FINANCIAL STATEMENTS 2011 FINANCIAL STATEMENTS AS AT 31 DECEMBER 2011 Financial Statements as at 31 December 2011 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Table of contents - Report on Operations 11 Reference Context 13 Significant Aspects of Operations 16 Credit Aggregates 20 Deposits 28 Main financial aggregates 29 Main economic aggregates and management indicators 39 Equity Investments 43 Integrated Management of Risks and Capital 48 Human Resources 52 Organisational and Technological Dynamics 55 Internal Audit 57 Compliance 58 Environmental Issues 59 Personal Data Protection 60 Relations with Group companies 61 Significant Events Subsequent to the End of the Year and Outlook on Operations 62 Proposals to the Shareholders’ Meeting 63 - Financial Statements 65 - Explanatory Notes 77 Part A - Accounting Policies 79 Part B - Notes to the Balance Sheet 115 Part C - Notes to the Income Statement 170 Part D - Comprehensive Income 198 Part E - Information on Risks and Related Hedging Policies 199 Part F - Information on Equity 262 Part G - Business Combinations 271 Part H - Transactions with related parties 272 Part I - Share-based Payments 275 Part L - Segment Reporting 276 Attachments to the Explanatory Notes 277 Certification Report 291 Report by the Board of Auditors 295 5 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements as at 31 December 2011 Company Profile Corporate Name MPS CAPITAL SERVICES BANCA PER LE IMPRESE S.p.A. “Monte dei Paschi di Siena” Banking Group Year of Incorporation 1954 as Mediocredito Regionale della Toscana Registered Office Florence - Via Pancaldo, 4 General Manager’s Office Florence - Via Panciatichi, 48 Telephone +39 055-2498.1 - Fax +39 055-240826 Website www.mpscapitalservices.it Global Markets Siena - Viale G. Mazzini, 23 Telephone +39 0577-209111/ 53711 - Fax +39 0577-209100 Investment Banking Division Rome - Via Piemonte, 127 Telephone +39 06-42048325 - Fax +39 06-42016914 Market Supervisory Structures Milan - Via Dante, 14 Telephone +39 02-88891922/30 (Electronic Channels) Telephone +39 02-88891924/40/21 (Financial Institutions Italy and Abroad) Branch Rome - Via Marco Minghetti, 30 Telephone +39 06-42006611 - Fax +39 06-42006680 Representative Offices Turin - c/o Banca Monte dei Paschi di Siena Via Mazzini, 14/16 Telephone +39 011-837445 - Fax +39 011-8812091 Milan - Via Santa Maria Segreta, 5/b Telephone +39 02-88233210 - Fax +39 02-88233233 Padua - c/o Banca Antonveneta - Piazzetta Turati, 17 Telephone +39 049-6991659 - Fax +39 049-6992195 Mantua - c/o Banca Monte dei Paschi di Siena - North East Area Head Office Via Vittorio Emanuele II°, 30 Telephone +39 0376-313563 Bologna - Via Rizzoli, 18 Telephone +39 051-2960759 - Fax +39 051-2960284 Siena - Viale G. Mazzini, 23 Telephone +39 0577-271928 Perugia - c/o Banca Monte dei Paschi di Siena Largo Cacciatori delle Alpi, 1/3 Telephone +39 075-5727249 - Fax +39 075-5739863 Ancona - c/o Banca Monte dei Paschi di Siena Via 1° Maggio, 70/A Telephone +39 071-2905009 - Fax +39 055-240826 Naples - c/o Banca Monte dei Paschi di Siena Piazza Municipio - Ang. Via Medina - 1st Floor Telephone +39 081-7341052 - Fax +39 081-7341067 Bari - c/o Banca Monte dei Paschi di Siena Piazza Aldo Moro, 21 Telephone +39 080-5226268 - Fax +39 080-5220077 Catania - c/o Banca Monte dei Paschi di Siena Piazza della Repubblica, 32/38 Telephone +39 095-7348321 - Fax +39 095-7348300 6 Financial Statements as at 31 December 2011 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Corporate Officers and Auditing Company BOARD OF DIRECTORS Chairman Aldighiero FINI Vice-Chairman Paolo CAPELLI Vice-Chairman Fabio CECCHERINI Managing Director Antonio MARINO Director Graziano BATTISTI Director Gabriele BENI Director Turiddo CAMPAINI Director Federico FEDERICI Director Angelo MARTINELLI Director Pierandrea SEMERARO Director Cataldo STAFFIERI Director Claudio VIGNI BOARD OF AUDITORS Chairman Francesco BONELLI Acting Auditor Stefano BARTALINI Acting Auditor Paolo BIGLIAZZI Substitute Auditor Paolo BOCCI Substitute Auditor Alessia BASTIANI MANAGEMENT General Manager Giorgio PERNICI Substitute Assistant General Manager Gabriele GORI Assistant General Manager Carmine MANCINI Assistant General Manager Federico VITTO AUDITING COMPANY KPMG S.p.A. 7 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements as at 31 December 2011 Rating The following ratings have been assigned to the Bank by Moody’s Investors Services Ltd.: LONG-TERM DEBT RATING: Baa2 SHORT-TERM DEBT RATING: P-2 FINANCIAL STRENGTH RATING: D+ In the course of 2011, the long-term debt rating was downgraded by two notches, from A3 to the current Baa2. This revision is closely linked to the downgrade that involved the Parent Company Banca Monte dei Paschi di Siena. Moody’s outlook on all ratings is currently stable. 8 Financial Statements as at 31 December 2011 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Shareholding Structure As of 31 December 2011, the Share Capital broke down as follows: Shareholder Number of shares Amount in Euro Percentage Banca Monte dei Paschi di Siena SpA 891,013,758 276,214,264.98 99.92% I.N.A.I.L. 239,634 74,286.54 0.03% Other shareholders 471,596 146,194.76 0.05% Total 891,724,988 276,434,746.28 100.00% 9 REPORT ON OPERATIONS Financial Statements as at 31 December 2011 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Reference Context ased on the most recent data available, some of which have not changed since the third quarter of 2011, in 2011 Bthere was a slowdown in GDP trends in the main economic areas: +1.7% in the US, +1.4% in the Euro area, - 1.2% in Japan, +9.2% in China. The year 2011 was characterised by an intensification of the sovereign debt crisis in the Euro area. After Greece and Ireland, the crisis extended to Portugal and then to Italy and Spain as well, causing concerns regarding the stability of the entire Euro area. In November 2011, the rate on the 10-year Italian government bond rose to over 7% and that of two-year bonds was close to 8%. In the same month, the Italy-Germany ten-year spread arrived at over 500 bp and the Spanish at over 460 bp (see Fig. 1). Fig.1 - ITALY AND SPAIN 10-YEAR SPREAD Fig. 2 - US 2-YEAR RATE 600 3,5 Spread Spagna/Germania 10y Spread Italia/Germania 10y Tasso Usa 2y 3 500 2,5 400 2 300 1,5 200 Source: Bloomberg 1 100 0,5 Source: Bloomberg 0 0 Jan-10 Jun-10 Nov-10 Apr-11 Set-11 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 A retrospective analysis of the evolution of the 2011 Euro area crisis shows both the implementation of additional bailouts for some countries as well as various meetings of top officials to try to prepare protection mechanisms. In the first case, the reference is to, for example, Portugal, which in May 2011 received a three-year bailout of €78 billion, as well as Greece, for which an agreement was reached in October 2011 which contemplates a second bailout of €100 billion as well as an additional €30 billion from the member states to support the involvement of private parties in the debt swap plan. European leaders held numerous meetings to try to find a solution to the crisis. Amongst the most important were: i) Council of Europe of 21 July 2011, during which one of the main decisions made was to grant additional powers to the EFSF fund and to the future ESM, including the possibility to recapitalise financial institutions through loans to individual governments, in addition to the possibility of acquiring government bonds on the secondary market as well; ii) Council of Europe of 8/9 December 2011, during which an advanced draft fiscal compact was formalised, which sets forth the inclusion in primary legislation (constitutional or domestic) of a balanced budget rule together with automatic mechanisms to adjust public accounts. The following was also decided by the same Council: 1) bringing forward to July 2012 the entry into force of the permanent protection mechanism for the countries, called ESM; 2) recognition of a larger role of the IMF, which should increase its funding up to €150 billion through bilateral loans from the Euro area countries and an additional contribution from EU and non EU countries; 3) the inclusion of standard collective action clauses in the issue of new government bonds issued by Euro area countries and maturing in over one year, after the ESM begins operating. On the political front, three Euro area countries ushered in new governments in the last months of the year: Greece, Italy and Spain. As regards the government, governments implemented numerous manoeuvres aimed at cutting expenses and increasing income. 13 MPS CAPITAL SERVICES BANCA PER LE IMPRESE Financial Statements as at 31 December 2011 In the United States, despite the second quantitative easing plan (called QE2) implemented by the Federal Reserve and completed in June, the real estate sector and labour market did not show signs of structural recovery. The Federal Reserve confirmed the benchmark interest rate at 0-0.25%, committing to maintain it at low levels until at least halfway through 2013, implementing the $400 billion Operation Twist in September 2011 (sale of short-term government bonds and purchase of long-term bonds). Furthermore, Bernanke noted that he was willing to implement additional appropriate financial measures if needed. Despite the downgrade by Standard & Poor’s of the US debt rating at the beginning of August 2011, the crisis in the Euro area contributed to the allocation of American government rates at historically very limited levels (see Fig.2), as well as a strong increase in demand on the primary market. In the Euro area, in the first part of 2011, the ECB increased the benchmark interest rate to 1.5% to combat the strong inflation uptick.