SANPAOLO IMI ANNUAL REPORT 2006 Intesa Sanpaolo S.p.A. Legal Offices: Piazza San Carlo, 156 10121 Torino (Italy) Tel. +39 011 5551 Secondary Offices: Via Monte di Pietà, 8 20121 Milano (Italy) Tel. +39 02 87911 Investor Relations Tel. +39 02 8794 3180 Fax +39 02 8794 3123 E-mail [email protected] Media Relations Tel. +39 02 8796 3531 Fax +39 02 8796 2098 E-mail [email protected] Internet: www.intesasanpaolo.com Intesa Sanpaolo S.p.A. (legal entity resulting from the merger) Legal Offices: Piazza San Carlo, 156 10121 Torino (Italy) Secondary Offices: Via Monte di Pietà, 8 20121 Milano (Italy) - Share Capital euro 6,646,436,318.60 - Registration number in the Turin Register of Companies and fiscal code 00799960158 - VAT number 10810700152 - Member of the National Interbank Deposit Guarantee Fund and the National Guarantee Fund - Registration number in the Register of Banks 5361 - Parent Bank of the “Intesa Sanpaolo” banking group and registered in the National Register of Banking Groups 2006 Annual Report PREPARED ACCORDING TO IAS/IFRS INTERNATIONAL ACCOUNTING STANDARDS SANPAOLO IMI S.p.A. COMPANY REGISTERED IN THE REGISTER OF BANKS PARENT BANK OF THE SANPAOLO IMI BANKING GROUP REGISTERED IN THE REGISTER OF BANKING GROUPS REGISTERED OFFICE: PIAZZA SAN CARLO 156, TURIN, ITALY SECONDARY OFFICES: - VIALE DELL’ARTE 25, ROME, ITALY - VIA FARINI 22, BOLOGNA, ITALY SHARE CAPITAL EURO 5,400,253,255.68 FULLY PAID FISCAL CODE, VAT NUMBER AND REGISTRATION NUMBER TURIN REGISTER OF COMPANIES: 06210280019 ABI CODE 1025-6 MEMBER OF THE INTERBANK DEPOSIT GUARANTEE FUND NOTES DUE TO THE MERGER OF SANPAOLO IMI S.P.A. INTO BANCA INTESA S.P.A. (WITH THE NEW NAME OF INTESA SANPAOLO S.P.A.), SANPAOLO IMI S.P.A. HAS TRANSFERRED TO THE INCORPORATING PARTY ASSETS, LIABILITIES AND ECONOMIC COMPONENTS RESULTING AT 31 DECEMBER 2006, WITH LEGAL AND ACCOUNTING EFFECT FROM 1 JANUARY 2007. THE PRESENT DOCUMENT INCLUDES THE PARENT BANK AND CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2006 OF SANPAOLO IMI S.P.A. AND THE SANPAOLO IMI GROUP, PRIOR TO THE MERGER. THESE DOCUMENTS ARE SUBJECT TO THE APPROVAL OF THE ADMINISTRATIVE BODIES OF THE INCORPORATING COMPANY, INTESA SANPAOLO S.P.A. THE 2006 ANNUAL REPORT HAS BEEN TRANSLATED FROM THAT ISSUED IN ITALY FROM ITALIAN INTO ENGLISH SOLELY FOR THE CONVENIENCE OF INTERNATIONAL READERS. THE ORIGINAL DOCUMENT IN ITALIAN PREVAILS OVER ANY TRANSLATION. Board of Directors, General Management, Board of Statutory Auditors and Independent Auditors up to 31 December 2006 Luigi Arcuti Honorary Chairman Board of Directors Enrico Salza (*) Chairman Maurizio Barracco Director Pio Bussolotto (*) Director Giuseppe Fontana Director Ettore Gotti Tedeschi (*) Director Alfonso Iozzo (*) Managing Director (**) Virgilio Marrone Director Iti Mihalich Director Anthony Orsatelli Director Emilio Ottolenghi (*) Director Orazio Rossi (*) Deputy Chairman Gian Guido Sacchi Morsiani (*) Director Alfredo Saenz Abad Director Mario Sarcinelli Director Leone Sibani Director Alberto Tazzetti Director Josè Manuel Varela (*) Director (*) Members of the Executive Committee (**) Managing Director until 12 December 2006 and Member of the Board of Directors until 31 December 2006 Board of Statutory Auditors Maurizio Dallocchio Chairman Aureliano Benedetti Auditor Gianluca Ferrero Auditor Augusto Franchini Auditor Paolo Mazzi Auditor Carlo Pavesio Supplementary Auditor Paolo Piccatti Supplementary Auditor General Manager Pietro Modiano Independent Auditors PricewaterhouseCoopers S.p.A. As at 31 December 2006, the company bodies ceased to exist as a result of the suppression of SANPAOLO IMI S.p.A. as a legal entity which, as of 1 January 2007, was merged by incorporation into Banca Intesa S.p.A. that assumed the new name of Intesa Sanpaolo S.p.A.. 4 Contents 6 KEY FIGURES 7 GROUP STRUCTURE 9 CONSOLIDATED FINANCIAL STATEMENTS AND REPORTS 11 Reclassified Consolidated Financial Statements 12 Reclassified Consolidated Statement of Income 14 Reclassified Consolidated Balance Sheet 17 Report on Group Operations 19 Economic background 22 Action points and initiatives in the year 28 Consolidated results 35 Embedded value of the life insurance business 37 Operating volumes and organization 53 Risk management and control 54 Shareholders and ratings 56 Supplementary information 56 • transactions with related parties 56 • corporate bond risk and protection of savers 56 • the administrative and financial governance model 57 • social and environmental responsibility 58 Group business structure 85 Developments after the end of the year 87 Consolidated Financial Statements 88 Consolidated balance sheet 90 Consolidated statement of income 91 Statement of recognized income and expense in the consolidated financial statements 92 Statement of changes in consolidated net shareholders’ equity 93 Statement of consolidated cash flows 95 Consolidated Explanatory Notes 99 Part A – Accounting policies 119 Part B – Information on the consolidated balance sheet 186 Part C – Information on the consolidated statement on income 212 Part D – Segment reporting 215 Part E – Information on risks and risk hedging policies 262 Part F – Information on consolidated shareholders’ equity 268 Part G – Business combinations concerning companies or business branches 271 Part H – Transactions with related parties 277 Part I – Payment agreements based on own financial instruments 281 Declaration by the Chief Administrative Officer 283 Independent auditors’ report 285 Attachments 287 Reconciliation statements of the reclassified consolidated financial statements and the consolidated financial statements 290 Restatement of the consolidated statement of income for 2005 on the basis of application of IFRS 5 291 Reconciliation statement of net shareholders’ equity and net profit for the year of the Parent company and of consolidated net shareholders’ equity and net profit for the year 292 List of equity investments greater than 10% in unlisted companies and in limited liability companies 5 295 PARENT BANK FINANCIAL STATEMENTS AND REPORTS 297 Parent Bank reclassified financial statements 299 Parent Bank reclassified statement of income 301 Parent Bank reclassified balance sheet 303 Report on Parent Bank Operations 305 Consolidated results 309 Operating volumes and organization 317 Supplementary information 318 Developments after the end of the year 319 Parent Bank Financial Statements 320 Parent Bank Balance Sheet 322 Parent Bank Statement of Income 323 Statement of recognized income and expense in the Parent Bank Financial Statements 324 Statement of changes in the Parent Bank net shareholders’ equity 325 Cash flow statement of the Parent Bank 327 Parent Bank Explanatory Notes 329 Part A – Accounting policies 342 Part B – Information on the Parent Bank Balance Sheet 394 Part C – Information on the Parent Bank Statement of Income 409 Part D – Segment reporting 410 Part E – Information on risks and risk hedging policies 446 Part F – Information on shareholders’ equity 450 Part G – Business combinations concerning companies or business branches 454 Part H – Transactions with related parties 463 Part I – Payment agreements based on own financial instruments 467 Declaration by the Chief Administrative Officer 469 Independent auditors’ report 471 Information for investors 6 Key figures (1) 31/12/2006 31/12/2006 31/12/2005 Change Change restated 31/12/2006 - 31/12/2006 31/12/2005 (%) restated - 31/12/2005 (%) CONSOLIDATED BALANCE SHEET (€/mil) Total assets 288,551 280,683 263,258 +9.6 +6.6 Loans to customers (excluding NPLs) 156,699 152,746 138,427 +13.2 +10.3 Equity shareholdings 893 819 +9.0 Group net shareholders’ equity 14,338 13,483 +6.3 CUSTOMER FINANCIAL ASSETS (€/mil) Total financial assets (2) 446,394 438,670 401,838 +11.1 +9.2 - direct deposits 187,564 181,432 165,230 +13.5 +9.8 - indirect deposits 284,812 283,220 262,232 +8.6 +8.0 - asset management 162,293 161,704 157,990 +2.7 +2.4 - asset administration 122,519 121,516 104,242 +17.5 +16.6 LOAN RISK RATIOS (%) Doubtful loans / Loans to customers 2.0 2.0 2.4 Non-performing financing / Loans to customers 0.7 0.7 0.8 Problem and restructured financing / Loans to customers 0.8 0.8 0.8 Financing due/overdue by more than 180 days / Loans to customers 0.5 0.5 0.8 EQUITY SOLVENCY RATIOS (%) (3) Core tier 1 ratio 6.4 6.8 Tier 1 ratio 7.0 7.4 Total risk ratio 9.2 9.4 SHARES Number of shares (thousands) 1,875,088 1,871,151 +0.2 Listing for the period (€) - average 15.127 11.836 +27.8 - low 12.986 10.201 +27.3 - high 17.928 13.420 +33.6 Market capitalization (€/mil) 33,002 24,719 +33.5 Dividend per share (€) (4) 0.57 Dividend per share / Average annual listing (%) (4) 4.82 Book value per share (€) (5) 7.66 7.22 +6.1 OPERATING STRUCTURE Employees (6) 50,071 42,905 42,326 +18.3 +1.4 - Italy 40,839 40,037 39,641 +3.0 +1.0 - Foreign 9,232 2,868 2,685 n.s. +6.8 Domestic branches 3,286 3,201 3,172 +3.6 +0.9 Foreign branches and representative offices 415 156 136 n.s. +14.7 Financial planners 4,217 4,217 4,151 +1.6 +1.6 2006 2005 Change 2006 / 2005 (%) CONSOLIDATED STATEMENT OF INCOME (€/mil) Net interest income 4,138 3,798 +9.0 Net commissions 3,389 3,284 +3.2 Total operating income 9,098 8,201 +10.9 Net adjustments to loans -501 -492 +1.8 Net adjustments to other financial assets -12 -1 n.s. Net operating income 8,585 7,708 +11.4 Operating costs -4,898 -4,656 +5.2 Pre-tax operating profit 3,590 2,954 +21.5 Net profit 2,148 1,983 +8.3 Net profit per share (€) (7) 1.15 1.06 +8.5 Diluted net profit per share (€) (7) 1.15 1.06 +8.5 MAIN RATIOS (%) RoE (8) 17.6 17.2 Cost / Income ratio (9) 53.8 56.8 (1) During 2006, the major changes to the Group’s scope of consolidation are attributable to the inclusion, at the end of the year, of Cassa dei Risparmi di Forlì, Panonska Banka and Bank of Alexandria, as well as, from the second quarter, Banca Italo Albanese.