Annual Report 2007 This is an English translation of the Italian original “Bilanci 2007” and has been prepared solely for the convenience of the reader. The Italian version takes precedence and will be made available to interested readers upon request to Intesa Sanpaolo S.p.A. This document contains certain forward-looking statements and forecasts reflecting the Intesa Sanpaolo management’s current views with respect to certain future events. The Intesa Sanpaolo Group’s ability to achieve its projected results is dependent on many factors which are outside management’s control. Actual results may differ materially from those projected or implied in the forward-looking statements. Such forward-looking information involves risks and uncertainties that could significantly affect expected results and is based on certain key assumptions. The following important factors could cause the Group’s actual results to differ materially from those projected or implied in any forward-looking statements: - the Group’s ability to successfully integrate the employees, products, services and systems of the merger of Banca Intesa S.p.A. and Sanpaolo IMI S.p.A. as well as other recent mergers and acquisitions; - the impact of regulatory decisions and changes in the regulatory environment; - the impact of political and economic developments in Italy and other countries in which the Group operates; - the impact of fluctuations in currency exchange and interest rates; - the Group’s ability to achieve the expected return on the investments and capital expenditures it has made in Italy and in foreign countries. The foregoing factors should not be construed as exhaustive. Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward-looking statements, which refer only to the date hereof. Accordingly, there can be no assurance that the Group will achieve its projected results. Supervisory Board of 11 April 2008 Ordinary Shareholders’ Meeting of 28 and 30 April 2008 Report and consolidated financial statements of the Intesa Sanpaolo Group 2007 Report and Parent Company’s financial statements 2007 Intesa Sanpaolo S.p.A. Registered office: Piazza San Carlo, 156 10121 Torino Secondary registered office: Via Monte di Pietà, 8 20121 Milano Share capital 6,646,547,922.56 Euro Registration number on the Torino Company Register and Fiscal Code 00799960158 VAT number 10810700152 Member of the National Interbank Deposit Guarantee Fund and of the National Guarantee Fund, included in the National Register of Banks No. 5361 and Parent Company of “Intesa Sanpaolo”, included in the National Register of Banking Groups. Contents Supervisory Board, Management Board, General Management, Manager responsible for preparing the Company’s financial reports and Independent Auditors 9 Intesa Sanpaolo Group – Financial highlights and alternative performance measures 11 Intesa Sanpaolo Group – Financial highlights and alternative performance measures by business area 13 Intesa Sanpaolo in 2007 – Executive Summary 15 Intesa Sanpaolo in 2007 15 Purchase cost allocation of the merger between Intesa and SANPAOLO IMI 16 The integration process of the Intesa Sanpaolo Group 17 The Business Plan 18 INTESA SANPAOLO GROUP - REPORT ON OPERATIONS AND CONSOLIDATED FINANCIAL STATEMENTS Report on operations The Intesa Sanpaolo Group 29 The macroeconomic scenario and lending and deposit collecting activities 31 Economic results 35 Balance sheet aggregates 47 Breakdown of consolidated results by business area and geographical area 58 The shareholder base, stock price performance and other information 88 Social and environmental responsibility 92 Forecast for 2008 97 Certification of the consolidated financial statements pursuant to Art. 81-ter of Issuers Regulation 11971/99, as subsequently amended and integrated 99 Independent Auditors’ Report on the Consolidated financial statements 101 Consolidated financial statements 105 Consolidated balance sheet 106 Consolidated income statement 108 Changes in consolidated shareholders’ equity 109 Consolidated statement of cash flows 111 Notes to the consolidated financial statements 113 Part A - Accounting policies 115 Part B - Information on the consolidated balance sheet 152 Part C - Information on the consolidated income statement 237 Part D - Segment reporting 269 Part E - Information on risks and relative hedging policies 271 Part F - Information on capital 354 Part G - Business combinations 363 Part H - Information on compensation and transactions with related parties 372 Part I - Share-based payments 377 7 7 Contents INTESA SANPAOLO - PARENT COMPANY’S REPORT ON OPERATIONS AND FINANCIAL STATEMENTS Intesa Sanpaolo – Financial highlights and alternative performance measures 383 Report on operations 385 The Parent Company Intesa Sanpaolo 387 Forecast for 2008 395 Proposals to the Shareholders’ Meeting 396 Certification of the Parent Company’s financial statements pursuant to Art. 81-ter of Issuers Regulation 11971/99, as subsequently amended and integrated 399 Independent Auditors’ Report on the Parent Company’s financial statements 401 Parent Company’s financial statements 405 Balance sheet 406 Income statement 408 Changes in shareholders’ equity 409 Statement of cash flows 410 Notes to the Parent Company’s financial statements 411 Part A - Accounting policies 413 Part B - Information on the Parent Company’s balance sheet 435 Part C - Information on the Parent Company’s income statement 501 Part D - Segment reporting 522 Part E - Information on risks and relative hedging policies 523 Part F - Information on capital 559 Part G - Business combinations 565 Part H - Information on compensation and transactions with related parties 568 Part I - Share-based payments 578 Attachments 581 Reconciliation between reclassified financial statements and official financial 583 statements Reconciliation between the 2006 income statement and the figures restated 588 according to IFRS 5 List of IAS/IFRS endorsed by the European Commission as at 31 December 2007 590 Table of Intesa Sanpaolo’s property and equipment and financial assets subject to revaluation 591 Statement of Intesa Sanpaolo’s internal pension funds 592 Table of significant equity investments in unlisted companies pursuant to art. 126 of Issuers Regulation 11971 of 14 May 1999 595 Fees for auditing and services other than auditing pursuant to art. 149 duodecies of Issuers Regulation 11971 605 Glossary 607 The Intesa Sanpaolo Group Network 617 Contacts 622 Financial calendar 623 8 8 Supervisory Board, Management Board, General Management, Manager responsible for preparing the Company’s financial reports and Independent Auditors Supervisory Board Chairman Giovanni BAZOLI Deputy Chairmen Antoine BERNHEIM Rodolfo ZICH Members Carlo BAREL DI SANT’ALBANO Pio BUSSOLOTTO Rosalba CASIRAGHI Giovanni COSTA Franco DALLA SEGA Gianluca FERRERO Angelo FERRO Pietro GARIBALDI Fabrizio GIANNI Giulio LUBATTI Giuseppe MAZZARELLO Eugenio PAVARANI Gianluca PONZELLINI Gian Guido SACCHI MORSIANI Ferdinando TARGETTI Livio TORIO Management Board Chairman Enrico SALZA Deputy Chairman Orazio ROSSI Managing Director and Chief Executive Officer Corrado PASSERA Members Elio CATANIA Giuseppe FONTANA Gian Luigi GARRINO Giovanni Battista LIMONTA Virgilio MARRONE Emilio OTTOLENGHI Giovanni PERISSINOTTO Marcello SALA General Management General Manager and Deputy to the CEO Pietro MODIANO General Manager Francesco MICHELI Manager responsible for preparing the Company’s financial reports Bruno PICCA Independent Auditors RECONTA ERNST & YOUNG S.p.A. 9 9 9 Intesa Sanpaolo Group - Financial highlights and alternative performance measures 2007 2006 Changes 2006 (**) restated (*) amount % Income statement (in millions of euro) Net interest income 9,886 8,907 979 11.0 4,757 Net fee and commission income 6,195 6,379 -184 -2.9 2,902 Profits (losses) on trading 1,008 1,799 -791 -44.0 891 Income from insurance business 441 452 -11 -2.4 - Operating income 18,008 17,915 93 0.5 8,740 Operating costs -9,268 -9,628 -360 -3.7 -4,698 Operating margin 8,740 8,287 453 5.5 4,042 Net adjustments to loans -1,372 -1,306 66 5.1 -778 Net income 7,250 4,707 2,543 54.0 2,559 Balance sheet (in millions of euro) Loans to customers 335,273 321,271 14,002 4.4 190,830 Direct customer deposits 373,753 363,247 10,506 2.9 202,762 Indirect customer deposits 657,919 649,475 8,444 1.3 300,823 of which: Assets under management 265,183 293,472 -28,289 -9.6 58,881 Total assets 572,902 575,512 -2,610 -0.5 291,781 Shareholders' equity 51,558 32,484 19,074 58.7 18,166 Operating structure Number of employees 96,198 100,019 -3,821 56,665 Italy 70,734 75,266 -4,532 40,656 Abroad 25,464 24,753 711 16,009 of which: atypical labour contracts 426 287 139 - Number of financial advisors 4,280 4,216 64 - Number of branches (a) 7,329 7,239 90 3,972 Italy 6,050 6,001 49 3,168 Abroad 1,279 1,238 41 804 (*) Figures restated on a consistent basis, considering i) the merger between Banca Intesa and SANPAOLO IMI and the connected transactions with Crédit Agricole and ii) the changes in the consolidation area. (**) Figures relative to Gruppo Intesa, where necessary restated in accordance to IFRS 5. (a) Including Retail Branches, Private Banking Branches, SME Branches and Corporate Branches. 11 11 11 2007 2006 2006 (**) restated (*) Profitability ratios (%) Cost / Income 51.5 53.7 53.8 Net income / Average shareholders' equity (ROE) (a) 18.9 16.2 16.3 Economic Value Added (EVA)(b) (in millions of euro) 4,465 1,912 1,109 Risk ratios (%) Net doubtful loans /