FINANCIAL STATEMENTS 2016 FINANCIAL STATEMENTS AT 31 DECEMBER 2016 Financial Statements at 31 December 2016 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Table of contents - Report on Operations 13 Reference Context 15 Significant Aspects of Operations 18 Credit Aggregates 22 Deposits 30 Main financial aggregates 32 Equity Investments 43 Main economic aggregates and management indicators 44 Risk governance 47 The equity position 48 Human Resources 49 Organisational and Technological Trends 51 Internal Audit 52 Compliance 53 Environmental Issues 55 Relations with Group companies 56 Significant Subsequent Events and Outlook on Operations 57 Proposals to the Shareholders’ Meeting 59 - Financial Statements 61 - Notes to the Financial Statements 73 Disclosure on changes in the accounting estimates in accordance with the provisions of IAS 8 (Accounting standards, changes in accounting estimates and errors) 75 Part A - Accounting Policies 77 Part B - Notes to the Balance Sheet 125 Part C - Notes to the Income Statement 197 Part D - Comprehensive Income 223 Part E - Information on Risks and Related Hedging Policies 224 Part F - Information on Equity 316 Part G - Business Combinations regarding companies or business units 330 Part H - Transactions with related parties 331 Part I - Share-based Payments 336 Part L - Segment Reporting 337 Attachments to the Notes to the Statements 339 - Certification Report 353 - Report of the Board of Statutory Auditors 357 - Shareholders’ Meeting Resolutions 371 5 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements at 31 December 2016 Company Profile Name MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.p.A. “Monte dei Paschi di Siena” Banking Group General Information MPS Capital Services Banca per le Imprese SpA (MPSCS) is the Corporate & Investment Bank of the Monte dei Paschi di Siena Banking Group (BMPS Group), specialised in financial support and advice to the Corporate, Public Bodies and Institutional segment. It is registered as a Joint Stock Company in the Florence Companies Register from 4 September 2007, with No. 00816350482, Registered in the Bank of Italy List of Banks with No. 4770, a subscriber to the Interbank Deposit Protection Fund and to the National Guarantee Fund. It is a signatory to the Banking and Financial Sector Code of Conduct, and accepts the Banking Conciliator - Banking Ombudsman-Jury. It is also a signatory to the interbank agreement for the establishment of the Complaints Office. It is subject to the direction and coordination of Banca Monte dei Paschi di Siena SpA (BMPS). In particular the Bank is obliged to observe the rules that the Parent Company issues for the execution of the instructions provided by the Bank of Italy in the interest of the group’s stability. The duration of the company is until 31 December 2050. Year of constitution 1954 as Mediocredito Regionale della Toscana Share Capital € 829,304,238.84 fully paid-up. Registered Offices Florence - Via Pancaldo, 4 - 50127 General Management Florence - Via Panciatichi, 48 - 50127 Telephone +39 055-2498.1 - Fax +39 055-240826 Website www.mpscapitalservices.it Global Markets Department Siena - Viale G. Mazzini, 23 - 53100 Telephone +39 0577-294111 - Fax +39 0577-209100 Investment Banking Department Rome - Via Salaria, 231 (villino 2) - 00199 Telephone +39 06-42048325 - Fax +39 06-42016914 Sales and Financial Solutions Milan - Via Ippolito Rosellini, 16 - 20124 Telephone +39 02-69705571 - Fax +39 02-88233205 Market Supervisory Structures Milan - Via Ippolito Rosellini, 16 - 20124 Telephone +39 02-88891941/30 - Fax +39 02-88233206 (electronic channels, e-trade) Telephone +39 02-88891945/43/31/28/24/21 Fax +39 02-88233205 (Financial Institutions) Telephone +39 02-88891934 - Fax +39 02-88233205 (Corporate) Siena - Viale G. Mazzini, 23-53100 Telephone +39 0577-537326 - Fax +39 0577-209505 (electronic channels, execution) Telephone +39 0577-537150 - Fax +39 0577-209505 (Corporate) Telephone +39 0577-537151/56/62 - Fax +39 0577-209505 (Entities and Institutional Bodies) 6 Financial Statements at 31 December 2016 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Rome - Via Salaria, 231 (Villino 2) - 00199 Telephone +39 06-42450714 - Fax +39 06-42048337 (Corporate) Padua - Piazzetta Turati, 17 (Torre Ovest) - 35131 Telephone +39 049-8046192 - (Corporate) Representative Offices Turin - c/o Banca Monte dei Paschi di Siena Local Offices Via Mazzini, 14/16-10123 Telephone +39 011-8155243 - Fax +39 055-240826 Milan - c/o Banca Monte dei Paschi di Siena Largo Cairoli, 1-20123 Telephone +39 02-88233220 - Fax +39 02-88233233 Padua - c/o Banca Monte dei Paschi di Siena Piazzetta Turati, 17 (West Tower) - 35131 Telephone +39 049-6991659 - Fax +39 049-6992195 Mantua - c/o Banca Monte dei Paschi di Siena Via Vittorio Emanuele II°, 30-46100 Telephone +39 049-6992067 Bologna - Viale della Repubblica, 23-40127 Telephone +39 071-2912735 - Fax +39 055-240826 Perugia - c/o Banca Monte dei Paschi di Siena Via XX Settembre, 77-06124 Telephone +39 0577-209246 - Fax +39 055-240826 Ancona - c/o Banca Monte dei Paschi di Siena Via 1° Maggio, 70/d - 60131 Telephone +39 071-2912735 - Fax +39 055-240826 Rome - Via Salaria (villino 2) 231-00199 Telephone +39 06-67345313 - Fax +39 06-67345330 Naples - c/o Banca Monte dei Paschi di Siena Via Cervantes de Savaedra, 55/14-80133 Telephone +39 081-7785243 - Fax +39 055-240826 Bari - c/o Banca Monte dei Paschi di Siena Piazza Aldo Moro, 21-70122 Telephone +39 080-5226244 - Fax +39 055-240826 Florence - Via Panciatichi 48 - 50127 Florence Telephone +39 055-2498.570/395 - Fax +39 055-2498737 7 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements at 31 December 2016 Siena - Viale G. Mazzini, 23 - 53100 Telephone +39 0577-209246 - Fax +39 055-240826 Catania - c/o Banca Monte dei Paschi di Siena Piazza della Repubblica, 32/38-95131 Telephone +39 081-7785243 - Fax +39 055-240826 Administrative offices Rome - Via Pedicino, 5 Telephone +39 06-42048320 - Fax +39 06-42016914 Padua - c/o Banca Monte dei Paschi di Siena Piazzetta Turati, 17 (West Tower) - 35131 8 Financial Statements at 31 December 2016 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Corporate Officers and Auditing Company BOARD OF DIRECTORS Chairperson Mario SALVESTRONI Deputy Chairperson Paola DEMARTINI Managing Director Sergio VICINANZA Director Angelo BARBARULO Director Gabriele BENI Director Ilaria Maria DALLA RIVA Director Angelo MARTINELLI Director Francesco Renato MELE Director Rita PELAGOTTI BOARD OF STATUTORY AUDITORS Chairperson Graziano GALLO Regular Auditor Werther MONTANARI Regular Auditor Lara ZAMPIERO Alternate Auditor Marco TANINI Alternate Auditor Vittorio MARRONI MANAGEMENT General Manager Giorgio PERNICI AUDITING COMPANY ERNST & YOUNG S.P.A. Via Po, 32 00198 ROME VAT No. 00891231003 9 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements at 31 December 2016 Ratings The following ratings have been assigned to the Bank by Moody’s Investors Service Ltd: LONG-TERM DEBT RATING: B2 SHORT-TERM DEBT RATING: Not Prime FINANCIAL STRENGTH RATING: ca At the end of financial year 2016 the Moody’s international rating agency completed the revision of the rating of the Italian banking system which, with the introduction of the new methodology, is even more closely tied to the creditworthiness of the Sovereign Entity (Italy’s rating at the end of financial year 2016: Baa2 with outlook negative). While the rating on the financial strength of the MPS Group, and thus also of MPS Capital Services, went down to class ca following the unsuccessful capital increase, the rating on long-term deposits, benefiting from 2 notches of government support, rose by a notch from B3 to B2, although constantly subject to revision. 10 Financial Statements at 31 December 2016 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Shareholding Structure anca Monte dei Paschi di Siena controls the company with a shareholding which, as of 31/12/2016, is 99.98%, Bas shown in the chart below: MPS CAPITAL SERVICES EQUITY STRUCTURE others I.N.A.I.L. 0,01% 0,01% MPS 99,98% For completeness of information we can note that: • in February 2016 the capital increase resolved by the Extraordinary Shareholders’ Meeting of 16 September 2015 was completed with the issue of 1,783,449,976 new ordinary shares, with a face value of € 0.31 each, at a unit price of € 0.67285 (of which € 0.36285 as share premium). The share capital increase was fully subscribed and paid up. The unopted shares were subscribed by Banca Monte dei Paschi di Siena. The share capital therefore went up from € 276,434,746.28 to € 829,304,238.84 and the share premium reserve from € 228,089,231.13 to € 875,214,054.92 with a total increase of the bank's shareholders’ equity of € 1,199,994,316.35. • in execution of the resolution passed by the Extraordinary Shareholders’ Meeting of 20 June 2016, on 5 August 2016 a reverse stock split of MPSCS ordinary shares was carried out in a ratio of 1 new ordinary share for every 10,000 shares held. Following the reverse stock split the total share capital of € 829,304,238.84 remained unchanged. 11 REPORT ON OPERATIONS Financial Statements at 31 December 2016 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Reference Context 016 was characterised by various events, not foreseen by the leading specialised companies, which caught the 2markets and public opinion by surprise. Among these we can mention the winning the pro-“Brexit” vote in the referendum, Trump winning the US presidential election and the decision of OPEC (together with other important global producers that are not members of the cartel) to reduce oil production to boost the price. However the apocalyptic scenarios envisaged in the event of a victory of YES to Brexit or of the arrival of Trump in the White House, did not come to pass; indeed, exactly the opposite occurred.