Draft Annual Accounts and Report as at 30 June 2017 Annual General Meeting, 28 October 2017 LIMITED COMPANY SHARE CAPITAL € 440,617,579.00 HEAD OFFICE: PIAZZETTA ENRICO CUCCIA 1, MILAN, ITALY REGISTERED AS A BANK. PARENT COMPANY OF THE MEDIOBANCA BANKING GROUP. REGISTERED AS A BANKING GROUP Annual General Meeting 28 October 2017 www.mediobanca.com translation from the Italian original which remains the definitive version BOARD OF DIRECTORS Term expires Renato Pagliaro Chairman 2017 * Maurizia Angelo Comneno Deputy Chairman 2017 Marco Tronchetti Provera Deputy Chairman 2017 * Alberto Nagel Chief Executive Officer 2017 * Francesco Saverio Vinci General Manager 2017 Tarak Ben Ammar Director 2017 Gilberto Benetton Director 2017 Mauro Bini Director 2017 Marie Bolloré Director 2017 Maurizio Carfagna Director 2017 * Angelo Caso’ Director 2017 Maurizio Costa Director 2017 Vanessa Labérenne Director 2017 Elisabetta Magistretti Director 2017 Alberto Pecci Director 2017 * Gian Luca Sichel Director 2017 * Alexandra Young Director 2017 * Member of Executive Committee STATUTORY AUDIT COMMITTEE Natale Freddi Chairman 2017 Laura Gualtieri Standing Auditor 2017 Gabriele Villa Standing Auditor 2017 Alessandro Trotter Alternate Auditor 2017 Barbara Negri Alternate Auditor 2017 Silvia Olivotto Alternate Auditor 2017 *** Massimo Bertolini Head of Company Financial Reporting and Secretary to the Board of Directors www.mediobanca.com translation from the Italian original which remains the definitive version CONTENTS Consolidated Accounts Review of operations 11 Declaration by head of company financial reporting 65 Auditors’ Report 69 Consolidated financial statements 79 Notes to the accounts 89 Part A – Accounting policies 92 Part B – Notes to the consolidated balance sheet 127 Part C – Notes to the consolidated profit and loss account 174 Part D – Comprehensive consolidated profit and loss account 192 Part E – Information on risks and related hedging policies 193 Part F – Information on consolidated capital 265 Part G – Combination involving Group companies or business units 272 Part H – Related party disclosure 274 Part I – Share-based payment schemes 276 Part L – Segment reporting 279 *** Annual General Meeting, 28 October 2017 Agenda 285 Contents 5 Accounts of the Bank Review of Operations 289 Declaration by Head of Company Financial Reporting 307 Auditors’ Report 311 Statutory Auditors’ Report 319 Mediobanca S.p.A. Financial Statements 339 Notes to the Accounts 349 Part A - Accounting policies 352 Part B - Notes to the balance sheet 381 Part C - Notes to the profit and loss account 415 Part D - Comprehensive profit and loss account 429 Part E - Information on risks and related hedging policies 430 Part F - Information on capital 485 Part H - Related party disclosure 491 Part I - Share-based payment schemes 493 Annexes: New restated balance sheet: reconciliation 498 Reconciliation between new and old divisions 501 Consolidated Financial Statements 503 Mediobanca S.p.A. Financial Statements 512 A - Asset revaluation statement 516 B - Balance sheets and profit and loss accounts of investments in Group undertakings (including indirect investments) 517 C - Associated undertakings: balance sheets and profit and loss accounts (as required under Article 2359 of the Italian Civil Code) 545 D - Fees paid for auditing and sundry other services 555 6 Consolidated financial statements as at 30 June 2017 2. Appointment of members of Board of Directors for 3-year period 2018-2020 556 3. Appointment of members of the Statutory Audit Committee for the 3-year period 2018-2020 560 4. Report on remuneration 563 5. Increase in fee payable to External Auditors for Audit of the Company’s Financial Statements for the 2017-21 period 613 *** Other Documents Group Sustainability reporting 617 Statement on Corporate Governance and Ownership Structure 669 Glossary 725 Contents 7 CONSOLIDATED ACCOUNTS REVIEW OF GROUP OPERATIONS REVIEW OF GROUP OPERATIONS The Mediobanca Group reported an increase of 24% in net profit to€ 750.2m, reflecting growth in earnings by all the Group’s divisions, as reshaped following the three-year strategic plan unveiled in November 2016. The Corporate and Investment Banking division saw net profit rise from€ 222.8m to €253.9m, on lower loan loss provisions and boosted by Specialty Finance operations (from €16m to €21.6m). Consumer Banking delivered a net profit of€ 258.2m (30/6/16: €153.8m), due to the increase in net interest income (up 9.5%) and a substantial decrease in loan loss provisions (down 22.1%) due to the improved risk profile. The net profit posted by Wealth Management increased from€ 38m to €55m, as a result of the consolidation of Cairn Capital, Barclays Italy and the acquisition of the remaining 50% of Banca Esperia. The Principal Investing division’s contribution increased from €373.2m to €422.1m, and is related to higher capital gains (up from €119.8m to €161.6m). Only the Holding Functions division reported a loss of €241.8m (30/6/16: loss of €189.3m) due to higher cash and liquid assets in a negative interest rate scenario which impacted on net interest expense (up from €33.3m to €76.3m). The Group’s outstanding performance is reflected in capital ratios at their highest levels since the introduction of CRR/CRDIV regulations: the CET1 ratio stood at 13.31%, and the total capital ratio at 16.85%. The Group’s risk-adjusted gross operating profit, including loan loss provision, rose by 16.2%, from €735.8m to €855.2m. Total revenues were up 7.3%, form €2,046.6m to €2,195.6m, despite the strong credit spread reduction and short-term interest rates remaining firmly in negative territory, with the main income items performing as follows: – Net interest income rose by 6.7% from €1,206.7m to €1,287.8m, reflecting growth of 9.5% in Consumer Banking (from €746.9m to €818.1m) and of 31% in Wealth Management (from €186.4m to €244.1m largely due to the consolidation of the Barclays Italy business unit’s operations for ten months) which more than offset the reduction in Holding Functions (net expense totalling €76.3m, compared with €33.3m last year) showing an improvement in the fourth quarter; Review of Group Operations 13 – Net treasury income fell from €133.1m to €121.3m driven by lower AFS dividends (€17m, as against €29.2m last year, as a result of the smaller portfolio) and a decrease in the contribution of CIB fixed-income trading (€48.9m, as against €64.7m last year); – Net fee and commission income rose by 16.1% (from €450.1m to €522.6m) driven by the contribution of CheBanca! (up from €43.4m to €68.9m, including €22.5m contributed by the former Barclays business unit) Specialty Finance (up from €20m to €42.5m), Cairn Capital (up from €8.9m to €27.5m) and Banca Esperia (up 18m in the fourth quarter, consolidated line-by-line); Wholesale Banking remained stable at €207.4m, while Consumer Banking decreased slightly from €126.1m to €118.1m. – The contribution from equity-accounted companies, virtually all of which is now attributable to Assicurazioni Generali only, increased from €256.7m to €263.9m. Operating costs rose by 14.8%, from €891.9m to €1,023.7m, almost entirely related to new entities. On a like-for-like basis, the increase in overheads would have been 2.5%, most of which in labour costs. Loan loss provisions fell by 24.4%, from €418.9m to €316.7m, reflecting a widespread improvement in the loan book risk profile, in Consumer Banking particularly (where provisioning declined from €354.4m to €276.2m) and Wholesale Banking (€15m in writebacks, as against writeoffs of €28.5m one year previously). The cost of risk therefore fell to 87 bps (124 bps), on higher coverage ratios: 54.6% for the non-performing assets and 1.1% for performing items. Other provisions and charges of €101.9m (€104.3m) refer mainly to the €49.6m one-off contribution to the national Bank Resolution Fund (required as part of the measures to support Banca delle Marche, Banca Popolare dell’Etruria, Cassa di Risparmio di Chieti and Cassa di Risparmio di Ferrara); €25.3m by way of compulsory contribution to the European Single Bank Resolution Fund; a €13m contribution to the Deposit Guarantee Scheme (DGS) for 2016 and 2017 (six months); €24.9m in expenses to settle the yacht leasing tax disputes outstanding (fully covered by third parties’ share plus €15m withdrawn from the Mediobanca S.p.A. provisions for risks); €19m in restructuring expenses (€14.9m of which in connection with the Banca Esperia acquisition and €2.7m in connection with SelmaBipiemme). The Barclays Italy acquisition generated net income of 14 Consolidated financial statements as at 30 June 2017 €15.2m; taking into account the allocation of the badwill received in respect of the transaction (€240m), the fair value of assets and liabilities recognized during the PPA process (€98.3m), and the expenses incurred during the ten months due to restructuring and integration (€83.1m). With the new strategic plan coming into force, the Group’s operations are now structured into five separate divisions: – Corporate & Investment Banking (CIB): this division brings together all services provided to corporate clients in the following areas: Wholesale Banking (lending, advisory, capital markets activity and proprietary trading); and Specialty Finance (factoring and credit management, including NPL portfolios); – Consumer Banking (CB): this division provides retail clients with the full range of consumer credit products, ranging from personal loans to salary- backed finance (Compass and Futuro); – Wealth