ANNUAL REPORT 2006 This is an English translation of the Italian original “Bilanci 2006” and has been prepared solely for the convenience of the reader. The version Italian takes precedence and will be made available to interested readers upon request to Intesa Sanpaolo S.p.A. WARNING The present communication refers to Banca Intesa S.p.A.’s Parent Company’s Financial Statements as at 31st December 2006 and Gruppo Intesa’s Consolidated Financial Statements as at 31st December 2006 and does not include assets, liabilities and statement of income components as at 31st December 2006 of the merged company Sanpaolo IMI S.p.A. and of the Sanpaolo IMI Group, since the merger came into legal and accounting effects as of 1st January 2007. WARNING Please note that as of 25th April 2007 214,623 new Intesa Sanpaolo S.p.A. ordinary shares, with regular rights have been issued following the exercise by the Management of the merged company Sanpaolo IMI and its subsidiaries, of corresponding subscription rights relative to a stock option plan approved by the Board of Directors of the aforementioned Company on 17th December 2002, on the basis of the specific mandate conferred to the same Board by the Shareholders' Meeting of Sanpaolo IMI S.p.A. of 30th April 2002. This led to an increase in the ordinary share capital of Intesa Sanpaolo S.p.A. of 111,603.96 euro to reach 6,161,652,830.84 euro and of an equal amount in total capital which, including saving shares reached 6,646,547,922.56 euro, as well as an increase in the Share premium reserve of 379,410.54 euro, which reached 5,559,452,895.16 euro. The aforementioned new share capital is divided into 12,781,822,928 shares of nominal value of 0.52 euro each, comprising 11,849,332,367 ordinary shares and 932,490,561 non- convertible saving shares. The relative attestation has been transmitted to the Turin Company Register on 26th April 2007. The foregoing led to a consequent update in the Proposals to the Shareholders’ Meeting for the allocation of net income for 2006 and for the distribution of dividends and reserves indicated on page 304 of this Report. In particular, the further disbursement of 81,556.74 euro, corresponding to the attribution of a unit amount of 0.38 euro (including 0.13 euro from the distribution of dividends and 0.25 euro from the distribution of the Share premium reserve) to be assigned also to the aforementioned 214,623 new ordinary shares, led to – without prejudice to the integration, for further 22.320,80 euro, of the legal reserve to reach a fifth of the new share capital – a consistent decrease in the portion of net income destined to the Extraordinary reserve and in the residual Share premium reserve. Supervisory Board of 14th April 2007 Ordinary Shareholders’ Meeting of 30th April – 3rd May 2007 Report and consolidated financial statements of Gruppo Intesa 2006 Report and Parent Company’s financial statements 2006 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 6.646.436.318,60 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 Board of Directors, General Management, Board of Statutory Auditors and Independent Auditors until 31st December 2006 7 Supervisory Board, Management Board, General Management, Manager in charge of preparing the Company’s financial reports and Independent Auditors from 1st January 2007 9 Gruppo Intesa – Financial highlights and alternative performance measures 11 Gruppo Intesa – Financial highlights and alternative performance measures by business area 13 The merger with the Sanpaolo IMI group and the new Business Plan 15 The merger between Intesa and Sanpaolo IMI 15 The sale of assets to Crédit Agricole and the Measure of the Italian Competition Authority 17 The 2005 – 2007 Business Plan 19 The new 2007 – 2009 Business Plan 20 GRUPPO INTESA - REPORT ON OPERATIONS AND CONSOLIDATED FINANCIAL STATEMENTS 21 Report on operations 23 Main Group Companies as at 31st December 2006 25 The macroeconomic scenario and lending and deposit collecting activities 27 Economic results 30 Balance sheet aggregates 39 Breakdown of consolidated results by business area and geographic area 47 The Banca Intesa share 67 Social and environmental responsibility 71 Forecast for 2007 73 Independent Auditors’ Report on the Consolidated financial statements 75 Consolidated financial statements 79 Consolidated balance sheet 80 Consolidated statement of income 82 Changes in consolidated shareholders’ equity 83 Consolidated statement of cash flows 85 Notes to the consolidated financial statements 87 Part A - Accounting policies 89 Part B - Information on the consolidated balance sheet 117 Part C - Information on the consolidated statement of income 177 Part D - Segment reporting 199 Part E - Information on risks and relative hedging policies 202 Part F - Information on capital 263 5 Part G - Business combinations 271 Part H - Information on compensation and transactions with related parties 278 Part I - Share-based payments 284 BANCA INTESA - PARENT COMPANY’S REPORT ON OPERATIONS AND FINANCIAL STATEMENTS 289 Banca Intesa - Financial highlights and alternative performance measures 291 Report on operations 293 The Parent Company Banca Intesa 295 Forecast for 2007 303 Proposals to the Shareholders’ Meeting 304 Independent Auditors’ Report on the Parent Company’s financial statements 307 Parent Company’s financial statements 311 Balance sheet 312 Statement of income 314 Changes in shareholders’ equity 315 Statement of cash flows 316 Notes to the Parent Company’s financial statements 317 Part A - Accounting policies 319 Part B - Information on the Parent Company’s balance sheet 339 Part C - Information on the Parent Company’s statement of income 385 Part D - Segment reporting 403 Part E - Information on risks and relative hedging policies 404 Part F - Information on capital 437 Part G - Business combinations 444 Part H - Information on compensation and transactions with related parties 446 Part I - Share-based payments 451 Attachments 453 Reconciliation between reclassified financial statements and official financial statements 455 Reconciliation between the 2005 statement of income and the figures restated according to IFRS 5 460 List of IAS/IFRS endorsed by the European Commission as at 31st December 2006 461 Table of Banca Intesa’s property and equipment and financial assets subject to revaluation 462 Statement of Banca Intesa’s internal pension funds 463 Table of significant equity investments in unlisted companies pursuant to art. 126 of Consob Regulation 11971 of 14th May 1999 465 Information regarding Banca Intesa’s reserves and allowances as at 31st December 2006 472 Glossary 473 Gruppo Intesa Network 481 Contacts 486 6 Board of Directors, General Management, Board of Statutory Auditors and Independent Auditors until 31st December 2006 Board of Directors Chairman * Giovanni BAZOLI Deputy Chairmen * Giampio BRACCHI René CARRON Managing Director and Chief Executive Officer * Corrado PASSERA Directors Giovanni ANCARANI Francesco ARCUCCI Benito BENEDINI Antoine BERNHEIM Jean Frédéric DE LEUSSE Gilles DE MARGERIE * Ariberto FASSATI * Giancarlo FORESTIERI Paolo FUMAGALLI Giangiacomo NARDOZZI Georges PAUGET Eugenio PAVARANI Giovanni PERISSINOTTO Ugo RUFFOLO Gino TROMBI * Members of the Executive Committee General Management General Manager Corrado PASSERA Board of Statutory Auditors Chairman Gianluca PONZELLINI Auditors Rosalba CASIRAGHI Paolo Andrea COLOMBO Franco DALLA SEGA Livio TORIO Independent Auditors RECONTA ERNST & YOUNG S.p.a. 7 Supervisory Board, Management Board, General Management, Manager in charge of preparing the Company’s financial reports and Independent Auditors from 1st January 2007 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 Alfonso IOZZO Giulio LUBATTI Eugenio PAVARANI Gianluca PONZELLINI Gianguido SACCHI MORSIANI Ferdinando TARGETTI Livio TORIO Management Board (appointed on 2nd January 2007) Chairman Enrico SALZA Deputy Chairman Orazio ROSSI Managing Director and Chief Executive Officer Corrado PASSERA Members Elio CATANIA Gianluigi GARRINO Giuseppe FONTANA Giovanni Battista LIMONTA Virgilio MARRONE Emilio OTTOLENGHI Giovanni PERISSINOTTO Marcello SALA General Management Deputy to the CEO Pietro MODIANO General Manager Francesco MICHELI Manager in charge of preparing the Company’s financial reports Bruno PICCA Independent Auditors RECONTA ERNST & YOUNG S.p.a. 9 Gruppo Intesa - Financial highlights and (°) alternative performance measures Caption2006 2005 Changes 2005 Changes restated (*) amount % amount % Statement of income (in millions of euro) Net interest income 5,778 5,310 468 8.8 5,285 493 9.3 Net fee and commission income 3,569 3,430 139 4.1 3,904 -335 -8.6 Profits (Losses) on trading 959 620 339 54.7 675 284 42.1 Operating income 10,536 9,605 931 9.7 10,029 507 5.1 Operating costs -5,430 -5,256 174 3.3 -5,516 -86 -1.6 Operating margin 5,106 4,349 757 17.4 4,513 593 13.1 Net adjustments to loans -863 -740 123 16.6 -715 148 20.7 Net