –––––– a) with exchange of principal –––––– b) without exchange of principal –––––– Total (A) –––––– B Unlisted 1) Financial derivatives 159,380 16,939 – – – 176,319 a) with exchange of principal – 16,939 – – – 16,939 – options sold –––––– – other derivatives – 16,939 – – – 16,939 b) without exchange of principal 159,380 ––––159,380 – options sold –––––– – other derivatives 159,380 ––––159,380 2) Credit derivatives –––––– a) with exchange of principal –––––– b) without exchange of principal –––––– Total (B) 159,380 16,939 – – – 176,319 Total (A+B) 159,380 16,939 – – – 176,319 Total (A+B) 2005 116,165 26 – 6,230 1,184 123,605

6.1.3 OF WHICH: OTHER ENTITIES

No liabilities at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 178 179

6.2 HEDGING DERIVATIVES: COMPOSITION BY HEDGED PORTFOLIO AND TYPE OF HEDGE 6.2.1 OF WHICH: BANKING GROUP

Fair value hedging Cash flow Specific Interest Exchange Credit Price Multiple Generic Specific Generic rate risk rate risk risk risk risks 1. Financial assets available for sale –––––X–X 2. Loans 15,211 – – X – X – X 3. Financial assets held to maturity X – – X – X – X 4. Portfolio XXXXX1,408 X – Total assets 15,211 ––––1,408 – – 1. Financial liabilities 142,761 16,939 – – – X – X 2. Portfolio XXXXX –X – Total liabilities 142,761 16,939 ––––––

6.2.3 OF WHICH: OTHER ENTITIES

No liabilities at 31 December 2006.

Section 7 – VALUE ADJUSTMENTS OF FINANCIAL LIABILITIES HEDGED GENERICALLY – ITEM 70

Item 70 “Value adjustments of financial liabilities hedged generically” is not present in the financial statements for 2006 and 2005.

Section 8 – TAX LIABILITIES – ITEM 80

See section 14 of assets.

Section 9 - LIABILITIES ASSOCIATED WITH GROUPS OF ASSETS BEING DIVESTED - ITEM 90

See section 15 of assets. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 10 - OTHER LIABILITIES - ITEM 100

10.1 OTHER LIABILITIES: COMPOSITION

Total 2006 Transit items 35,906 Items being processed - credit transfers 520,890 Items being processed - collection orders 658,539 Provision for writedowns of guarantees and commitments 343,121 Accrued expenses and deferred income 58,873 Amounts due to tax authorities on behalf of others 262,002 Advances from customers 10,598 Amounts available to customers 775,698 Amounts to settle with Bank of Italy for unified treasury service 272,245 Compensation of employees ( including social security contributions and IRPEF withholdings) 175,568 Writedowns of check and bill discount portfolio 68,900 Invoices and fees to be paid to suppliers and professionals and other trade liabilities 521,397 Interest and amounts to be credited to customers 933 Matured securities and coupons to be paid 25,899 Third-party security deposits 219 Tax collection services 23,614 Payables for management of transactions subsidized with public funds 66,505 Sundry creditors - other 1,378,059 Total 5,198,966 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 180 181

Section 11 - STAFF SEVERANCE PAY - ITEM 110

11.1 STAFF SEVERANCE PAY: CHANGES FOR YEAR

Banking group Other entities Total 2006 A. Opening balance 834,373 111 834,484 B. Increases 86,166 149 86,315 B.1 Provision for the year 81,967 80 82,047 B.2 Other increases 4,199 69 4,268 C. Decreases 77,666 11 77,677 C.1 Severance payments 70,316 6 70,322 C.2. Other decreases 7,350 5 7,355 D. Closing balance 842,873 249 843,122

Section 12 - PROVISIONS FOR LIABILITIES AND CONTINGENCIES - ITEM 120

12.1 PROVISIONS FOR LIABILITIES AND CONTINGENCIES: COMPOSITION

Banking Other Total 2006 Total 2005 group entities 1. Company pension plans 597,708 – 597,708 781,392 2. Other provisions for liabilities and risks 700,269 6,531 706,800 649,249 2.1 litigation 494,665 6,499 501,164 463,967 2.2 charges for staff 92,461 – 92,461 79,741 2.3 other 113,143 32 113,175 105,541 Total 1,297,977 6,531 1,304,508 1,430,641 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.2 PROVISIONS FOR LIABILITIES AND CONTINGENCIES: CHANGES FOR THE YEAR

Banking group Other provisions Provision Provision Provision Other for pensions for litigation for staff costs A. Opening balance 781,392 463,467 79,741 105,174

B. Increases 37,922 153,121 69,147 78,118

B.1 Provision for the year 6,430 140,444 67,939 77,462

B.2 Changes due to passage of time 31,048 10,345 – –

B.3 Changes due to changes in discount rate – 213 – –

B.4 Other changes (*) 444 2,119 1,208 656

C. Decreases 221,606 121,923 56,427 70,149

C.1 Use during the year 59,610 36,273 34,227 27,352

C.2 Changes due to changes in discount rate – 4,689 – –

C.3 Other changes 161,996 80,961 22,200 42,797

D. Closing balance 597,708 494,665 92,461 113,143

(*) The amounted reported in the column “Litigation” of “Other entities” includes 5,971 in respect of business combinations. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 182 183

Other entities Total Other provisions Other provisions Provision Provision Provision Other Provision Provision Provision Other for pensions for litigation for staff costs for pensions for litigation for staff costs – 500 – 367 781,392 463,967 79,741 105,541

– 7,216 – 12 37,922 160,337 69,147 78,130

– 920 – – 6,430 141,364 67,939 77,462

– – – – 31,048 10,345 – –

–––––213––

– 6,296 – 12 444 8,415 1,208 668

– 1,217 – 347 221,606 123,140 56,427 70,496

– 717 – 22 59,610 36,990 34,227 27,374

– – – – – 4,689 – –

– 500 – 325 161,996 81,461 22,200 43,122

– 6,499 – 32 597,708 501,164 92,461 113,175 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

12.3 COMPANY DEFINED-BENEFIT PENSION FUNDS of Cassa Centrale di Risparmio V.E. per le Province Siciliane are defined benefit plans. 1. Description of funds Following the application of Legislative Decree 357 of CAPITALIA S.p.A. 20 November 1990, the pension plan for Banco di Sicilia staff was transformed from an exclusive fund run by the The pension fund for the head office employees of general compulsory pension system into a fund the former Banco di S. Spirito, the former Banco di Roma supplementing the benefits of the compulsory system. and the former Cassa di Risparmio di Roma is a defined- benefit plan. Pursuant to Article 59.32 of the 1998 Finance Act, the following provision apply: This category includes schemes where retired employees receive a specified benefit. The financial and
for staff in service, the supplementary benefits are demographic risk of not being able to pay the specified determined solely on the basis of seniority already level of benefit is borne by the employer. accrued on the date the law entered force or as of a subsequent date if the required conditions are met; the Specifically, the scheme is a supplementary pension amount of the benefits is reduced by the amount fund that, on the basis of the number of years of service, charged to the special sector fund run by the National pays a specified benefit calculated as a percentage of final Social Security Institute (INPS) theoretically due as of the compensation, supplementing the difference between same date. The amount due is revalued until retirement that amount and the benefit paid by the relevant age is reached, in the manner specified in Article 11 of compulsory pension system (in some cases, it also takes Legislative Decree 503 of 30 December 1992; account of any complementary pension benefits).
for retired staff, the supplementary benefits are excluded from any equalization mechanism as from the BANCA DI ROMA S.p.A. date indicated in the previous point; for pensions paid under supplementary plans prior to becoming eligible for The pension plan for the employees of the former the benefits under the special INPS fund, the equalization Cassa di Risparmio di Roma is a defined benefit plan. mechanism envisaged for that special fund shall apply for the portion of the pension corresponding to the Specifically, the scheme is a supplementary pension percentage set out in the table annexed to Legislative fund that, on the basis of the number of years of service, Decree 357/1990. pays a specified benefit calculated as a percentage of final compensation, supplementing the difference The pension plan envisage payment of a benefit between that amount and the benefit paid by the supplementing that paid under the compulsory pension relevant compulsory pension system. system at the time of retirement, determined as indicated above. BANCO DI SICILIA S.p.A. As regards the pension schemes for Banco di Sicilia The pension plan for the employees of Banco di Sicilia employees, following the agreement signed on 26 April and the supplementary pension plan for the employees 2006 between Banco di Sicilia and the secretariats of the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 184 185

coordination bodies of the company-level union CAPITALIA LUXEMBOURG representations, the number of participants decreased substantially on the previous year owing to the opportunity The local staff of the bank are enrolled in two offered to retired personnel to liquidate their pension company pension plans in compliance with local law. The benefits with a lump-sum principal payment and for plans are described in two documents entitled personnel still in service to transfer their position to the open “Regolamento delle pensioni complementari in favore pension fund PensionePiù Capitalia AM. As a result of the del Personale della Banca di Roma International” and initiative the liability decreased by more than €160 million. “Regolamento delle pensioni complementari in favore del Personale dell’ex Banco di Santo Spirito”. MCC S.p.A. The first plan covers the difference between the The pension plan supplementing the general amount of the legal pension in Luxembourg and compulsory pension scheme for disability, old age and employees’ gross monthly compensation in the survivors run by INPS for the employees of Mediocredito December preceding the event making them eligible for Centrale is a defined benefit plan. the pension (old age or disability).

Specifically, the scheme is a supplementary pension The second provides a complementary pension fund that, on the basis of the number of years of service, regardless of the amount of the legal pension. pays a specified benefit calculated as a percentage of final compensation, supplementing the difference At the start of each year the present value of future between that amount and the benefit paid by the commitments is calculated by an independent actuary relevant compulsory pension system. and recognized.

2. CHANGE FOR THE YEAR

Total 2006 1. Liability at the start of the year 781,392 2. Other increases 3,698 3. Service cost 2,732 4. Interest cost 31,048 5. (Uses) (59,610) 6. Transferred/settled (161,996) 7. Contributions charged to employees and restitution of pensions not due 444 8. Liability at the end of the year (*) 597,708 9. Past service liability at end of year 618,604 10. Actuarial (gain)/loss 20,896

(*) Where actuarial (gains)/losses are treated using the corridor method. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

3. Change during the year in plan assets and other
for the probability of widows and widowers remarrying, information those deduced from Istat’s 1960/62 marriage tables;

for the probability of mortality for retired staff on There are no plan assets as the funds are fully invested seniority or old age pensions, those reported in in the assets of the banks and therefore constitute a demographic table 48 of the State Accountant General, liability of the banks themselves. broken down by gender.

The following financial assumptions were used 4. Reconciliation of present value of funds, present value (unchanged on 2005): of plan assets and recognized assets and liabilities Annual discount rate: 4.50% The actuarial appraisal is €20.9 million lower than the Annual rate of increase in compensation: 3.00% value of the fund because, as discussed in Part A of the Annual inflation rate: 2.00% notes to the financial statements, actuarial gains and losses are taken to the income statement using the Following the 1998 and 1999 Finance Acts, the fund corridor method. and INPS pensions were increased on the basis of an annual average rate that better approximates the automatic equalization mechanism used for pension increases by the 5. Description of main actuarial assumptions relevant compulsory pension plan. The average annual rate of increase of fund benefits was assumed to be 1.75%. The demographic assumptions, updated with respect to 2005, are as follows: 6. Comparative information

for the probability of mortality for staff in service, Charges recognized in 2006 amounted to €36.9 those reported in demographic table 48 of the State million, compared with €23.8 million in 2005. Accountant General, broken down by gender;

12.4 PROVISIONS FOR LIABILITIES AND CONTINGENCIES
for the probability of full and permanent disability, – OTHER PROVISIONS those adopted in the INPS model for projections to 2010, broken down by gender. These rates were constructed Provisions for pending litigation are recognized on on the basis of the distribution by age and gender of the basis of the following conditions: pensions outstanding at 1 January 1987 starting in 1984, 1985, 1986 for employees in the credit industry;
an enterprise has a present obligation (legal or constructive) as a result of a past event;
for the probability of mortality of staff retired for full and permanent disability, those adopted in the INPS
it is probable that settlement of the obligation will model for projections to 2010, broken down by gender; require an outflow of resources embodying economic benefits;
for the probability of leaving survivors, those published in the accounts of the social security institutions,
a reliable estimate can be made of the amount of the broken down by gender; obligation. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 186 187

Positions for which payment of the obligation is Further information on the most significant potential expected to occur at more than 18 months are liabilities is provided in the section “Impaired loans and discounted. contingent liabilities” in the report on operations.

Section 13 - TECHNICAL RESERVES - ITEM 130

13.1 TECHNICAL RESERVES: COMPOSITION

Direct Indirect Total 2006 Total 2005 A. Non-life insurance – – – 19,969 A1. Unearned premium reserves – – – 15,902 A2. Claims reserves – – – 4,067 A3. Other reserves –––– B. Life insurance –––– B1. Mathematical reserves –––– B2. Reserves for outstanding claims –––– B3. Other reserves –––– C. Technical reserves where investment risk is borne by the insured –––– C1. Reserves for contracts whose performance is linked to investment funds and market indices –––– C2. Reserves from the operation of pension funds–––– D. Total technical reserves – – – 19,969

13.2 TECHNICAL RESERVES: CHANGE FOR THE YEAR

The amount reported under “Technical reserves” at 31 December 2005 (about €20 million) falls to zero in 2006 following the removal of Capitalia Assicurazioni from the scope of consolidation.

Section 14 - REDEEMABLE SHARES - ITEM 150

Item 150 “Redeemable shares” is not present in the financial statements for 2006 and 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 15 - GROUP SHAREHOLDERS’ EQUITY - ITEMS 140, 160, 170, 180, 190, 200 AND 220

15.1 GROUP SHAREHOLDERS’ EQUITY: COMPOSITION

Total 2006 Total 2005 1. Share capital 2,595,439 2,511,134 2. Share premium account 3,382,774 3,828,187 3. Reserves 1,849,970 688,445 4. (Treasury stock) – (3,307) a) parent company – (865) b) subsidiaries – (2,442) 5. Revaluation reserves 726,973 727,601 6. Capital instruments –– 7. Income for the year of Group 1,161,973 1,027,960 Total 9,717,129 8,780,020

15.2 “SHARE CAPITAL” AND “TREASURY STOCK”: COM- €2,595,439,085, represented by the same number of POSITION ordinary shares with a par value of €1.00 each.

At 31 December 2006 the share capital of Capitalia At 31 December 2006 the Capitalia Group did not S.p.A, fully subscribed and paid up, amounted to hold treasury shares. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 188 189

15.3 SHARE CAPITAL - NUMBER OF PARENT COMPANY SHARES: CHANGE FOR THE YEAR (units)

Ordinary Other A. Shares at start of year 2,511,134,376 – – fully paid up 2,511,134,376 – – not fully paid up –– A.1 Treasury stock (–) (200,000 ) – A.2 Shares in circulation: opening balance 2,510,934,376 – B. Increases 154,216,017 – B.1 New issues 84,304,709 – – for payment: 84,304,709 – – business combinations –– – conversion of bonds –– – exercise of warrants 9,042,750 – – other (*) 75,261,959 (*) – – bonus issues –– – for employees –– – for directors –– – other –– B.2 Sale of treasury stock 69,911,308 – B3. Other changes –– C. Decreases 69,711,308 – C.1 Cancellation –– C.2 Purchase of own shares 69,711,308 – C.3 Disposal of companies –– C4. Other changes –– D. Shares in circulation: closing balance 2,595,439,085 – D.1 Treasury stock (+) –– D.2 Shares at end of the year 2,595,439,085 – – fully paid up 2,595,439,085 – – not fully paid up ––

(*) Regards non-proportionate demerger of MCC S.p.A.

15.4 SHARE CAPITAL: OTHER INFORMATION

There is no other material information concerning share capital. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

15.5 INCOME RESERVES: OTHER INFORMATION

Total 2006 Total 2005 Income reserves: 972,045 566,407 Legal reserve 514,319 484,495 Retained earnings from prior years 3,788 6,371 Reserve for commitment to purchase treasury stock (235,214) (237,890) Other reserves 689,152 313,431 Other: 877,925 122,038 Reserve for purchase of treasury stock 390,000 90,402 Reserve for stock options 22,616 10,855 Other reserves 465,309 20,781 Total 1,849,970 688,445

15.6 REVALUATION RESERVES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1. Financial assets available for sale 700,349 – 700,349 693,087 2. Property, plant and equipment –––– 3. Intangible assets –––– 4. Hedging of foreign investments –––– 5. Cash flow hedges (1,458) – (1,458) (2,187) 6. Exchange rate differences –––– 7. Non-current assets being divested –––– 8. Special revaluation laws 28,082 – 28,082 36,701 Total 726,973 –726,973 727,601

15.7 REVALUATION RESERVES: CHANGE FOR THE YEAR 15.7.1 OF WHICH: BANKING GROUP

Financial Tangible Intangible Hedging Cash flow Exchange Non-current Special assets assets assets of foreign hedges rate assets revaluation available investments differences being laws and for sale divested application of deemed cost A. Opening balance 693,087 – – – (2,187) – – 36,701 B. Increases 488,689 – – – 750 – – 9,143 B.1 Increases in fair value 369,916 – – – 750 – – X B2. Other changes 118,773 – – ––––9.143 C. Decreases 481,427 – – – 21 – – 17,762 C.1 Decreases in fair value 153,149 – – – 21 – – X C2. Other changes 328,278 – – ––––17,762 D. Closing balance 700,349 – – – (1,458) – – 28,082 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 190 191

15.7.3 OF WHICH: OTHER ENTITIES

No data at 31 December 2006.

15.8 REVALUATION RESERVES FOR FINANCIAL ASSETS AVAILABLE FOR SALE: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Positive Negative Positive Negative Positive Negative Positive Negative reserve reserve reserve reserve reserve reserve reserve reserve 1. Debt securities 6,970 121,619 __6,970 121,619 98,053 84,060 2. Equity securities 848,641 31,739 __848,641 31,739 705,645 29,428 3. Units in collective investment undertakings 3,725 5,629 __3,725 5,629 997 1,169 4. Loans ______6,625 3,576 Total 859,336 158,987 __859,336 158,987 811,320 118,233

15.9 REVALUATION RESERVES FOR FINANCIAL ASSETS AVAILABLE FOR SALE: CHANGE FOR THE YEAR 15.9.1 OF WHICH: BANKING GROUP

Debt Equity Units in Loans securities securities in collective investment undertakings 1. Opening balance: 13,993 676,217 (172) 3,049 2. Positive changes 58,245 416,581 11,445 2,418 2.1 Increases in fair value 3,596 365,274 1,046 – 2.2 Reversal to income statement of negative reserves 239 938 – 689 – for impairment –––– – for realization 239 938 – 689 2.3 Other changes 54,410 50,369 10,399 1,729 3. Negative changes 186,887 275,896 13,177 5,467 3.1 Decreases in fair value 139,273 10,094 3,782 – 3.2 Impairment adjustments –––– 3.3 Reversal to income statement of positive reserves: for realization 39,227 160,949 189 5,240 3.4 Other changes 8,387 104,853 9,206 227 4. Closing balance (114,649) 816,902 (1,904) –

15.9.3 OF WHICH: OTHER ENTITIES

No data at 31 December 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 16 - MINORITY INTERESTS - ITEM 210

16.1 MINORITY INTERESTS: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1. Share capital 11,934 6,250 18,184 129,797 2. Share premium account 1,388 – 1,388 9,026 3. Reserves 23,959 286 24,245 33,931 4. (Treasury stock) –––– 5. Revaluation reserves 184 – 184 1.528 6. Capital instruments 7,500 7,500 – 7. Income (loss) pertaining to minority interests 3,330 – 3,330 5,922 Total 40,795 14,036 54,831 180,204

16.2 REVALUATION RESERVES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1. Financial assets available for sale 140 – 140 894 2. Property, plant and equipment –––– 3. Intangible assets –––– 4. Hedging of foreign investments –––– 5. Cash flow hedges – – (924 ) 6. Exchange rate differences –––– 7. Non-current assets being divested –––– 8. Special revaluation laws 44 – 44 1,558 Total 184 – 184 1,528

16.3 CAPITAL INSTRUMENTS: COMPOSITION AND CHANGE FOR THE YEAR

Item not present in financial statements for 2005 and 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 192 193

16.4 REVALUATION RESERVES FOR FINANCIAL ASSETS AVAILABLE FOR SALE: COMPOSITION

Banking group Other entities Total Positive Negative Positive Negative Positive Negative reserve reserve reserve reserve reserve reserve 1. Debt securities – 5 – – – 5 2. Equity securities –––––– 3. Units in collective investment undertakings 145 – – – 145 – 4. Loans –––––– Total 145 5 – – 145 5

16.5 REVALUATION RESERVES: CHANGE FOR THE YEAR 16.5.1 OF WHICH: BANKING GROUP

Financial Tangible Intangible Hedging Cash flowExchange Non-current Special assets asset asset of foreign hedges rate assets revaluation available investments differences being laws and for sale divested application of deemed cost A. Opening balance 894 – – – (924) – – 1,558 B. Increases 195 – – – 924 – – – B.1 Increases in fair value 6 – – – 924 – – X B2. Other changes 189 – – ––––– C. Decreases 949 – – ––––1,514 C.1 Decreases in fair value 43 – – ––––X C2. Other changes 906 – – ––––1,514 D. Closing balance 140 – – ––––44

16.5.3 OF WHICH: OTHER ENTITIES

Breakdown not present at 31 December 2006 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

OTHER INFORMATION

1. GUARANTEES ISSUED AND COMMITMENTS

Banking group Other entities Total 2006 Total 2005 1) Financial guarantees issued 3,361,769 – 3,361,769 6,451,185 a) Banks 196,183 – 196,183 3,528,248 b) Customers 3,165,586 – 3,165,586 2,922,937 2) Commercial guarantees issued 7,615,394 – 7,615,394 6,522,240 a) Banks 312,334 – 312,334 329,624 b) Customers 7,303,060 – 7,303,060 6,192,616 3) Irrevocable commitments to disburse funds 14,719,777 – 14,719,777 10,660,045 a) Banks 2,071,611 – 2,071,611 1,297,191 – certain utilization: 1,399,825 – 1,399,825 1,025,547 – uncertain utilization 671,786 – 671,786 271,644 b) Customers 12,648,166 – 12,648,166 9,362,854 – certain utilization: 6,677,591 – 6,677,591 3,829,937 – uncertain utilization 5,970,575 – 5,970,575 5,532,917 4) Commitments underlying credit derivatives: sales of protection 274,483 – 274,483 857,671 5) Assets pledged as collateral for third–party debts 1,073 – 1,073 1,074 6) Other commitments 4,926,939 – 4,926,939 3,722,625 Total 30,899,435 – 30,899,435 28,214,840

2. ASSETS PLEDGED AS COLLATERAL FOR OWN DEBTS AND COMMITMENTS

Portfolios Total 2006 Total 2005 1. Financial assets held for trading (*) 1,224,522 4,955,476 2. Financial assets designated at fair value –– 3. Financial assets available for sale (*) 1,050,187 485,840 4. Financial assets held to maturity (*) 446,674 236,498 5. Loans to banks (**) 538,851 637,811 6. Loans to customers (***) 75,605 73,571 7. Tangible assets ––

(*) Largely accounted for by securities backing repurchase operations. (**) Regards securities backing repurchase transactions in the amount of €19,539 and monetary deposits pledged by Capitalia to secure derivatives transactions with counterparties with which the Bank was authorized by the supervisory authorities to enter into bilateral netting arrangements (circ. 155, sect. 3.3.18) in the amount of 519,312. (***) The amount represents the security deposit paid by Capitalia to MCC in respect of the bank surety issued in favor of the Ministry for the Economy to secure payment in ten annual installments of the “contributions” due for the assignment of the right to use the frequencies awarded to IPSE 2000. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 194 195

3. INFORMATION ON OPERATING LEASES

Breakdown not present at 31 December 2006.

4. COMPOSITION OF INVESTMENTS IN RESPECT OF UNIT-LINKED AND INDEX-LINKED POLICIES

Breakdown not present at 31 December 2006

5. MANAGEMENT AND INTERMEDIATION SERVICES: BANKING GROUP

Total 2006 1. Trading in financial instruments on behalf of third parties 591,870,683 a) Purchases 295,556,037 1. settled 294,261,609 2. not yet settled 1,294,428 b) Sales 296,314,646 1. settled 294,966,857 2. not yet settled 1,347,789 2. Asset management 34,109,804 a) individual 9,936,275 b) collective 24,173,529 3. Custody and administration of securities a) third-party securities held as part of depository bank services (excluding asset management) 19,625,067 1. securities issued by consolidated companies – 2. other 19,625,067 b) other third-party securities on deposit (excluding asset management): other 85,069,077 1. securities issued by consolidated companies 19,498,816 2. other 65,570,261 c) third-party securities deposited with third parties 90,609,035 d) securities owned by bank deposited with third parties 14,194,897 4. Other transactions 37,656,495

6. MANAGEMENT AND INTERMEDIATION SERVICES: INSURANCE UNDERTAKINGS

Breakdown not present at 31 December 2006

7. MANAGEMENT AND INTERMEDIATION SERVICES: OTHER ENTITIES

Breakdown not present at 31 December 2006 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART C – INFORMATION ON THE CONSOLIDATED INCOME STATEMENT

Section 1 – INTEREST – ITEMS 10 AND 20

1.1 INTEREST INCOME AND SIMILAR REVENUES: COMPOSITION 1.1.1 OF WHICH: BANKING GROUP

Performing financial assets Debt Loans Impaired Other Total Total securities financial assets 2006 2005 assets 1. Financial assets held for trading 510,196–––510,196 667,929 2. Financial assets at fair value 105–––1051,367 3. Financial assets available for sale 56,690 1,727 – – 58,417 110,782 4. Financial assets held to maturity 34,768–––34,768 60,890 5. Loans to banks 4,165 387,300 – 14 391,479 387,039 6. Loans to customers 4,648 3,934,848 242,668 7,175 4,189,339 3,535,333 7. Hedging derivatives X X X – – – 8. Financial assets assigned but not derecognized 82,884 277,113 283 – 360,280 229,502 9. Other assets X X X 28,275 28,275 24,938 Total 693,456 4,600,988 242,951 35,464 5,572,859 5,017,780 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 196 197

1.1.3 OF WHICH: OTHER ENTITIES

Performing financial assets Debt Loans Impaired Other Total securities financial assets 2006 assets 1. Financial assets held for trading ––––– 2. Financial assets at fair value –––––

3. Financial assets available for sale ––––– 4. Financial assets held to maturity ––––– 5. Loans to banks – 2 – – 2 6. Loans to customers ––––– 7. Hedging derivatives X X X – – 8. Financial assets assigned but not derecognized –––––

9. Other assets X X X 17 17 Total – 2 –1719

1.2 INTEREST INCOME AND SIMILAR REVENUES: DIFFERENCES ON HEDGING TRANSACTIONS

See table 1.5.

1.3 INTERESTS INCOME AND SIMILAR REVENUES: OTHER INFORMATIONS

Total 2006 Total 2005 1.3.1 Interest income on foreign currency assets 408,666 304,927 1.3.2 Interest income on assets in respect of financial leases 404,366 334,908 1.3.3 Interest income on third party funds under administration 2423

As regards item 1.3.2:

Deferred financial gains in respect of finance leases (*) 1,359,167

Potential lease payments as income (**) 22,567

(*) of which deferred financial gains in respect of finance leases for sale and leaseback transactions 165,930

(**) of which potential lease payments in respect of finance leases for sale and leaseback transactions 2,817 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.4. INTEREST EXPENSE AND SIMILAR CHARGES: 1.4.1 OF WHICH: BANKING GROUP

Debt Securities Other Total 2006 Total 2005 liabilities 1. Due to banks (670,773) X – (670,773) (607,174) 2. Due to customers (804,929) X – (804,929) (528,358) 3. Securities in issue X (1,023,178) – (1,023,178) (994,428) 4. Financial liabilities held for trading (126) (25,680) (158,384) (184,190) (118,074) 5. Financial liabilities at fair value ––––(68) 6. Financial liabilities in respect of assets assigned but not derecognized (109,409) (85,637) – (195,046) (184,413) 7. Other liabilities X X (946) (946) (8,030) 8. Hedging derivatives X X (105,930) (105,930) (330,569) Total (1,585,237) (1,134,495) (265,260) (2,984,992) (2,771,114)

1.4.3 OF WHICH:OTHER ENTITIES

Debt Securities Other Total 2006 liabilities 1. Due to banks (5) X – (5) 2. Due to customers – X – – 3. Securities in issue X – – – 4. Financial liabilities held for trading –––– 5. Financial liabilities at fair value –––– 6. Financial liabilities in respect of assets assigned but not derecognized –––– 7. Other liabilities X X – – 8. Hedging derivatives X X – – Total (5) – – (5) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 198 199

1.5 INTEREST EXPENSE AND SIMILAR CHARGES: DIFFERENCES ON HEDGING TRANSACTIONS

Banking group Other entities Total 2006 A. Positive differences on: A.1 Specific fair value hedges of assets 18,467 – 18,467 A.2 Specific fair value hedges of liabilities 367,572 – 367,572 A.3 Generic hedges of interest rate risk 4,430 – 4,430 A.4 Specific cash flow hedges of assets – – – A.5 Specific cash flow hedges of liabilities – – – A.6 Generic cash flow hedges – – – Total positive differences (A) 390,469 – 390,469 B. Negatives differences on: B.1 Specific fair value hedges of assets (256,614) – (256,614) B.2 Specific fair value hedges of liabilities (224,855) – (224,855) B.3 Generic hedges of interest rate risk (13,390) – (13,390) B.4 Specific cash flow hedges of assets – – – B.5 Specific cash flow hedges of liabilities (1,540) – (1,540) B.6 Generic cash flow hedges – – – Total negative differences (B) (496,399) – (496,399) C. Balance (A–B) (105,930) – (105,930)

1.6 INTEREST EXPENSE AND SIMILAR CHARGES: OTHER INFORMATION

Total 2006 Total 2005 1.6.1 Interest expense on foreign currency liabilities (427,403) (343,495) 1.6.2 Interest expense on liabilities in respect of financial leases 0 – 1.6.3 Interest expense on third party funds under administration (2,875) (1,726) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 2 – COMMISSIONS – ITEMS 40 AND 50

2.1 COMMISSION INCOME: COMPOSITION

Banking group Other entities Total 2006 Total 2005 a) guarantees issued 53,255 – 53,255 50,273 b) credit derivatives –––– c) management, intermediation and advisory services: 988,740 – 988,740 914,257 1) trading in financial instruments 99,836 – 99,836 87,586 2) foreign exchange 5,163 – 5,163 8,531 3) asset management 522,099 – 522,099 554,850 3.1 individual 50,432 – 50,432 69,069 3.2 collective 471,667 – 471,667 485,781 4) securities custody and administration 12,322 – 12,322 12,365 5) depository services 28,007 – 28,007 27,536 6) securities placement 104,753 – 104,753 58,058 7) order collection 28,281 – 28,281 28,079 8) advisory services 6,700 – 6,700 705 9) distribution of third–party services 181,579 – 181,579 136,547 9.1 asset management – – – 383 9.1.1 individual – – – 168 9.1.2 collective – – – 215 9.2 insurance products 178,070 – 178,070 134,506 9.3 other 3,509 – 3,509 1,658 d) collection and payment services 167,060 – 167,060 195,127 e) servicing activities for securitizations 19,573 – 19,573 18,004 f) services for factoring transactions 19,344 – 19,344 22,263 g) tax collection services – – – 23,725 h) other services 741,970 – 741,970 700,913 – on current accounts and deposits 329,857 – 329,857 322,197 – loans to customers 142,137 – 142,137 133,688 – other services 269,976 – 269,976 245,028 Total 1,989,942 – 1,989,942 1,924,562 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 200 201

2.2 COMMISSION INCOME: DISTRIBUTION CHANNELS FOR PRODUCTS AND SERVICES (APPLICABLE REGULATIONS): BANKING GROUP

Total 2006 Total 2005 a) own branches: 772,057 726,297 1) asset management 522,099 554,850 2) securities placement 79,707 45,660 3) third-party services and products 170,251 125,787 b) off-premises distribution: 19,396 19,115 1) asset management –– 2) securities placement 8,068 8,355 3) third-party services and products 11,328 10,760 c) other distribution channels: 16,978 4,043 1) asset management –– 2) securities placement 16,978 4,043 3) third-party services and products – 808,431

2.3 COMMISSION EXPENSE: COMPOSITION

Banking group Other entities Total 2006 Total 2005 a) guarantees issued (95) – (95) (307) b) credit derivatives (81) – (81) (715) c) management, intermediation and advisory services: (180,498) – (180,498) (159,023) 1) trading in financial instruments (15,477) – (15,477) (13,545) 2) foreign exchange (353) – (353) (386) 3) asset management (61,930) – (61,930) (59,807) 3.1 own portfolio (47,725) – (47,725) (43,705) 3.2 third-party portfolio (14,205) – (14,205) (16,102) 4) securities custody and administration (7,519) – (7,519) (7,798) 5) placement of financial instruments (19,275) – (19,275) (2,318) 6) off-premises distribution of securities, products and services (75,944) – (75,944) (75,169) d) collection and payment services (41,774) (3) (41,777) (33,160) e) other services (44,053) – (44,053) (49,173) Total (266,501) (3) (266,504) (242,378) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 3 – DIVIDENDS AND SIMILAR INCOME – ITEM 70

3.1 DIVIDENDS AND SIMILAR INCOME: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Dividends Income Dividends Income Dividends Income Dividends Income from units from units from units from units in collective in collective in collective in collective investment investment investment investment undertakings undertakings undertakings undertakings A. Financial assets held for trading 35,624 408 – – 35,624 408 31,810 235 B. Financial assets available for sale 70,088 15,768 – – 70,088 15,768 67,637 2,548 C. Financial assets designated at fair value 437 – – – 437 – 1,289 – D. Equity investments 3,000 X – X 3,000 X 1,033 X Total 109,149 16,176 – – 109,149 16,176 101,769 2,783 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 202 203

Section 4 – NET GAIN (LOSS) ON TRADING ACTIVITIES – ITEM 80

4.1 NET GAIN (LOSS) ON TRADING ACTIVITIES: COMPOSITION 4.1.1 OF WHICH: BANKING GROUP

Capital gains Trading profits Capital losses Trading losses Net gain (loss) (A) (B) (C) (D) [(A+B)–(C+D)] 1. Financial assets held for trading 280,195 146,874 (39,838) (143,330) 243,901 1.1 Debt securities 7,248 65,311 (24,657) (64,861) (16,959) 1.2 Equity securities 255,545 69,995 (14,399) (74,937) 236,204 1.3 Units in collective investment undertakings 17,401 9,275 (751) (3,486) 22,439 1.4 Loans –––– – 1.5 Other 1 2,293 (31) (46) 2,217 2. Financial liabilities held for trading 12–––12 2.1 Debt securities –––– – 2.2 Debt –––– – 2.3 Other 12–––12 3. Other financial assets and liabilities: exchange rate differences XXXX45,303 4. Derivatives 4.1 Financial derivatives – on debt securities and interest rates 3,061,409 3,969,235 (2,375,222) (4,588,610) 66,812 – on equity securities and equity indices 1,404,550 3,336,893 (1,346,993) (3,400,902) (6,452) – on foreign exchange and gold XXXX21,803 – other 964 8,195 (145,113) – (135,954) 4.2 Credit derivatives 838 26,873 (1,912) (29,642) (3,843) Total 4,747,968 7,488,070 (3,909,078) (8,162,484) 231,582 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

4.1.3 OF WHICH: OTHER ENTITIES

Capital gains Trading profits Capital losses Trading losses Net gain (loss) (A) (B) (C) (D) [(A+B)–(C+D)] 1. Financial assets held for trading 32 55 – – 87 1.1 Debt securities –––– – 1.2 Equity securities – 55 – – 55 1.3 Units in collective investment undertakings 32–––32 1.4 Loans –––– – 1.5Other –––– – 2. Financial liabilities held for trading –––– – 2.1 Debt securities –––– – 2.2 Debt –––– – 2.3 Other –––– – 3. Other financial assets and liabilities: exchange rate differences XXXX – 4. Derivatives –––– – 4.1 Financial derivatives – on debt securities and interest rates –––– – – on equity securities and equity indices –––– – – on foreign exchange and gold XXXX – – other –––– – 4.2 Credit derivatives –––– – Total 32 55 – – 87 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 204 205

Section 5 – NET GAIN (LOSS) ON HEDGING ACTIVITIES – ITEM 90

5.1 NET GAIN (LOSS) ON HEDGING ACTIVITIES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 A. Income on: A.1 Fair value hedges 48,264 – 48,264 43,341 A.2 Hedged financial assets (fair value) 17,478 – 17,478 16,630 A.3 Hedged financial liabilities (fair value) 252,025 – 252,025 115,433 A.4 Cash flow hedging derivatives – – – 273 A.5 Assets and liabilities in foreign currencies 122 – 122 1,403 Total income on hedging activities (A) 317,889 – 317,889 177,080 B. Expense on: B.1 Fair value hedges (285,249) – (285,249) (148,555) B.2 Hedged financial assets (fair value) (36,292) – (36,292) (20,136) B.3 Hedged financial liabilities (fair value) (11,947) – (11,947) (24,458) B.4 Cash flow hedging derivatives –––– B.5 Assets and liabilities in foreign currencies (124) – (124) (1,402) Total expense on hedging activities (B) (333,612) – (333,612) (194,551) C. Net gain (loss) on hedging activities (A–B) (15,723) – (15,723) (17,471) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 6 - GAINS (LOSSES) ON DISPOSAL OR REPURCHASE - ITEM 100

6.1 GAINS (LOSSES) ON DISPOSAL OR REPURCHASE: COMPOSITION

Banking group Other entities Gains Losses Net Gains Losses balance Financial assets

1. Loans to banks 603 (25) 578 – –

2. Loans to customers 8,813 (2,563) 6,250 – –

3. Financial assets available for sale 343,911 (5,011) 338,900 – – 3.1 Debt securities 31,637 (75) 31,562 – – 3.2 Equity securities 311,498 (635) 310,863 – – 3.3 units in collective investment undertakings 776 (506) 270 – – 3.4 losses – (3,795) (3,795) – – 4. Financial assets held to maturity 97 (13) 84 – – Total assets 353,424 (7,612) 345,812 – – Financial liabilities

1. Due to banks –––––

2. Due to customers –––––

3. Securities in issue 32,503 (10,475) 22,028 – – Total liabilities 32,503 (10,475) 22,028 – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 206 207

Total 2006 Total 2005 Net Gains Losses Net Gains Losses Net balance balance balance

– 603 (25) 578 43 – 43

– 8,813 (2,563) 6,250 206 (82) 124

– 343,911 (5,011) 338,900 87,654 (23,162) 64,492 – 31,637 (75) 31,562 18,032 (838) 17,194 – 311,498 (635) 310,863 69,622 (22,324) 47,298 – 776 (506) 270––– – – (3,795) (3,795) – – –

– 97 (13) 84 73 – 73 – 353,424 (7,612) 345,812 87,976 (23,244) 64,732

–––––––

–––––––

– 32,503 (10,475) 22,028 14,023 (60,244) (46,221) – 32,503 (10,475) 22,028 14,023 (60,244) (46,221) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 7 – NET ADJUSTMENTS OF FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE – ITEM 110

7.1 NET ADJUSTMENTS ON FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE: COMPOSITION 7.1.1 OF WHICH: BANKING GROUP

Capital gains Gain on Capital losses Loss on Net gain (loss) (A) realization (B) (C) realization (D) [(A+B)-(C+D)] 1. Financial assets 3,476 349 (3,050) (129) 646 1.1 Debt securities 237 349 (1,366) (129) (909) 1.2 Equity securities 3,239 – (1,684) – 1,555 1.3 Units in collective investment undertakings –––– – 1.4 Loans –––– – 2. Financial liabilities –––– – 2.1 Debt securities –––– – 2.2 Due to banks –––– – 2.3 Due to customers –––– – 3. Financial assets and liabilities in foreign currency: exchange rate differences XXXX – 4. Derivatives 8,389 – (6,960) – – 4.1 Financial derivatives 8,389 – (6,960) – – – on debt securities and interest rates –––– – – on equity securities and equity indices –––– – – on foreign currencies and gold XXXX – – other 8,389 – (6,960) – 1,429 4.2 Credit derivatives –––– – Total derivatives 8,389 – (6,960) – 1,429 Total 11,865 349 (10,010) (129) 2,075

8.2.3 OF WHICH: OTHER ENTITIES

No data for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 208 209

Section 8 – NET VALUE ADJUSTMENTS FOR IMPAIRMENT – ITEM 130

8.1 NET IMPAIRMENT ADJUSTMENTS OF LOANS: COMPOSITION 8.1.1 OF WHICH: BANKING GROUP

Writedowns Writebacks Total Total SpecificPortfolio Specific Portfolio 2006 2005 Writeoffs Other from other from other interest writebacks interest writebacks A. Loans to banks (18) (43) (1,346) 72 103 – 461 (771) 2,360 B. Loans to customers (143,193) (795,804) (100,306) 249,006 573,083 – 30,318 (186,896) (91,708) C. Total (143,211) (795,847) (101,652) 249,078 573,186 – 30,779 (187,667) (89,348)

8.1.3 OF WHICH: OTHER ENTITIES

No data for 2006.

8.2 NET IMPAIRMENT ADJUSTMENTS OF AVAILABLE–FOR–SALE FINANCIAL ASSETS: COMPOSITION 8.2.1 OF WHICH: BANKING GROUP

Writedowns Writebacks Total 2006 Total 2005 Specific Specific Writeoffs Other from interest other writebacks A. Debt securities – (55,664) – 46,308 (9,356) 1,977 B. Equity securities – (6,229) X X (6,229) (37,901) C. Units in collective investment undertakings – – X – – – D. Loans to banks –––––– E. Loans to customers –––––(14,887) F. Total – (61,893) – 46,308 (15,585) (50,811)

8.2.3 OF WHICH: OTHER ENTITIES

No data for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

8.3 NET IMPAIRMENT ADJUSTMENTS OF HELD–TO–MATURITY FINANCIAL ASSETS: COMPOSITION 8.3.1 OF WHICH: BANKING GROUP

Writedowns Writebacks Total Total SpecificPortfolio Specific Portfolio 2006 2005 Writeoffs Other from other from other interest writebacks interest writebacks A. Debt securities – – – – – – 2.331 2.331 2.365 B. Loans to banks – – – – – –––– C. Loans to customers – – – – – –––– D. Total – – – – – – 2.331 2.331 2.365

8.3.3 OF WHICH: OTHER ENTITIES

No data for 2006.

8.4 NET IMPAIRMENT ADJUSTMENTS OF OTHER FINANCIAL TRANSACTIONS: COMPOSITION 8.4.1 OF WHICH: BANKING GROUP

Writedowns Writebacks Total Total SpecificPortfolio Specific Portfolio 2006 2005 Writeoffs Other from other from other interest writebacks interest writebacks A. Guarantees issued – (50,793) (138) – 4,563 – 305 (46,063) (43,782) B. Credit derivatives – – – 487 – – – 487 – C. Commitments to disburse funds – – – – – – 550 550 – D. Other transactions (160) (1,667) (1) – – – – (1,828) (604) E. Total (160) (52,460) (139) 487 4,563 – 855 (46,854) (44,386)

8.4.3 OF WHICH: OTHER ENTITIES

No data for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 210 211

Section 9 – NET PREMIUMS – ITEM 150

9.1 NET PREMIUMS: COMPOSITION

Premiums from insurance operations Direct Indirect Total 2006 Total 2005 A. Life insurance A.1 Gross premiums written (+) –––– A.2 Premiums ceded in reinsurance (–) – X – – A.3 Total –––– B. Non-life insurance B.1 Gross premiums written (+) – – – 28,467 B.2 Premiums ceded in reinsurance (–) – X – (1,565) B.3 Change in gross unearned premium reserve (+/–) – – – (12,594) B.4 Change in reinsurers’ share of unearned premium reserve (+/–) – – – 230 B.5 Total – – – 14,538 C. Total net premiums – – – 14,538

Section 10 – OTHER NET INCOME FROM INSURANCE OPERATIONS – ITEM 160

10.1 OTHER NET INCOME FROM INSURANCE OPERATIONS: COMPOSITION

Total 2006 Total 2005 1. Net change in technical reserves –– 2. Accrued claims paid during the year – 133 3. Other income and charges from insurance operations – (12,051) Total – (11,918)

10.2 COMPOSITION OF SUBITEM “CHANGE IN TECHNICAL RESERVES”

No data for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

10.3 COMPOSITION OF CLAIMS ACCRUED IN THE YEAR

Expense for claims Total 2006 Total 2005 Life insurance: expense in respect of claims, net of cessions in reinsurance A. Amount paid –– A.1 Gross for the year –– A.2 (–) Reinsurers’ share –– B. Change in reserve for outstanding claims – – B.1 Gross for the year –– B.2 (–) Reinsurers’ share –– Total life insurance –– Non-life insurance: expense in respect of claims, net of recoveries and cessions in reinsurance C. Amount paid – (623) C.1 Gross for the year – (808) C.2 (–) Reinsurers’ share – 185 D. Change in recoveries net of reinsurers’ share – – E. Changes in claims reserve – 756 E.1 Gross for the year – 747 E.2 (–) Reinsurers’ share –9 Total non-life insurance claims – 133

10.4 COMPOSITION OF SUBITEM “OTHER INCOME AND CHARGES FROM INSURANCE OPERATIONS” 10.4.1 LIFE INSURANCE

Breakdown not present for 2006.

10.4.2 NON-LIFE INSURANCE

Breakdown not present for 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 212 213

Section 11 – GENERAL AND ADMINISTRATIVE EXPENSES – 180

11.1 STAFF EXPENSES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1. Employees (1,949,839) (1,979) (1,951,818) (1,896,732) a) wages and salaries (1,255,374) (1,413) (1,256,787) (1,193,116) b) social security contributions (344,650) (375) (345,025) (343,067) c) severance pay (38,574) – (38,574) (80,757) d) pensions (629) – (629) (407) e) allocation to staff severance pay provision (81,967) (80) (82,047) (86,200) f) allocation to provision for pensions and similar liabilities (37,478) – (37,478) (23,845) – defined contribution – – – – – defined benefit (37,478) – (37,478) (23,845) g) payments to external complementary pension funds (68,160) – (68,160) (57,655) – defined contribution (36,056) – (36,056) (53,519) – defined benefit (32,104) – (32,104) (4,136) h) costs in respect of agreements to make payments in own equity instruments (11,761) – (11,761) (9,856) i) other employee benefits (114,904) (111) (115,015) (110,890) l) recovery of expenses for seconded employees 3,658 – 3,658 9,061 2. Other personnel (19,314) (27) (19,341) (16,959) 3. Board of Directors (16,855) (170) (17,025) (18,553) Total (1,986,008) (2,176) (1,988,184) (1,932,244) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11.2 AVERAGE NUMBER OF EMPLOYEES BY CATEGORY: BANKING GROUP

Total 2006 Employees 27,965 a) Executives 608 b) Total junior management 10,917 – of which 3rd and 4th level 4,150 c) Other employees 16,440 Other personnel 483 Total 28,448

11.3 COMPANY DEFINED BENEFIT PENSION PLANS: TOTAL COSTS

Total 2006 Service cost (6,430) Interest cost (31,048) Total (37,478)

11.4 OTHER EMPLOYEE BENEFITS

Total 2006 1) Lunch vouchers (25,668) 2) Insurance policies (23,758) 3) Training (10,021) 4) Fee expense for employee benefits (9,344) 5) Incentive system (22,642) 6) Other including seniority bonus (23,582) Total (115,015) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 214 215

11.5 OTHER ADMINISTRATIVE EXPENSES: COMPOSITION

Total 2006 Total 2005 Rental of buildings (133,466) (130,536) Ordinary maintenance (15,871) (21,105) Extraordinary maintenance (1,679) (4,716) Other building expenses (2,123) (6,228) Telephone service (19,866) (20,569) Electricity, heating and water (32,948) (26,699) Leasing of machinery and software (36,338) (35,676) Hardware and software maintenance (33,369) (28,449) Outsourcing of data processing (69,841) (114,779) IT consulting (10,645) (16,304) Data transmission and charges for electronic machinery (45,588) (41,864) Back office costs (6,486) (2,641) Advertising (59,172) (65,496) Marketing, development and entertainment (18,656) (13,734) Legal expenses for debt collection (89,542) (86,782) Other professional consulting services (72,554) (84,140) Subscriptions (2,441) (2,932) Transportation (12,836) (18,180) Collection of information and preliminary enquiries (33,352) (25,902) Insurance (72,489) (33,853) Security (43,929) (45,234) Cleaning services (15,403) (14,377) Use of automobiles (3,007) (3,059) Office supplies and printing (13,068) (12,998) Corporate bodies (3,428) (3,574) Sundry grants and donations (9,405) (7,727) Medical expenses and gifts (146) (601) Other expenses (51,294) (25,786) Indirect taxes and duties (180,266) (173,616) Total (1,089,208) (1,067,557) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 12 – PROVISIONS FOR LIABILITIES AND CONTINGENCIES – ITEM 190

12.1 PROVISIONS FOR LIABILITIES AND CONTINGENCIES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Pending litigation (77,018) – (77,018) (70,493) Covering of losses at subsidiaries (1,542) – (1,542) (800) Renegotiation of mortgage loans (271) – (271) 3,679 Other expenses (36,783) – (36,783) (46,776) Other (4,724) – (4,724) (17,650) Total (120,338) – (120,338) (132,040)

Section 13 - NET ADJUSTMENTS OF TANGIBLE ASSETS - ITEM 200

13.1 NET ADJUSTMENTS OF TANGIBLE ASSETS: COMPOSITION 13.1.1 OF WHICH: BANKING GROUP

Depreciation Writedowns Writebacks Net adjustments (a) for impairment (b) (c ) (a+b-c) A. Tangible assets A.1 Owned (103,249) (476) – (103,725) – used in operations (98,238) (285) – (98,523) – investment (5,011) (191) – (5,202) A.2 Acquired under finance leases (307) – – (307) – used in operations (223) – – (223) – investment (84) – – (84) Total (103,556) (476) – (104,032) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 216 217

13.1.3 OF WHICH: OTHER ENTITIES

Depreciation Writedowns Writebacks Net adjustments (a) for impairment (b) (c) (a+b-c) A. Tangible assets A.1 Owned (139) – – (139) – used in operations (139) – – (139) – investment –––– A.2 Acquired under finance leases (55) – – (55) – used in operations (55) – – (55) – investment –––– Total (194) – – (194)

Section 14 - NET ADJUSTMENTS OF INTANGIBLE ASSETS - ITEM 210

14.1 NET ADJUSTMENTS OF INTANGIBLE ASSETS: COMPOSITION 14.1.1 OF WHICH: BANKING GROUP

Amortization Writedowns Writebacks Net adjustments (a) for impairment (b) (c) (a+b-c) A. Intangible assets A.1 Owned (94,513) – – (94,513) – developed in-house (878) – – (878) – other (93,635) – – (93,635) A.2 Acquired under finance leases –––– Total (94,513) – – (94,513)

14.1.3 OF WHICH: OTHER ENTITIES

Amortization Writedowns Writebacks Net adjustments (a) for impairment (b) (c ) (a+b-c) A. Intangible assets A.1 Owned (10) – – (10) – developed in-house –––– – other (10) – – (10) A.2 Acquired under finance leases –––– Total (10) – – (10) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 15 – OTHER OPERATING INCOME (EXPENSES) – ITEM 220

15.1 OTHER OPERATING EXPENSES: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Reductions in assets (11,592) – (11,592) (11,333) Reimbursements and sundry repayments (4,751) – (4,751) (4,044) Litigation (12,768) – (12,768) (7,959) Writedowns of expense for leasehold improvements (17,026) – (17,026) (17,775) Other (54,257) – (54,257) (60,540) Total (100,394) – (100,394) (101,651)

15.2 OTHER OPERATING INCOME: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Recovery of expenses on deposits 2,996 – 2,996 2,687 Recovery of taxes 150,542 – 150,542 142,052 Rental income 10,925 – 10,925 13,186 Recovery of insurance premiums 60,891 – 60,891 51,528 Recovery of expenses (condominium fees and other) on rented premises 2,356 – 2,356 1,156 Recovery of legal costs in respect of impaired loans 85,414 – 85,414 75,226 Insurance and sundry reimbursements 6,736 – 6,736 15,502 Other 93,819 – 93,819 119,736 Total 413,679 – 413,679 421,073 Balance 313,285 319,422 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 218 219

Section 16 – INCOME (LOSS) ON EQUITY INVESTMENTS – ITEM 240

16.1 INCOME (LOSS) ON EQUITY INVESTMENTS: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1) Joint ventures A. Income –––– 1.Revaluations –––– 2. Gains on disposals –––– 3. Writebacks –––– 4. Other positive changes –––– B. Charges –––– 1. Writedowns –––– 2. Writedowns for impairment –––– 3. Losses on disposals –––– 4. Other negative changes –––– Net balance –––– 2) Companies under significant influence A. Income 100,074 – 100,074 72,749 1. Revaluations 88,024 – 88,024 72,626 2. Gains on disposals 12,050 – 12,050 123 3. Writebacks –––– 4. Other positive changes –––– B. Charges (21,760) – (21,760) (19,138) 1. Writedowns (9,207) – (9,207) (18,484) 2. Writedowns for impairment (12,392) – (12,392) (636) 3. Losses on disposals (161) – (161) (18) 4. Other negative changes –––– 3) Subsidiaries (386) (386) (522) 1. Writedowns for impairment (*) (386) (386) (522) Net balance 77,928 – 77,928 53,089 Total 77,928 – 77,928 53,089

(*) regards unconsolidated subsidiaries.

Section 17 – NET GAIN (LOSS) FROM FAIR VALUE MEASUREMENT OF TANGIBLE AND INTANGIBLE ASSETS - ITEM 250

Item 250 “Net gain (loss) from fair value measurement of tangible and intangible assets” is not present in the financial statements for 2006 and 2005. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Section 18 – WRITEDOWNS OF GOODWILL – ITEM 260

18.1 WRITEDOWNS OF GOODWILL: COMPOSITION

Writedowns of goodwill amount to €115 thousand and regard Reimmobiliare S.p.A..

Section 19 – GAIN (LOSSES) ON DISPOSAL OF INVESTMENTS – ITEM 270

19.1 GAINS (LOSSES) ON DISPOSAL OF INVESTMENTS: COMPOSITION

Banking group Other entities Total 2006 Total 2005 A. Land and buildings 4,475 – 4,475 5,657 – Gains on disposal 4,485 – 4,485 6,609 – Losses on disposal (10) – (10) (952) B. Other assets 49,155 (3) 49,152 12,176 – Gains on disposal (*) 50,642 – 50,642 15,050 – Losses on disposal (1,487) (3) (1,490) (2,874) Net balance 53,630 (3) 53,627 17,833

(*) of which 49.6 million in respect of the sale of 51% of Capitalia Assicurazioni S.p.A.

Section 20 - INCOME TAX FOR THE YEAR ON CONTINUING OPERATIONS - ITEM 290

20.1 INCOME TAX FOR THE YEAR ON CONTINUING OPERATIONS: COMPOSITION

Banking group Other entities Total 2006 Total 2005 1. Current taxes (–) (350,155) (649) (350,804) (236,697) 2. Changes in current taxes from previous periods (+/–) (8,593) – (8,593) (447) 3. Reduction of current taxes for the year (+) 51 173 224 1,651 4. Change in deferred tax assets (+/–) (165,535) (663) (166,198) (477,475) 5. Change in deferred tax liabilities (–/+) (132,128) – (132,128) 252,657 6. Taxes for the year (–) (–1+/– 2+ 3 +/–4+/–5) (656,360) (1,139) (657,499) (460,311)

20.2 RECONCILIATION OF THEORETICAL TAX LIABILITY WITH ACTUAL TAX LIABILITY RECOGNIZED

The difference between the theoretical and actual tax liability is essentially attributable to the exemption/ non-deductibility of capital gains/losses on securities under the application of the participation exemption and the substantial exemption of dividends received. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 220 221

Section 21 – PROFIT (LOSS) AFTER TAX FROM GROUPS OF ASSETS BEING DIVESTED – ITEM 310

21.1 PROFIT (LOSS) AFTER TAX FROM GROUPS OF ASSETS BEING DIVESTED: COMPOSITION

Banking group Other entities Total 2006 Total 2005 Groups of assets/liabilities 1. Income 7,780 – 7,780 1,512 2. Charges (5,695) – (5,695) – 3. Result of valuation of groups of assets and associated liabilities (1,287) – (1,287) – 4. Gains (losses) on realization –––– 5. Taxes and duties (972) – (972) – Profit (loss) (174) – (174) 1,512

21.2 BREAKDOWN OF INCOME TAXES IN RESPECT OF GROUPS OF ASSETS/LIABILITIES BEING DIVESTED

Total 2006 Total 2005 1. Current taxes (–) (972) – 2. Change in deferred tax assets (+/–) –– 3. Change in deferred tax liabilities (–/+) –– 4. Taxes for the year (–1 +/– 2 +/–3) (972) –

Section 22 – PROFIT (LOSS) PERTAINING TO MINORITY INTERESTS – ITEM 330

22.1 BREAKDOWN OF ITEM 330 “PROFIT PERTAINING TO MINORITY INTERESTS”

Banking group Other entities Total 2006 Total 2005 Fully consolidated 3,330 – 3,330 5,947 Accounted for with equity method – – – 127 Total (A) 3,330 – 3,330 6,074 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

22.2 BREAKDOWN OF ITEM 330 “LOSS PERTAINING TO MINORITY INTERESTS”

Banking group Other entities Total 2006 Total 2005 Fully consolidated – – – (39) Accounted for with equity method – – – (113) Total (B) – – – (152) Balance (A+B) 3,330 5,922

Section 23 – OTHER INFORMATION

There is no other significant information on the income statement.

Section 24 – NET INCOME PER SHARE

24.1 AVERAGE NUMBER OF DILUTED ORDINARY SHARES

The calculation of earnings per share is based on the following figures: 2006 2005 Net profit for the year euros/1000 1,161,973 1,027,960 Elimination income pertaining to minority interests euros/1000 3,330 5,922 Net profit allocated to ordinary shares (basic) euros/1000 1,165,303 1,033,882 Net profit allocated to ordinary shares (diluted) euros/1000 1,165,303 1,033,882 Number of ordinary shares in circulation at 1 January (*) number/1000 2,510,934 2,206,351 New share issues during the year (average) number/1000 81,219 298,428 Treasury stock sold during the year (average) number/1000 100 1,900 Average number of ordinary shares in circulation (basic) number/1000 2,592,253 2,506,679 Potential exercise of warrants and options number/1000 15,402 42,177 Avg. no. of ordinary shares in circulation (diluted) number/1000 2,607,655 2,548,856 Earnings per ordinary share (basic) euros 0,45 0,41 Earnings per ordinary share (diluted) euros 0,45 0,41

(*) net of treasury stock.

Number of ordinary shares at 2 March 2007 number/1000 2,596,381 Net income per share euros 0.45

24.2 OTHER INFORMATION

There is no other significant information. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 222 223

PART D – SEGMENT INFORMATION

An income statement and statement of the main In order to ensure comparability, the figures for 2005 balance sheet items is prepared for the Group’s primary have been reconstructed to take account of: and secondary segment reporting.
changes in scope of consolidation;

BASIS FOR THE PREPARATION OF THE INCOME
transfers of customers among segments following STATEMENT change in commercial portfolios;

Net income by business segment was calculated on
revision of cost allocation model following the basis of the following policies: centralization of facility management operations under Capitalia Solutions;
net interest income was calculated by contribution based on internal transfer rates differentiated by product;
transfer to Wholesale & Investment Banking of depository bank activities (from Corporate Center) and
net services income was determined through the the Finance activities performed by foreign branches direct allocation of real commission components to the (from Corporate). business segments;

operating costs were allocated using a full costing BALANCE SHEET AGGREGATES model, which allocates all operating costs to the areas with the exception of overhead costs incurred by the Parent Customer lending and funding aggregates are Company for its guidance and coordination activities; reported for each business segment. Specifically:

adjustments and income/loss on the disposal of
lending with customers is reported under “Loans to investments are allocated to the segments that customers” in the balance sheet; generated them;
customer funding is equal to the sum of “Due to
taxes were calculated on the basis of standard IRES customers” and “Debt securities issued”. and IRAP rates, allocating the difference with respect to the actual tax liability to the Corporate Center; A. PRIMARY BASIS OF SEGMENT REPORTING
minority interests were allocated on the basis of their actual minority holdings attributable to the individual For segment reporting purposes, the Capitalia Group, business segments. in line with its management structure and the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

organization envisaged in the 2005–2007 Business Plan, Wholesale & Investment Banking; Financial Services; is divided into five business segments: Retail; Corporate; Corporate Centre.

A.1 DISTRIBUTION BY BUSINESS SEGMENT: INCOME STATEMENT

At 31 December 2006 Capitalia Retail Corporate Wholesale &Financial Corporate (millions of euros) Group investment services Center INCOME STATEMENT Net interest income 2,836.9 1,448.8 572.1 170.2 365.2 280.6 Net income on services 2,693.7 1,288.7 196.1 612.4 454.3 142.2 Gross income 5,530.6 2,737.5 768.2 782.6 819.5 422.8 Total operating expenses (3,232.9) (2,036.0) (377.0) (162.3) (379.8) (277.8) Gross operating profit 2,297.7 701.5 391.2 620.3 439.7 145.0 Total provisions and value adjustments (617.2) (159.1) (168.7) (19.4) (102.8) (167.2) Net operating profit 1,680.5 542.4 222.5 600.9 336.9 (22.2) Realized gains (losses) on sales of assets 142.5 0.0 0.0 21.2 6.6 114.7 Profit before taxes 1,823.0 542.4 222.5 622.1 343.5 92.5 Income taxes (657.5) (273.2) (103.6) (221.0) (134.7) 75.0 Profit from non-current assets being divested (0.2) 0.0 0.0 0.0 0,0 (0.2) Profit (loss) pertaining to minority interests (3.3) 0.0 0.0 (0.1) (2.3) (0.9) Net profit 1,162.0 269.2 118.9 401.0 206.5 166.4

At 31 December 2005 Capitalia Retail Corporate Wholesale &Financial Corporate (millions of euros) Group investment services Center INCOME STATEMENT Net interest income 2,534.4 1,254.7 575.8 136.2 336.4 231.3 Net income on services 2,624.3 1,244.5 167.0 584.3 464.7 163.8 Gross income 5,158.7 2,499.2 742.8 720.5 801.1 395..1 Total operating expenses (3,152.6) (1,975.6) (378.4) (166.0) (380.5) (252.1) Gross operating profit 2,006.1 523.6 364.4 554.5 420.6 143.0 Total provisions and value adjustments (590.9) (97.2) (123.3) 3.3 (84.9) (288.8) Net operating profit 1,415.2 426.4 241.1 557.8 335.7 (145.8) Realized gains (losses) on sales of assets 82.6 0,0 0.0 17.9 0.2 64.5 Profit before taxes 1,497.8 426.4 241.1 575.7 335.9 (81.3) Income taxes (461.3) (224.3) (108.8) (215.5) (128.5) 215.8 Profit from non-current assets being divested 5.5 0.0 0.0 0.0 0.0 5.5 Profit (loss) pertaining to minority interests (6.4) 0.0 0.0 0.0 0.0 (6.4) Net profit 1,035.6 202.1 132.3 360.2 207.4 133.6 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 224 225

The Retail segment covers the operations of the retail The Wholesale & Investment Banking segment banks with private and small business customers, It is the reports performance with large corporate and largest segment, accounting for more than 50% of Group institutional customers, investment banking and revenues and 31% of gross operating income. Compared depository bank operations, as well as the finance with last year, the contribution to net income rose by operations carried out by the Parent Company and the 33%, the product of strong revenue growth (+9.5%) subsidiaries. Revenues increased by 8.6%, thanks sustained by net interest income (+15.5%) and contained primarily to lending to large corporate customers. growth in costs (+3.1%). This caused gross operating Together with controls on the rise in operating costs, this income to rise by 34% to €701 million. produced growth of more than 10% in gross operating income. The Corporate segment includes the mid–corporate customers of the retail banks and operations with the The Financial Services segment, which covers product customers of the foreign branches. The income statement companies operating in the wealth management sector and balance sheet figures reflect the specific nature of its (MCC and Fineco Leasing) is the second largest segment, business, which mainly involves corporate finance. It with about 15% of revenues. In 2006, revenues rose by accounted for 14% of Group revenues, 74.5% of which in the 2.3%, buoyed by the good performance of net interest form of net interest income. Compared with 2005, revenues income (+8.6%), which was partly offset by a decrease in rose by 3.4% thanks to developments in net services income. commissions from wealth management operations. The Tight control of operating costs (down 0.3%) generated contribution to Group net income was stable at €207 growth of 7.3% in gross operating income, to €391 million. million.

A.2 DISTRIBUTION BY BUSINESS SEGMENT: BALANCE SHEET

At 31 December 2006 Capitalia Retail Corporate Wholesale &Financial Corporate (millions of euros) Group investment services Center ASSETS/LIABILITIES Lending to customers 96,012 25,993 26,943 13,932 23,124 6,020 Funding from customers 96,753 34,426 5,588 11,548 7,346 37,845

At 31 December 2005 Capitalia Retail Corporate Wholesale &Financial Corporate (millions of euros) Group investment services Center ASSETS/LIABILITIES Lending to customers 82,381 21,040 22,364 11,469 21,113 6,395 Funding from customers 90,206 34,114 5,652 11,074 5,693 33,673

B. SECONDARY BASIS OF SEGMENT REPORTING

In its secondary segment reporting, the Group has distinguished between Italy, where most of its operations are conducted, and the rest of the world. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B. DISTRIBUTION BY GEOGRAPHICAL SEGMENT: INCOME STATEMENT

At 31 December 2006 (millions of euros) Capitalia Group Italy Abroad INCOME STATEMENT Net interest income 2,836.9 2,744.6 92.3 Net income on services 2,693.7 2,626.2 67.5 Gross income 5,530.6 5,370.8 159.8 Total operating expenses (3,232.9) (3,158.5) (74.4) Gross operating profit 2,297.7 2,212.3 85.4 Total provisions and value adjustments (617.2) (617.0) (0.2) Net operating profit 1,680.5 1,595.3 85.2 Realized gains (losses) on sales of assets 142.5 130.2 12.3 Profit before tax 1,823.0 1,725.5 97.5 Income taxes (657.5) (637.4) (20.1) Profits from non-current assets being divested (0.2) (0.2) 0.0 Profit (loss) pertaining to minority interests (3.3) (3.3) 0.0 Net profit 1,162.0 1,084.6 77.4

At 31 December 2005 (millions of euros) Capitalia Group Italy Abroad INCOME STATEMENT Net interest income 2,534.4 2,445.4 89.0 Net income on services 2,624.3 2,544.8 79.5 Gross income 5,158.7 4,990.2 168.5 Total operating expenses (3,152.6) (3,086.0) (66.6) Gross operating profit 2,006.1 1,904.2 101.9 Total provisions and value adjustments (590.9) (590.8) (0.1) Net operating profit 1,415.2 1,313.4 101.8 Realized gains (losses) on sales of assets 82.6 38.8 43.8 Profit before tax 1,497.8 1,352.2 145.6 Income taxes (461.3) (435.2) (26.1) Profits from non-current assets being divested 5.5 5.5 0.0 Profit (loss) pertaining to minority interests (6.4) (6.4) 0.0 Net profit 1,035.6 916.1 119.5

B.2 DISTRIBUTION BY GEOGRAPHICAL SEGMENT: BALANCE SHEET

At 31 December 2006 (millions of euros) Capitalia Group Italy Abroad ASSETS/LIABILITIES Lending to customers 96,012 87,132 8,880 Funding from customers 96,753 94,124 2,629

At 31 December 2005 (millions of euros) Capitalia Group Italy Abroad ASSETS/LIABILITIES Lending to customers 82,381 74,000 8,381 Funding from customers 90,206 87,783 2,423 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 226 227

PART E – RISKS AND THE RELATED HEDGING POLICIES

Section 1 – BANKING GROUP RISKS The development of methodologies for the assessment and control of risk is centralized within the The Parent Company is responsible for the definition Parent Company, and the risks assumed by Group and development of risk assessment methods, the companies are measured using the same methods and control of risks taken on at the Group level, and the technological tools. strategic management of these risks. Group companies retain responsibility for first–level controls, particularly as concerns the verification that the level of risk taken on 1.1 CREDIT RISK individually is consistent with the Parent Company instructions, capital resources and prudential supervision Qualitative disclosures rules.

In order to ensure efficiency, the risk management A. GENERAL ASPECTS process is structured consistently with the organizational decisions made for the Capitalia Group and with The development guidelines for Group business are supervisory instructions governing internal controls at defined at the strategy level in the Business Plan and banks. This process requires that Capitalia identify and detailed in the annual budgets prepared by the Group measure the risks taken on by Group companies, verify companies in agreement with the Parent Company. compliance with the ceilings established, and provide analyses to individual subsidiaries and to the Parent The Parent Company, in turn, sets credit assessment Company’s Risk and ALM Committee, which uses them in policies in terms of creditworthiness and risk/return formulating strategic decisions to determine the desired profiles, as well as the lending policy guidelines, so as to profiles for different forms of risk. direct loan approvals and management for the Group towards the asset quality goal. On the basis of these analyses and the guidance provided by the Risk and ALM Committee, the Parent In 2006, the Capitalia Group posted significant Company takes action to rebalance the risk profiles of growth in lending to retail customers, driven by home Group companies, as well as to optimize the overall loans despite the prudent loan-to-value policy adopted, Group risk–return profile and use capital more efficiently. and to business customers. Group companies therefore look to the Parent Company to carry out whichever hedging operations are needed to Loans to corporate customers on the whole grew align their risk profile with the related targets, taking into faster than the average for the banking system, thanks to account their capital and their individual prudential an increase in the short-term component and, above all, supervision rules. in medium to long-term lending. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In line with the risk governance model adopted by the B. CREDIT RISK MANAGEMENT POLICIES Capitalia Group, the Parent Company issue lending policy guidelines for 2007, providing subsidiaries with indications on the most efficient approach to developing B.1 Organizational aspects and expending lending in a manner consistent with the risk profile sought by the Group. The Capitalia Group’s loan disbursement and management process is based on approaches consistent The lending policy guidelines evolved in harmony with Basle 2, which are now at an advanced stage of with the operational use of internal rating systems and implementation in the current operations of the were further expanded with tools for identifying and subsidiaries. Ratings are the key element in evaluating measuring the risks generated. lending decisions, differentiating approval authority, pricing, management activities, and lending policies. The guidelines set out for 2007 continue in the direction set in 2006, with the specification of The Group supports the fullest integration of “structural” principles for lending policies, such as the measures of credit risk and profitability corrected for risk use of expected loss in guiding lending decisions and in defining commercial objectives and in planning the commercial planning, the definition of lending activities of the various companies as part of the strategic strategies consistent with customer risk and attention and financial guidelines handed down by the Parent to the concentration of individual and sector Company. exposures. Capitalia has developed internal rating systems to The guidelines devoted special attention to new support the use of the advanced approaches envisaged customers, underscoring the need to focus on the risk under the Basle accord. The internal rating models help profile of the counterparty in developing commercial Group companies to make lending decisions (both strategies and to take account of expected loss in approval and management) and aid them in managing planning commercial initiatives. A specific section of the the portfolio through credit rating assessment and the guidelines regarded sector risk, with the development of assignment of the rating that corresponds to the estimate specific risk/opportunity matrices based on forecasting of the likelihood that the customer will default within one scenarios and the Group’s risk position in the various year. sectors. During 2006 work continued on the roll-out of internal With regard to managing the trading portfolio, the rating systems within the lending process. Group takes on exposures in terms of specific risk (associated with trading in bonds and related derivatives) The lending process and the use of electronic lending and counterparty risk (associated with trading in OTC procedures for the corporate and small business derivatives). segments have been in full operation at all retail banks for some time now. In 2006 the functional changes The Group’s investment decisions are guided by a necessary to incorporate the calculation methodology for prudent approach to containing risks, which calls for expected loss in accordance with Basle 2 rules were the use of highly liquid cash and derivative defined and implemented. In particular, the calculation of instruments. loss given default and the procedures for treating WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 228 229

exposure at default were engineered, and credit risk Direct intervention mitigation techniques were defined at the applications level. Direct intervention undertaken by the Parent Company includes the following: The determination of expected loss will make it possible manage delegated decision-making authority
centralization of determination of the overall amount on the basis of this risk measure as well, supplementing of risk at the Group level in favor of the Italian and foreign ratings, which are already used by the Group companies correspondents; determining the country risk ceilings; to differentiate decision-making responsibilities.
coordinating, at the Group level, issues related to the Operational use of internal rating models for the retail restructuring of debt with countries experiencing lending also began, starting with mortgage loans. The financial difficulties; and determining lines of credit in new lending process and the related information support favor of subsidiaries. tool were developed in coordination with the Parent Company, with close operational contact between Based on the limits established and authorized by the commercial and lending structures. The aim is to Parent Company’s competent governing bodies, such implement a shared, uniform approach and standardize risks are also managed in accordance with the needs processes throughout the Group. Release to the expressed by the operating units of the Group banks. networks began in January 2007. In accordance with specific mandates signed with the Last year also saw the launch of governance banks, the Parent Company may handle the assessment procedures (mainly Group master records, of correspondent banks and subsidiary companies on parameterization and management of borrower groups behalf of the subsidiaries themselves. at the Group level), which are intended to enhance risk management and increase the efficiency of the Lending activities in relation to correspondents, circulation of information within the Group. Operational subsidiaries, and country risk are carried out through a implementation also began for rules governing the specific Capitalia organizational model, which includes: handling of customers who have received loans from more than one bank within the Group, with specific
within the Lending Function of Capitalia S.p.A., a unit regard to the assignment of the internal rating. responsible for analysis, assessment and processing, as well as the preparation of proposals for the decision- In the Group organizational model for granting and making bodies; monitoring loans, Capitalia is responsible for exercising coordination, guidance and control over the banks with
within the Rating and Pricing Agency of Capitalia, a regard to credit risk in order to ensure that lending specific unit responsible for rating assignment using processes and the level of risk taken on by the internal ratings models and based on the quantitative subsidiaries are consistent with Group objectives. and qualitative information generated by the Lending Function. Governance of credit risk is handled by Capitalia through direct intervention and other governance of the Activities regarding the correspondents originate with subsidiaries. the planned needs of the operating units of Capitalia and WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

the subsidiary banks. They mainly involve two methods of all management activities, including formalization of measuring risk: proposals, but without prejudice to the responsibilities of the companies that control the loans in the approval and
establishing, for a significant number of foreign implementation phases. banks, predetermined credit ceilings, within the scope of annual assessments of the correspondents and the assignment of the relating credit ceiling based on an Governance activities evaluation of creditworthiness and internal credit ratings; The other governance mechanisms seek to ensure
the assessment and recommending overall credit consistency in the way the companies of the Group take levels to the Parent Company’s decision-making body for on, manage, and monitor loans. the correspondents not included within the process above. Disbursement activities carried out by subsidiaries are Capitalia’s Lending Function also manages the loans governed by the Parent Company, which issues opinions that are approved, handling the assignment to the units on significant exposures. These are essentially technical originating the credit demand. Lines of credit to opinions on the consistency, including with regard to correspondents and the country risk ceilings are renewed risk/return assessments, of lending transactions with the annually. objectives of the Group, and are issued prior to approval by the subsidiary themselves. For banks and large corporate customers, as well as for the assessment of country risk, Capitalia’s Internal Rating In 2006 the Parent Company partially refined the and Pricing Agency manages the process of assigning definition of significant exposures, differentiating the ratings and determining the risk-adjusted spread. Group risk threshold beyond which the loan decision requires a governance opinion by customer rating. The In line with current regulations and Basle 2 threshold is also more restrictive in certain cases, such as requirements, the Agency is fully independent of loan loans for individual property transactions, loans to origination units. As part of the reorganization of lending problem borrowers and committed lines of credit priced processes for Basle 2, this model has been replicated in derogation from Group policy. throughout all Group entities. More generally, the Group’s lending activities follow An additional area of direct intervention on the part of the Group lending policy guidelines which, on an annual the Parent Company concerns classified loans. Through basis, make up the framework which the subsidiaries use its Restructured Loans unit, Capitalia is active in the as a guide in their lending to the individual customer management of positions of greater than €20 million if segments, especially as regards the portfolio mix in terms classified as bad debts or of more than €5 million with a of counterparty risk (measured based on the internal high level of risk and/or complexity if classified as ratings models), industry, geographic area, and product. substandard and restructured (positions that make up the The actual application of these guidelines will soon be so-called Level 1 – Management). reinforced with the progressive roll-out of a new “lending policy” section in the electronic loan procedure, which by In this case, the positions are managed directly by the explicating credit policy assessments on the position Parent Company, which reserves the authority to handle enables the loan proposing unit and the loan approval WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 230 231

unit to immediately assess the consistency of the managed by the individual companies, and the Parent decision with the portfolio strategy of the bank and the Company intervenes with opinions prior to these Group. companies issuing authorizations, and also defines management policies, provides technical support, and The Parent Company is also involved in defining and monitors the positions on an ongoing basis; verifying implementation at the Group banks of lending processes based on shared principles and approaches.
Level 3 – Governance, which includes bad debts of This activity which is conducted through the issue of less than €2.5 million and substandard and restructured specific lending directives that are incorporated in the loans of less than €5 million. These positions are also regulations of the subsidiaries has been further managed by the companies themselves, while the Parent strengthened by the steps taken to ensure Basle Company defines the rules of governance and the compliance, as it has become part of the Basle 2, Lending management policies, particularly as regards exposures and IAS project. divided among more than one company.

With regard to the new Capitalia Group Rules, the In 2006, the Parent Company confirmed, with the Group’s loan monitoring directive, which defines the issue of the Capitalia Group Rules, the activities, activities, responsibilities, and procedures for interaction responsibilities, and procedures for interaction within the between the Parent Company’s Loan Monitoring Group in handling impaired positions so as to ensure Department and the analogous units of the Group banks efficient, coordinated management of classified and financial companies, has been implemented on a positions, without prejudice to the decision-making structural basis with the periodic activity of the autonomy of the individual companies. “Coordination Group”. The activities of the Coordination Group are described in the “Loans to customers” section The role of governance is also fully expressed in the of this report. periodic activities of the Coordination Group, which includes the participation of the head of the Parent Company’s As for debt collection, the Parent Company Restructured Loans Department and the loan contact intervenes both at the time a loan is classified as bad people of the various banks, with the objective of sharing the debts or substandard, by issuing opinions based on the criteria that are essential to debt collection policies. information that the Group companies are required to provide for the main impaired positions, and, through the restructured loans unit, in managing positions in a variety B.2 Management, measurement and control systems of ways by dividing the positions into different administration levels. Measurement and monitoring of developments in asset quality variables (new classifications under impaired In addition to Level 1 – Management, mentioned loans, past due positions, excess overdrafts and above, the other levels include: repayment irregularities) uses analytical measurement and control systems that are integrated at the Group
Level 2 – Control, which includes bad debts of level and targeted by customer segment. An analysis of between €2.5 million and €20 million and substandard portfolio trends and risk indicators makes it possible, and restructured loans of more than €5 million with a working together with the individual companies, to lower level of risk and/or complexity. These positions are identify the causes of the irregularities and to WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

progressively plan specific operational initiatives to the degree of risk of the problem positions. Anomalies prevent the positions from moving to default. and warnings are divided into four groups based on the source of the data: Monitoring risk in the Large Corporate segment involves the generation of a monthly “performance
System Notices (source: Central Credit Register and control framework” for both the entire portfolio and Central Small Value Credit Register); individual positions for the domestic market. In addition, a performance control framework has been developed
Procedural Notices (source: operating procedures); for the loan portfolio of the foreign network. The data analyzed as part of the Large Corporate Credit Outlook
External Notices (source: external adverse events); Monitoring process and the Foreign Network report are detailed in the “Loans to customers” section of this
Internal Notices. consolidated report. In order to improve monitoring of portfolio risk and For the Large Corporate, Mid Corporate and Small overall asset quality, and provide operating support to Business segments, within the process of standardizing customer management in the Retail segment, the retail processes at all Group banks, all commercial banks carry banks have now implemented a delinquency out systematic surveillance aimed at monitoring credit management system (Kor-DM). This system: quality on a pro-active basis involving all the key actors in
by immediately reporting trigger events; the process (position managers, specialists, groups), which beginning with a detailed assessment of the individual
by segmenting customers based on commercial anomalies encountered in credit relationships with value and risk; customers and identified by the monitoring process, lead to the assignment of a specific management classes to
and by applying differential treatment by type of performing positions, with the consequent determination credit (amortized financing and current account of the actions needed to deal with the positions and the overdrafts) and risk/value segment; subsequent focus on eliminating irregular performance. This loan management process, following specified
as well as through automated contact tools (mailings, assignment and intervention rules, is supported by an contact center), will make it possible to improve the electronic credit management application (PEG) performance of the segment in terms of regularizing implemented on the basis of a work flow approach. positions.

In line with the new Basle 2 Accord, the embedding The Kor-DM delinquency management system seeks to: of ratings in the monitoring and management process through the automated activation of the PEG following
standardize relations with defaulting customers by significant downgrades of a given borrower is now fully leveraging Group assets and structures (contact centers, operational. customer intelligence, sales support), thanks to the effective use of information for the purposes of The early warning system reports portfolio anomalies demanding/recovering payment, and the extension of on a monthly basis using 60 algorithms (46 for anomalies the “customer time” available to managers for and 14 warnings), which generate a color code indicating commercial activities; WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 232 233

accelerate payment flows and progressively reduce the sampling over a one-year time horizon and with a 99.93% number of new default positions (PD), the level of exposure confidence level, i.e. a single-factor version of a Merton at default (EAD) and actual losses and increase the rate of default/non–default model with stochastic LGD. return to performing status (LGD – indirect effect). The model also allows for allocation of the portfolio’s With regard to the introduction of internal ratings risk capital among the various sub-portfolios obtained by systems, efforts have been pursuing three main lines of grouping counterparties on the basis of the following action: models, processes, and information technology. characteristics: rating, institution, macro-region, region, line The models are built around three modules: the first is of business, industry, group (for customers belonging to the based on financial information; the second, on 200 largest groups in terms of exposure) and business unit. performance data; and the third, on a qualitative The sub-portfolios can also be constructed by aggregating assessment of the business. For further details on the positions based on an intersection of two or three of these ratings models, the processes, and information characteristics, which makes it possible to construct a technology, see section A.2.2 below. “monitoring panel” to track the risk level and concentration of the various sub-portfolios. The model results have then Finally, internal models have been developed for the been used to implement the first operational applications Parent Company in order to measure credit risk for a) the of the system to monitor the concentration of the banking banking book, and b) the trading portfolio for the book to aid in the definition of lending policy guidelines. subsidiary bank and for the Group.

b) Portfolio models: trading book

a) Portfolio models: banking book Credit risk taken on within the trading portfolio is monitored by calculating exposure and expected and The second phase of the project for the use of a unexpected loss indicators (Credit VaR), which are then portfolio model to measure the credit risk on the banking used to analyze the composition by issuer rating class book has been completed, with the creation of a and industry, as well as the implicit risk in the contracts database that provides extensive coverage of the related to unexpected changes in their credit rating. Group’s banking book (all ordinary performing These indicators are periodically calculated and reported customers, excluding intragroup positions) for all banks to the heads of the various units concerned. (except Capitalia Luxembourg) and Fineco Leasing.

On a monthly basis, economic capital absorbed B.3 Credit risk mitigation techniques (Credit-at-Risk, or CaR; Component Credit CaR) is measured using different risk drivers, such as exposure at The Capitalia Group uses a wide range of tools in default (EAD), loss given default (LGD), asset return mitigating credit risk. correlation, and probability of default (PD), and, when PD estimates using internal models are unavailable, PD data For mortgage loans to retail customers, the Group based on external benchmarks. maintains the credit ceiling within maximum loan-to- value ratios, which generally is no higher than 80%. For The model estimates the distribution of portfolio customers in the building industry, this ratio is losses with a Monte Carlo methodology and importance significantly lower. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The value of real estate backing the loan is assigned The guarantees backing lending operations are taken based on an appraisal conducted by licensed professional into consideration for the purposes of calculating the appraisers who work with the banks on a regular basis. risk–adjusted spread. The Capitalia Group has established There are also certain exceptions for types of real estate a working group dedicated to the handling of credit risk lending to “safe” customers and for the purchase of a mitigation (CRM) rules that has evaluated the level of primary residence within loan amount ceilings. compliance of the Group’s operating practice with the new Basle Accord, developing the necessary solutions to When financial assets, with the exception of cash, are close any methodological or information gaps. pledged to back loans, prudent margins are applied to their market value, and the greater the volatility in the Special attention was paid to the development of a value or price of the financial asset pledged, the larger model for verifying the appropriateness of guarantees, in the margin applied. line with the statutory requirements imposed by Basle 2, and their ongoing valuation and monitoring, partly with a Personal guarantees are also obtained in order to view to the preparation of these notes. better mitigate credit risk, and the rules of assessment take account of both the legal aspect, with particular Developments included the definition of the caution in the event of parties potentially subject to methodology, conventional rules to be used for the insolvency, and the personal and net-worth aspects of the appropriate and consistent valuation of guarantees, an guarantor. The assessment of creditworthiness follows analysis of the availability and quality of data and the the same assessment rules as for the actual borrower. The specification of a plan of action to be taken to obtain and electronic lending procedures now include methods of supplement the information needed to apply the appraising the net worth of the guarantor reserved for methodology. the borrower, so as to verify the appropriateness of the guarantee obtained. In parallel with enhancing data quality, work also continued on optimizing the “to-be” version of the On an annual basis, upon renewal of the financing, the model with the aim of refining the output and minimizing analysis of the guarantees and the guarantors is updated, manual adjustments. which involves all significant elements (including legal) that have an impact on their value. For real estate, As regards risk mitigation techniques, Capitalia has however, a new appraisal is not normally required. set itself the objective of gathering and systematizing the eligibility requirements for collateral, specifying – for The introduction of electronic procedures to support each requirement – the scope of application, logical loan processing at the commercial banks has made it eligibility checks, the object of control, the phases of the possible to begin rationalizing the procedures for process, the frequency of observation and the level of assessing guarantors and guarantees within the Group. automation that can be achieved in the eligibility control The appraisal process for guarantees, as a secondary process with the aim of increasing the organizational and source of repayment in the event of default, evaluates the process efficiency of that area. following: the adequacy of the net worth of the guarantor to the guarantee given; the relationship between As regards operations in the trading book, in line borrower and guarantor; and the guarantor’s profile and with the goals achieved in previous years, work rating, if available. continued on containing legal and counterparty risks in WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 234 235

respect of derivatives trading and repurchase
significant financial difficulty of the borrower; agreements of the Parent Company with international banks and investment companies, also expanding Banca
breach of contract, such as failure to make principal di Roma’s operations with bank, financial, corporate and or interest payments; government counterparties. As these operations expanded, risk decreased thanks to the use of contracts
high probability of default or other debt compliant with ISDA, EMA and ICMA standards with restructuring. new counterparties. The regulations established by the Bank of Italy define At the end of 2006 collateral received amounted to the factors that characterize each category of impaired €956 million, of which 97.1% in cash deposits and 2.9% loans, and specifically: in securities deposits.
bad debts: on- and off-balance-sheet exposures Having obtained authorization in March and April (loans, securities, derivatives, etc.) to an insolvent party, 2006 from the Bank of Italy relating to 47 Credit Support even if such insolvency has not been officially declared by Annexes (CSA), Capitalia can utilize the benefits allowed a court, or those in substantially equivalent circumstances, by the law relating to bilateral netting agreements for 46 regardless of any loss forecasts that the company may derivative contracts, as well as 7 ISDA Master have made and of any collateral or personal guarantees Agreements which can enjoy the benefits of netting securing the exposures. It does not include positions agreements. This has increased the benefits in terms of where the impairment is due to country risk factors; reducing the capital that needs to be committed to meet regulatory requirements. Capitalia also uses 27 Global
substandard exposures: on– and off–balance–sheet Master Repurchase Agreements (GMRAs) for repurchase exposures (loans, securities, derivatives, etc.) with parties operations. With a view to containing legal risk and that are experiencing temporary, objective difficulties harmonizing contracts across the Group, a further 45 that it is felt can be resolved within an appropriate period ISDA contracts are outstanding, entered into by the of time, regardless of any collateral or personal Parent Company on behalf of Banca di Roma on the basis guarantees securing the exposures. It does not include of a specific service contract. positions where the impairment is due to country risk factors;

B.4 Impaired financial assets
restructured exposures: on- and off-balance-sheet exposures (loans, securities, derivatives, etc.) for which, Procedures for classifying assets by quality of borrower owing to a deterioration in the financial standing of the borrower, a bank (or pool of banks) agrees to renegotiate The procedures for classifying loans are consistent the original terms of the contract (e.g. changing the with international accounting standards and the repayment schedule, reducing the debt, or reducing instructions issued by the Bank of Italy. interest) which results in a loss. This does not include exposures to companies that are expected to cease International accounting standards specify a series of doing business (e.g. in the case of voluntary liquidation objective loss events which result in a loan being or other such situations) or positions where the classified as non-performing, including: impairment is due to country risk factors; WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

past-due positions: the entire exposure (loans, This was done both at the Group level by the Parent securities, current accounts, etc.) to borrowers (other than Company and on a detailed basis by the subsidiaries. those that are classified among the three categories Monthly monitoring and analysis of the positions and above) who, as of the given reporting date, have loans or taking targeted action through management of the excess overdrafts past due by more than 180 days. This branch network, together with focused efforts does not include positions where the impairment is due regarding the broader phenomenon of overdrafts, to country risk factors. Past-due or excess overdraft has led to a reduction in such situations compared amounts must be of an ongoing nature and the amount the previous year. of the past-due or excess overdraft position must be equal to or greater than 5% of the total. Procedures for assessing the appropriateness of value adjustments For the purpose of calculating the amount of past-due and/or excess overdraft positions, existing past-due Loans to customers are recognized at their estimated positions and excess overdrafts on certain lines of credit realizable value, which is calculated based on the may be offset with existing balances on other lines of solvency of the borrower. Measurement is carried out on credit granted to the same borrower. a prudent basis and based on the assumption of the entity as a going concern. Account is taken of the risks Factors that allow an impaired position to be reclassified and losses accruing in the period even if discovered as performing following close of the period itself.

Impaired positions may be reclassified as performing In line with international accounting standards when a borrower has once again become fully solvent. (IASs/IFRSs), the banking book is measured by individual This involves: relationship, both in terms of recoverable amount and collection periods. For revocatory actions in bankruptcy
repayment of the entire position or past–due debt; and guarantees, the expected timing of the outlay/discussion is assessed.
restoring the conditions required to reactivate the relationship, in part based on an updated assessment of For impaired loans, the following types of assessment credit rating; are also conducted on the basis of statutory and IAS/IFRS requirements:
regularization of the loan position.
detailed, for the most significant positions both in Analysis of impaired exposures by age of arrears terms of amount and the financial standing of the borrower; In 2006, in line with the Basle 2 Accord and supervisory requirements, the Group took steps to
aggregate, for the remainder of the portfolio, systematically monitor and contain past-due segmented into groups based on credit risk. positions (i.e. persistent past-due positions and excess overdrafts of more than 90 days, between 90 Revocatory actions in bankruptcy/litigation and and 180 days, and more than 180 days that are guarantees are assessed at the individual (detailed) greater than or equal to 5% of the total position). level. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 236 237

Quantitative disclosures

CREDIT QUALITY

A.1 IMPAIRED AND PERFORMING POSITIONS: STOCKS, WRITEDOWNS, CHANGES, DISTRIBUTION BY SECTOR AND GEOGRAPHICAL AREA A.1.1 DISTRIBUTION OF FINANCIAL ASSETS BY PORTFOLIO AND CREDIT QUALITY (BOOK VALUE)

Banking group Other entities Bad debts Substandard Restructured Past due Country Other Impaired Other Total loans positions positions risk assets 1. Financial assets held for trading – 2 – – 530 9,361,995 – 7,847 9,370,374 2. Financial assets available for sale ––––267 4,721,945 – – 4,722,212 3. Financial assets held to maturity ––––648 939,725 – – 940,373 4. Loans to banks ––––10,284 12,505,023 – 232 12,515,539 5. Loans to customers 3,332,283 971,490 468,125 810,604 8,987 90,420,725 – – 96,012,214 6. Financial assets designated at fair value –––––56,458 – – 56,458 7. Financial assets being divested ––––––––– 8. Hedging derivatives –––––322,347 – – 322,347 Total 3,332,283 971,492 468,125 810,604 20,716 118,328,218 – 8,079 123,939,517 Total 2005 3,215,498 1,083,990 611,439 835,482 49,107 114,631,207 – 32,796 120,459,519 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.1.2 DISTRIBUTION OF FINANCIAL ASSETS BY PORTFOLIO AND CREDIT QUALITY (GROSS AND NET VALUES)

Impaired assets Other assets Gross Specific Portfolio Net Gross Portfolio Net Total exposure adjustments adjustments exposure exposure adjustments exposure (net exposure) A. Banking group 1. Financial assets held for trading 2 – – 2 X X 9,362,525 9,362,527 2. Financial assets available for sale ––––4,722,787 575 4,722,212 4,722,212 3. Financial assets held to maturity ––––940,733 360 940,373 940,373 4. Loans to banks 43 43 – – 12,523,404 8,097 12,515,307 12,515,307 5. Loans to customers 12,956,504 7,339,743 34,259 5,582,502 90,944,494 514,782 90,429,712 96,012,214 6. Financial assets designated at fair value ––––XX56,458 56,458 7. Financial assets being divested –––––––– 8. Hedging derivatives ––––XX322,347 322,347 Total A 12,956,549 7,339,786 34,259 5,582,504 109,131,418 523,814 118,348,934 123,931,438 B. Consolidated companies 1. Financial assets held for trading ––––XX7,847 7,847 2. Financial assets available for sale –––––––– 3. Financial assets held to maturity –––––––– 4. Loans to banks ––––232 –232 232 5. Loans to customers –––––––– 6. Financial assets designated at fair value ––––XX–– 7. Financial assets being divested –––––––– 8. Hedging derivatives ––––XX–– Total B ––––232 – 8,079 8,079 Total 12,956,549 7,339,786 34,259 5,582,504 109,131,650 523,814 118,357,013 123,939,517 Total 2005 13,291,269 7,524,713 20,148 5,746,408 102,274,114 480,076 114,713,111 120,459,519 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 238 239

A.1.3 CASH AND OFF-BALANCE-SHEET EXPOSURE TO BANKS: GROSS AND NET VALUES

Gross Specific Portfolio Net exposure writedowns writedowns exposure A. CASH EXPOSURES A.1 Banking group a) Bad debts 43 43 – – b) Substandard loans –––– c) Restructured positions –––– d) Past due positions –––– e) Country risk 18,377 X 8,094 10,283 f) Other assets 13,626,373 X 3 13,626,370 Total A .1 13,644,793 43 8,097 13,636,653 A.2 Other companies a) Impaired –––– b) Other 232 X – 232 Total A.2 232 – – 232 TOTAL A 13,645,025 43 8,097 13,636,885 B. OFF-BALANCE-SHEET EXPOSURES B.1 Banking group a) Impaired 60,729 – – 60,729 b) Other 3,624,306 X 94 3,624,212 Total B.1 3,685,035 – 94 3,684,941 B.2 Other companies a) Impaired –––– b) Other – X – – Total B.2 –––– TOTAL B 3,685,035 – 94 3,684,941 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.1.4 CASH EXPOSURES TO BANKS: CHANGES IN GROSS IMPAIRED POSITIONS AND THOSE EXPOSED TO COUNTRY RISK

Bad Substandard Restructured Past due Country debts loans positions positions risk A. Opening gross exposure 141 – – – 14,671 – of which: exposures assigned but not derecognized – –––– B. Increases 63 – – – 9,005 B.1 from performing positions 43 – – – 8,624 B.2. transfers from other categories of impaired positions – –––– B.3 other increases 20 – – – 381 C. Decreases 161 – – – 5,299 C.1 to performing positions – – – – 4,163 C.2. writeoffs – –––– C.3. collections 161 – – – 1,038 C.4. assignments – –––– C.5. transfers to other categories of impaired positions – –––– C.6. other decreases – – – – 98 D. Closing gross exposure 43 – – – 18,377 – of which: exposures assigned but not derecognized – –––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 240 241

A.1.5 CASH EXPOSURE TO BANKS: CHANGES IN TOTAL ADJUSTMENTS

Bad Substandard Restructured Past due Country debts loans positions positions risk A. Total opening adjustments 75 – – – 7,290 – of which: exposures assigned but not derecognized – –––– B. Increases 43 – – – 1,378 B.1 writedowns 43 – – – 1,364 B.2. transfers from other categories of impaired positions – –––– B.3 other increases – – – – 14 C. Decreases 75 – – – 574 C.1. writebacks from valuations 3 – – – 264 C.2. writebacks from collections 72 – – – 283 C.3. writeoffs – –––– C.4. transfers to other categories of impaired positions – –––– C.5. other decreases – – – – 27 D. Total closing adjustments 43 – – – 8,094 – of which: exposures assigned but not derecognized – –––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.1.6 CASH AND OFF-BALANCE-SHEET EXPOSURES TO CUSTOMERS: GROSS AND NET VALUES

Gross Specific Portfolio Net exposure writedowns writedowns exposure A. CASH EXPOSURES A.1 Banking group a) Bad debts 10,233,693 6,900,123 1,287 3,332,283 b) Substandard loans 1,356,127 379,836 4,799 971,492 c) Restructured positions 528,608 58,657 1,826 468,125 d) Past due positions 838,078 1,127 26,347 810,604 e) Country risk 16,102 X 5,669 10,433 f) Other assets 100,656,031 X 510,047 100,145,984 Total A. 1 113,628,639 7,339,743 549,975 105,738,921 A.2 Other companies a) Impaired –––– b) Other 7,847 X – 7,847 Total A.2 7,847 – – 7,847 TOTAL A 113,636,486 7,339,743 549,975 105,746,768 B. OFF-BALANCE-SHEET EXPOSURES B.1 Banking group a) Impaired 500,518 46,272 7,444 446,802 b) Other 22,903,244 X 36,172 22,867,072 Total B.1 23,403,762 46,272 43,616 23,313,874 B.2 Other companies a) Impaired –––– b) Other – X – – Total B.2 –––– TOTAL B 23,403,762 46,272 43,616 23,313,874 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 242 243

A.1.7 CASH EXPOSURES TO CUSTOMERS: CHANGES IN GROSS IMPAIRED POSITIONS AND THOSE EXPOSED TO COUNTRY RISK

Bad Substandard Restructured Past due Country debts loans positions positions risk A. Opening gross exposure 10,252,670 1,503,169 679,091 856,198 51,903 – of which: exposures assigned but not derecognized 26,596 16,865 – 2,145 – B. Increases 1,153,976 682,184 43,659 661,397 3,559 B.1. from performing loans 178,051 408,301 3,744 572,608 2,177 B.2. transfers from other categories of impaired positions 489,518 147,853 4,735 41,560 – B.3 other increases 486,407 126,030 35,180 47,229 1,382 C. Decreases 1,172,953 829,226 194,142 679,517 39,360 C.1. to performing loans 27,302 162,905 40,744 345,809 18,558 C.2. writeoffs 517,913 35,799 16,378 618 – C.3. collections 516,923 183,580 95,368 48,265 8,490 C.4. assignments 50,392 5,529 – 244 – C.5. transfers to other categories of impaired positions 5,249 416,479 18,554 243,384 – C.6. other decreases 55,174 24,934 23,098 41,197 12,312 D. Closing gross exposure 10,233,693 1,356,127 528,608 838,078 16,102 – of which: exposures assigned but not derecognized 29,703 19,707 – 2,410 –

A.1.8 CASH EXPOSURES TO CUSTOMERS: CHANGES IN TOTAL ADJUSTMENTS

Bad Substandard Restructured Past due Country debts loans positions positions risk A. Total opening adjustments 7,037,238 419,179 67,653 20,717 10,176 – of which: exposures assigned but not derecognized 6,810 3,162 – 71 – B. Increases 1,062,192 194,475 44,918 14,189 711 B.1 writedowns 937,491 192,466 42,591 13,264 563 B.2 transfers from other categories of impaired positions 102,195 312 – 31 – B.3 other increases 22,506 1,697 2,327 894 148 C. Decreases 1,198,020 229,019 52,088 7,432 5,218 C.1. writebacks from valuations 404,409 79,596 27,476 303 3,609 C.2. writebacks from collections 257,212 13,520 1,900 702 373 C.3. writeoffs 517,913 35,799 16,378 618 –- C.4. transfers to other categories of impaired positions 221 98,304 3,727 286 – C.5. other decreases 18,265 1,800 2,607 5,523 1,236 D. Total closing adjustments 6,901,410 384,635 60,483 27,474 5,669 – of which: exposures assigned but not derecognized 10,062 4,346 – 200 – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.2 CLASSIFICATION OF EXPOSURES ON THE BASIS OF EXTERNAL AND INTERNAL RATINGS A.2.1 DISTRIBUTION OF CASH EXPOSURES AND OFF-BALANCE-SHEET EXPOSURES BY EXTERNAL RATING GRADES

External rating grades AAA/AA– A+/A– BBB+/BBB– BB+/BB– B+/B– Lower Default Not Total than B (bad debts, rated substandard loans, past due loan, restructured loans) A. Cash exposures 12,445,836 6,317,689 1,542,662 525,398 120,038 787 4,416,445 94,014,791 119,383,646 B. Derivatives 918,909 519,110 1,724 3,575 – 1 – 895,969 2,339,288 B.1 Financial derivatives 918,335 518,715 1,724 3,575 – 1 – 620,843 2,063,193 B.2 Credit derivatives 574 395 –––– –275,126 276,095 C. Guarantees issued 352,846 256,628 565,547 97,288 72,344 7,000 273,882 9,351,630 10,977,165 D. Commitments to disburse funds 244,775 965,325 561,778 125,017 34,169 – 118 11,751,187 13,682,369 Total 13,962,366 8,058,752 2,671,711 751,278 226,551 7,788 4,690,445 116,013,577 146,382,468

The credit exposures in the consolidated financial counterparties, especially large corporates, have statements of the Capitalia Group that have an external generally been rated. Most of these exposures are to rating essentially regard bank counterparties and country investment grade counterparties. The percentage risk. Domestic corporate counterparties with external coverage is normal, given the characteristics of the credit ratings are relatively few in number, whereas foreign portfolio.

A.2.2 DISTRIBUTION OF CASH AND OFF-BALANCE-SHEET EXPOSURES BY INTERNAL RATING GRADES

Internal rating grades Low Medium Medium High Default Not Total risk low high risk (bad debts, rated risk risk substandard loans, past due loan, restructured loans) A. Cash exposures 41,335,691 11,262,370 4,377,282 1,422,780 5,251,674 46,516,363 110,166,160 B. Derivatives 1,444,401 71,795 15,619 3,310 – 803,142 2,338,267 B.1 Financial derivatives 1,428,602 71,795 15,619 3,310 – 543,620 2,062,946 B.2 Credit derivatives 15,799 – – – – 259,522 275,321 C. Guarantees issued 4,832,251 1,023,073 374,904 102,284 438,253 4,123,381 10,894,146 D. Commitments to disburse funds 3,987,245 931,737 156,721 43,852 118 8,467,041 13,586,714 Total 51,599,588 13,288,975 4,924,526 1,572,226 5,690,045 59,909,927 136,985,287 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 244 245

The table was prepared by the Group companies with a periodic basis. The models based on the bad–good internal rating systems, namely Capitalia S.p.A., Banca di approach undergo classic backtesting, while shadow Roma S.p.A., Banco di Sicilia S.p.A., Bipop Carire S.p.A., rating models are compared against external ratings and MCC S.p.A., FinecoBank S.p.A. and Irfis S.p.A.. undergo benchmarking with external models. The performance of the ranking approach models is As regards the internal ratings assigned, the examined with respect to new rankings and percentage coverage reflects the state of benchmarking analysis with external models. implementation of the internal rating models for bank counterparties (OECD banks model and EM banks The rating grades have been grouped in these notes model), for country risk (OECD countries model and EM to facilitate understanding of the level of risk presented countries model), for large corporates (Italy and by the portfolio. Specifically, as noted, given the Abroad), for mid corporates and small businesses exponential nature of the relationship between the (corporations, partnerships, natural persons with VAT probability of default and rating grades, the latter have registration). The internal models for measuring credit been grouped as followed: risk in respect of banks, countries and foreign large corporates were developed using a shadow rating 1) low risk: grades 1–10; approach and do not incorporate the evolution under 2) medium-low risk: grades 11 – 14; way in the Moody’s methodology for joint default 3) medium-high risk: grades 15 – 18; analysis (JDA). The internal rating model for Italian large 4) high risk: grades 19 – 22. corporates is based on a ranking approach; while those for mid corporates and small businesses use a classic As regards specialized lending (project finance, bad–good statistical approach. For specialized lending income producing real estate, object finance), the portfolios, the models are basis on slotting criteria, with outcomes have been allocated to the various grades as outcomes expressed as “strong”, “good”, follows: “satisfactory” and “weak”. 1) low risk: strong; The master scale used by Capitalia envisages 22 2) medium-low risk: good; rating grades. The data for 2006 are based on a 3) medium-high risk: satisfactory; probability of default estimated on the basis of “danger 4) high risk: weak. rates” (i.e. past due exposures that deteriorate into substandard, bad or restructured exposures). The trend in The percentage coverage with internal models will the probability of default is exponential with respect to increase rapidly in 2007 as loan procedures are renewed the rating grade. The first-level performance analyses, in and the models for estimating probability of default for which the ability of the system to rank, calibrate and financial, real estate, non-profit and start-up counterparties ensure representativeness are verified, are conducted on are implemented. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.3 DISTRIBUTION OF SECURED EXPOSURES BY TYPE OF GUARANTEE A.3.1 SECURED CASH EXPOSURES TO BANKS AND CUSTOMERS

Value of exposure Collateral (1)

Land and Securities Other Governments buildings assets 1. Secured exposures to banks 1.1 fully secured 390,660 – 4,556 – – 1.2 partially secured 76,296––––

2. Secured exposures to customers 2.1 fully secured 47,271,380 30,931,176 1,139,113 858,590 50,308 2.2 partially secured 4,736,895 211,378 409,589 90,567 –

A.3.2 SECURED OFF-BALANCE-SHEET EXPOSURES TO BANKS AND CUSTOMERS

Value of exposure Collateral (1)

Land and Securities Other Governments buildings assets 1. Secured exposures to banks 1.1 fully secured 554,328 – – 553,519 – 1.2 partially secured 444,775 – 32,464 252,012 –

2. Secured exposures to customers 2.1 fully secured 4,346,319 437,108 127,623 589,748 – 2.2 partially secured 856,355 61,813 31,449 31,689 – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 246 247

Unsecured guarantees (2) Credit derivatives Guarantees Other government Banks Other Governments Other government Banks Other Total (1)+(2) agencies agencies

– – – – 277,350 112 108,642 390,660 – – – 8,231 853 – – 9,084

– – – 45,085 77,297 217,342 13,870,372 47,189,283 – – – – 15,703 62,553 1,846,634 2,636,424

Unsecured guarantees (2) Credit derivatives Guarantees Other government Banks Other Governments Other government Banks Other Total (1)+(2) agencies agencies

– – – – 415 – 394 554,328 – – – – – – – 284,476

– – – 7 47,085 234,288 2,873,497 4,309,356 – – – 592 10,704 199,852 281,559 617,658 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.3.3 IMPAIRED SECURED CASH EXPOSURES TO BANKS AND CUSTOMERS

Value Amount of exposure secured Guarantees Unsecured guarantees Credit derivatives Land and Securities Other Governments Other Banks Financial buildings assets and central government companies banks agencies 1. Secured exposures to banks 1.1more than 150% ––––– – ––– 1.2 from 100% to 150% ––––– – ––– 1.3 from 50% and 100% ––––– – ––– 1.4 up to 50% ––––– – –––

2. Secured exposures to customers 2.1 more than 150% 1,467,225 1,467,225 938,898 33,231 34,821 – – – – 2.2 from 100% to 150% 369,195 369,195 165,759 11,432 2,097 – – – – 2.3 from 50% and 100% 1,178,075 1,128,586 179,935 77,288 3,277 – – – – 2.4 up to 50% 243,979 92,292 5,201 9,227 396 – – – –

A.3.4 IMPAIRED SECURED OFF-BALANCE-SHEET EXPOSURES TO BANKS AND CUSTOMERS

Value Amount of exposure secured Guarantees Unsecured guarantees Credit derivatives Land and Securities Other Governments Other Banks Financial buildings assets and central government companies banks agencies 1. Secured exposures to banks 1.1 more than 150% ––––– – ––– 1.2 from 100% to 150 ––––– – ––– 1.3 from 50% and 100% ––––– – ––– 1.4 up to 50% ––––– – ––– 2 Secured exposures to customers 2.1 more than 150% 23,419 23,419 938 1,092 2 – – – – 2.2 from 100% to 150% 3,187 3,187 – 767 73 – – – – 2.3 from 50% and 100% 37,355 36,629 – 4,073 368 – – – – 2.4 up to 50% 9,998 671 – 4 – – – – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 248 249

Guarantees (fair value) Excess fair Unsecured guarantees value of guarantees Collateral Insurance Non-financial Other Governments Other Banks Financial Insurance Non-financial Other Total undertakings companies and central government companies undertakings companies banks agencies

–––––––––––– –––––––––––– –––––––––––– ––––––––––––

– – – 160 236 1,868 10,723 28 118,436 326,801 1,465,202 19,876,733 – – – – 259 2,139 4,492 – 36,176 138,616 360,970 486,139 – 2,647 – – 283 3,246 30,560 2 331,260 507,038 1,135,536 497,621 – – – – 832 6,911 3,577 16 11,006 53,156 90,322 15,209

Guarantees (fair value) Excess fair Unsecured guarantees value of guarantees Collateral Insurance Non-financial Other Governments Other Banks Financial Insurance Non-financial Other Total undertakings companies and central government companies undertakings companies banks agencies

–––––––––––– –––––––––––– –––––––––––– ––––––––––––

– – – – – – 2,853 – 17,095 1,439 23,419 5,244 – – – – – – 2,056 198 22 71 3,187 60 – – – – – 935 11 – 26,918 4,422 36,727 – ––––––––57493671– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B. DISTRIBUTION AND CONCENTRATION OF LENDING B.1 CASH AND OFF-BALANCE-SHEET EXPOSURES TO CUSTOMERS BY SECTOR

Governments and central banks Other government agencies Financial companies Gross Specific Portfolio Net Gross Specific Portfolio Net Gross Specific Portfolio Net exposure writedowns writedowns exposure exposure writedowns writedowns exposure exposure writedowns writedowns exposure A. Cash exposures A.1 Bad debts ––––32,171 13,221 – 18,950 438,427 329,256 – 109,171 A.2 Substandard loans ––––1,364 915 – 449 7,186 3,354 38 3,794 A.3 Restructured position ––––––––67,762 2,476 – 65,286 A.4 Past due positions ––––9,476 – 81 9,395 17,460 – 138 17,322 A.5 Other 3,321,524 X 3,411 3,318,113 2,912,364 X 3,037 2,909,327 13,297,801 X 22,658 13,275,143 Total 3,321,524 – 3,411 3,318,113 2,955,375 14,136 3,118 2,938,121 13,828,636 335,086 22,834 13,470,716 B. Off-balance-sheet exposures B.1 Bad debts 150 – – 150––––9,977 1,765 – 8,212 B.2 Substandard loans –––––––––––– B.3 Other impaired assets ––––84––8410,179 – – 10,179 B.4 Other 39,845 X – 39,845 703,753 X 37 703,716 1,988,465 X 254 1,988,211 Total 39,995 – – 39,995 703,837 – 37 703,800 2,008,621 1,765 254 2,006,602 Total 2006 3,361,519 – 3,411 3,358,108 3,659,212 14,136 3,155 3,641,921 15,837,257 336,851 23,088 15,477,318 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 250 251

Insurance undertakings Non-financial companies Other Gross Specific Portfolio Net Gross Specific Portfolio Net Gross Specific Portfolio net exposure writedowns writedowns exposure exposure writedowns writedowns exposure exposure writedowns writedowns exposure

16,087 16,087 – – 7,734,860 5,269,299 1,275 2,464,286 2,012,148 1,272,260 12 739,876

92 – – 92 1,034,147 314,421 4,554 715,172 313,338 61,146 207 251,985

––––393,547 39,361 1,825 352,361 67,299 16,820 1 50,478

3 – – 3 540,722 853 22,976 516,893 270,417 274 3,152 266,991 487,218 X 1,028 486,190 56,155,411 X 418,150 55,737,261 24,505,662 X 67,432 24,438,230 503,400 16,087 1,028 486,285 65,858,687 5,623,934 448,780 59,785,973 27,168,864 1,350,500 70,804 25,747,560

––––342,748 44,507 – 298,241 1,636 – – 1,636

––––62,714 – 7,401 55,313 2,511 – – 2,511

––––59,381 – 42 59,339 11,138 – 1 11,137 303,461 X – 303,461 17,487,537 X 35,631 17,451,906 2,380,183 X 250 2,379,933 303,461 – – 303,461 17,952,380 44,507 43,074 17,864,799 2,395,468 – 251 2,395,217 806,861 16,087 1,028 789,746 83,811,067 5,668,441 491,854 77,650,772 29,564,332 1,350,500 71,055 28,142,777 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B.2 DISTRIBUTION OF LOANS TO RESIDENT NON-FINANCIAL COMPANIES

Total 2006 – other market services 14,655,196 – trade, recovery and repair services 8,529,217 – building and public works 8,060,701 – metal products excluding machinery and transport equipment 1,744,106 – energy products 1,682,222 – other sectors 19,569,528 54,240,970

B.3 CASH AND OFF-BALANCE-SHEET EXPOSURES TO CUSTOMERS BY GEOGRAPHICAL AREA (BOOK VALUE)

Italy Other European countries America Asia Rest of world Gross Net Gross Net Gross Net Gross Net Gross Net exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure A. Cash exposures A.1 Bad debts 10,048,792 3,298,875 72,042 21,121 64,783 8,880 44,234 3,395 3,842 12 A.2 Substandard loans 1,318,276 959,116 32,577 9,310 278 140 4,993 2,924 3 2 A.3 Restructured positions 527,663 467,244 945 881 –––––– A.4 Past due positions 831,967 804,493 5,950 5,950 70 70 33 33 58 58 A.5 Other 91,654,236 91,181,153 6,679,636 6,651,418 1,407,269 1,400,233 798,914 795,721 139,925 135,739 Total 104,380,934 96,710,881 6,791,150 6,688,680 1,472,400 1,409,323 848,174 802,073 143,828 135,811 B Off-balance-sheet exposures B.1 Bad debts 354,510 308,239 ––––1 ––– B.2 Substandard loans 65,225 57,824 –––––––– B.3 Other impaired assets 80,782 80,739 –––––––– B.4 Other 17,015,410 16,979,461 3,513,857 3,513,741 2,134,330 2,134,281 175,083 175,034 64,564 64,555 Total 17,515,927 17,426,263 3,513,857 3,513,741 2,134,330 2,134,281 175,084 175,034 64,564 64,555 Total 2006 121,896,861 114,137,144 10,305,007 10,202,421 3,606,730 3,543,604 1,023,258 977,107 208,392 200,366 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 252 253

B.4 CASH AND OFF-BALANCE-SHEET EXPOSURE TO BANKS BY GEOGRAPHICAL AREA

Italy Other European countries America Asia Rest of world Gross Net Gross Net Gross Net Gross Net Gross Net exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure A. Cash exposures A.1 Bad debts ––––––––43 – A.2 Substandard loans –––––––––– A.3 Restructured positions –––––––––– A.4 Past due positions –––––––––– A.5 Other 4,744,862 4,741,060 7,960,062 7,960,053 348,014 347,319 507,063 505,843 84,981 82,610 Total 4,744,862 4,741,060 7,960,062 7,960,053 348,014 347,319 507,063 505,843 85,024 82,610 B. Off-balance-sheet exposures B.1 Bad debts –––––––––– B.2 Substandard loans 59,393 59,393 –––––––– B.3 Other impaired assets 1,336 1,336 –––––––– B.4 Other 1,004,044 1,003,950 2,378,812 2,378,812 158,948 158,948 75,816 75,816 6,686 6,686 Total 1,064,773 1,064,679 2,378,812 2,378,812 158,948 158,948 75,816 75,816 6,686 6,686 Total 2006 5,809,635 5,805,739 10,338,874 10,338,865 506,962 506,267 582,879 581,659 91,710 89,296

B.5 LARGE EXPOSURES

Total 2006 Total 2005 a) amount 3,255,451 2,855,698 b) number 3 3

C. SECURITIZATIONS AND ASSET DISPOSALS Group and external companies were originators. The Group companies that carried out the role of originator C.1 SECURITIZATIONS continued to provide servicing activities over the duration of the securitization operation.

Qualitative disclosures The structuring of a securitization operation consists

MAIN ACTIVITIES AND OBJECTIVES of two stages: arranging the operation, followed by placement. The arrangement stage entails an analysis of Acting in different capacities, a number of Group the portfolio of assets to be assigned to the special companies were involved in securitization operations. purpose vehicle, an analysis of their performance and the modeling of cash flows in order to determine the best In 2006, as in previous years, Capitalia acted as possible financial structure for the issue of asset-backed arranger and lead manager for operations in which both securities. In parallel with the arrangement activities, an WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

operational review is carried out with rating agencies, Organizational arrangements along with a review of the legal documentation, including the prospectus, prepared by external legal counsel. The arrangement team is made up of six people and reports directly to the Structured Finance Unit. It In placement stage the lead manager and operates within the scope of the mandate received from bookrunner’s functions becomes pre-eminent. A lead the originator and in compliance with internal procedures manger takes on the functions of a bookrunner if it has and regulations. As of 2006, following the reorganization the additional responsibility of managing the order book of the Group, the team was transferred from MCC to for the placement of the securities. The second stage Capitalia’s Debt Capital Market Department within the encompasses the pricing of the securities, pre–marketing Finance line. Its structure, objectives and processes have activities to identify possible investors, the presentation remained the same. of the operation in the major European financial markets (the roadshow) and, finally, the placement of the The arrangement team also acts as a calculation securities. agent. The calculation agent monitors the performance of various operations that its own office has structured, Arrangement and placement activities are and produces regular payment and investment reports. remunerated on a commission basis. The reports are prepared on the basis of data processed from various sources, including a report prepared by the The originator’s function is to select, on the basis of servicer of the operation (usually the originator), which is certain criteria, the portfolio it intends to assign, giving audited by an external auditing firm. This activity is the arranger the necessary data for analysis and remunerated with annual commissions payable by the cash-flow modeling, as well any other information special purpose vehicle. relating to the company itself and the organizational procedures needed for disclosure to the rating The information in the reports is also made available agencies. The assets are assigned without recourse to a the institutional investors acquiring the ABSs, for example special purpose vehicle formed in accordance with Law through a dedicated section of the Capitalia website. 130/99. As regards arranger activities carried out in 2006, The aim of Group companies that took part in Capitalia operated as sole arranger and joint lead securitization operations as originators was to diversify manager in the F-E Gold operation, which consisted of their sources of funding, rebalance the maturity profile of the securitization of a portfolio of pecuniary claims in assets and liabilities, and free a limited amount of capital, respect of performing leasing contracts for real estate within the constraints imposed by IAS 39. (67.2%), cars (25.6%) and equipment (7.2%) originated by Fineco Leasing S.p.A. and assigned to F-E Gold Srl. The Servicing, which consists of the management of the securitization involved the issue of asset-backed revenues collected from the assigned assets, is carried securities with an overall value of €1,019 million divided out both by the originator and by the assignor, which is into four classes, maturing June 2025: class A1 totaled already responsible for revenue and debt collection €203.8 million and was rated Aaa/AAA by Moody’s and activities. This makes for greater efficiency in the Fitch respectively; class A2 amounted to €749 million management of these activities, which carry annual and was rated Aaa/AAA; class B totaled €56 million and charges payable by the special purpose vehicle. was rated A1/A+; and class C amounted to €10.3 million WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 254 255

and was rated A3/BBB+. FinecoLeasing granted the In previous financial years, a number of Group vehicle a subordinated loan of €31.6 million. The issue companies carried out securitization operations. The took place on 31 May 2006. Parent Company carried out three operations, details of which are contained in its statutory annual report. Also in 2006 Capitalia participated in another securitization denominated Green Finance, in which The securities and subordinated assets held by Banco Capitalia acted as joint arranger and joint lead manager. di Sicilia arising from the securitizations with Island The operation involved the securitization of trade Finance ICR4 and Island Finance 2 ICR7 were sold on 30 receivables due to sundry suppliers and healthcare centers June 2006 for €160 million to be paid in installments accredited with the Region of Lazio from local healthcare (€6.1 million by 31 December 2006 and €153.9 million authorities in Lazio acquired by MCC in 2005 and assigned by 30 June 2010), plus interest in the amount of 3-month to the vehicle Green Finance Srl. The securitization Euribor increased by 60 basis points. involved the issue of single class of asset-backed securities with a value of €654 million maturing in August 2016 with Accordingly, although still considered the originator a rating from Moody’s and Fitch of A1/A respectively. The of the securitized assets, following the disposal Banco di issue took place on 2 August 2006. Sicilia is no longer exposed to the transactions, as it transferred all risks and rewards associated with the The Structured Finance Unit is responsible for assigned assets. measuring the non-performing subordinated securities and loans (Trevi Finance 1-2-3) held by Capitalia or other The bank still holds two minority stakes (7%) in each Group companies for the purposes of IAS/IFRS vehicle. Banco di Sicilia continues to act as collection compliance. The task involves assessing the maximum agent and loan administrator for Island Finance (ICR 4) recoverable amount of the securities and loans based on S.p.A. and master servicer, collection agent and portfolio the estimated recovery/collection of the underlying administrator for Island Finance 2 (ICR7) S.r.l.. assets. The valuations are made at regular intervals and include the following phases: Recovery of the securitized loans is being performed for both operations by two specialized companies: Servizi
taking the current yield curve as reported by Immobiliari Banche – SIB S.p.A. (now Pirelli Real Estate Bloomberg, which allows the financial models to be Credit Servicing S.p.A.) and Morgan Stanley Property updated accordingly; Corso Venezia s.r.l. (now Asset Management NPL s.r.l.). For this reason, the operations do not provide for a back-
all reports from the relevant operations are received, up servicer. which allows the financial models to be updated; On 15 January 2007, Island Finance (ICR4) S.p.A.
the subordinated securities and loans are valued; exercised the option envisaged in the rules governing the securities issued by the vehicle to make full early
a summary report on each valuation is submitted to repayment of securities still outstanding at that date. the originator; On 22 December 2000, Capitalia L&F assigned bad
Capitalia’s Financial Reporting and Tax Department debts in the amount of €49.9 million in respect of assists in completing the valuation and audits the findings. contracts terminated on 30 June 2000 and classified as WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

bad debts by 30 November 2000 to Trevi Finance 3 S.r.l.. course of their normal operations, and was terminated on The price of the operation was set at €37 million. This 18 July 2001, is described above. assignment became part of the Banca di Roma S.p.A. securitization completed in 2001, details of which were The loans in the securitization completed on 31 given above. October 2001 were originated exclusively by FinecoBank in the course of its normal operations. In relation to the In 2006, Bipop Carire did not carry out any assignment of loans to the special purpose vehicle, securitization operations. The assignments of performing securities with a value €258.2 million were issued in three customer loans effected in previous years remained classes: class A for €230 million rated AAA/Aaa by S&P outstanding, except for those terminated as a result of and Moody’s respectively, class B for €15 million rated by the exercise of the option to repurchase the assigned S&P and Moody’s, class C unrated for €13.2 million. portfolio. FinecoBank subscribed the class C securities in full. Bipop Carire and Dresdner Bank also jointly provided a In 2001 a securitization was carried out (with the loans liquidity facility of €10 million. assigned in two lots on 31 March 2001 and 31 May 2001), composed of a portfolio of performing mortgage loans On 20 June 2006, FinecoBank repurchased (with the granted by the originators of the operation (Bipop-Carire prior authorization of the Bank of Italy no. 605158 of 26 and Banca Fineco) in the course of their normal May 2006) loans backed by salaries, sold in 2001 to the operations. The operation involved the assignment special purpose vehicle Garda Securitization Srl as part of without recourse of mortgages to Garda Securitisation a securitization. S.r.l. and the issue of securities with a total value of €776 million, consisting of class A securities for €670 million The method for determining the repurchase price rated AAA/Aaa by S&P and Moody’s respectively, class B differed depending upon the performance levels of the securities for €30 million rated A/A2 by S&P and Moody’s loans: respectively and unrated class C securities for €76.6 million. The class C securities were entirely subscribed in
performing loans, or loans on which payments are equal measure by Bipop Carire and FinecoBank. only slightly overdue, were measured at fair value;

In 2006, FinecoBank did not carry out any securitization
loans on which payments are significantly overdue operations. The assignments of performing customer (but for which no legal action has been initiated) were loans effected in previous years remained outstanding, measured with reference only to their principal (payments except for those terminated as a result of the exercise of overdue plus the remaining debt); the option to repurchase the assigned portfolio.
loans for which legal action has been initiated were The vehicle Garda Securitization S.r.l. was involved in measured on an analytical basis in line with the practices two securitizations of loans (assigned during the year employed by the bank for similar loans. ending 31 December 2001) on 18 July 2001 and 31 October 2001, composed of a portfolio of performing Fair value was calculated using the money market mortgages and a portfolio of performing loans backed by rates increased by a spread, determined by considering salaries. The securitization, which referred to loans general costs, the cost of funding, expected losses, early originated by FinecoBank S.p.A. and Bipop-Carire in the repayments and expected profit. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 256 257

Using the method outlined above, the portfolios were also the principal obligor in the liquidity facility acquired at a price of €64,710,114.94, equal to 101.28% agreement; Dresdner Bank is the subordinated obligor. of the nominal value (8). The special purpose vehicle Heliconus S.r.l. was The price allowed the redemption in full of the involved in another securitization of loans, assigned on 8 securities, apart from a portion of Class C, held by November 2002 and consisting of a portfolio of FinecoBank, on which the bank waived its claims, in performing mortgages. Capitalia acted as sole arranger relation to which appropriate writedowns were made. and joint lead manager.

The operations impacted FinecoBank’s balance sheet The loans in the securitization were originated by and income statement as follows: FinecoBank S.p.A. in the course of its normal operations and, unlike its previous operations, were assigned at par.
redemption of the class C security: the class C The loans were assigned without recourse to the special security (with a nominal value of €13,225,000) was purpose vehicle. The operation involved the issue of written down in prior financial years; the redemption of securities totaling €408.8 million divided in three the security, in the amount of €10,742,357.43, generated classes: class A for €369 million rated AAA/Aaa/AAA by gain on the sale of €290,642.45; S&P, Moody’s and Fitch respectively, class B for €30.8 million rated A/A2 by S&P and Moody’s respectively,
balance sheet impact: the loans totaling class C unrated for €9 million. FinecoBank remains €64,710,114.94 were recognized under assets, net of exposed to the Junior class securities. FinecoBank is also €21,928.16 in writedowns in relation to positions on the primary obligor as liquidity facility provider in the which legal actions have been initiated. amount of €8.5 million.

On 27 March 2002, the special purpose vehicle, A further operation was carried out in the first half of Velites S.r.l., was involved in a further securitization of 2003 with the securitization of claims on 16 June 2003. loans (assigned in the year ending 31 December 2001) The portfolio was composed of performing personal loans composed of a portfolio of performing mortgages. The secured by salaries. The loans in the securitization were loans in the securitization were originated by FinecoBank originated by FinecoBank S.p.A. in the course of its in the course of its normal operations and were assigned normal operations and, as in the previous operation with without recourse. Capitalia acted as co–manager. Heliconus S.r.l., were assigned at par. The loans were assigned without recourse to the special purpose vehicle, The operation involved the issue of securities with a F–E Personal Loans S.r.l.. Capitalia acted as sole arranger total value of €339.2 million, divided into three classes: and joint lead manager in the operation. The class A for €269.8 million rated AAA/Aaa by S&P and securitization involved the issue of securities totaling Moody’s respectively, class B for €19.3 million rated A/A2 €446.6 million, divided into three classes: class A for by S&P and Moody’s respectively, class C unrated for €413 million rated AAA/Aaa by S&P and Moody’s €50.1 million. FinecoBank remains exposed to the junior respectively, class B for €26.8 million rated A/A1 by S&P securities, which it has subscribed in full. Bipop Carire is and Moody’s respectively, class C unrated for €6.8 million.

(8) In March 2001 performing receivables in respect of loans backed by salaries were sold for the nominal amount of 248.27 million, equal to 103.52%, which generated a capital gain of 8.74 million. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The originator is exposed to the risk associated with million divided into three classes, maturing October the junior class securities, which it subscribed in full, and 2043: class A totaled €951.6 million and was rated is also the primary obligor of a liquidity facility of €15 AAA/Aaa/AAA by S&P, Moody’s and Fitch respectively; million. As FinecoBank does not have an adequate class B amounted to €41.1 million as was rated counterparty rating, at the end of December 2005 AA+/A1/A; and class C totaled €36 million and was rated Capitalia provided a guarantee. BBB/Baa2/BBB.

Another operation, carried out in 2003, involved a FinecoBank has also issued a subordinated loan with portfolio of performing mortgage loans (assigned at par a nominal value of €15.4 million to the special purpose on 30 June and 30 September 2003). The loans were vehicle. Capitalia acted as sole arranger and joint lead originated by FinecoBank S.p.A. in the course of its manger. normal operations and, as in the previous operation with Heliconus S.r.l. and F-E Personal Loans S.r.l., were At 31 December 2006, the pilot securitization with the assigned at par and without recourse to F-E Mortgages Upgrade vehicle was still under way. The operation S.r.l., a special purpose vehicle. On 28 November 2003, involved performing loans assigned by FinecoBank and the first operation in a securitization program involving Akros Casa (now Capitalia Partecipazioni S.p.A.) on 22 performing residential real estate mortgage loans November 1999. The assignment was followed by the originated by FinecoBank with its customers was carried issue of senior securities amounting to €21 million. out with Capitalia acting as program arranger, global coordinator and joint lead manager. In 2002, 2004 and 2006 Fineco Leasing S.p.A. carried out three securitizations involving the assignment of The securitization involved the issue of securities performing loans to the vehicles F-E Blue S.r.l., F-E Green totaling €748.6 million, divided into four classes: class A S.r.l. and F-E Gold S.r.l.. for €682 million rated AAA/Aaa/AAA by S&P, Moody’s and Fitch respectively, class B for €48 million, rated The operations had an initial revolving period of 18 A/A1/A by S&P, Moody’s and Fitch respectively, class C months, during which Fineco Leasing S.p.A. could for €11 million rated BBB/Baa2/BBB by S&P, Moody’s assign new loans to the special purpose vehicle in an and Fitch respectively, class D unrated for €7.6 million. amount up to the partial or full repayments of principal FinecoBank subscribed the entire junior tranche, and by debtors on the previously assigned portfolio. For the consequently assumed the associated risk. The bank is F-E Blue operation, the revolving credit period finished also the primary obligor of the liquidity line to the special at the end of 2003 (with the exercise of six revolving purpose vehicle for an initial amount of €20 million. operations); six assignments were made to F-E Green, the last of which in October 2005. The revolving period In 2005 a further assignment of loans was carried out is still under way for F-E Gold and will conclude in involving the assignment by FinecoBank S.p.A. of January 2008. receivables in respect of performing residential real estate loans held by residents in Italy (65.7% in the north, The first operation, carried out in June 2002 with 18.6% in the central regions and 15.7% in the south and Capitalia acting as joint lead manager, referred to the islands) to the vehicle F-E Mortgages (F-E Mortgages assignment of pecuniary claims in respect of performing 2005). The securitization involved the issue of leasing contracts for real estate (75.4%), motor vehicles asset–backed securities with an overall value of €1,028.7 (12.7%) and equipment (11.9%). In exchange for the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 258 259

non–recourse assignment to FE Blue, asset-backed rated AAA/Aaa/AAA by S&P, Moody’s and Fitch securities for a total value of €1,765 million were issued. respectively and guaranteed by the European Investment They were divided into four classes: class A for €1,641 Fund. million rated AAA/Aaa/AAA by S&P, Moody’s and Fitch respectively, class B for €79 million, rated A/A2/A by Fineco Leasing granted the vehicle a subordinated S&P, Moody’s and Fitch respectively, class C for €35 loan to set up a cash reserve of €45.7 million. million rated BBB/Baa/BBB by S&P, Moody’s and Fitch respectively, class D unrated for €9.4 million. Like the first two transactions, the third consisted of the assignment without recourse of a portfolio of pecuniary Fineco Leasing subscribed the entire junior class and claims in respect of performing leasing contracts for real assumed the related risk. estate (67.2%), cars (25.6%) and equipment (7.2%) to F-E Gold. Capitalia acted as lead arranger, joint lead manager The second operation, like the first, was assigned and bookrunner. The securitization involved the issue of without recourse to FE Green and referred to a portfolio asset-backed securities with an overall value of €1,019 of pecuniary claims in respect of leasing contracts for real million divided into the following classes, maturing June estate (63.84%), motor vehicles (27.04%) and equipment 2025: class A1 totaled €203.8 million and was rated (9.12%). Capitalia acted as lead arranger, joint lead Aaa/AAA by Moody’s and Fitch respectively; class A2 manager and bookrunner in the operation. amounted to €749 million and was rated Aaa/AAA; class B totaled €56 million and was rated A1/A+; and class C The securitization involved the issue of securities amounted to €10.3 million and was rated A3/BBB+. totaling €1,450.5 million, divided into two classes: class A for €1,342 million rated AAA/Aaa/AAA by S&P, Fineco Leasing granted the vehicle a subordinated Moody’s and Fitch respectively, class B for €108 million loan to form a cash reserve in the amount of €31.6 million. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Quantitative disclosures

C.1.1 EXPOSURES IN RESPECT OF SECURITIZATIONS BY QUALITY OF UNDERLYING ASSETS

Cash exposure Senior Mezzanine Junior Gross Net Gross Net Gross Net exposure exposure exposure exposure exposure exposure A. With own underlying assets: a) impaired 2,122 2,122 1,412,226 1,412,226 631,521 631,521 b) other 4,040 4,040 120,898 120,898 430,609 426,913

B. With third-party underlying assets: a) impaired 3,167 3,167–––– b) other 426,570 426,570 7,732 7,732 – –

(*) Available margins. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 260 261

Guarantees issued Credit lines (*) Senior Mezzanine Junior Senior Mezzanine Junior Gross Net Gross Net Gross Net Gross Net Gross Net Gross Net exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure exposure

– – 523,773 287,623––––590,462 590,462 – – – – 15,000 15,000––––––45,220 45,220

–––––––––––– –––––––––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C.1.2 EXPOSURES IN RESPECT OF MAIN OWN SECURITIZATIONS BY TYPE OF SECURITIZED ASSETS AND TYPE OF EXPOSURE

Cash exposures Senior Mezzanine Junior Book Writedowns/ Book Writedowns/ Book Writedowns/ value writebacks value writebacks value writebacks A. Fully derecognized

CAESAR SA / securities 2,056–––76,591 – CAESAR 2000 / securities – – 5,724 – 10,401 – ENTASI 2001 / securities – – 115,174––– ISLAND FINANCE 2 (ICR7) / bad debts 2,122 – 29,986––– TREVI FINANCE / bad debts – – 496,108 – 160,107 – TREVI FINANCE 2 / bad debts – – 820,932 – 275,704 – TREVI FINANCE 3 / bad debts – – 65,200 – 195,710 – “UPGRADE A “pilot”/ mortgage loans” 1,984––––– VELITES / mortgage loans ––––35,033 (3,580)

B. Partially derecognized

GARDA I / mortgage loans ––––78,409 (1,803)

C. Not derecognized

FE BLUE / Leasing ––––42,809 4,843 FE GREEN/Leasing ––––80,619 – FE GOLD/Leasing ––––48,886 – FE MORTGAGES I / mortgage loans ––––14,298 – FE MORTGAGES II / mortgage loans ––––18,603 – FE PERSONAL / salary-backed personal loans ––––8,929 –

HELICONUS /mortgage loans ––––12,334 –

(*) Available margins. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 262 263

Guarantees issued Credit lines (*) Senior Mezzanine Junior Senior Mezzanine Junior Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ value writebacks value writebacks value writebacks value writebacks value writebacks value writebacks

–––––––––––– –––––––––––– –––––––––––– –––––––––––– – – 30,000–––––140,143––– ––––––––160,518––– – – 257,623 (46,626) – – – – 289,800––– –––––––––––– ––––––––––––

– – 15,000–––––––––

–––––––––––– –––––––––––– –––––––––––– ––––––––––20,000 – ––––––––––––

––––––––––15,000 – ––––––––––10,220 – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C.1.3 EXPOSURE IN RISPECT OF MAIN THIRD PARTIES SECURITIZATIONS BY TYPE OF SECURITIZED ASSETS AND TYPE OF EXPOSURE

Cash exposures Senior Mezzanine Junior Book Writedowns/ Book Writedowns/ Book Writedowns/ value writebacks value writebacks value writebacks ASSET BACKED EUROPEA/Other assets 505–––––

CORDUSIO RMBS SRL/Mortgage loans 200 –––––

CREDICO FUNDING / Other assets 30 –––––

INTESA BCI SEC NPL S/Mortgage loans 16 –––––

NPF VI / Other assets 84 –––––

PHARMA FINANCE SRL/ Leasing and loans 54 –––––

PMI DUE FINANCE / SME loans 1,266 –––––

ROSSINI BV FRN / Region of Sicily receivables 3,167 –––––

S.C.I.P. / land and buildings 21,698 – 7,732 – – –

S.C.I.C. / receivables research public entities 23,187 –––––

CCI08/Inps receivables 144,106 –––––

SCCI09/Inps receivables 61,999 –––––

SCCI10/Inps receivables 106,044 –––––

SCCI11/Inps receivables 67,241 –––––

STANFIELD CLO LTD / other assets 38 –––––

VELA LEASE SRL 100 ––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 264 265

Guarantees issued Credit lines Senior Mezzanine Junior Senior Mezzanine Junior Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ Book Writedowns/ value writebacks value writebacks value writebacks value writebacks value writebacks value writebacks ––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

––––––––––––

–––––––––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C.1.4 EXPOSURES IN RESPECT OF SECURITIZATIONS BY PORTFOLIO OF FINANCIAL ASSETS AND TYPE

Trading Carried at Available Held to Loans Total Total fair value for maturity 2006 2005 sale 1. Cash exposure 426,837 – 1,833,165 – 548,708 2,808,710 2,896,937 – senior 402,923 – 31,849 – 1,127 435,899 228,991 – mezzanine 13,514 – 979,761 – 547,581 1,540,856 1,598,704 – junior 10,400 – 821,555 – – 831,955 1,069,242

2. Off-balance-sheet exposure – – – – – 893,085 798,544 – senior – – – – – – – – mezzanine – – – – – 893,085 798,544 – junior – – – – – – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 266 267

C.1.5 TOTAL AMOUNT OF SECURITIZED ASSETS UNDERLYING JUNIOR SECURITIES OR OTHER FORMS OF CREDIT SUPPORT

Total traditional securitizations synthetic securitizations A. Own underlying assets 5,202,023 A.1 Fully derecognized 2,495,682 1 Bad debts 2,137,075 x 2 Substandard loans 2,774 x 3 Restructured positions – x 4 Past due positions 110 x 5 Other assets 355,723 x A.2 Partially derecognized 716,085 1 Bad debts 1,432 x 2 Substandard loans 1,140 x 3 Restructured positions – x 4 Past due positions 40 x 5 Other assets 713,473 x A.3 Not derecognized 1,990,256 – 1 Bad debts 8,737 – 2 Substandard loans 5,750 – 3 Restructured positions – – 4 Past due positions 784 – 5 Other assets 1,974,985 – B. Third-party underlying assets – – B.1 Bad debts –– B.2 Substandard loans –– B.3 Restructured positions – – B.4 Past due positions –– B.5 Other assets ––

C.1.6 HOLDINGS IN SPECIAL PURPOSE VEHICLES

Name Registered office % holding ENTASI S.r.l. Rome 100% EUROFINANCE 2000 S.r.l. Rome 99% TREVI FINANCE S.p.A. Conegliano (Treviso) 60% TREVI FINANCE N. 2 S.p.A. Conegliano (Treviso) 60% TREVI FINANCE N. 3 S.r.l. Conegliano (Treviso) 60% UPGRADE S.r.l. Brescia 10% ISLAND FINANCE (ICR4) S.p.A. Perugia 7% ISLAND FINANCE 2 (ICR7) S.p.A. Perugia 7% WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C.1.7 SERVICER ACTIVITIES - COLLECTIONS ON SECURITIZED ASSETS AND REDEMPTION OF SECURITIES ISSUED BY VEHICLE

Servicer Vehicle Securitized assets Collections (end-period figure) in the year

Impaired Performing Impaired Performing Bipop Carire Garda/Garda I – 716,083 – 97,533 Banco di Sicilia Crediti Sanitari Regione Sicilia a r.l. – 310,686 87,344 Capitalia S.p.A. TREVI FINANCE 661,275 – 137,391 – Capitalia S.p.A. TREVI FINANCE 2 660,057 – 207,561 – Capitalia S.p.A. TREVI FINANCE3 813,209 – 163,241 – FinecoBank Upgrade / Upgrade A 71 774 – 999 FinecoBank Garda / Garda I – – – 16,346 FinecoBank Garda / Garda II 5,222 222,708 – 25,344 FinecoBank Velites 5,418 208,842 – 26,660 FinecoBank Heliconus 3,982 303,679 – 40,373 FinecoBank F-E Personal 1,624 163,479 – 107,850 FinecoBank F-E Mortgages / F-E Mortgages I 5,926 589,577 – 66,858 FinecoBank F-E Mortgages / F-E Mortgages II 3,739 918,251 – 73,444 Fineco Leasing S.p.A. Fe Blue 26,468 607,171 5,103 304,565 Fineco Leasing S.p.A. Fe Green 21,353 954,460 6,980 454,874 Fineco Leasing S.p.A. Fe Gold 2,616 964,777 338 173,847

C.1.8 SPECIAL PURPOSE VEHICLES BELONGING TO BANKING GROUP

Entasi Rome Eurofinance 2000 srl Rome Trevi Finance S.p.A. Conegliano (TV) Trevi Finance n. 2 S.p.A. Conegliano (TV) Trevi Finance n. 3 Srl Conegliano (TV) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 268 269

% of securities redeemed (end-period figure) Senior Mezzanine Junior performing assets impaired assets performing assets impaired assets performing assets impaired assets 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 41.18% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 17.30% 0.00% 0.00% 0.00% 100.00% 0.00% 32.10% 0.00% 0.00% 0.00% 76.60% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 90.86% 0.00% 0.00% 0.00% 0.00% 0.00% 100.00% 0.00% 100.00% 0.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 25.70% 0.00% 0.00% 0.00% 0.00% 0.00% 23.04% 0.00% 0.00% 0.00% 0.00% 0.00% 60.23% 0.00% 0.00% 0.00% 0.00% 0.00% 20.00% 0.00% 0.00% 0.00% 0.00% 0.00% 7.97% 0.00% 0.00% 0.00% 0.00% 0.00% 61.75% 0.00% 0.00% 0.00% 0.00% 0.00% 27.97% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

C.2 ASSIGNMENTS C.2.1 FINANCIAL ASSETS ASSIGNED BUT NOT DERECOGNIZED

Financial assets Financial assets designated Financial assets held for trading at fair value available for sale ABCABCABC a) Financial assets held to maturity 1,126,403–––––1,036,844 – – 1. Debt securities 1,126,403–––––1,036,844 – – 2. Equity securities ––––––––– 3. Collective investment undertakings ––––––––– 4. Loans ––––––––– 5. Impaired assets ––––––––– b) Derivatives – – – XXXXXX Total 2006 1,126,403–––––1,036,844 – – Total 2005 4,699,871–––––463,029 – –

Key: A = assigned financial assets recognized in full (book value); B = assigned financial assets recognized in part (book value); C = assigned financial assets recognized in part (full value).

C.2.2 FINANCIAL LIABILITIES IN RESPECT OF FINANCIAL ASSETS ASSIGNED BUT NOT DERECOGNIZED

Financial Financial Financial Financial Loans Loans Total assets assets assets assets to banks to customers held designated available held to for trading at fair value for sale maturity 1. due to customers 584,570––––5,044,007 5,628,577 a) in respect of assets fully recognized 584,570––––4,704,653 5,289,223 b) in respect of assets partially recognized –––––339,354 339,354 2. due to banks 667,723 51 – 169,518 – – 837,292 a) in respect of assets fully recognized 667,723 51 – 169,518 – – 837,292 b) in respect of assets partially recognized ––––––– Total 1,252,293 51 – 169,518 – 5,044,007 6,465,869 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 270 271

Financial assets Loans Loans held to maturity to banks to customers Total A B C A B C A B C 2006 2005 458,941 – – 19,534 – – 4,712,024 339,758 716,155 8,409,659 10,805,405 458,941 – – 19,534 – – 2,539,279 – – 5,181,001 5,399,398 XXXXXXXXX – – XXXXXXXXX – – ––––––2,125,088 339,664 710,997 3,175,749 5,398,007 ––––––47,657 94 5,158 52,909 8,000

XXXXXXXXX – – 458,941 – – 19,534 – – 4,712,024 339,758 716,155 8,409,659 10,805,405 236,498–––––4,693,839 226,703 485,465 10,805,405 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

D. MODELS FOR MEASURING CREDIT RISK losses are calculated as the sum of total defaults for every time step weighted by the marginal probabilities of default; D.1. CREDIT RISK MEASUREMENT - TRADING BOOK

annual credit VaR, which represents the maximum To measure and monitor the risk implicit in the potential loss on a portfolio that can occur over the space management of the portfolio of assets held for trading, of one year, with a confidence level of 99%. The Capitalia has developed a portfolio credit risk engine possibility of registering a larger-than-expected loss on with which it can gauge economic capital absorbed the portfolio is attributable to unexpected shifts in the (Credit VaR). Default probabilities are taken from external market value of creditor positions caused by unexpected sources. The exposure and loss indicators produced by changes in the creditworthiness of a counterparty to the model are: which the bank is exposed;

present value, equal to the value of a contract at the
marginal VaR, is the contribution of a single moment of measurement. This is a marked-to-model counterparty to the VaR of the entire portfolio; value. For derivatives, the indicator may result in positive or negative values depending on the market variables to
marginal VaR % is the contribution of a single which the indicator refers. For debt securities, a long counterparty to the VaR of the entire portfolio expressed position produces a positive value and a short position a as a percentage of the total exposure of the portfolio. negative one; At 31 December 2006, the Credit VaR of the trading
actual exposure, which is the greater of the present portfolio of the Capitalia Group amounted to around €38 value of the position and zero. For derivatives, it million on an annual basis, a sharp reduction with respect represents the cost of replacing the contract, i.e. the cost to the value registered at 31 December 2005 (around to the bank if the counterparty defaults and the bank €76 million on an annual basis). were forced to purchase an equivalent position on the market. If netting agreements exist (ISDA Master The Credit VaR is prudentially calculated as the sum of Agreement) with the counterparty, the total exposure in the Credit VaR of the trading portfolios of Capitalia respect of the same is calculated as the algebraic sum of (around €20 million annually), BDR (around €13 million the individual positions; annually), BDS (around €1.7 million annually), Bipop (around €1.6 million annually), MCC (around €1.7 million
total exposure, which is the maximum value at the annually) and FinecoBank (around €0.1 million annually). moment of measurement that the exposure to the counterparty can have in the reference period. Exposure depends on the values of market variables, which are D.2. CREDIT RISK MEASUREMENT – BANKING BOOK simulated using a set of scenarios for each time step of the simulation (multistep Monte Carlo). The calculation of the exposure therefore yields the peak exposure; The database of the model makes it possible to provide ample coverage for the Group’s lending portfolio
mean loss, which is the mean value of the vector (consisting of all performing loans, including exposures containing the expected losses for all scenarios. The of less than €35,000, the positions of Banca di Roma’s WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 272 273

foreign branches with foreign counterparties, and A beta distribution of LGD is assumed, with a mean value positions with banks; only intra-group exposures are equal to the mean LGD of the counterparty and a excluded) for all banks (except Capitalia Luxembourg) volatility of 20%. To simulate whether a counterparty is and Fineco Leasing. insolvent, a random variable representing the value of its assets is considered. If the value of the variable in a In 2006 a number of improvements were made to the scenario is lower than a threshold representing the value portfolio model for measuring credit risk, such as the of the counterparty’s debt, then the counterparty is inclusion of sub–threshold exposures (less than €35 considered insolvent. thousand), exposures to bank counterparties and exposures to the foreign customers of the foreign In a single-factor model, the correlation between branches of Banca di Roma; the generation of reports by insolvent positions in a portfolio are considered through business unit; a new definition of default (with the the correlation between the random variable inclusion of past due exposures); an increase in the representing the value of the assets of each counterparty percentage coverage of probabilities of default by the and a single common factor, which represents the Group’s internal ratings (to about 75% of the Group’s general performance of the economy. These correlations total exposure); the introduction of LGDs in the internal are simulated internally using a maximum likelihood rating models to replace the assumed LGD of 35% for method, using data from time series of annualized residential mortgage loans and 45% for other exposures. internal default rates divided into geo-sectoral clusters as inputs. Each month, an evaluation is made of the value of economic capital absorbed (Credit CaR) using various The distribution of portfolio losses is obtained by drivers such as exposure at default (EaD), loss given generating 75,000 portfolio loss scenarios in the default (LGD), asset return correlation and probability of manner described above. The distribution of losses default (PD) using, where available, the PD data yields the values for expected and unexpected loss produced by internal rating systems. (Credit CaR) with a probability level of 99.93%. While the expected loss includes only the individual The model calculates the distribution of portfolio characteristics of each counterparty (PD, LGD, EaD), losses using a Monte Carlo method (generating 75,000 unexpected loss also includes portfolio diversification scenarios) and importance sampling techniques to characteristics (correlations between insolvencies and reduce variance of the estimate over a time horizon of the concentration of individual exposures). Credit CaR is one year. The method used is a single-factor version of the value of loss that has a 99.93% probability of not the Merton model. The only loss event considered is the being exceeded over a period of one year, net of insolvency of the counterparty (binomial model), without expected loss. considering the possibility of the migration of creditworthiness (multinomial model). The loss of each The model also allows for allocation of the portfolio’s counterparty in a scenario is equal to the product of the risk capital among the various sub-portfolios obtained individual EaD and LGD if the counterparty is insolvent in by grouping counterparties on the basis of the following the scenario; if not, it is equal to zero. The total portfolio characteristics: rating, institution, macro-region, region, loss may be calculated by summing the losses of all the branch of activity, sector, group (for customers counterparties in the scenario. The value of the LGD of belonging to the 200 largest groups in terms of each counterparty is stochastic rather than deterministic. exposure) and business unit. The sub-portfolios can also WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

be constructed by aggregating positions based on an
Exposure, equal to the agreed amount of loans and intersection of two or three of these characteristics, guarantees, including overdrafts, of the above-mentioned which makes it possible to construct a “monitoring perimeter. The value of commercial guarantees is weighted panel” to track the risk level and concentration of the at 50%, while financial guarantees receive a 100% weight; various sub-portfolios.
Credit CaR, or the 99.93-th percentile of the The model results have then been used to implement distribution of losses by a single sub-portfolio (non-additive the operational applications of the system to monitor the measure). It is a stand-alone measure because it does not concentration of the banking book to aid in the definition take account of the benefits of diversification with the rest of lending policy guidelines. of the portfolio;

The Group Credit CaR at December 2006 was equal
Component Credit CaR (C-CaR), which is the to €2,582,642,000, an increase on the figure for absorption of total credit at risk, i.e. the economic capital December 2005 (€1,774,001,000 euro), due in part to attributed to the sub-portfolio in question (additive the effective increase in exposures and in part to the measure). C-CaR takes account of the benefits of improvements made to the portfolio model with regard diversification with the rest of the portfolio; to coverage and input parameters.
Index of concentration, an indicator of the percentage The following section set outs, in thousands of euros, increase of portfolio Credit CaR arising from concentration, the principal risk measures divided according to three i.e. the greater risk of the i-th portfolio based on the mainly analytical criteria: Sector of economic activity, distance between the Credit CaR component and the geographical area and line of business. The tables have corresponding Credit CaR assuming infinite granularity (in the same structure: the absence of concentration).

Sector Exposure CaR Component Component % concentration % CaR CaR % index Public entities 4.46 1,604 104 0.00 0.00 Consumer household 14.16 222,338 208,210 8.06 0.00 Producer household 2.67 94,984 84,685 3.28 0.00 Non financial companies 59.21 1,684,168 1,620,919 62.76 3.67 Non profit companies 0.98 240,737 66,731 2.58 0.23 Credit companies 5.79 362,671 209,374 8.11 1.67 Financial companies 5.24 648,425 250,045 9.68 3.60 Rest of the world 6.21 196,389 110,704 4.29 0.16 Residuale sector 1.29 42,529 31,871 1.23 0.00 Total 100.00 2,582,642 2,582,642 100.00 8.47 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 274 275

Non-financial companies contribute most to risk, and high concentration (3.60%). Its Component CaR per unit make up 62.76% of portfolio CaR owing to high exposure of exposure (3.42%) is one of the highest. Although the (59.21%) of the total and a concentration of 3.67%. The “consumer household” sector accounts for a sizable second largest source of credit risk are “financial portion of the exposure present in the performing companies” which although they account for only 5.24% portfolio (in second place at 14.16%), it contributes less of exposure, they account for 9.68% of portfolio CaR. The to portfolio CaR (8.06%) due to the absence of risk level in this sector is very high, as confirmed by the concentration.

Regions % CaR Component Component % concentration exposure CaR CaR % index Central Italy 26.92 711,658 586,103 22.69 1.67

Islands 10.35 444.072 382,815 14.82 0.00

Southern Italy 7.27 257,266 215,446 8.34 0.00

North western Italy 30.90 892,196 741,717 28.72 4.84

North eastern Italy 13.90 482,417 392,825 15.21 0.94

Non defined area 10.66 407,610 263,735 10.21 1.31 Total 100.00 2,582,642 2,582,642 100.00 8.47

Northwestern Italy is the geographical area with the and a high level of concentration (4.84%). Central Italy highest contribution to risk (28.72% of portfolio CaR) as a accounts for 22.69% of portfolio CaR, following an result of an exposure in terms of agreed credit of 30.90% exposure in terms of agreed credit of 26.92% of the total. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Sector Exposure CaR Component Component % concentration % CaR CaR % index Agriculture and fishing 0.99 101,386 34,601 1,34 0,00 Hotels 1.36 191,205 59,071 2,29 0,22 Food, drinks and tabacco 2.19 64,356 38,250 1,48 0,00 Other manifactures products 1.08 29,580 21,125 0,82 0,00 Other sales services 16.22 475,682 330,987 12,82 0,39 Residuale sector 1.29 42,520 31,846 1,23 0,00 Paper, newspapers 1.10 113,984 47,083 1,82 0,03 Wholesale and retail distribution 9.96 294,905 142,807 5,53 0,00 Constructions 8.25 247,592 168,144 6,51 0,00 Agricultural and manufacturing machines 2.22 92,591 38,460 1,49 0,12 Office machines, hardware and optical 0.45 66,960 27,870 1,08 0,00 Electrical supplies 1.46 100,784 34,394 1,33 0,00 Transports 1.86 464,273 61,757 2,39 0,41 Minerals and non metallic products 1.18 69,582 31,460 1,22 0,00 Minerals 1.07 85,863 45,995 1,78 0,00 Chemical products 0.92 32,603 26,130 1,01 0,00 Energy products 3.68 448,805 279,733 10,83 2,09 Rubber and plastic products 0.86 62,376 54,179 2,10 0,00 Metal products excluding motor vehicles 2.06 59,666 50,431 1,95 0,00 Transport service 1.16 219,081 54,530 2,11 0,15 Communications 0.69 141,469 60,518 2,34 0,08 Textiles leather and clothing 2.00 92,108 25,268 0,98 0,00 Internal transport 1.47 300,095 26,315 1,02 0,06 Marine and aereal transports 1.49 236,713 117,675 4,56 0,54 Unclassified sectors 35.00 903,319 774,010 29,97 5,16 Total 100.00 2,582,642 2,582,642 100,00 8,47

Apart from the “unclassified sectors”(9), which the highest concentration (2.09%). The next main risk account for 35,00% of exposure, the branch of economic source is “construction and public works” (6.51%). activity generating the most portfolio risk is “other sales Although the sector of “wholesale and retail services ”, accounting for 12.82% of risk and 16.22% of distribution” accounts for 9.96% of total lending exposure. The sectors with the highest capital exposure, its impact on portfolio risk is only 5.53%, and absorption rates include “energy products”, which is one of the sectors with the lowest component CaR makes up 10.83% of portfolio CaR. It is the sector with incidence per unit of exposure (1.03%).

(9) This includes sectors other than producer households and non-financial companies (including exposures to the rest of the world); the Bank of Italy provides the breakdown by branch of economic activity for the latter only. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 276 277

1.2. MARKET RISKS The measurement and monitoring of market risk focuses on the trading portfolios held by Capitalia S.p.A., Finance activities are centralized at the Parent FinecoBank and Capitalia Partecipazioni. Company with a view to facilitating the management of its own portfolio, trading in financial instruments and Market risks are measured daily using VaR value creation through the structuring, pricing and methodologies. The computational method uses Monte management of customer products. The main Carlo simulation, in which the maximum potential loss for instruments used in managing the trading book are each risk factor and the aggregate is determined (VaR) for securities (equities and bonds), derivatives on interest a holding period of one year and a 99% confidence interval. rates, indices, single names and exchange rates. The performance of the model is evaluated by means In accordance with the Group’s guidelines on risk, the of regular back–testing. The impact of extreme management of Capitalia’s proprietary securities movements in risk factors on the Bank’s portfolios is portfolio takes an integrated approach, not only on the simulated by means of daily stress-testing. basis of a careful analysis of the risks associated with individual strategies, but also from the standpoint of the The net VaR of the Group’s trading portfolio at 31 entire portfolio. Specific attention is therefore paid to the December 2006 amounted to around €9.9 million, correlation between the markets in which operations are broadly in line with respect to 31 December 2005 (€9.3 concentrated (the government and corporate bond million). The basis of the analysis includes the positions in markets and equity markets). From an operational point the trading books of Capitalia, FinecoBank and Capitalia of view, risk is controlled by optimizing the risk/return Partecipazioni. The following table summarizes the profile of directional positions. situation for 2006 in the Group’s trading book:

HOLDING PERIOD 1 DAY, CONFIDENCE INTERVAL 99% (in millions of euros)

Capitalia Group VaR Min VaR Max VaR Avg Held for trading portfolio 9 17 13 (on 01-02-2006) (on 30-08-2006)

1.2.1 INTEREST RATE RISK – SUPERVISORY TRADING policies for the management of interest rate risk in their BOOK respective trading portfolios.

Qualitative disclosures B. MANAGEMENT AND MEASUREMENT OF INTEREST RATE RISK A. OVERVIEW As noted above, Capitalia measures and monitors the The individual financial reports of Capitalia, market risks taken on in the management of the trading FinecoBank and Capitalia Partecipazioni consider the portfolio by applying a VaR model. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

An interest rate VaR indicator is generated daily to cooperation with the main companies of the Group, measure the maximum potential loss that could be developed an ALM system that can deliver monthly caused by adverse changes in the yield curve and the assessments of the impact that changes in the yield curve related volatility. have on the entire balance sheet, in terms of the value of capital and net interest income. A Monte Carlo simulation is carried out daily to measure the maximum potential loss (VaR) for a holding With reference to net interest income, the model period of one day and a 99% confidence interval. makes it possible to estimate the value in the event of deterministic or stochastic variations in the yield curve (earnings at risk). Quantitative disclosures As regards changes in the value of capital, simulations 1. SUPERVISORY TRADING BOOK: DISTRIBUTION BY are also run to assess the impact of parallel shocks to the RESIDUAL MATURITY (REPRICING DATE) OF yield curve on the value of assets and liabilities. This ON-BALANCE-SHEET FINANCIAL ASSETS analysis is backed up by the use of VaR indicators AND LIABILITIES AND FINANCIAL DERIVATIVES obtained using a Monte Carlo methodology with a holding period of one month. As permitted by Bank of Italy Circular 262 of 22 December 2005, this table is not prepared as an analysis of All the risk measures incorporate a so–called sensitivity to interest rate risk is provided in point 2 below. “shifted beta” model that maps risk profiles associated with demand items with customers. Specifically, the parameters used for assessing the impact of interest 2. SUPERVISORY TRADING BOOK: INTERNAL MODELS rate shifts on the value and net interest income on AND OTHER SENSITIVITY ANALYSIS METHODOLOGIES demand items are the beta coefficient, which measures the extent to which current account interest rates vary in At 31 December 2006 the daily Interest Rate VaR of response to changes in market rates, and “shifted beta” the Capitalia Group trading portfolio was about €1.6 coefficients, which measure the time lag before rates on million. The basis of the analysis includes the positions in demand items are brought back into line with market the trading books of Capitalia, FinecoBank and Capitalia rates. Partecipazioni. The project has been fully implemented for Capitalia S.p.A., Banca di Roma (excluding the foreign branches), 1.2.2 INTEREST RATE RISK – BANKING BOOK Banco di Sicilia, Bipop Carire, Fineco Finance, FinecoBank and MCC. Work began on extending the Qualitative disclosures analysis to the foreign branches of Banca di Roma, which in any case have a low exposure to interest-rate risk. A. OVERVIEW, MANAGEMENT AND MEASUREMENT OF INTEREST RATE RISK In line with the risk management strategy endorsed by the Board of Directors, interest rate risk is handled at To measure and monitor the interest rate risk at both a consolidated level so as to exploit the natural an individual and consolidated level, Capitalia, working in diversification arising from the combination of the WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 278 279

funding and lending positions of the various subsidiary The hedges therefore refer to the risk of changes in banks. Specifically, the process of interest rate fair value caused by changes in the yield curve on the management requires each bank to submit monthly value of the loan portfolio. reports to the Parent Company containing the information necessary for constructing risk indicators. C. CASH FLOW HEDGES

The indicators thus produced and any actions taken to In compliance with IAS/IFRS principles, cash flow rebalance the risk profile at the Group level must receive hedges are used to cover interest rate risk on specific preliminary approval from the Parent Company’s Risk and exposures. ALM Committee. At 31 December 2006, MCC held a single hedging derivative with a notional amount of €51.6 million maturing B. FAIR VALUE HEDGES 30 October 2009, with half-yearly payment flows.

In compliance with IASs/IFRSs, fair value hedges are Quantitative disclosures used to cover interest rate risk specifically and generally (macro hedging). 1. BANKING BOOK: DISTRIBUTION BY RESIDUAL MATURITY (REPRICING DATE) OF FINANCIAL ASSETS At 31 December 2006, the Group held interest rate AND LIABILITIES swaps and cross currency interest rate swaps as hedges for individual bond issues in euros and other currencies, As permitted by Bank of Italy Circular 262 of 22 respectively. December 2005, this table is not prepared as an analysis of sensitivity to interest rate risk is provided in point 2 below. The hedges therefore refer to the risk of changes in fair value caused by changes in the yield curve for euro- denominated bonds and changes in interest and 2. BANKING BOOK: INTERNAL MODELS AND OTHER exchange rates for bonds in other currencies. SENSITIVITY ANALYSIS METHODOLOGIES

At 31 December, there were also positions in interest The following table reports the outcome of the rate swaps hedging fixed-rate lending portfolios. analyses performed for 31 December 2006.

INTEREST RATE RISK INDICATORS Values at 31 December 2006 Impact on capital value Impact on net interest IR VaR in millions of euros (Shock + 1%) income (Shock + 1%) Capitalia Group – 154 90 63 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

An analysis of the sensitivity of net interest income to policies for the management of price risk in their a shift of 100 basis points in the euro yield curve shows respective trading portfolios. an impact of +€90 million at 31 December 2006.

An analysis of the sensitivity of equity to a shift of 100 B. MANAGEMENT AND MEASUREMENT OF PRICE RISK basis points in the euro interest rate curve shows an impact of –€154 million at 31 December 2006, equal to 1.7% of As noted above, a VaR model developed by the the consolidated capital of the Capitalia Group. Parent Company is used to measure and monitor the The interest rate VaR for the Group amounts to around market risks taken on in the management of the Group’s €63 million, equal to around 0.7% of consolidated capital. trading portfolio.

1.2.3 PRICE RISK – SUPERVISORY TRADING BOOK An equity VaR is generated daily to measure the maximum potential loss that could result from adverse Qualitative disclosures shifts in securities prices/stock market indices and the related volatility. A. OVERVIEW A Monte Carlo simulation is performed daily to The individual financial reports of Capitalia S.p.A., measure the maximum possible loss (VaR) for a holding FinecoBank and Capitalia Partecipazioni consider the period of one day and a 99% confidence interval. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 280 281

Quantitative disclosures

1. SUPERVISORY TRADING BOOK: CASH EXPOSURES IN EQUITY INSTRUMENTS AND UNITS OF COLLECTIVE INVESTMENT UNDERTAKINGS

Book value Listed Unlisted A. Equity securities 2,014,743 22 A.1 Shares 2,014,743 22 A.2 Innovative capital instruments –– A.3 Other equities –– B. Units in collective investment undertakings 99,985 614,843 B.1 Italian 33,897 614,843 – harmonized open 3,896 579,219 – non harmonized open –– – closed 30,001 250 – restricted –– – speculative – 35,374 B.2 Other EU 66,088 – – harmonized 66,088 – – non harmonized open –– – non harmonized closed –– B.2 Non-EU –– – open –– – closed –– Total 2,114,728 614,865

2. SUPERVISORY TRADING BOOK: DISTRIBUTION OF EX- analysis includes the positions in the trading books of POSURES IN EQUITIES AND EQUITY INDICES BY MAIN Capitalia, FinecoBank and Capitalia Partecipazioni. COUNTRY OF LISTING

1.2.4 PRICE RISK – BANKING BOOK As permitted by Bank of Italy Circular 262 of 22 December 2005, this table is not prepared as an analysis of Qualitative disclosures sensitivity to interest rate risk is provided in point 3 below.

A. OVERVIEW, MANAGEMENT AND MEASUREMENT OF 3. SUPERVISORY TRADING BOOK: INTERNAL MODELS PRICE RISK AND OTHER SENSITIVITY ANALYSIS METHODOLOGIES

Price risk for the Group’s banking portfolio is mainly The daily Equity VaR of the Group trading book at 31 concentrated within the available-for-sale portfolio of December 2006 was about €9 million. The basis of the Capitalia and Capitalia Partecipazioni. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The measurement and monitoring of the risk absorbed The resulting VaR and risk sensitivity measurements by the portfolio is done using the same instruments that are periodically reported to Capitalia’s Risk and ALM were developed for the trading portfolio. Committee.

B. PRICE RISK HEDGES

In 2006, no hedges were made against price risk in the banking book.

Quantitative disclosures

1. BANKING BOOK: CASH EXPOSURES IN EQUITY SECURITIES AND UNITS OF COLLECTIVE INVESTMENT UNDERTAKINGS

Book value Listed Unlisted A. Equity securities 1,714,768 1,181,855 A.1 Shares 1,714,768 1,122,552 A.2 Innovative capital instruments –– A.3 Other equities – 59,303 B. Units in collective investment undertakings 34,198 83,062 B.1 Italian 26,918 83,055 – harmonized open –– – non harmonized open –– – closed 26,918 67,825 – restricted –– – speculative – 15,230 B.2 Other EU 7,280 7 – harmonized 7,280 7 – non harmonized open –– – non harmonized closed –– B.2 Non-EU –– – open –– – closed –– Total 1,748,966 1,264,917

2. BANKING BOOK: INTERNAL MODELS AND OTHER A. OVERVIEW, MANAGEMENT AND MEASUREMENT OF SENSITIVITY ANALYSIS METHODOLOGIES EXCHANGE RATE RISK

At 31 December 2006, the daily Equity VaR of the The Parent Company’s treasury operations exercise consolidated available-for-sale portfolio was about €27 centralized control over exchange rate risk management million. for the entire Group. Thanks to its capacity to monitor the exchange rate risk positions of Group banks in real time,

1.2.5 EXCHANGE RATE RISK the Treasury can respond to overall imbalances by managing exchange rate risk through appropriate Qualitative disclosures hedging activities in international markets. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 282 283

The Finance Area carries out market-making activities The project was completed for the positions of not only for exchange rates (spot and forward) but also Capitalia S.p.A. Banca di Roma (except for foreign for exchange rate derivatives on behalf of Group branches), Banco di Sicilia, Bipop Carire, FinecoBank, customers. In accordance with the guidelines of the Fineco Finance and MCC. Capitalia Board of Directors, the level of risk associated with these operations was kept low through 2006. B. EXCHANGE RATE HEDGES

In order to measure and monitor the exchange rate risk Exchange rate hedging activities are conducted with profile at the individual and consolidated levels, Capitalia a view to ensuring that the positions at the Group level Holding developed an internal measurement model that essentially balance out. enables monthly calculation of the impact of changes in Hedging of exchange rate risks is carried out exchange rates on the entire balance sheet, expressed in specifically, in compliance with the IAS/IFRS rules terms of changes the economic value of capital. governing fair value hedges.

As estimate is made of the impact on balance sheet At 31 December 2006, the Parent Company held items using the FX VaR obtained with a Monte Carlo foreign currency swaps hedging individual foreign method with 1-month time horizon. currency deposits (USD).

Quantitative disclosures

1. DISTRIBUTION BY CURRENCY OF ASSETS AND LIABILITIES AND DERIVATIVES Valute US dollar Pound sterling Yen Canadian dollar Swiss francs Other A. Financial assets 6,261,532 777,857 613,935 32,828 444,714 859,356 A.1 Debt securities 73,439 12 283,604 – 13 170,277 A.2 Equity securities 56,922 91 – – – 139,002 A,3 Loans to banks 3,815,415 525,443 244,850 31,288 293,422 184,678 A.4 Loans to customers 2,315,576 252,311 85,425 1,540 151,265 345,129 A.5 Other financial assets 180 – 56 – 14 20,270 B. Other assets 46,290 7,638 2,106 951 2,360 63,181 C. Financial liabilities 8,186,664 820,688 566,737 34,116 389,167 1,482,286 C.1 Due to banks 6,774,097 420,024 236,863 22,135 377,154 410,247 C.2 Due to customers 1,056,078 336,780 329,366 11,925 11,348 763,372 C.3 Debt securities 278,677 59,563 – – – 54,268 C.4 Other liabilities 77,812 4,321 508 56 665 254,399 D. Financial derivatives – Options 1,067,796 99,703 19,381 – 69 73,396 + long positions 408,129 17,760 2,996 – 23 36,698 + short positions 659,667 81,943 16,385 – 46 36,698 – Other derivatives 26,948,018 645,906 1,356,510 94,476 325,236 2,622,952 + long positions 14,179,930 330,249 535,840 53,448 196,682 694,142 + short positions 12,768,088 315,657 820,670 41,028 128,554 1,928,810 Total assets 20,895,881 1,133,504 1,154,877 87,227 643,779 1,653,377 Total liabilities 21,614,419 1,218,288 1,403,792 75,144 517,767 3,447,794 Difference (+/–) (718,538) (84,784) (248,915) 12,083 126,012 (1,794,417) WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

2. INTERNAL MODELS AND OTHER SENSITIVITY ANALYSIS METHODOLOGIES

The exchange rate risk profile of the Group is limited. At 31 December 2006 the monthly FX VaR of the Group was €5 million.

1.2.6 DERIVATIVES

A. FINANCIAL DERIVATIVES A.1 SUPERVISORY TRADING BOOK: END-PERIOD AND AVERAGE NOTIONAL AMOUNTS

Debt securities and interest rates Equity securities and equity indices Listed Unlisted Listed Unlisted 1. Forward rate agreements – 1,358,643 – – 2. Interest rate swaps – 220,092,959 – – 3. Domestic currency swaps –––– 4. Currency IRS –––– 5. Basis swaps – 7,871,225 – – 6. Equity index swaps –––– 7. Real index swaps –––– 8. Futures 188,300 65,633 342,831 3,470 9. Cap options – 34,030,285 – – – purchased – 15,773,420 – – – sold – 18,256,865 – – 10. Floor options – 12,040,097 – – – purchased – 3,234,846 – – – sold – 8,805,251 – – 11. Other options – 2,018,442 1,597,770 30,373,105 – purchased – 1,124,562 1,086,822 15,061,808 – plain vanilla – 1,124,562 1,086,822 15,061,795 – exotic – – – 13 – sold – 893,880 510,948 15,311,297 – plain vanilla – 893,878 510,948 15,311,297 – exotic – 2 – – 12. Forward contracts 2,013,429 269,810 3,721 10 – purchases 1,076,704 265,780 1,024 5 – sales 936,725 4,030 2,697 5 – foreign currency vs. foreign currency –––– 13. Other derivatives contracts – 1,233,725 – 875,998 Total 2,201,729 278,980,819 1,944,322 31,252,583 Average amounts 2,665,603 232,555,379 2,491,811 28,825,055 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 284 285

Exchange rates and gold Other assets Total 2006 Total 2005 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted – – – – – 1,358,643 – 1,250,551 – – – – – 220,092,959 85,780 126,518,666 – 242,085 – – – 242,085 – 138,100 1,274 171,897 – – 1,274 171,897 1,440 76,442 – – – – – 7,871,225 – 5,940,630 –––––––– –––––––– – – – – 531,131 69,103 1,030,733 22,749 – – – – – 34,030,285 – 17,057,991 – – – – – 15,773,420 – 9,860,916 – – – – – 18,256,865 – 7,197,075 – – – – – 12,040,097 – 7,580,250 – – – – – 3,234,846 – 2,746,942 – – – – – 8,805,251 – 4,833,308 – 2,580,812 – – 1,597,770 34,972,359 3,507,438 21,098,826 – 1,118,791 – – 1,086,822 17,305,161 2,770,374 10,590,308 – 1,118,791 – – 1,086,822 17,305,148 2,770,374 10,590,304 –––––13 –4 – 1,462,021 – – 510,948 17,667,198 737,064 10,508,518 – 1,462,021 – – 510,948 17,667,196 737,064 10,508,516 –––––2 –2 495,744 25,647,208 – – 2,512,894 25,917,028 1,315,895 18,244,545 237,511 12,337,565 – – 1,315,239 12,603,350 651,885 8,368,093 236,802 12,020,086 – – 1,176,224 12,024,121 634,185 8,971,881 21,431 1,289,557 – – 21,431 1,289,557 29,825 904,571 – 15,000 – 149,667 – 2,274,390 – 339,000 497,018 28,657,002 – 149,667 4,643,069 339,040,071 5,941,286 198,267,750 – 21,770,869 – 197,000 5,157,414 283,348,303 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.2 BANKING BOOK: END–PERIOD AND AVERAGE NOTIONAL AMOUNTS

A.2.1 HEDGING

Debt securities and interest rates Equity securities and equity indices Listed Unlisted Listed Unlisted 1. Forward rate agreements –––– 2. Interest rate swaps 2,500 6,359,506 – – 3. Domestic currency swaps –––– 4. Currency IRS –––– 5. Basis swaps – 647,339 – – 6. Equity index swaps –––– 7. Real index swaps –––– 8. Futures –––– 9. Cap options – 62,666 – – – purchased – 62,666 – – – issued –––– 10. Floor options –––– – purchased –––– – sold –––– 11. Other options – 42,107 – 85,134 – purchased – – – 85,134 – plain vanilla –––– – exotic – – – 85,134 – sold – 42,107 – – – plain vanilla –––– – exotic – 42,107 – – 12. Forward contracts –––– – purchases –––– – sales –––– – foreign currency vs. foreign currency –––– 13. Other derivatives contracts –––– Total 2,500 7,111,618 – 85,134 Average amounts – 7,785,791 – 85,138 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 286 287

Exchange rates and gold Other assets Total 2006 Total 2005 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted –––––––– – – – – 2,500 6,359,506 2,500 5,495,104 –––––––– – 115,373 – – – 115,373 – 115,373 – – – – – 647,339 – 522,233 –––––––– –––––––– –––––––– – – – – – 62,666 – 135,320 – – – – – 62,666 – 135,320 –––––––– –––––––– –––––––– –––––––– – – – – – 127,241 – 127,250 – – – – – 85,134 – 85,143 –––––––– – – – – – 85,134 – 85,143 – – – – – 42,107 – 42,107 –––––––– – – – – – 42,107 – 42,107 – 1,191,911 – – – 1,191,911 – 35,820 – 1,191,911 – – – 1,191,911 – 35,820 –––––––– –––––––– –––––––100,000 – 1,307,284 – – 2,500 8,504,036 2,500 6,531,100 – 811,772 – 25,000 – 8,707,701 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.2.2 OTHER DERIVATIVES

Debt securities and interest rates Equity securities and equity indices Listed Unlisted Listed Unlisted 1. Forward rate agreements –––– 2. Interest rate swaps – 25,180 – – 3. Domestic currency swaps –––– 4. Currency IRS –––– 5. Basis swaps –––– 6. Equity index swaps –––– 7. Real index swaps –––– 8. Futures –––– 9. Cap options – 25,180 – – – purchased –––– – sold – 25,180 – – 10. Floor options –––– – purchased –––– – sold –––– 11. Other options – 42,107 – 85,267 – purchased – 42,107 – – – plain vanilla –––– – exotic – 42,107 – – – sold – – – 85,267 – plain vanilla – – – 133 – exotic – – – 85,134 12. Forward contracts –––– – purchases –––– – sales –––– – foreign currency vs. foreign currency –––– 13. Other derivatives contracts –––– Total – 92,467 – 85,267 Average amounts – 92,648 – 85,272 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 288 289

Exchange rates and gold Other assets Total 2006 Total 2005 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted –––––––– – – – – – 25,180 – 25,318 –––––––– –––––––– –––––––– –––––––– –––––––– –––––––– – – – – – 25,180 – 3,718,368 –––––––329,380 – – – – – 25,180 – 3,388,988 –––––––113,774 –––––––– –––––––113,774 – – – – – 127,374 – 8,040,858 – – – – – 42,107 – 2,775,979 –––––––2,733,979 – – – – – 42,107 – 42,107 – – – – – 85,267 – 5,264,879 – – – – – 133 – 5,179,736 – – – – – 85,134 – 85,143 –––––––– –––––––– –––––––– –––––––– –––––––– – – – – – 177,734 – 11,898,318 – – – – – 177,920 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.3 FINANCIAL DERIVATIVES: PURCHASES AND SALE OF UNDERLYINGS

Debt securities and interest rates Equity securities and equity indices Listed Unlisted Listed Unlisted A. Supervisory trading book 2,201,729 271,109,594 1,944,322 31,252,583 1. Transactions with exchange of principal 2,201,729 468,880 3,720 22,226,202 – purchases 1,136,904 361,637 1,023 10,542,354 – sales 1,064,825 107,243 2,697 11,683,848 – foreign currency vs. foreign currency –––– 2. Transactions without exchange of principal – 270,640,714 1,940,602 9,026,381 – purchases – 127,965,359 427,736 4,679,660 – sales – 142,675,355 1,512,866 4,346,721 – foreign currency vs. foreign currency –––– B. Banking book 2,500 6,556,746 – 170,401 B.1 hedging 2,500 6,464,279 – 85,134 1. Transactions with exchange of principal – 158,005 – – – purchases – 32,500 – – – sales – 125,505 – – – foreign currency vs. foreign currency –––– 2. Transactions without exchange of principal 2,500 6,306,274 – 85,134 – purchases – 4,071,380 – 85,134 – sales 2,500 2,234,894 – – – foreign currency vs. foreign currency –––– B.2 Other derivatives – 92,467 – 85,267 1. Transactions with exchange of principal –––– – purchases –––– – sales –––– – foreign currency vs. foreign currency –––– 2. Transactions without exchange of principal – 92,467 – 85,267 – purchases – 25,180 – – – sales – 67,287 – 85,267 – foreign currency vs. foreign currency –––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 290 291

Exchange rates and gold Other assets Total 2006 Total 2005 Listed Unlisted Listed Unlisted Listed Unlisted Listed Unlisted 497,018 28,657,002 – 149,667 4,643,069 331,168,846 5,941,286 192,327,120

495,744 27,598,161 – – 2,701,193 50,293,243 1,869,496 29,102,857 237,511 12,895,271 – – 1,375,438 23,799,262 651,886 15,182,286 236,802 13,413,333 – – 1,304,324 25,204,424 1,187,785 12,998,733

21,431 1,289,557 – – 21,431 1,289,557 29,825 921,838

1,274 1,058,841 – 149,667 1,941,876 280,875,603 4,071,790 163,224,263 – 529,411 – – 427,736 133,174,430 950,856 81,284,548 – 529,430 – 149,667 1,512,866 147,701,173 3,119,494 81,939,715

1,274 – – – 1,274 – 1,440 – – 1,307,284 – – 2,500 8,034,431 2,500 17,907,185 – 1,307,284 – – 2,500 7,856,697 2,500 6,008,867

– 1,307,284 – – – 1,465,289 – 151,193 – 1,307,284 – – – 1,339,784 – 151,193 – – – – – 125,505 – – ––––––––

– – – – 2,500 6,391,408 2,500 5,857,674 – – – – – 4,156,514 – 3,706,875 – – – – 2,500 2,234,894 2,500 2,150,799 –––––––– – – – – – 177,734 – 11,898,318

–––––––5,430,944 –––––––474,064 –––––––4,956,880 ––––––––

– – – – – 177,734 – 6,467,374 – – – – – 25,180 – 3,388,988 – – – – – 152,554 – 3,078,386 –––––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.4 OVER-THE-COUNTER FINANCIAL DERIVATIVES: POSITIVE FAIR VALUE - COUNTERPARTY RISK

Debt securities and interest rates Equity securities and equity indices Gross not Gross Future Gross not Gross Future netted netted exposure netted netted exposure A. Supervisory trading book A.1 Governments and central banks –––––– A.2 Government agencies 42,060 – 19,522 – – – A.3 Banks 326,353 2,136,977 74,278 80,937 965,110 161,968 A.4 Financial companies 3,256 – 1,854 2,397 41,822 1,028 A.5 Insurance undertakings 150 – 8 6,814 – – A.6 Non-financial companies 138,004 – 36,566 115 – 142 A.7 Other 22,916 – 2,368 130,218 – 169,613 Total A 532,739 2,136,977 134,596 220,481 1,006,932 332,751 Total A 2005 798,990 1,427,009 397,176 168,119 323,269 476,005 B. Banking book B.1 Governments and central banks –––––– B.2 Government agencies –––––– B.3 Banks 206,935 95,878 13,879 11,750 – 6,811 B.4 Financial companies 2,858 ––––– B.5 Insurance undertakings 4,291 – 694 – – – B.6 Non-financial companies –––––– B.7 Other 1,015 – 632 – – – Total B 215,099 95,878 15,205 11,750 – 6,811 Total B 2005 534,912 6,683 22,664 214,551 – 190,777 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 292 293

Exchange rates and gold Other assets Different underlyings Gross not Gross Future Gross not Gross Future Netted Future netted netted exposure netted netted exposure exposure

–––––––– –––––––– 127,621 164,698 94,041 63,456 2,676 7,780 876,708 762,733 544 – 201,995 – – – 39,549 34,087 –––––––– 29,636 – 26,534 ––––– 4,700 – 2,150 – – – 2,555 1,990 162,501 164,698 324,720 63,456 2,676 7,780 918,812 798,810 387,250 48,644 109,308 5,590 709 19,740 473,795 380,093

–––––––– –––––––– 12,417 2,709 9,190 ––––– –––––––– –––––––– –––––––– –––––––– 12,417 2,709 9,190 ––––– 7,806 5,174 6,260 ––––– WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A,5 OVER-THE-COUNTER FINANCIAL DERIVATIVES: NEGATIVE FAIR VALUE - FINANCIAL RISK

Debt securities and interest rates Equity securities and equity indices Gross not Gross Future Gross not Gross Future netted netted exposure netted netted exposure A. Supervisory trading book A.1 Governments and central banks –––––– A.2 Government agencies 11,557 – 4,388 – – – A.3 Banks 290,129 1,779,481 27,354 44,645 819,432 16,200 A.4 Financial companies 17,757 – 4,641 7,468 2,273 4,242 A.5 Insurance undertakings –––––– A.6 Non-financial companies 79,834 – 18,096 – – – A.7 Other 544,279 – 254 765,364 – – Total A 943,556 1,779,481 54,733 817,477 821,705 20,442 Total A 2005 396,806 1,461,244 277,142 269,414 156,937 17,905 B. Banking book B.1 Governments and central banks –––––– B.2 Government agencies –––––– B.3 Banks 44,370 113,551 3,200 – – – B.4 Financial companies 2,744 – 41 – – – B.5 Insurance undertakings –––––– B.6 Non-financial companies –––––– B.7 Other – – – 11,750 – – Total B 47,114 113,551 3,241 11,750 – – Total B 2005 435,013 29,415 10,872 518,791 – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 294 295

Exchange rates and gold Other assets Different underlyings Gross not Gross Future Gross not Gross Future Netted Future netted netted exposure netted netted exposure exposure

–––––––– –––––––– 137,594 206,392 268,884 2,309 – 800 384,159 81,207 3,934 – 25,145 ––––– –––––––– 6,790 566 3,723 ––––– 9,742 – 6,831 ––––– 158,060 206,958 304,583 2,309 – 800 384,159 81,207 370,706 46,486 71,379 7,585 – 800 367,274 43,269

–––––––– –––––––– 9,366 7,573 2,384 ––––– –––––––– –––––––– –––––––– –––––––– 9,366 7,573 2,384 ––––– 14,199 – – 1,184 – 6,000 – – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A.6 RESIDUAL MATURITY OF OVER-THE-COUNTER FINANCIAL DERIVATIVES. NOTIONAL VALUES

Up to 1 year From 1 to 5 years Over 5 years Total 2006 A. Supervisory trading book 181,904,468 112,635,012 42,959,447 337,498,927 A.1 Debt securities and interest rates 147,378,384 89,286,197 39,183,520 275,848,101 A.2 Equity securities and equity indices 6,786,504 22,691,900 3,685,489 33,163,893 A.3 Exchange rates and gold 27,599,913 646,915 90,438 28,337,266 A.4 Other assets 139,667 10,000 – 149,667 B. Banking book 3,189,625 4,235,044 1,259,600 8,684,269 B.1 Debt securities and interest rates 1,978,632 3,968,352 1,259,600 7,206,584 B.2 Equity securities and equity indices 133 170,268 – 170,401 B.3 Exchange rates and gold 1,210,860 96,424 – 1,307,284 B.4 Other assets –––– Total 185,094,093 116,870,056 44,219,047 346,183,196 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 296 297

B. CREDIT DERIVATIVES

B.1 CREDIT DERIVATIVES: END-PERIOD AND AVERAGE NOTIONAL AMOUNTS

Supervisory trading portfolio Other on individual on more than on individual on more than party one party (basket) party one party (basket) Notional amount Notional amount 1. Purchases of protection 1.1 With exchange of principal 153,093 – – – (with specific indication of the contract forms) 1.2 Without exchange of principal – 50,000 – – (with specific indication of the contract forms) Total 153,093 50,000 –– Total 2005 453,755 103,907 – 171,635 Average amounts 350,633 59,636 – – 2. Sales of protection: 2.1 With exchange of principal 64,000 – 210,483 – (with specific indication of the contract forms) 2 .2 Without exchange of principal –––– (with specific indication of the contract forms) Total 64,000 – 210,483 – Total 2005 407,291 74,390 245,990 130,000 Average amounts 247,058 34,797 225,278 – WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B.2 CREDIT DERIVATIVES: POSITIVE FAIR VALUE - COUNTERPARTY RISK

Notional amount Positive fair value Future exposure A. SUPERVISORY TRADING PORTFOLIO A.1 Purchases of protection with counterparties 60,000 448 750 1 Governments and central banks – – – 2 Other government agencies – – – 3 Banks 60,000 448 750 4 Financial companies – – – 5 Insurance undertakings – – – 6 Non-financial companies – – – 7 Other ––– A.2 Sales of protection with counterparties 50,500 390 252 1 Governments and central banks – – – 2 Other government agencies – – – 3 Banks 50,500 390 252 4 Financial companies – – – 5 Insurance undertakings – – – 6 Non-financial companies – – – 7 Other ––– B. BANKING PORTFOLIO B.1 Purchases of protection with counterparties – – – 1 Governments and central banks – – – 2 Other government agencies – – – 3 Banks ––– 4 Financial companies – – – 5 Insurance undertakings – – – 6 Non-financial companies – – – 7 Other ––– B.2 Sales of protection with counterparties – – – 1 Governments and central banks – – – 2 Other government agencies – – – 3 Banks ––– 4 Financial companies – – – 5 Insurance undertakings – – – 6 Non-financial companies – – – 7 Other ––– Total 110,500 838 1,002 Total 2005 486,985 3,629 2,905 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 298 299

B.3 CREDIT DERIVATIVES: NEGATIVE FAIR VALUE - FINANCIAL RISK

Notional amount Negative fair value SUPERVISORY TRADING PORTFOLIO 1 Purchases of protection with counterparties 1.1 Governments and central banks –– 1.2 Other government agencies –– 1.3 Banks 143,093 2,179 1.4 Financial companies –– 1.5 Insurance undertakings –– 1.6 Non-financial companies –– 1.7 Other –– Total 143,093 2,179 Total 2005 362,258 2,558

B.4 RESIDUAL MATURITY OF CREDIT DERIVATIVES: NOTIONAL VALUES

Up to 1 year From 1 to 5 years Beyond 5 years Total A. Supervisory trading book A.1 Credit derivatives with qualifying reference obligation 15,000 86,593 38,000 139,593 A.2 Credit derivatives with non-qualifying reference obligation 5,000 50,000 72,500 127,500 B. Banking book B.1 Credit derivatives with qualifying reference obligation –––– B.2 Credit derivatives with non-qualifying reference obligation –––– Total 20,000 136,593 110,500 267,093

1.3 LIQUIDITY RISK The Groups liquidity profile is monitored by four different units with the treasury that interact constantly in Qualitative disclosures order to ensure prompt and cost-effective action in handling any daily liquidity deficit or surplus.

A. OVERVIEW, MANAGEMENT AND MEASUREMENT OF The desks that operate in the markets, in both euros LIQUIDITY RISK and foreign exchange, diversify the sources of liquidity while monitoring the degree of concentration on the The Parent Company’s treasury operations have interbank market and, indirectly, the potential maximum centralized control over liquidity risk management for the credit available on an ongoing basis. The desks make use entire Group. The maintenance of balanced liquidity of electronic platforms (e-Mid), infoproviders (Reuters conditions is conducted on an intraday basis. Dealing) and brokers. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The repo desk works to meet the Group’s primary A maturity ladder is constructed, within which assets liquidity requirements, ensuring the end-of-day and liabilities are ordered on the basis of their residual availability of the eligible assets needed for any maturity in time bands that go from demand to seven refinancing with the ECB. days to 12 months.

The payment systems desk monitors in/out flows, The model calculates mismatches in cash flows and ensuring compliance with the daily cutoff times of the estimates, for each time band and over the full time various clearing subsystems. It uses interactive horizon, whether liquidity is broadly in balance. procedures to match forecasts of liquidity needs with the instantaneous liquidity available on the management The risk indicators generated are the following: account and, where necessary, carry out intersystem swaps between the Target and EBA systems.
equilibrium over the year (EA), which is the ratio between assets and liabilities with a residual maturity of Reporting is comprehensive, with data on flows and up to twelve months; balances at both the Parent Company and the network banks, enabling strategic and detailed management of
demand liquidity mismatch (GV/APL), which is the liquidity. ratio between any mismatch in the demand/revocable time band and the market value of readily liquidated At the strategic level, the liquidity risk profile is monitored with a model that assesses the capacity to assets; harmonized expected cash flows over a one-year time
horizon, estimating the potential for a liquidity shortfall progressive liquidity mismatch (GP/APL), which is the during the twelve months on the basis of the maturity ratio between any progressive mismatch and the market structure of assets and liabilities. value of readily liquidated assets. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 300 301

Quantitative disclosures

1. DISTRIBUTION BY RESIDUAL MATURITY OF FINANCIAL ASSETS AND LIABILITIES Currency: euro

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 23,326,690 4,180,994 2,539,786 5,275,283 8,587,150 8,245,250 4,515,835 22,507,716 28,320,287 A.1 Government securities 1 295 4,767 103,838 200 491,642 1,064,475 199,215 A.2 Listed debt securities 948 1,446 221 13,839 18,410 51,055 401,259 1,129,158 A.3 Other debt securities 14,817 5 37 8,127 17,444 8,097 322,075 1,575,212 A.4 Units in collective investment undertakings 849,474 140,550 56,199 A.5 Loans – banks 3,412,948 2,918,504 1,279,859 1,066,053 785,576 350,772 145,887 193,842 21,208 – customers 19,048,502 1,260,744 1,255,160 4,208,972 7,675,770 7,858,424 3,819,154 20,385,515 25,339,295 On-balance-sheet liabilities 51,292,926 3,665,473 3,173,386 5,768,329 3,708,854 2,596,671 2,002,867 24,545,515 7,843,139 B.1 Deposits – banks 1,597,971 1,565,149 1,048,607 2,584,099 1,956,652 975,196 23,420 1,397 660 – customers 48,698,457 404,524 542,129 474,281 100,193 76,024 154,163 651,788 21,552 B.2 Debt securities in circulation 81,963 31,359 178,282 106,611 287,600 1,070,519 1,432,918 21,016,205 6,784,183 B.3 Other liabilities 914,535 1,664,441 1,404,368 2,603,338 1,364,409 474,932 392,366 2,876,125 1,036,744

Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 566 1,788,140 1,188,912 1,994,701 2,955,856 3,531,904 3,363,287 6,816,923 547,100 – short positions 525 1,881,555 1,353,396 1,670,428 4,596,288 3,606,178 3,258,810 4,708,911 503,490 C.2 Deposits and loans to receive/grant – long positions 519,156 335,975 47,365 – short positions 613,878 190,652 46,282 2,330 618 213 1,087 C.3 Irrevocable commitments to disburse funds – long positions 936,947 345,496 297 11,729 155,194 288,247 250,209 1,704,982 906,502 – short positions 661,766 210,760 2,637 5,250 10,365 50,351 121,357 221,319 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Currency: dollar

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 560,142 323,003 146,470 505,342 614,518 420,218 157,171 764,508 369,811 A.1 Government securities 803 2,554 106 274 A.2 Listed debt securities 39 126 14 25,103 864 A.3 Other debt securities 15,945 17,759 9,858 A.4 Units in collective investment undertakings 1,102 A.5 Loans – banks 416,279 26,514 30,090 219,962 337,984 312,759 23,390 83,363 20,088 – customers 142,761 296,489 116,380 285,341 276,534 106,530 115,268 638,177 338,727 On-balance-sheet liabilities 811,606 1,096,372 693,069 905,462 1,246,768 434,764 84,459 16,157 43,723 B.1 Deposits – banks 146,047 1,005,118 618,674 801,360 1,155,587 426,529 62,904 – customers 621,000 60,645 53,384 53,905 23,676 8,235 12,665 14,818 43,537 B.2 Debt securities in circulation 1,897 5,614 586 B.3 Other liabilities 44,559 30,609 21,011 50,197 65,608 3,276 753 186

Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 105 1,147,161 1,273,455 1,363,544 4,131,921 3,040,397 3,042,708 120,138 3,535 – short positions 111 1,343,396 1,079,863 1,715,784 2,519,465 2,607,851 3,159,787 89,769 236 C.2 Deposits and loans to receive/grant – long positions 87,437 21,327 4,400 61,315 – short positions 87,601 50,895 7,953 7,337 61,523 251 C.3 Irrevocable commitments to disburse funds – long positions 50,111 1,057 987 19,024 206,924 73,239 1,190,139 31,572 – short positions WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 302 303

Currency: Yen

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 15,099 104,327 2,808 10,434 47,504 28,040 284,089 14,155 305 A.1 Government securities 282,086 1,248 A.2 Listed debt securities A.3 Other debt securities 1,270 A.4 Units in collective investment undertakings A.5 Loans – banks 11,492 90,680 2,230 27,079 9,240 – customers 3,607 13,647 578 10,434 20,425 17,530 2,003 12,907 305 On-balance-sheet liabilities 61,958 301,087 7,040 3,390 38,113 677 20,894 – – B.1 Deposits – banks 33 95,969 4,697 3 499 677 1,721 – customers 61,450 205,118 2,343 3,387 37,614 B.2 Debt securities in circulation B.3 Other liabilities 475 19,173

Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 159,784 14,104 37,545 152,851 70,653 115,430 263 – short positions 159,777 14,104 31,172 133,273 62,232 114,843 21 C.2 Deposits and loans to receive/grant – long positions 288,345 31 637 – short positions 288,376 100 637 C.3 Irrevocable commitments to disburse funds – long positions 39,826 37,597 – short positions 39,826 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Currency: pound sterling

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 25,126 180,265 11,038 89,813 118,422 5,040 3,482 118,234 133,824 A.1 Government securities 1 7 A.2 Listed debt securities 4 A.3 Other debt securities A.4 Units in collective investment undertakings A.4 Loans – banks 13,761 179,504 9,162 81,661 98,705 115 – customers 11,365 761 1,876 8,152 19,716 5,040 3,367 118,223 133,824

On-balance-sheet liabilities 59,873 246,481 32,357 165,085 86,854 21,921 3,128 53,305 2,404 B.1 Deposits – banks 36,388 48,532 20,605 116,312 40,165 7,690 2,857 – customers 20,784 197,949 11,752 48,773 46,574 7,520 156 848 2,404 B.2 Debt securities in circulation 6,711 52,457 B.3 Other liabilities 2,701 115 115

Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 14 55,367 3,629 12,417 154,581 1,489 104,391 48 – lshort positions 14 39,693 25,808 10,547 17,492 216,919 1,526 50,223 C.2 Deposits and loans to receive/grant – llong positions 6,552 1,538 – short positions 6,552 6,317 780 10 80 C.3 Irrevocable commitments to disburse funds – llong positions 89,650 29,784 76,935 2,004 – short positions 89,650 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 304 305

Currency: swiss franc

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 3,948 31,156 1,791 24,913 48,351 17,504 6,028 45,270 55,516 A.1 Government securities 13 A.2 Listed debt securities A.3 Other debt securities A.4 Units in collective investment undertakings A.4 Loans – banks 2,405 30,306 11 6,660 22,982 2,296 2,296 15,955 1,653 – customers 1,543 850 1,780 18,253 25,369 15,208 3,732 29,302 53,863 On-balance-sheet liabilities 15,365 20,433 17,267 112,582 37,875 36,396 422 – 239 B,1 Deposits – banks 9,177 17,629 16,591 110,946 37,830 36,396 422 – customers 5,949 2,804 676 1,636 45 239 B.2 Debt securities in circulation B.3 Other liabilities 239 Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 1 32,966 3,267 18,950 615 12,721 – short positions 1 31,968 3,267 18,948 615 12,721 24,725 C.2 Deposits and loans to receive/grant – long positions 6,658 1,268 – short positions 6,657 263 1,269 C,3 Irrevocable commitments to disburse funds – long positions 10,548 4,351 – short positions 10,548 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Currency: other

on demand more than more than more than more than more than more than more than More than 1 day to 7 days 15 days 1 month to 3 months 6 months 1 year to 5 years 7 days to 15 days to 1 month 3 months to 6 months to 1 year 5 years On-balance-sheet assets 30,340 57,051 14,630 57,472 46,819 17,060 28,861 88,900 1,316 A.1 Government securities 2,524 1,012 A.2 Listed debt securities 16 A.3 Other debt securities 4,886 2,929 16,342 A.4 Units in collective investment undertakings A.4 Loans – banks 23,472 51,903 6,885 11,233 11,203 6,522 7,326 3,419 – customers 6,868 5,148 7,745 46,239 28,206 7,609 20,523 69,123 1,316 On-balance-sheet liabilities 75,430 79,368 75,388 68,725 20,390 2,423 213 55,638 1,311 B.1 Deposits – banks 2,932 78,095 49,343 41,417 19,646 2,407 194 – customers 67,469 1,273 26,045 27,308 744 16 19 571 1,305 B.2 Debt securities in circulation 54,268 B.3 Other liabilities 5,029 799 6 Off-balance-sheet transactions C.1 Financial derivatives with exchange of principal – long positions 75 54,470 38,560 94,074 1,880 54,156 36 – short positions 76 49,231 53,716 69,997 20,216 25 C.2 Deposits and loans to receive/grant – long positions 1,007 – short positions 109 344 879 5 12 C.3 Irrevocable commitments to disburse funds – long positions 29,840 131,008 1,254 829 – short positions 29,840 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 306 307

2. SECTORAL DISTRIBUTION OF FINANCIAL LIABILITIES

Governments Other government Financial Insurance Non-financial Other and central agencies companies undertakings companies banks 1 Due to customers 856,533 4,116,481 5,836,830 2,328,082 14,537,311 35,834,895 2 Debt securities in issue 6 6,090 344,385 220,006 2,978,646 6,171,494 3 Financial liabilities held for trading 241,014 12,940 128,323 98 127,721 1,714,918 4 Financial liabilities carried at fair value – – –––– Total 1,097,553 4,135,511 6,309,538 2,548,186 17,643,678 43,721,307

3. GEOGRAPHICAL DISTRIBUTION OF FINANCIAL LIABILITIES

Italy Other America Asia Rest of world European countries 1 Due to customers 60,667,879 1,943,590 343,944 452,294 102,425 2 Due to banks 4,877,825 8,250,146 1,288,879 2,040,985 911,767 3 Debt securities in issue 22,377,838 8,824,471 79 196 162 4 Financial liabilities held for trading 1,790,277 2,677,652 381,444 813 1,967 5 Financial liabilities carried at fair value – – – – – Total 89,713,819 21,695,859 2,014,346 2,494,288 1,016,321

1.4 OPERATIONAL RISKS risk). The information includes: internal data on operational losses (loss data collection); data on potential Qualitative disclosures losses (self-assessment, scenario analyses); factors that are representative of the company situation and internal A. OVERVIEW, MANAGEMENT AND MEASUREMENT OF control system; and system loss data (obtained from OPERATIONAL RISK external sources).

Capitalia has implemented all governance The main activities are: mechanisms in terms of structures, processes, strategies and policies for measuring and managing operational
collection of material data: the definition of roles and risks, with the aim of creating an advanced measurement responsibilities, and the methods for the collection and model that meets the regulatory standards envisaged by validation of data. To date, the main initiatives carried out the new Basle Capital Accord. have been: i) the identification, surveying, collection and validation of internal loss data at the main Group Capitalia is integrating information about operational companies (Banca di Roma, Banco di Sicilia, Bipop, MCC, losses classified by specified loss events (loss event Capitalia AM, Fineco Bank and Capitalia S.p.A.); ii) survey model) and risk factors (model for classifying types of of all pending litigation, completed at Capitalia S.p.A., WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Bipop, Fineco Bank, MCC, Capitalia AM and BdS and Work continued on analyzing the statistical models for under way at BdR; iii) start of collection of boundary loss measuring operational risks, which use the quantitative data for events on the border between operational and and qualitative data collected to generated an estimate credit risk (10) and “near miss events”, i.e. events that did of capital at risk (Operational VaR). not generate a loss; At the individual bank level, it was decided to
scenario analysis: the pilot self risk assessment consider operational loss events with a value of at least project at Capitalia AM was completed; €500 occurring after 1 January 2004. In the case of legal disputes in which customers or employees are
external data: in the first half of 2005 Capitalia joined counterparties, it was decided to survey all pending the database on operational losses (DIPO) organized by litigation, including those occurring before 1 January ABI as a partial Group member, transmitting the data 2004, with a value of at least €50,000. In addition, once collected at Banca di Roma. In the first half of 2006, again to ensure effective and efficient of monitoring of membership was extended to the other companies material operational loss data, it was decided to include within the DIPO perimeter, namely Banco di Sicilia, Bipop pending litigation for which provisions are below the Carire, Capitalia S.p.A. and Capitalia Informatica. It was threshold of €500 (even those where no provision has also extended to MCC and Capitalia AM, even though been made) but in which the amount at stake is they are not within the DIPO perimeter. As required for substantial (over €500,000). membership in the DIPO consortium, the Risk Measurement and Control Area formalized internal The most common types of operational loss events regulations on the operational loss data collection are external fraud, largely consisting of robberies, and process and ensured that they were approved by all the “process execution, delivery and management.” companies; As regards impact, external fraud accounts for the
assessment of exposure to operational risks: highest concentration of losses, followed by exposure to operational risks was assessed and “employment relations and workplace safety”. Physical measured for the finance processes at Capitalia S.p.A. asset risk, mainly regarding bank robberies, and business (ownership and intermediation), all processes at Fineco process risk are the primary factors contributing to losses. Bank, network processes at the retail banks (Banca di Roma, Banco di Sicilia, Bipop Carire), all back office Considered by business line, loss events are more processes (Capitalia Informatica), and all Capitalia AM frequent in retail banking, but their impact is low. The processes. The same activities were initiated for MCC main medium-impact losses were recorded in the area of processes. commercial banking.

(10) Examples of boundary losses include revocatory actions in bankruptcy and writedowns of credit positions prompted by operational events rather than borrower default. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 308 309

Quantitative disclosures Capital requirement Business line (Thousands of euros) Corporate finance 25,087 The Capitalia Group’s capital requirement for operational risk, calculated using the standardized Trading & sales 97,272 approach, stood at around €674 million at 31 December Retail banking 225,631

2006. The amount was calculated as the sum of the Commercial banking 189,053

requirements generated by the approaches used: Payment & settlement 228

Agency services 9,961
BIA component, equal to about €46 million; Asset management 12,519

Standardized Approach component, equal to about Retail brokerage 68,741 €628 million, divided as follows by business line: Total 628,492

Section 2 – INSURANCE UNDERTAKINGS RISKS

At 31 December 2006 there were no fully consolidated insurance undertakings.

Section 3 – RISKS OF OTHER ENTITIES

At 31 December 2006 there was no evidence of material risks associated with other consolidated entities. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART F – INFORMATION ON CONSOLIDATED SHAREHOLDERS’ EQUITY

Section 1 – CONSOLIDATED SHAREHOLDERS’ Section 2 – REGULATORY CAPITAL AND CAPITAL EQUITY RATIOS

A. Qualitative disclosures 2.1 SCOPE OF APPLICATIONS OF THE REGULATIONS

In managing its overall risk profile, the Capitalia Regulatory capital was calculated in accordance with Group uses a definition of “economic capital” measured, the instructions contained in Circular no. 155, 11th under a “building blocks” approach, with internal update of 3 April 2006. models: the models cover credit risk, market risk, interest rate risk, exchange rate risk and operational risk. 2.2 BANK REGULATORY CAPITAL As regards calculating risk-adjusted performance for the purposes of capital allocation, an absorbed A. Qualitative disclosures regulatory capital concept is employed, supplemented with measures of interest rate risk and operational risk, 1. Tier 1 capital taking account of the Tier 1 targets set out in the Group Business Plan. The positive Tier 1 capital elements, equal to €8,413 million, are composed of share capital (€2,595 million), The Group as a whole, and the banks and financial share premium account (€3,383 million), reserves companies within it, are required to meet the minimum (€1,819 million), net profit for the year after minority capital requirements set by the supervisory authorities. interests (€576 million) and minority equity (€40 million).

Tier 1 capital does not comprise any innovative B. Quantitative disclosures capital instruments.

Compliance with objectives is monitored constantly at The negative elements, amounting to €1,840 million, the consolidated level, under the supervision of the include goodwill (€1,609 million, including positive equity Parent Company, and at the individual subsidiaries. differences) and other intangible assets (€231 million). Achievement of the consolidated objectives is pursued through self-financing; compliance with requirements at The application of the prudential filter rules to Tier 1 the individual company level is achieved, where capital reduced the latter by €308 million, due, in the necessary, through an appropriate redistribution of the amount of €193 million, to the recognition of the risk taken on by the Group companies. contingent risk associated with derivatives on own shares WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 310 311

and, in the amount of €115 million, to the negative of the positive valuation reserve for available-for-sale reserve for AFS debt securities. equities and units/shares in CIUs that cannot be included in the calculation of regulatory capital.

2. Tier 2 capital 3. Tier 3 capital Tier 2 capital amounts to €3,599 million and is composed of subordinated liabilities (€2,761 million), the Tier 3 subordinated loans, equal to €631 million, positive valuation reserve for available-for-sale equities were entirely used to cover market risks. and units/shares in CIUs (€780 million) and the revaluation reserves (€58 million). Subordinated liabilities were included in regulatory capital net of repurchases, including those not yet The application of the prudential filter rules to Tier 2 settled. The following tables detail the main features of capital reduced the latter by €390 million, equal to 50% the issues.

ISSUES WHOSE AMOUNT EXCEEDS 10% OF TOTAL SUBORDINATED LIABILITIES (thousands of euros)

Subordinated loan amount type interest issue date maturity date early Conditions reported in the calculated of capital rate redemption original currency for regulatory option and issue capital amount purposes

Eur 400,000,000 402.419 TIER 2 3-month euribor + 0.30: 07 April 2006 07 April 2016 from 7 April 2011 “step up” with rate of From April 2011: 3-month euribor 3-month-euribor + 0.90% + 0.30% for first 5 years and 3-month euribor + 0.90% thereafter; ”trigger events” give subscriber right to early redemption in event of issuer default. Eur 500,000,000 502.230 TIER 2 3-month euribor +0.45%. 21 October 2004 21 October 2016 from 21 October 2011 “step up” with rate of From October 2011: 3-month euribor + 0.45% for 3-month euribor +1.05%. first 7 years and 3-month euribor + 1.05% thereafter; “trigger events” give subscriber right to early redemption in event of issuer default. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

OTHER ISSUES: (thousands of euros)

Subordinated loan amount type interest rate issue date maturity date early reported in the calculated of capital redemption original currency for regulatory option and issue capital amount purposes Eur 300,000,000 272.214 TIER 2 First 2 years: nom. 3 August 2004 3 August 2014 3 August 2009 3% annual. 6-month euribor + 0.20% thereafter Eur 300,000,000 254.500 TIER 2 First year: 2.65%. 2 December 2004 2 December 2014 2 December 2009 From 2nd to 5th year: 0.80% + any positive change in European consumer price index. 6-month euribor +0.20% thereafter. Eur 400,000,000 279.290 TIER 2 Fixed rate 3% gross annual. 30 June 2005 30 June 2015 from 30 June 2010 From second year: floating coupon equal to 75% of annual swap rate on euros at ten years. Eur 300,000,000 300.547 TIER 2 3-month euribor +0.55%. 11 August 2004 11 August 2014 from 11 August 2009 From August 2009: 3-month euribor +1.15%. Eur 300,000,000 294.943 TIER 2 Until June 2010 23 June 2005 23 June 2015 from 23 June 2010 3-month euribor + 0.45%. 3-month euribor + 1.05% thereafter Eur 150,000,000 150.955 TIER 2 3-month euribor +0.45%. 16 December 2005 21 October 2016 from 21 October 2011 From October 2011: 3-month euribor +1.05%. Eur 230,000,000 173.074 TIER 2 Fixed rate 3.50% gross annual. 30 March 2006 30 March 2016 from 30 March 2011 From second year: floating coupon equal to 75% of annual swap rate on euros at ten years. Eur 170,000,000 130.833 TIER 2 Fixed rate 4% gross annual. 30 March 2006 30 March 2016 from 30 March 2011 From second year: floating coupon equal to 65% of annual swap rate on euros at ten years.

Subordinated loan amount type interest rate issue date maturity date early reported in the calculated of capital redemption original currency for regulatory option and issue capital amount purposes

Eur 165,000,000 159.264 TIER 3 3% annual fixed 13 June 2003 13 June 2007 none Eur 177,000,000 174.160 TIER 3 3% annual fixed 30 June 2003 30 June 2007 none Eur 300,000,000 297.764 TIER 3 3-month euribor +0.23% 30 November 2005 30 May 2008 none WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 312 313

B. Quantitative disclosures

(millions of euros) Total 2006 Total 2005 (*) A. Tier 1 capital before prudential filters 6,573 5,808 Tier 1 capital prudential filters: – positive IAS/IFRS prudential filters –– – negative IAS/IFRS prudential filters (308) (320) B. Tier 1 capital after prudential filters 6,265 5,488 C. Tier 2 capital before prudential filters 3,599 3,574 Tier 2 prudential filters: – positive IAS/IFRS prudential filters –– – negative IAS/IFRS prudential filters (390) (339) D. Tier 2 capital after prudential filters 3,209 3,235 E. Total Tier 1 and Tier 2 capital after prudential filters 9,474 8,723 Elements to deduct from total Tier 1 and Tier 2 capital (758) (783) F. Regulatory capital 8,716 7,940

(*) Amounts recalculated on the basis of Bank of Italy Circular no. 155, 11th update.

2.3 CAPITAL ADEQUACY

A. Qualitative disclosures

The Tier 1 capital ratio was 6.17% and the total capital ratio was 9.20%. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

B. Quantitative disclosures (millions of euros)

Total 2006 Total 2005 (**) Unweighted Weighted amounts/ Unweighted Weighted amounts/ amounts (*) requirements amounts (*) requirements A. EXPOSURES 123,664 87,907 109,798 75,726 A.1 CREDIT RISK STANDARD METHODOLOGY BALANCE-SHEET ASSETS 111,475 78,260 97,965 66,852 1. Exposures (other than capital instruments and other subordinated assets) to (or guaranteed by): 1.1 Governments and central banks 8,613 78 9,687 92 1.2 Other government agencies 3,875 800 4,508 1,081 1.3 Banks 9,012 1,823 8,482 1,695 1.4 Other (other than mortgage loans on residential a nd non-residential buildings) 56,931 56,167 47,368 46,669 2. Mortgage loans on residential buildings 20,059 10,029 14,678 7,340 3. Mortgage loans on non-residential buildings 6,400 4,265 6,012 3,819 4. Shares, equity participations and subordinated assets 1,713 1,762 2,043 2,422 5. Other balance-sheet assets 4,872 3,336 5,187 3,734

OFF-BALANCE-SHEET ASSETS 12,189 9,647 11,833 8,874 1. Guarantees and commitments to (or guaranteed by): 1.1 Governments and central banks 498 22 614 – 1.2 Other government agencies 509 102 478 97 1.3 Banks 1,090 258 744 169 1.4 Other 9,775 9,198 9,052 8,416 2. Derivatives contracts with (or guaranteed by): 2.1 Governments and central banks – – – – 2.2 Other government agencies – – – – 2.3 Banks 305 61 934 187 2.4 Other 12 6 11 5 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 314 315

(millions of euros)

Total 2006 Total 2005 (**) Unweighted Weighted amounts/ Unweighted Weighted amounts/ amounts (*) requirements amounts (*) requirements B. CAPITAL REQUIREMENTS B.1 CREDIT RISK X 7,033 6,058 B.2 MARKET RISKS X 747 700 1. STANDARD METHODOLOGY X 747 X 700 of which: + position risk on debt securities X 346 X 277 + position risk on equity securities X 221 X 230 + exchange rate risk X 1 X 12 + other risks X 179 X 181 2. INTERNAL MODELS X X of which: + position risk on debt securities X - X + position risk on equity securities X - X + exchange rate risk X - X B.3 OTHER PRUDENTIAL REQUIREMENTS X 346 X 400 B.4 TOTAL PRUDENTIAL REQUIREMENTS (B1+B2+B3) X 8,126 X 7,158

C. EXPOSURES AND CAPITAL RATIOS C.1 Risk weighted assets X 101,573 X 89,478 C.2 Tier 1 capital ratio X 6.17% X 6.13% C.3 Total capital ratio X 9.20% X 9.64%

(*) The unweighted amounts correspond to nominal value for balance-sheet risk assets and to credit equivalent value for off-balance sheet assets. (**) Amounts recalculated on the basis of Bank of Italy Circular no. 155, 11th update. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART G – BUSINESS COMBINATIONS

Section 1 - TRANSACTIONS CARRIED OUT IN 2006

1.1 BUSINESS COMBINATIONS name Transaction date (1) (2) (3) (4) IPSE 2000 S.p.A. 29/12/2006 5.351 50,00001 702 (5.731)

(1) Cost of transaction. (2) Percentage holding with voting rights in ordinary shareholders’ meeting. (3) Total Group revenues: the amounts are calculated assuming that the business combination was carried out at the start of the year. (4) Group net profit/loss: the amounts are calculated assuming that the business combination was carried out at the start of the year.

1.2 OTHER INFORMATION ON BUSINESS consolidated financial statements, recognized under COMBINATIONS “Other operating income” in the income statement.

There is no other material information. Ipse 2000 S.p.A. reports assets of €32.4 million; shareholders’ equity, including €8.7 million in equity 1.2.1 CHANGE FOR THE YEAR IN GOODWILL instruments, amounts to €20.5 million. The assets are largely accounted for by liquidity. The transactions generated negative goodwill of €1 million. The figures for Ipse 2000 S.p.A. are reflected in the balance sheet. The company’s result for the year is also 1.2.2 OTHER reflected in the balance sheet as it was included in the Ipse 2000, a company that was awarded a UMTS purchase cost. license in 2000, is carried by Capitalia S.p.A. at a book value of €5.3 million (€4.7 million in share capital and For other information, please see the section “Equity €0.6 million in class A equity instruments). Negative investments and shareholdings” in the individual financial goodwill of €1 million has been recognized in the statements. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 316 317

Section 2 - TRANSACTIONS CARRIED OUT AFTER YEAR-END

2.1 BUSINESS COMBINATIONS

Name Transaction date (1) (2) (3) (4) Fineco Prestiti S.p.A. 21/02/2007 25 100,00 – –2

(1) Cost of transaction. (2) Percentage holding with voting rights in ordinary shareholders’ meeting. (3) Total Group revenues. (4) Group net profit/loss.

On 21 February 2007 FinecoBank completed the to Milan, with effect from 12 March. The financial acquisition of the entire share capital (with a par value company, whose sole corporate purpose is the of €10,000) of Alissa Finance S.r.L. at a price of granting of loans and the promotion and placement of €25,000. On the same date, the shareholders’ meeting such products or services, either provided by itself or of Alissa approved the transformation of the private third-party banks, has become part of the banking limited company into a company limited by shares group. On 12 March, the extraordinary shareholders’ (società per azioni) and the consequent change of meeting of Alissa Finance S.p.A. approved a further name to Alissa Finance S.p.A, as well as the adoption change of name to Fineco Prestiti S.p.A. with effect of new bylaws and the transfer of the registered office from 20 March. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART H – TRANSACTIONS WITH RELATED PARTIES

1. INFORMATION ON THE COMPENSATION OF DIRECTORS AND MANAGEMENT

The following aggregate figures are provided regarding the compensation (in thousands of euros) of managers with strategic Group responsibilities (a total of 98 persons), while the subsequent table provides information on the recipients of stock options:

Short-term Post-employment Other long-term Other Share-based Total benefits benefits benefits remuneration payments 41,348 5,975–––47,323

STOCK-OPTION GRANTED TO MANAGERS WITH STRATEGIC RESPONSABILITIES

Option held Options granted Options exercised Options Options held at the start of the year during the year during the year lapsed during at the end the year of the year Position Number of Number of Average Average Number of Average Average Number of Average Average Number of Number of Average Average employees options strike maturity options strike maturity options strike market price options options strike maturity price price price at exercise price

Strategic role 30 18,846,333 3,2377 21-5-10–––4,927,500 1,2969 5,8283 – 13,918,833 3,9248 16-12-10

2. INFORMATION ON TRANSACTIONS WITH
Basica S.p.A., currently in liquidation: a non-interest- RELATED PARTIES bearing loan of €9.2 million, which matured on 30 June 2004 and was extended until 30 June 2006. On 2 In addition to those listed in the Parent Company’s November 2006 the Board of Directors of Banca di Roma report, the following operations not conducted on approved the extension of the non-interest-bearing loan, normal market terms were outstanding at 31 December currently equal to €3.6 million and fully drawn, until 31 2006. Banca di Roma currently has relations with: May 2007;

Spaget S.p.A., currently in liquidation, whose credit
Ge.s.e.t.t. S.p.A., currently in liquidation, a non- line, non-interest-bearing since 1 January 1997, interest-bearing overdraft facility of €1.3 million and amounted to €1.5 million, €0.245 million of which guarantees amounting to €2.4 million issued to the drawn; Ministry of Finance, without annual commission charges. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 318 319

These credit lines were transferred to Banca di Roma settled on an arm’s length basis on normal market following the merger with Banca Mediterranea, under the terms. same terms as previously applied. The company had no outstanding exposure at the balance-sheet date. With specific reference to lending to customers, at 31 December 2006, the shareholders party to the shareholders’ In addition to the above, the Capitalia Group has agreement and their groups had received loans and conducted transactions with related parties as defined guarantees of around €1.6 billion from the Group, equal to by Article 2391 bis of the Italian Civil Code, about 12.7% of the Group loans registered in the Central International Accounting Standard 24 issued by the Credit Register and 1.6% of total customer lending. International Accounting Standards Board. These transactions, part of normal banking activities, were The following table contains information on the decided by the competent company bodies in balance sheet and the income statement with regard to compliance with applicable procedures, and are transactions with related parties:

(millions of euros) Lenging Funding Guarantees and Interest Interest commitments income expense Other net income 3,384.3 2,541.4 357.7 78.9 35.6 –3.7

In addition bonds totaling €2.3 billion were also placed, mainly in respect of index-linked policies issued by CNP Capitalia Vita. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

PART I – PAYMENTS BASED ON OWN EQUITY INSTRUMENTS

A. Qualitative disclosures

Information on payments based on own equity instruments is provided in the section “Information on stock option plans” in the individual report on operations.

B. Quantitative disclosures

1. CHANGES IN THE YEAR

Total 2006 Total 2005 Number Average Average Number Average Average of options strike price expiry of options strike price expiry A. Opening balance 48,488,984 3.5248 1-aug-2010 16,355,000 1.711 25-aug-2008 B. Increases B.1. New issues 33,188,334 4.0884 13-may-2011 B2. Other changes 3,466,650 4.24 31-dec-2009 C. Decreases C.1 Cancelled 2,531,667 4.0454 10,000 2.4743 C.2 Exercised 9,030,750 1.9034 4,511,000 1.6474 C.3 Lapsed C.4 Other changes D. Closing balance 36,926,567 3.8856 14-dec-2010 48,488,984 3.5248 1-aug-2010 E. Options exercisable at end of the year 3,736,900 3.1571 6,544,000 1.214

2. OTHER INFORMATION

The exercise of the options described in the previous table had no material impact on the income statement or the balance sheet and financial situation of the Group. The cost recognized in the year in respect of share-based payments amounted to €11.8 million; the value of the stock option reserve was €22.6 million at the end of 2006. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf APPENDIX WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

APPENDIX

RECONCILIATION OF INCOME STATEMENT WITH RECLASSIFIED INCOME STATEMENT

Reclassified consolidated income statement Headings established in Bank of Italy circular no. 262 of 22 December 2005 Net interest income 10;20;130 a,b,c,d (portion for writeback of impairment-interest); Net income (loss) on financial assets and liabilities at fair value 80; 90; (only portion from sales of listed companies) 100 d; 110 Dividends and income (loss) on equity investments carried at equity 70; 240 (only income/loss on equity investments accounted for using equity method) Net commissions 40; 50 Other operating income (expenses) 220 (net of non-life premiums on mortgages) Income from insurance operations 150;160 Gross income Staff costs 180 a Otter administrative costs 180 b (net of non-life premiums on mortgages) Net value adjustments of tangible and intangible assets 200; 210 Total operating expenses Gross operating profit Net provisions for liabilities and contingencies 190 Net impairment adjustments of loans and other financial transactions 130 a,d (net of portion for writeback of impairment-interest) Net impairment adjustments of financial assets 130 b,c (net of portion for writeback of impairment-interest) Value adjustments of goodwill 260 Total provisions and value adjustments Net operating profit Gains (losses) on disposal of assets and from 100 a,b (net of portion from sales of listed companies), equity investments c; 240 (only income/loss on equity investments accounted for using equity method); 270 Net gain (loss) on measurement of tangible and intangible assets at fair value 250

Profit before tax Income taxes 290 Profit (loss) pertaining to minority interests 330 Profit (loss) after tax from groups of assets being divested 310

Net profit (loss) for the year pertaining to parent 340 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 322 323

RECONCILIATION OF SELECTED ITEMS OF BALANCE SHEET WITH MAIN ASSET AND LIABILITY AGGREGATES

Main asset and liability aggregates Headings established in Bank of Italy circular no. 262 of 22 December 2005 Loans to customers 70 assets Financial assets 20; 30; 40; 50 assets Direct funding from customers 20; 30 liabilities Net interbank position 60 assets - 10 liabilities Shareholders’ equity 140 (share pertaining to Group) ; 170; 180; 190; 200; 220 liabilities WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf ATTACHMENT WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

ATTACHMENT

BREAKDOWN OF EQUITY INVESTMENTS - ITEM 100 - AT 31.12.2006

Closing Balance Number Nominal Book value % share/parts value (thousands holding (in euros) of euros) a) in banks 1. listed – 2. unlisted –

BANCO DI SICILIA INTERNATIONAL S.A. (in liquidation) 24,999 19,999,200.00 – 99,996 b) in financial companies 1. listed – 2. unlisted ATHENA PRIVATE EQUITY S.A. 6,114,460 12,228,920.00 37.662 23.88 CONSORTIUM S.r.l. 2,696,680 2,696,680.00 3.236 31.24 CORIT - CONCESSIONARIA RISCOSSIONE TRIBUTI S.p.A. (in liquidation) 14,448 746,239.20 765 60.00 EUROPROGETTI & FINANZA S.p.A. 7,475,000 3,887,000.00 3.377 39.79 FIDIA - FONDO INTERBANCARIO D’ INVESTIMENTO AZIONARIO SGR S.p.A. 5,500 2,860,000.00 2.706 25.00 GE.S.E.T.T. - Gestione Servizi Esazione Tributi e Tesorerie S.p.A. (in liquidation) 24,737 127,642.92 130 98.45 MCC - SOFIPA INTERNATIONAL S.A. (in liquidation) 600,000 1,000,000.00 1.526 100.00 SERIT S.p.A. (in liquidation) 2,000 1,000,000.00 329 100.00 SPAGET S.p.A.(in liquidation) 3,042 1,571,040.90 1.004 100.00 SYNESIS FINANZIARIA S.p.A. 50,000,000 50,000,000.00 124.750 25.00 SOCIETA’ DI GESTIONI ESATTORIALI IN SICILIA SO.G.E.SI. S.p.A. (in liquidation) 56,000 28,921,200.00 – 80.00 SO.G.E.D. S.p.A. (in liquidation) 20,000 1,032,800.00 – 100.00 c) other 1. listed – 2. unlisted

Agenzia per l’Innovazione Tecnologica AGITEC S.p.A. (in liquidation) 25,800 258,000.00 – 25.00 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 326 327

Closing Balance Number Nominal Book value % share/parts value (thousands holding (in euros) of euros) BASICA - Soc. per lo Sviluppo di Sist. Informativi Computerizzati Avanzati S.p.A. (in liquidation) 100,000 516,000.00 – 100.00 BASINTEL S.p.A. (in liquidation) 2,250 1,162,012.50 – 75.00 CAPITALIA ASSICURAZIONI S.p.A. 2,548,000 2,548,000.00 4,920 49.00 CISIM FOOD S.p.A. (in liquidation) 481,066 245,343.66 – 45.45 CNP CAPITALIA VITA S.p.A. 69,166,420 35,966,538.40 251,839 38.80 COMPAGNIA ITALPETROLI S.p.A. 5,812,746 15,520,031.82 21,272 49.00 EDIPASS S.p.A. (in liquidation) 55,000 283,800.00 – 55.00 G.B.S. General Broker Service S.p.A. 100,000 52,000.00 240 20.00 ISTITUTO PER L’EDILIZIA ECONOMICA E POPOLARE DI CATANIA S.p.A. (in liquidation) 200 1,032.00 – 20.00 MEDIOTRADE S.p.A.(in liquidation) 100,000 1,000,000.00 597 100.00 MILANO EST S.p.A. 150,768 2,110,752.00 2,110 34.63 MILARIS S.A. (in liquidation) 110,146,288 5,507,314.40 – 100.00 NUOVA TEATRO ELISEO S.p.A. 752,296 594,313.84 622 41.01 QUANTA S.p.A. - Agenzia per il Lavoro 250,000 2,500,000.00 2,949 25.00 SANITA’ S.r.l. (in liquidation) 5,143,876 5,143,876.00 – 99.60 SE.TE.SI. Servizi Telematici Siciliani S.p.A. 8,551 441,659.15 1,181 40.49 SOCIETA’ AMMINISTRAZIONE IMMOBILI S.A.IM. S.p.A. (in liquidation) 300,000 300,000.00 6,674 60.00 SOCIETA’ GESTIONE PER IL REALIZZO S.p.A. 5,922,612 592,261.20 11,144 20.10 SOCIETA’ ITALIANA DI MONITORAGGIO S.p.A. 666,668 66,208.80 67 33.33 SOCIETA’ PER L’INGEGNERIA D’IMPRESA S.r.l. a) 2,062,958 2,062,958.00 2,433 33.33 TECNOSERVIZI MOBILI S.r.l. 24,500 12,740.00 – 49.00 TOTAL 481,533 a) Following a capital increase at the start of 2007 in which Capitalia S.p.A. did not participate, Capitalia’s stake declined to 10.786% WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf REPORT OF THE INDEPENDENT AUDITORS WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 330 331 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf LIST OF BRANCHES OF BANCA DI ROMA, BANCO DI SICILIA, BIPOP-CARIRE WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

LIST OF BRANCHES

No. of branches Region/Province Banca di Roma Banco di Sicilia Bipop Carire Total Pr. ALESSANDRIA 6 – 2 8 Pr. ASTI 1–12 Pr. BIELLA 1 – 1 2 Pr. CUNEO 5 – 1 6 Pr. NOVARA 3 – 1 4 Pr. TORINO 31 17 9 57 Pr. VERBANO-CUSIO-OSSOLA 2 – – 2 Pr. VERCELLI 2 – 1 3 PIEMONTE 51 17 16 84

Pr. AOSTA 1 – – 1 VALLE D’AOSTA 1 – – 1

Pr. BERGAMO 1 – 28 29 Pr. BRESCIA 1 – 72 73 Pr. COMO 6 – – 6 Pr. CREMONA 3148 Pr. LECCO 1 – 2 3 Pr. LODI 1315 Pr. MANTUA 2 – 6 8 Pr. MILAN 72 22 17 111 Pr. SONDRIO – – 1 1 Pr. PAVIA 4–26 Pr. VARESE 8 – 3 11 LOMBARDY 99 26 136 261

Pr. BOLZANO 3 – 1 4 Pr. TRENTO 2 – 2 4 TRENTINO ALTO ADIGE 5 – 3 8

Pr. BELLUNO 3 – – 3 Pr. PADUA 8 – 3 11 Pr. ROVIGO 1 – 1 2 Pr. TREVISO 6 – 7 13 Pr. VENICE 16 3 3 22 Pr. VERONA 9 1 7 17 Pr. VICENZA 5 – 6 11 VENETO 48 4 27 79 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 334 335

No. of branches Region/Province Banca di Roma Banco di Sicilia Bipop Carire Total

Pr. GORIZIA 4 – – 4 Pr. PORDENONE 3 – 1 4 Pr. TRIESTE 8 – 2 10 Pr. UDINE 4 – 1 5 FRIULI VENEZIA GIULIA 19 – 4 23

Pr. GENOA 27 7 9 43 Pr. IMPERIA 3 – 1 4 Pr. LA SPEZIA 3 – 2 5 Pr. SAVONA 4 – 2 6 LIGURIA 37 7 14 89

Pr. BOLOGNA 9 3 4 16 Pr. FERRARA 2 – 3 5 Pr. FORLI-CESENA 1 – 3 4 Pr. MODENA 1 – 16 17 Pr. PARMA 4 9 10 23 Pr. PIACENZA 2 8 1 11 Pr. RAVENNA 2 – 4 6 Pr. REGGIO NELL’EMILIA 1 – 62 63 Pr. RIMINI 2 – 4 6 EMILIA ROMAGNA 24 20 107 151

Pr. AREZZO 4 – – 4 Pr. FLORENCE 17 6 1 24 Pr. GROSSETO 3 – – 3 Pr. LIVORNO 8 – – 8 Pr. LUCCA 5 – 2 7 Pr. MASSA CARRARA 1 – 3 4 Pr. PISA 5––5 Pr. PISTOIA 2 – 1 3 Pr. PRATO 3 – 1 4 Pr. SIENA 3––3 TUSCANY 51 6 8 65

Pr. PERUGIA 7 – – 7 Pr. TERNI 3––3 UMBRIA 10 – – 10 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

LIST OF BRANCHES

No. of branches Region/Province Banca di Roma Banco di Sicilia Bipop Carire Total

Pr. ANCONA 12 – – 12 Pr. ASCOLI PICENO 7 – – 7 Pr. MACERATA 4 – 1 5 Pr. PESARO E URBINO 4 – 1 5 MARCHE 27 – 2 29

Pr. FROSINONE 51 – 1 52 Pr. LATINA 42 – 1 43 Pr. RIETI 11––11 Pr. ROME 331 23 6 360 Pr. VITERBO 30 – – 30 LAZIO 465 23 8 496

Pr. CHIETI 7 – – 7

Pr. L’AQUILA 9 – – 9

Pr. PESCARA 8 – – 8

Pr. TERAMO 4 – – 4 ABRUZZO 28 – – 28

Pr. CAMPOBASSO 17 – – 17 Pr. ISERNIA 7 – – 7 MOLISE 24 – – 24

Pr. AVELLINO 12 – – 12 Pr. BENEVENTO 15 – – 15 Pr. CASERTA 28 – – 28

Pr. NAPLES 71 – – 71

Pr. SALERNO 18 – – 18 CAMPANIA 144 – – 144

Pr. BARI 32––32

Pr. BRINDISI 2 – – 2

Pr. FOGGIA 12 – – 12

Pr. LECCE 9 – – 9

Pr. TARANTO 7 – – 7 PUGLIA 62 – – 62 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf 336 337

No. of branches Region/Province Banca di Roma Banco di Sicilia Bipop Carire Total

Pr. MATERA 1 – – 1 Pr. POTENZA 4 – – 4 BASILICATA 5 – – 5

Pr. CATANZARO 1 – – 1 Pr. COSENZA 2 – – 2 Pr. REGGIO DI CALABRIA 2 – – 2 Pr. VIBO VALENTIA 1 – – 1 CALABRIA 6 – – 6

Pr. AGRIGENTO 1 42 – 43 Pr. CALTANISSETTA 1 23 – 24 Pr. CATANIA 6 77 – 83 Pr. ENNA –18–18 Pr. MESSINA 2 53 – 55 Pr. PALERMO 10 128 – 138 Pr. RAGUSA 1 26 – 27 Pr. SIRACUSA 3 28 – 31 Pr. TRAPANI 1 33 – 34 SICILY 25 428 – 453

Pr. CAGLIARI 9 – – 9 Pr. ORISTANO 1 – – 1 Pr. SASSARI 4 – – 4 SARDINIA 14 – – 14 Total ITALY 1.145 531 325 2.001 WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf CAPITALIA

LIST OF BRANCHES

BANCA DI ROMA New York – Turkey: Istanbul – Singapore: Singapore – Ro- mania: Bucharest

FOREIGN BRANCHES REPRESENTATIVE OFFICES China: Shanghai – France: Paris – Japan: Tokyo – Great Britain: London – Hong Kong: Hong Kong – Lebanon: Russia: Moscow – China: Beijing – Belgium: Bruxelles Beirut – Germany: Frankfurt – Spain: Madrid – U.S.A.: – Tunisia: Tunis. WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf A cura di Area Relazioni Esterne e Comunicazione – Capitalia Design: INAREA

Realizzazione impianti e stampa Marchesi Grafiche Editoriali SpA - Via Flaminia, 995/997 - 00189 ROMA WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf WorldReginfo - 7caa7d3d-961c-4f0b-b942-55e2e58f60bf